Item 2
. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "could", "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.
Our unaudited consolidated financial statements are stated in U.S. dollars and are prepared in accordance with generally accepted accounting principles in the United States. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.
As used in this current report and unless otherwise indicated, the terms "we", "us", "our" and "our company" mean Pacific Green Technologies Inc., a Delaware corporation, and our wholly owned subsidiaries, Pacific Green Technologies Limited, a United Kingdom corporation, Pacific Green Energy Parks Limited, a British Virgin Islands corporation, and its wholly owned subsidiary, Energy Park Sutton Bridge, a United Kingdom corporation, unless otherwise indicated.
Corporate History
Our company was incorporated in Delaware on March 10, 1994, under the name of Beta Acquisition Corp. In September 1995, we changed our name to In-Sports International, Inc. In August 2002, we changed our name from In-Sports International, Inc. to ECash, Inc. In 2007, due to limited financial resources, we discontinued our operations. Over the course of the last five years, we have sought new business opportunities.
On June 13, 2012, we changed our name to Pacific Green Technologies Inc. and effected a reverse split of our common stock following which we had 27,002 shares of common stock outstanding with $0.001 par value.
Effective December 4, 2012, we filed with the Delaware Secretary of State a Certificate of Amendment of Certificate of Incorporation, wherein we increased our authorized share capital to 510,000,000 shares of stock as follows:
|
·
|
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.
|
The increase of authorized capital was approved by our board of directors on July 1, 2012 and by a majority of our stockholders by a resolution dated July 1, 2012.
Historical business overview
On May 1, 2010 we entered into a consulting agreement with Sichel Limited. Sichel has investigated new opportunities for us and has subscribed for shares of our company’s common stock. The consulting agreement entitles Sichel to $20,000 per calendar month. With an effective date of March 31, 2013, the consulting agreement, along with all amounts owed to Sichel, were assigned to Pacific Green Group Limited (“PGG”). Pursuant to the terms of the consulting agreement, if we are unable to pay the monthly consulting fee, PGG may elect to be paid in shares of stock, and if we are unable to make payments for more than six months in any 12 month period, PGG has the right to appoint an officer or director to the board, which right has not been exercised at this time.
New strategy
Management, assisted by PGG, has identified an opportunity to build a business focused on marketing, developing and acquiring technologies designed to improve the environment by reducing pollution. To this end we have entered into and closed an assignment and share transfer agreement, on June 14, 2012, for the assignment of a representation agreement and the acquisition of a company involved in the environmental technology industry.
The assignment and share transfer agreement provided for the acquisition of 100% of the issued and outstanding shares of Pacific Green Technologies Limited, formerly PGG’s subsidiary in the United Kingdom. Additionally, PGG has assigned to our company a ten year exclusive worldwide representation agreement with EnviroTechnologies Inc., (formerly EnviroResolutions, Inc.), a Delaware corporation, to market and sell EnviroTechnologies’ current and future environmental technologies. The representation agreement entitles PGG to a commission of 20% of all sales (net of taxes) generated by EnviroTechnologies. Pursuant to the terms of the assignment and share transfer agreement, all rights and obligations under the representation agreement have been transferred to our company. We currently anticipate that sales under the representation agreement will be our sole source of revenue for the foreseeable future. We had intended to complete an acquisition of EnviroTechnologies, as this would have been a logical step in our development. However, as discussed herein, we have settled with EnviroTechnologies as an alternative.
Both Sichel and PGG are wholly owned subsidiaries of the Hookipia Trust. PGG’s wholly owned subsidiary was Pacific Green Technologies Limited. As a result, we acquired Pacific Green Technologies Limited from PGG. Sichel is a significant shareholder of our company and also provides us with consulting services pursuant to the consulting agreement as noted above. The sole director of Sichel is also the sole director of PGG. Further, PGG is a significant shareholder of EnviroTechnologies.
The assignment and share transfer agreement closed on June 14, 2012 via the issuance of 5,000,000 shares of our common stock as well as a $5,000,000 promissory note to PGG. We have consequently undertaken the operations of Pacific Green Technologies Limited and PGG’s obligations under the representation agreement.
Full consideration contemplated by the assignment and share transfer agreement was $25,000,000 satisfied through the issue of 5,000,000 new shares of our common stock at a price of $4 per share with the balance of $5,000,000 structured as a promissory note over the next five years as follows:
|
·
|
June 12, 2013, $1,000,000 (which amount remains outstanding and has been rolled over to the following payment date);
|
|
·
|
June 12, 2014, $1,000,000;
|
|
·
|
June 12, 2015, $1,000,000
|
|
·
|
June 12, 2016, $1,000,000;
|
|
·
|
June 12, 2017, $1,000,000.
|
Under the terms of the promissory note, the loan repayments specified above shall not exceed the amount we earn under the terms of the representation agreement. If we are unable to meet the repayment schedule set out above, PGG will have the option to either roll over any unpaid portion to the following payment date or to convert the outstanding amount into new shares of our common stock. However, the entire amount of the promissory note is due upon the maturity date on the fifth anniversary. The promissory note is unsecured.
The total consideration of $25,000,000 was a purchase price not determined under U.S. GAAP, and both the $25,000,000 total price and the deemed price of $4 per share does not represent the fair value of the stock issued or a value used in accounting for the acquisition. The number of shares issued and the terms of the promissory note were negotiated between the parties and are intended to represent full consideration for the acquisition of Pacific Green Technologies Limited and the representation agreement.
Effective December 18, 2012, we entered into a non-executive director agreement with Dr. Neil Carmichael, wherein Dr. Carmichael will receive compensation of $1,000 per year for the term of the agreement and was granted options to purchase up to 62,500 shares of common stock at an exercise price of $0.01 per share of common stock. The options will terminate the earlier of 24 months, or upon the termination of the agreement and Dr. Carmichael's engagement with our company. As of the date of this quarterly report, the options to Dr. Carmichael have not been exercised.
On April 3, 2013, we entered into and closed a share exchange agreement with certain shareholders of EnviroTechnologies. Pursuant to the terms of the share exchange agreement, we agreed to acquire 17,653,872 issued and outstanding common shares of EnviroTechnologies from the shareholders in exchange for the issuance of 1,765,395 shares of the common stock of our company. We issued an aggregate of 1,765,395 common shares to 47 shareholders.
On April 25, 2013, we entered into and closed share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms of the share exchange agreement, we agreed to acquire 6,682,357 issued and outstanding common shares of EnviroTechnologies from the shareholders in exchange for the issuance of 668,238 shares of common stock of our company. We issued an aggregate of 668,238 common shares to 20 shareholders.
On May 15, 2013, we entered into and closed a stock purchase agreement with all five of the shareholders of Pacific Green Energy Parks Limited (“PGEP”), a company incorporated in the British Virgin Islands. PGEP is the sole shareholder of Energy Park Sutton Bridge Limited, a company incorporated in the United Kingdom. PGEP is developing a biomass power plant facility and holds an option to purchase the real property upon which the facility will be built.
Pursuant to the stock purchase agreement, we agreed to acquire all of the 1,752 issued and outstanding common shares of PGEP from the shareholders in exchange for:
|
·
|
a payment of $100 upon execution of the stock purchase agreement, which has been paid by us;
|
|
·
|
$14,000,000 paid in common shares in our capital stock at a deemed price at the lower of $4 per share or the average closing price per share of our capital stock in the ten trading days immediately preceding the date of closing of the stock purchase agreement, which have been issued by us;
|
|
·
|
$3,000,000 payable in common shares of our capital stock at a deemed price at the lower of $4 per share or the average closing price per share of our capital stock in the ten trading days immediately preceding the date upon which PGEP either purchases the property or secures a lease permitting PGEP to operate the facility on the property, which has not yet occurred; and
|
|
·
|
subject to leasing or purchasing the property and PGEP securing sufficient financing for the construction of the facility, $33,000,000 payable in common shares of our capital stock at a deemed price at the lower of $4 per share or the average closing price per share of our capital stock in the ten trading days immediately preceding the date that PGEP secures sufficient financing for the construction of the facility, which has not yet occurred.
|
All consideration from our company to the shareholders has been and will be issued on a pro-rata, pari-passu basis in proportion to the respective number of shares of PGEP sold by each respective shareholder. On May 15, 2013, pursuant to the stock purchase agreement, we issued an aggregate of 3,500,000 common shares, at an agreed upon deemed price of $4 per share, to the five shareholders.
Pacific Green Energy Parks Limited and its wholly owned subsidiary, Energy Park Sutton Bridge, are now subsidiaries of our company.
On May 17, 2013, we entered into a debt settlement agreement with EnviroTechnologies and EnviroResolutions (collectively, the “Debtors”). Pursuant to the terms of the debt settlement agreement, we agreed to release and waive all obligations of the Debtors to repay debts, in the aggregate of $293,406 and CAD$38,079, to us and agreed to return an aggregate of 88,876,443 (as of December 31, 2013, 22,975,439 common shares of EnviroTechnologies remain to be returned) common shares of EnviroTechnologies to EnviroResolutions. As consideration for this release and waiver and return of shares, the Debtors agreed to transfer all rights, interests and title to certain intellectual property, the physical embodiments of such intellectual property, and to the supplemental agreement dated March 5, 2013 among EnviroResolutions, Peterborough Renewable Energy Limited (“PREL”) and Green Energy Parks Limited (“GEPL”) (collectively, the “Debtors’ Assets”).
The Debtors’ Assets include the intellectual property rights throughout most of the world for the
ENVI-Clean™ system, the ENVI-Pure™ system and the ENVI-SEA™ scrubber.
The ENVI-Clean™ system removes most of the sulphur dioxide, particulate matter, greenhouse gases and other hazardous air pollutants from the flue gases produced by the combustion of coal, biomass, municipal solid waste, diesel and other fuels. The ENVI-Pure™ emission system combines the ENVI-Clean™ highly effective patent-pending wet scrubbing technology with an innovative wet electrostatic precipitator and a granular activated carbon adsorber to remove particulate matter, acid gases, regulated metals, dioxins and VOCs from the flue gas to levels significantly below those required by strictest international regulations. The ENVI-SEA™ scrubber can be applied to diesel exhaust emissions that require sulphur and particulate matter abatement. Using seawater on a single-pass basis as the scrubbing fluid in combination with its patent pending scrubbing head will provide a highly interactive zone of turbulent mixing for absorption of SO
2
, particulate matter and other pollutants from the engine’s exhaust.
On June 11, 2013, we submitted 24,336,229 common shares of EnviroTechnologies to EnviroTechnologies for cancellation pursuant to our debt settlement agreement with EnviroTechnologies and EnviroResolutions dated May 17, 2013.
On June 17, 2013, we entered into and closed share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms of the share exchange agreements we agreed to acquire 8,061,286 issued and outstanding common shares of EnviroTechnologies from the shareholders in exchange for the issuance of 806,132 shares of common stock of our company. We issued as aggregate of 806,132 shares of common stock to 19 shareholders.
On August 6, 2013, we entered into two share exchange agreements with two shareholders of EnviroTechnologies. Pursuant to the terms of the agreements, we agreed to acquire 440,000 issued and outstanding common shares of EnviroTechnologies from one shareholder in exchange for shares of common stock of our company on a 1 for 10 basis. Pursuant to the terms of the other agreement, we agreed to acquire 600,000 issued and outstanding common shares of EnviroTechnologies from one shareholder in exchange for shares of common stock of our company on a 1 for 15 basis.
On August 27, 2013, we entered into share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms of the agreements, we have agreed to acquire 32,463,489 issued and outstanding common shares of EnviroTechnologies from the shareholders in exchange for shares of common stock of our company on a 1 for 10 basis.
On September 13, 2013, we submitted 41,564,775 common shares of EnviroTechnologies to EnviroTechnologies for cancellation pursuant to our debt settlement agreement with EnviroTechnologies and EnviroResolutions dated May 17, 2013.
On September 26, 2013, we entered into an agreement with Dr. Andrew Jolly, wherein Dr. Jolly has agreed to serve as a director of our company. Pursuant to the agreement, our company is to compensate Dr. Jolly for serving as a director of our company at GBP£2,000 (approximately US$3,235) per calendar month. Effective October 1, 2013, we appointed Dr. Jolly as a director of our company.
On October 11, 2013, we entered into share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms of the agreements, we have agreed to acquire 674,107 issued and outstanding common shares of EnviroTechnologies from the shareholders in exchange for shares of common stock of our company on a 1 for 10 basis.
On October 22, 2013, we entered into an agreement with Mr. Chris Williams, wherein Mr. Williams has agreed to serve as business development director of our company effective December 5, 2013. As business development director of our company, Mr. Williams will focus on developing potential new business opportunities and generating sales from our existing assets.
Pursuant to the agreement, our company is to compensate Mr. Williams for serving as a business development director of our company with
|
·
|
GBP£450 (approximately US$730) per day and a guarantee of a minimum of four days a month for six months;
|
|
·
|
GBP£50,000 (approximately US$81,000) when we are in a position to drawdown funds in order to commence the development and construction (the “Financial Close”) of our 49MW biomass power plant at Sutton Bridge, Lincolnshire (the “Project”);
|
|
·
|
options on the Financial Close of the completion of the Project to purchase 10,000 common shares in our company at $2 per share; and
|
|
·
|
on the Financial Close of the Project, 20,000 common shares of our company from PGG.
|
In addition to the above compensation, we have agreed to compensate Mr. Williams with commissions of:
|
·
|
10%, 8% and 6% for the first, second and third years, respectively, for Envi emissions control equipment sales on any license fees generated;
|
|
·
|
3% of net sales for Envi emissions control equipment sales that are direct sales (with no third party commissions);
|
|
·
|
1% of net sales of any for Envi emissions control equipment sales from third party agents;
|
|
·
|
5% of any financial equity raised for our company prior to the close of the Project;
|
|
·
|
0.25% of any debt introduced for the Project;
|
|
·
|
0.5% of any financial equity introduced for the Project;
|
|
·
|
10%, 6%, 4% and 2% for years 1, 2, 3 and thereafter, respectively, of any heat off-take sales related to the Project entered into before December 31, 2013
|
|
·
|
5%, 3% and 2% for years 1, 2 and thereafter, respectively, of any heat off-take sales related to the Project entered into on or after December 31, 2013; and
|
|
·
|
0.25% and 0.2% for years 1 and 2, respectively, of power purchase agreements.
|
Effective October 31, 2013, we entered into a private placement agreement. Pursuant to the agreement, we issued 18,750 common shares in our capital stock at a purchase price of $4.00 per share, for total proceeds of $75,000.
Pursuant to a debt settlement agreement dated May 17, 2013 among our company, EnviroTechnologies and EnviroResolutions, on November 22, 2013, our company was transferred a 40% shareholding in Peterborough Renewable Energy Limited (“PREL”)by Green Energy Parks Ltd.(“GEPL”) (who had prior to this transfer held all the issued and outstanding shares of PREL). PREL is a limited liability company incorporated under the laws of the United Kingdom.
PREL was incorporated by GEPL to develop a 79MWe waste to energy power station at Peterborough, United Kingdom (the “Peterborough Plant”). The Peterborough Plant has full planning permission at 79MWe and environmental agency permits. It is understood that the Peterborough Plant will be built in two stages at a total capital cost of approximately GBP£500 million (approximately US$824,534,442). As of this date, PREL owns 20% of Energy Park Investments Limited, the holding company that is currently intended to finance the development of the Peterborough Plant in turn through its wholly owned operating subsidiary Energy Park Peterborough Limited.
Effective December 19, 2013, we entered into private placement agreements with nine subscribers. Pursuant to the agreements, we issued an aggregate of 262,500 common shares in our capital stock at a purchase price of $3.20 per share, for total proceeds of $840,000.
On December 27, 2013, we entered into and closed share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms of the share exchange agreements, we acquired 130,000 issued and outstanding common shares of EnviroTechnologies from the shareholders in exchange for shares of common stock of our company on a 1 for 10 basis. On December 27, 2013, we issued an aggregate of 13,000 common shares to the shareholders of EnviroTechnologies.
On January 27, 2014, we entered into an agreement with Pöyry Management Consulting (UK) Limited. Pursuant to the agreement, Pöyry is to provide consulting services to us. Our company has agreed compensate Pöyry a minimum of £5,000 (approximately US$ 8,293) as consulting fees for the first year of the agreement and a variable hourly rate as set out in the agreement.
Results of Operations
The following summary of our results of operations should be read in conjunction with our unaudited interim consolidated financial statements for the three and nine months ended December 31, 2013 and 2012.
Our net loss and comprehensive loss for the three and nine month periods ended December 31, 2013 and 2012 and from April 5, 2011 (inception) to December 31, 2013 are summarized as follows:
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
Period from
April 5, 2011
(Inception) to
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Amortization of intangible assets
|
|
$
|
399,401
|
|
|
$
|
Nil
|
|
|
$
|
761,248
|
|
|
$
|
Nil
|
|
|
$
|
761,248
|
|
Consulting fees
|
|
$
|
281,063
|
|
|
$
|
252,249
|
|
|
$
|
831,926
|
|
|
$
|
574,133
|
|
|
$
|
2,432,148
|
|
Foreign exchange (gain) loss
|
|
$
|
(131,811
|
)
|
|
$
|
6,411
|
|
|
$
|
(150,741
|
)
|
|
$
|
6,717
|
|
|
$
|
(146,729
|
)
|
Interest expense
|
|
$
|
220,646
|
|
|
$
|
92,726
|
|
|
$
|
616,992
|
|
|
$
|
188,303
|
|
|
$
|
1,141,642
|
|
Office and miscellaneous
|
|
$
|
44,030
|
|
|
$
|
7,080
|
|
|
$
|
57,971
|
|
|
$
|
18,941
|
|
|
$
|
221,911
|
|
Professional fees
|
|
$
|
85,899
|
|
|
$
|
48,731
|
|
|
$
|
274,114
|
|
|
$
|
107,032
|
|
|
$
|
486,774
|
|
Research and development
|
|
$
|
17,723
|
|
|
$
|
3,332
|
|
|
$
|
32,741
|
|
|
$
|
10,751
|
|
|
$
|
92,878
|
|
Transfer agent and filing fees
|
|
$
|
9,011
|
|
|
$
|
1,455
|
|
|
$
|
30,771
|
|
|
$
|
8,631
|
|
|
$
|
40,650
|
|
Travel
|
|
$
|
19,007
|
|
|
$
|
19,354
|
|
|
$
|
48,039
|
|
|
$
|
20,928
|
|
|
$
|
81,594
|
|
Net Loss
|
|
$
|
(944,969
|
)
|
|
$
|
(431,338
|
)
|
|
$
|
(2,503,061
|
)
|
|
$
|
(935,436
|
)
|
|
$
|
(5,112,116
|
)
|
Expenses for the three month period ended December 31, 2013 were $944,969 as compared to $431,338 for the three month period ended December 31, 2012. Expenses for the nine month period ended December 31, 2013 were $2,503,061 as compared to $935,436 for the nine month period ended December 31, 2012. Expenses for the period from April 5, 2011 (inception) to December 31, 2013 were $5,112,116. With the increased activity in the development of the business, we incurred significant increases in consulting fees and professional fees over the comparative period. Additionally, we reported significantly higher levels of interest expense which related to non-cash accretion of a note payable and imputed interest on a loan with a related party.
During the nine months ended December 31, 2013, we began to amortize our intangible assets, comprising patent applications and intellectual property, over their estimated useful lives. During the three and nine month periods ended December 31, 2013, we did not generate any revenue.
Liquidity and Capital Resources
Working Capital
|
|
As at
December 31,
2013
|
|
|
As at
March 31,
2013
|
|
Current Assets
|
|
$
|
411,928
|
|
|
$
|
300,578
|
|
Current Liabilities
|
|
$
|
8,569,209
|
|
|
$
|
2,494,225
|
|
Working Capital (Deficit)
|
|
$
|
(8,157,281
|
)
|
|
$
|
(2,193,647
|
)
|
Cash Flows
|
|
Nine Months Ended
December 31,
2013
|
|
|
Nine Months Ended
December 31,
2012
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(722,513
|
)
|
|
$
|
(611,935
|
)
|
Net cash provided by (used in) investing activities
|
|
$
|
(5,048
|
)
|
|
$
|
1,430
|
|
Net cash provided by financing activities
|
|
$
|
1,054,876
|
|
|
$
|
662,808
|
|
Effect of foreign exchange
|
|
$
|
(49,453
|
)
|
|
$
|
(6,511
|
)
|
Change in cash
|
|
$
|
277,862
|
|
|
$
|
45,792
|
|
As of December 31, 2013, we had $371,090 in cash, $411,928 in total current assets, $8,569,209 in total current liabilities and a working capital deficit of $8,157,281. As of March 31, 2013, we had a working capital deficit of $2,193,647.
We are dependent on funds raised through equity financing and proceeds from shareholder loans. Our net loss of $5,112,116 from our inception on April 5, 2011 to December 31, 2013 was funded primarily by related party financing and loans, as well as from proceeds of stock issuances.
From our inception on April 5, 2011 to December 31, 2013 we spent $1,769,246 on operating activities. During the nine months ended December 31, 2013 we spent $722,513 on operating activities, whereas $611,935 was spent on operating activities for the nine month period ended December 31, 2012.
From our inception on April 5, 2011 to December 31, 2013 we spent $3,618 on investing activities, which related to the acquisition of intangible assets offset by cash acquired on acquisition of our subsidiary.
From our inception on April 5, 2011 to December 31, 2013 we received $2,193,426 from financing activities, which consisted of $453,424 in proceeds from related parties, $1,640,002 raised from the proceeds of the sale of our common stock, and $100,000 in proceeds from notes payable and. During the nine months ended December 31, 2013 we received $1,054,876 from financing activities, which consisted of proceeds from related parties, subscriptions received and proceeds from the sale of our common shares, whereas we received $662,808 from financing activities during the nine month period ended December 31, 2012.
We will require additional funds to fund our budgeted expenses over the next 12 months. These funds may be raised through, equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares.
We anticipate that our cash expenses over the next 12 months (beginning January 2014) will be approximately $1,640,000 as described in the table below. These estimates may change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders or other sources.
Description
|
|
Estimated
Expenses
($)
|
|
Legal and accounting fees
|
|
|
120,000
|
|
Technology and IP acquisition, testing and servicing costs
|
|
|
600,000
|
|
Marketing and advertising
|
|
|
75,000
|
|
Investor relations and capital raising
|
|
|
80,000
|
|
Management and operating costs
|
|
|
200,000
|
|
Salaries and consulting fees
|
|
|
500,000
|
|
General and administrative expenses
|
|
|
65,000
|
|
Total
|
|
$
|
1,640,000
|
|
Our general and administrative expenses for the year will consist primarily of transfer agent fees, bank and interest charges and general office expenses. The professional fees are related to our regulatory filings throughout the year and include legal, accounting and auditing fees.
Based on our planned expenditures, we will require approximately $1,640,000 to proceed with our business plan over the next 12 months. As of December 31, 2013, we had $371,090 cash on hand. If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources.
We intend to raise the balance of our cash requirements for the next 12 months from private placements, shareholder loans or possibly a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough money through such efforts, we may review other financing possibilities such as bank loans. At this time we do not have a commitment from any broker-dealer to provide us with financing. There is no assurance that any financing will be available to us or if available, on terms that will be acceptable to us.
Even though we plan to raise capital through equity or debt financing, we believe that the latter may not be a viable alternative for funding our operations as we do not have sufficient tangible assets to secure any such financing. We anticipate that any additional funding will be in the form of equity financing from the sale of our common stock. However, we do not have any financing arranged and we cannot provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to finance our operations. In the absence of such financing, we may be forced to abandon our business plan.
Going Concern
Our financial statements for the three and nine month periods ended December 31, 2013 have been prepared on a going concern basis and contain an additional explanatory paragraph which identifies issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have generated no revenues, have achieved losses since our inception, and rely upon the sale of our common stock and proceeds from shareholder loans to fund our operations. If we are unable to raise equity or secure alternative financing, we may not be able to continue our operations and our business plan may fail.
If our operations and cash flow improve, management believes that we can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or an improvement in our liquidity situation. The threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.
Use of Estimates
The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. Our company regularly evaluates estimates and assumptions related to the useful life and recoverability of intangible assets, valuation of long-term debt, stock-based compensation and deferred income tax asset valuation allowances. Our company bases our estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Intangible Assets
Intangible assets are stated at cost less accumulated amortization and are comprised of patent applications acquired and options to acquire land. The patent applications are amortized straight-line over 17 years or over the estimated useful life.
Impairment of Long-lived Assets
Our company reviews long-lived assets such as property and equipment and intangible assets with finite useful lives for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the excess of the carrying amount over the fair value of the asset.
Stock-based Compensation
Our company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Our company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by our company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to our company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
Recent Accounting Pronouncements
Our company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.