Nature
of Operations (Note 1)
Commitment
(Note 18)
Subsequent
events (Note 20)
(The accompanying notes are an integral
part of these consolidated financial statements)
PACIFIC
GREEN TECHNOLOGIES INC.
Consolidated
Statements of Operations and Comprehensive Loss
(Expressed
in U.S. dollars)
|
|
Year Ended
March 31,
2020
$
|
|
|
Year Ended
March 31,
2019
$
|
|
|
|
|
|
|
|
|
Sales (Note 8)
|
|
|
130,138,574
|
|
|
|
2,074,950
|
|
Cost of goods sold (Note 8)
|
|
|
(78,566,155
|
)
|
|
|
(1,935,150
|
)
|
Gross margin
|
|
|
51,572,419
|
|
|
|
139,800
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and promotion
|
|
|
1,257,901
|
|
|
|
590,876
|
|
Amortization of intangible assets (Note 6)
|
|
|
1,070,698
|
|
|
|
875,813
|
|
Bad debts expense
|
|
|
450,262
|
|
|
|
–
|
|
Consulting fees, technical support, and commissions
|
|
|
22,905,321
|
|
|
|
5,426,136
|
|
Depreciation (Note 5)
|
|
|
87,614
|
|
|
|
9,425
|
|
Foreign exchange loss (gain)
|
|
|
(780,567
|
)
|
|
|
24,945
|
|
Operating lease expense (Note 18)
|
|
|
428,733
|
|
|
|
–
|
|
Office and miscellaneous
|
|
|
2,721,884
|
|
|
|
268,716
|
|
Professional fees
|
|
|
1,428,774
|
|
|
|
844,710
|
|
Research and development
|
|
|
98,041
|
|
|
|
–
|
|
Salaries and wage expense (Note 16)
|
|
|
6,527,743
|
|
|
|
7,011,859
|
|
Transfer agent and filing fees
|
|
|
214,203
|
|
|
|
39,097
|
|
Travel and accommodation
|
|
|
3,488,165
|
|
|
|
1,031,922
|
|
Warranty costs (Note 11)
|
|
|
1,630,541
|
|
|
|
922,192
|
|
Total operating expenses
|
|
|
41,529,313
|
|
|
|
17,045,691
|
|
Income (loss) before other income (expense)
|
|
|
10,043,106
|
|
|
|
(16,905,891
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest Income (expense)
|
|
|
(13,924
|
)
|
|
|
(670
|
)
|
Financing interest income (charge)
|
|
|
95,136
|
|
|
|
(106,203
|
)
|
Gain (loss) on change in fair value of derivative liability (Note 9)
|
|
|
257,102
|
|
|
|
(356,081
|
)
|
Other income (expense)
|
|
|
–
|
|
|
|
(220,001
|
)
|
Provision for doubtful loan
|
|
|
–
|
|
|
|
(349,858
|
)
|
Total other income (expense)
|
|
|
338,314
|
|
|
|
(1,032,813
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the year
|
|
|
10,381,420
|
|
|
|
(17,938,704
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain
|
|
|
(63,228
|
)
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) for the year
|
|
|
10,318,192
|
|
|
|
(17,936,718
|
)
|
Net income (loss) per share, basic
|
|
|
0.23
|
|
|
|
(0.41
|
)
|
Net income (loss) per share, diluted
|
|
|
0.22
|
|
|
|
(0.41
|
)
|
Weighted average number of shares outstanding1
|
|
|
46,022,709
|
|
|
|
43,502,044
|
|
(1)
|
the periods ended March 31, 2020, include 487,500 stock options
are they are exercisable at any time and for nominal cash consideration.
|
(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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Stock
|
|
|
|
Paid-in
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Stockholder’s
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Issuable
|
|
|
|
Capital
|
|
|
|
Income
|
|
|
|
Deficit
|
|
|
|
Equity
|
|
|
|
|
#
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2018
|
|
|
40,757,415
|
|
|
|
40,757
|
|
|
|
206,675
|
|
|
|
78,989,346
|
|
|
|
268,259
|
|
|
|
(67,764,051
|
)
|
|
|
11,740,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued pursuant to private placements
|
|
|
3,506,675
|
|
|
|
3,507
|
|
|
|
(206,675
|
)
|
|
|
5,153,168
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,950,000
|
|
Shares issued for services
|
|
|
579,349
|
|
|
|
579
|
|
|
|
–
|
|
|
|
1,047,118
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,047,697
|
|
Shares issued pursuant to warrants exercised
|
|
|
500,000
|
|
|
|
500
|
|
|
|
–
|
|
|
|
499,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
500,000
|
|
Shares issued pursuant to options exercised
|
|
|
150,000
|
|
|
|
150
|
|
|
|
–
|
|
|
|
1,350
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,500
|
|
Fair value of options granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,993,692
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,993,692
|
|
Foreign exchange translation gain
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,986
|
|
|
|
–
|
|
|
|
1,986
|
|
Net loss for the year
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(17,938,704
|
)
|
|
|
(17,938,704
|
)
|
Balance March 31, 2019
|
|
|
45,493,439
|
|
|
|
45,493
|
|
|
|
–
|
|
|
|
90,684,174
|
|
|
|
270,245
|
|
|
|
(85,702,755
|
)
|
|
|
5,297,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of options granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
91,711
|
|
|
|
–
|
|
|
|
–
|
|
|
|
91,711
|
|
Shares issued for cancellation (Note 13)
|
|
|
25,000
|
|
|
|
25
|
|
|
|
–
|
|
|
|
73,475
|
|
|
|
–
|
|
|
|
–
|
|
|
|
73,500
|
|
Shareholder settlement (Note 12)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
135,454
|
|
|
|
–
|
|
|
|
–
|
|
|
|
135,454
|
|
Shares issued for Engin acquisition (Note 13)
|
|
|
125,000
|
|
|
|
125
|
|
|
|
–
|
|
|
|
368,625
|
|
|
|
–
|
|
|
|
–
|
|
|
|
368,750
|
|
Shares issued to employees (Note 13)
|
|
|
16,532
|
|
|
|
17
|
|
|
|
–
|
|
|
|
49,579
|
|
|
|
–
|
|
|
|
–
|
|
|
|
49,596
|
|
Settlement of warrants (Note 14)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(750,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(750,000
|
)
|
Foreign exchange translation (loss)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(63,228
|
)
|
|
|
–
|
|
|
|
(63,228
|
)
|
Net income for the year
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
10,381,420
|
|
|
|
10,381,420
|
|
Balance March 31, 2020
|
|
|
45,659,971
|
|
|
|
45,660
|
|
|
|
–
|
|
|
|
90,653,018
|
|
|
|
207,017
|
|
|
|
(75,321,335
|
)
|
|
|
15,584,360
|
|
(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)
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the year
|
|
|
10,381,420
|
|
|
|
(17,938,704
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets (Note 6)
|
|
|
1,070,698
|
|
|
|
875,813
|
|
Lease expense – amortization of right of use assets and interest accretion
|
|
|
428,733
|
|
|
|
–
|
|
Depreciation (Note 5)
|
|
|
87,614
|
|
|
|
9,425
|
|
Other non-cash other expense
|
|
|
–
|
|
|
|
220,001
|
|
Lease finance charge
|
|
|
56,358
|
|
|
|
106,203
|
|
Provision for doubtful loan
|
|
|
–
|
|
|
|
349,858
|
|
(Gain) Loss on change in fair value of derivative liability (Note 9)
|
|
|
(257,102
|
)
|
|
|
356,081
|
|
Fair value of stock options granted (Note 13)
|
|
|
91,711
|
|
|
|
4,993,692
|
|
Stock issued for services (Note 13)
|
|
|
123,096
|
|
|
|
980,349
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Short-term investments and amounts held in trust
|
|
|
1,018,838
|
|
|
|
(1,736,938
|
)
|
Accounts receivable
|
|
|
(15,892,527
|
)
|
|
|
(773,523
|
)
|
Prepaid expenses and deposits
|
|
|
(358,572
|
)
|
|
|
(731,259
|
)
|
Lease payments
|
|
|
(388,594
|
)
|
|
|
–
|
|
Contract assets
|
|
|
(12,366,514
|
)
|
|
|
(12,237,825
|
)
|
Due from related parties
|
|
|
–
|
|
|
|
25,101
|
|
Loan advances
|
|
|
–
|
|
|
|
(349,858
|
)
|
Accounts payable and accrued liabilities
|
|
|
33,858,164
|
|
|
|
4,197,071
|
|
Warranty provision
|
|
|
968,011
|
|
|
|
121,345
|
|
Contract liabilities
|
|
|
4,702,780
|
|
|
|
18,850,487
|
|
Due to related parties
|
|
|
(74,864
|
)
|
|
|
(112,539
|
)
|
Net Cash Provided by (Used in) Operating Activities
|
|
|
23,449,250
|
|
|
|
(2,795,220
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
––
|
|
Acquisition of business, net of cash acquired $2,063,358 (Note 7)
|
|
|
(3,800,876
|
)
|
|
|
–
|
|
Additions of property and equipment
|
|
|
(446,814
|
)
|
|
|
(25,000
|
)
|
Net Cash Used in Investing Activities
|
|
|
(4,247,690
|
)
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
–
|
|
|
|
5,451,500
|
|
Shareholder settlement (Note 13)
|
|
|
135,454
|
|
|
|
–
|
|
Share purchase warrants settled (Note 11)
|
|
|
(750,000
|
)
|
|
|
–
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(614,546
|
)
|
|
|
5,451,500
|
|
Effect of Foreign Exchange Rate Changes on Cash
|
|
|
(63,228
|
)
|
|
|
1,986
|
|
Change in Cash
|
|
|
18,523,786
|
|
|
|
2,633,266
|
|
Cash, Beginning of Year
|
|
|
2,863,148
|
|
|
|
229,882
|
|
Cash, End of Year
|
|
|
21,386,934
|
|
|
|
2,863,148
|
|
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities, excluded in above:
|
|
|
|
|
|
|
|
|
Amount due to related parties settled with common stock
|
|
|
–
|
|
|
|
500
|
|
Common stock issuable in business acquisition
|
|
|
368,750
|
|
|
|
–
|
|
Consideration accrued for business acquisition (Note 7), net of imputed discount of $95,691
|
|
|
5,190,023
|
|
|
|
–
|
|
Right of use assets and lease obligations recognized
|
|
|
2,190,569
|
|
|
|
–
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
–
|
|
|
|
–
|
|
Income taxes paid
|
|
|
–
|
|
|
|
–
|
|
(The accompanying notes are an integral
part of these consolidated financial statements)
Pacific
Green Technologies Inc. (the “Company”) was incorporated in the state of Delaware, USA on March 10, 1994, under the
name of Beta Acquisition Corp. In September 1995, the Company changed its name to In-Sports International, Inc. In August 2002,
the Company changed its name to ECash, Inc. On June 13, 2012, the Company changed its name to Pacific Green Technologies Inc.
The Company is in the business of acquiring, developing, and marketing environmental technologies, with a focus on emission control
technologies. On December 20, 2019, the Company acquired Shanghai Engin Digital Technology Co. Ltd., a company incorporated and
registered in China (“Engin”). Engin is a solar design, development, and engineering company (Note 7).
|
2.
|
Significant
Accounting Policies
|
|
(a)
|
Basis
of Presentation
|
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:
Pacific
Green Marine Technologies Ltd.(“PGMTL”)
|
|
Wholly-owned subsidiary of PGMG
|
Pacific
Green Technologies Asia Limited (“PGTA”)
|
|
Wholly-owned subsidiary
|
Pacific
Green Technologies China Limited (“PGTC”)
|
|
Wholly-owned subsidiary
of PGTA
|
Pacific
Green Marine Technologies Inc. (PGM Can)
|
|
Wholly-owned subsidiary
|
Pacific
Green Marine Technologies Inc. (PGMT US)
|
|
Wholly-owned subsidiary of
PGMG
|
Pacific
Green Marine Technologies (USA) Inc. (inactive)
|
|
Wholly-owned subsidiary of
PGMG
|
Pacific
Green Marine Technologies Group Inc (“PGMG”)
|
|
Wholly-owned subsidiary
|
Pacific
Green Marine Technologies Trading Ltd. (“PGTrad”)
|
|
Wholly-owned subsidiary of
PGMG
|
Pacific
Green Environmental Technologies Ltd (“PENV”)
|
|
Wholly-owned subsidiary
|
Pacific
Green Marine Technologies (Norway) SA (“PGN”)
|
|
Wholly-owned subsidiary of
PGMTL
|
Shanghai
Engin Digital Technology Co. Ltd (“ENGIN”)
|
|
Wholly-owned subsidiary
|
Guangdong
Northeast Power Engineering Design Co. Ltd. (“GNPE”)
|
|
Wholly-owned subsidiary of ENGIN
|
All
inter-company balances and transactions have been eliminated upon consolidation.
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 consolidated 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, fair values of convertible debentures and derivative liabilities,
and deferred income tax asset valuation allowances. The 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 the Company may differ materially and adversely from
the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future
results of operations will be affected.
|
2.
|
Significant
Accounting Policies (continued)
|
|
(c)
|
Property
and Equipment
|
Property
and equipment is recorded at cost. Depreciation is recorded at the following annual rates, net of any residual value determined.
Furniture
and equipment
|
|
5 years straight-line
|
Leasehold
improvements
|
|
3 years straight-line
|
Test
Scrubber system
|
|
20 years straight-line
|
Computer
equipment
|
|
5 years straight-line
|
Building
|
|
20 years straight-line
|
Intangible
assets are stated at cost less accumulated amortization and are comprised of patents, customer relationships, plant designs, backlog,
and software licensing, Intangible assets are reviewed annually for impairment. The patents, which were acquired in 2013, are
being amortized straight-line over the estimated useful life of 17 years. During the year ended March 31, 2020, the Company acquired
customer relationships, plant designs, backlog, and software licensing, which are amortized straight-line over the estimated useful
life of 6, 6, 2, and 10 years.
|
(e)
|
Impairment
of Long-lived Assets
|
The
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.
|
(f)
|
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.
Our
company’s financial instruments consist principally of cash, accounts receivable, lease receivable, amounts due from and
to related parties, accounts payable and accrued liabilities, operating lease liability, and convertible debenture. The recorded
values of all financial instruments approximate their current fair values because of their nature and respective maturity dates
or durations.
The
following table represents assets and liabilities that are measured and recognized at fair value as of March 31, 2020, on
a recurring basis:
|
|
Level 1
$
|
|
|
Level 2
$
|
|
|
Level 3
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
–
|
|
|
|
174,484
|
|
|
|
–
|
|
During
the year ended March 31, 2020, the Company recognized a gain on the change in fair value of derivative liability of $257,102 (2019
– loss $356,081).
|
2.
|
Significant
Accounting Policies (continued)
|
The
Company derives revenue from the sale of emission control equipment and related services as well as providing design and engineering
services for Concentrated Solar Power, desalination, and waste to energy technologies.
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
|
|
●
|
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.
Contracts signed with one customer have 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, significant financing component is separated from
revenue and interest income at 5.4% is recorded when payments are received from the customer.
|
(h)
|
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.
|
2.
|
Significant
Accounting Policies (continued)
|
The Company reserves a 2% warranty provision on the completion
of a contract following the final payment, 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 makes adjustments to 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 tax expense
for the period.
|
(k)
|
Foreign
Currency Translation
|
The
Company’s functional and reporting currency is the United States dollar. The functional currencies of PGTA, PGTC, PGMT US,
PGMTL, PGTrad, PGM Can, and PGN are the United States dollar. The functional currency of ENGIN and GNPE are the Chinese Yuan.
Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance
sheet date. Non-monetary assets, liabilities, and items recorded in income arising from transactions denominated in foreign currencies
are translated at rates of exchange in effect at the date of the transaction. Gains and losses arising on translation or settlement
of foreign currency denominated transactions or balances are included in the determination of income.
The
accounts of ENGIN and GNPE are translated to United States dollars using the current rate method. Accordingly, assets and liabilities
are translated into United States dollars at the period–end exchange rate while revenue and expenses are translated at the
average exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’
equity as accumulated other comprehensive income.
|
(l)
|
Research
and Development
|
Research
and development costs are charged as operating expenses as incurred.
|
(m)
|
Stock-based
compensation
|
The
Company records stock-based 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.
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.
|
2.
|
Significant
Accounting Policies (continued)
|
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.
|
(n)
|
Earnings (Loss) Per Share
|
The Company computes net income (loss) per share in accordance
with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face
of the consolidated statement of operations. Basic EPS is computed by dividing net income (loss) (numerator) by the weighted average
number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential options and warrants
outstanding during the period using the treasury stock method and convertible debenture using the if-converted method. In computing
diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the
exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As
at March 31, 2020, the Company had nil (2019 – 7,918,343) anti-dilutive shares outstanding.
|
(o)
|
Comprehensive
Income (Loss)
|
Comprehensive
income (loss) consists of net income (loss) and items in other comprehensive income (loss) that are excluded from net income or
loss. As at March 31, 2020 and 2019, other comprehensive income (loss) includes cumulative translation adjustments for changes
in foreign currency exchange rates during the period.
|
(p)
|
Newly
Adopted Accounting Pronouncements
|
In
February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, “Leases”. This new guidance eliminates
the concept of off-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts.
Under ASU No. 2016-02, at inception, a lessee must classify all leases with a term of over one year as either finance or operating,
with both classifications resulting in the recognition of a defined “right-of-use” asset and a lease liability on
the balance sheet. However, recognition in the income statement will differ depending on the lease classification, with finance
leases recognizing the amortization of the right-of-use asset separate from the interest on the lease liability and operating
leases recognizing a single total lease expense. ASU No. 2016-02 was in effect for public companies in fiscal years beginning
after December 15, 2018. The Company adopted the new guidance as of April 1, 2019.
The
Company elected to apply the package of practical expedients which allows entities not to reassess its previous conclusions about
lease identification, lease classification, and initial direct costs. The Company elected not to use hindsight to determine lease
terms and to not separate non-lease components from the associated lease component. The Company had no operating leases that were
adjusted upon transition as existing leases had duration of 12 months or less at the time of transition. The Company commenced
a new operating lease on premises on April 1, 2019 and recognized a right-of-use asset of $1,526,801 and a lease liability of
$1,486,605 as of April 1, 2019. The adoption of the new lease standard did not materially impact the consolidated statement of
operations and comprehensive income (loss) or the consolidated statement of cash flows. For additional disclosure and detail,
see note 18 below.
|
(q)
|
Recent
Accounting Pronouncements
|
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. The ASU sets forth a “current expected
credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held
at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces
the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized
cost and applies to some off-balance sheet credit exposures. As a smaller reporting company, this ASU is effective for fiscal
years beginning after January 1, 2023, including interim periods within those fiscal years. The Company is currently assessing
the impact of the adoption of this ASU on its Consolidated Financial Statements.
|
3.
|
Short-term
Investments and amounts in escrow
|
At
March 31, 2020, the Company has a $53,106 (CAD $75,000) (March 31, 2019- $38,147 (CAD $50,000) Guaranteed Investment Certificate
(“GIC”) held as security against a corporate credit card. The GIC bears interest at 0.5% per annum and matured February
4, 2020.
At
March 31, 2020, the Company’s solicitor is holding $664,994 (2019- $1,698,791) relating to proceeds under customer contracts
to be released upon satisfying performance obligations.
On
December 12, 2017, the Company completed the sale of a constructed ENVI-Marine scrubber system under an energy management lease
arrangement. The Company’s lease receivable as at March 31, 2020 and March 31, 2019, consists of an amount due from the
customer under a long-term lease arrangement.
The
payments to the Company under the lease arrangement are calculated under a cost savings model. During March 2019, the Company
and lessee agreed to a revised payment schedule based on a quarterly payment of $118,000 per quarter through fiscal 2022 in place
of the cost saving model. The current portion presented below reflects the minimum expected payments per the lease arrangement
for the next twelve months.
At
the completion of the minimum required lease payments, the title of the asset transfers to the customer. No amount has been allocated
to the residual value. Moreover, there are no other variable amounts involved in this lease arrangement.
|
|
March 31,
2020
$
|
|
|
March 31,
2019
$
|
|
|
|
|
|
|
|
|
Current portion, expected within twelve months
|
|
|
472,000
|
|
|
|
309,772
|
|
Amounts expected thereafter
|
|
|
369,634
|
|
|
|
784,914
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
841,634
|
|
|
|
1,094,686
|
|
|
|
$
|
|
|
|
|
|
2021
|
|
|
472,000
|
|
2022
|
|
|
419,114
|
|
Interest deemed hereunder
|
|
|
(49,480
|
)
|
|
|
|
|
|
Total
|
|
|
841,634
|
|
|
5.
|
Property
and Equipment
|
|
|
Cost
$
|
|
|
Accumulated amortization
$
|
|
|
March 31,
2020
Net carrying value
$
|
|
|
March 31,
2019
Net carrying value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building*
|
|
|
895,602
|
|
|
|
(25,811
|
)
|
|
|
869,791
|
|
|
|
–
|
|
Furniture and equipment
|
|
|
320,356
|
|
|
|
(46,018
|
)
|
|
|
274,338
|
|
|
|
2,077
|
|
Computer equipment*
|
|
|
15,728
|
|
|
|
(1,798
|
)
|
|
|
13,930
|
|
|
|
–
|
|
Leasehold improvements
|
|
|
110,051
|
|
|
|
(36,911
|
)
|
|
|
73,140
|
|
|
|
4,298
|
|
Testing equipment- Scrubber system
|
|
|
77,134
|
|
|
|
(6,428
|
)
|
|
|
70,706
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,418,871
|
|
|
|
(116,966
|
)
|
|
|
1,301,905
|
|
|
|
31,375
|
|
|
*
|
Acquired
as part of a business combination - see Note 7.
|
The
company recorded $87,614 depreciation expense on property and equipment for the year ended March 31, 2020 (2019- $ 9,425).
|
|
Cost
$
|
|
|
Accumulated amortization
$
|
|
|
Cumulative impairment
$
|
|
|
March 31,
2020
Net carrying value
$
|
|
|
March 31,
2019
Net carrying value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technical information
|
|
|
35,852,556
|
|
|
|
(6,549,478
|
)
|
|
|
(20,457,255
|
)
|
|
|
8,845,823
|
|
|
|
9,746,255
|
|
Backlogs *
|
|
|
92,792
|
|
|
|
(11,599
|
)
|
|
|
–
|
|
|
|
81,193
|
|
|
|
–
|
|
Customer lists *
|
|
|
225,229
|
|
|
|
(9,385
|
)
|
|
|
–
|
|
|
|
215,844
|
|
|
|
–
|
|
Patents and certifications *
|
|
|
3,568,043
|
|
|
|
(148,668
|
)
|
|
|
–
|
|
|
|
3,419,375
|
|
|
|
–
|
|
Software licensing *
|
|
|
13,673
|
|
|
|
(605
|
)
|
|
|
–
|
|
|
|
13,068
|
|
|
|
–
|
|
Total
|
|
|
39,752,293
|
|
|
|
(6,719,735
|
)
|
|
|
(20,457,255
|
)
|
|
|
12,575,303
|
|
|
|
9,746,255
|
|
|
*
|
Acquired
as part of a business combination - see Note 7
|
The company recorded $1,070,698 amortization expense on intangible
assets for the year ended March 31, 2020 (2019- $ 875,813).
|
7.
|
Acquisition
of Shanghai Engin Digital Technology Co. Ltd
|
On December 20, 2019, the
Company acquired all of the issued and outstanding shares of Engin, a solar design, development and engineering company and
its subsidiary. Engin’s expertise in solar technologies provides the Company another green technology to market and
develop internationally alongside our manufacturing. The acquisition was concluded concurrently with two groups. The first
purchase of the 75% interest was acquired for consideration of $5,864,234 (¥41,000,000) upon signing (paid), plus a
further $2,145,002 (¥15,000,000) due by March 20, 2020 (not paid) and a final conditional payment of $2,860,002
(¥20,000,000) by June 30, 2020 (not paid). The remaining 25% interest was acquired for consideration of 125,000 new
shares of the Company (issued after year end), plus a further conditional $286,000 (¥2,000,000) payable by June 30, 2020
(not paid). The final payments under both agreements are conditional upon the successful testing of a project, which was
to be concluded by June 30, 2020. As at the date of filing, the Company is in process of getting correspondence from the
two selling parties regarding the status of the project testing.
|
7.
|
Acquisition
of Shanghai Engin Digital Technology Co. Ltd (continued)
|
Total purchase consideration
is estimated at $11,052,307, inclusive of the fair value of the conditional payments, which are considered probable. The 125,000
shares in the Company have been estimated to have a fair value of $368,750 or $2.95 per share. This share price is determined on
the basis of the closing market price of the Company’s common shares at the date of acquisition.
The results of operations of the acquired business and the fair
value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with
effect from the date of the acquisition. The purchase consideration has been applied to cash of $2,063,358, other net working capital
of Engin of $1,024,461, property and equipment of $911,330, and intangible assets of $3,897,747. The residual value of consideration
after applying it to the carrying values of assets and liabilities acquired and fair value adjustments, resulted in a goodwill
valuation of $3,524,161. The goodwill paid as part of the acquisition is expected to be tax deductible. The measurement period
will not exceed one year from the acquisition date.
Revenue
and net income of Engin since the acquisition date included in the consolidated income statement was $450,418 and $92,883, respectively.
The
following unaudited supplemental pro-forma data presents consolidated information as if the acquisition had been completed on
April 1, 2018. The pro-forma results were calculated by combining the results of the Company with the stand-alone results of Engin:
|
|
For
the Year Ended
March 31
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
131,880,151
|
|
|
$
|
5,504,128
|
|
Net income
|
|
$
|
10,449,199
|
|
|
$
|
(17,666,637
|
)
|
|
8.
|
Sales,
Contract Assets and Contract Liabilities
|
The
Company has analyzed its sales contracts under ASC 606 and has identified performance conditions that are not directly correlated
with contractual payment terms with customer. As a result of the timing differences between customer payments and satisfaction
of performance conditions, contractual assets and contractual liabilities have been recognized.
Contracts are unique to customers’ requirements. However,
the Company’s performance obligations can generally be identified as:
|
●
|
Specified
service works
|
|
●
|
Certified
design and engineering works
|
|
●
|
Acceptance
of delivered equipment to customers
|
|
●
|
Acceptance
of commissioned equipment
|
|
8.
|
Sales,
Contract Assets and Contract Liabilities (continued)
|
For
the year ended March 31, 2020, the Company’s recognized sales revenues in proportion to performance obligations as noted
below:
|
|
2020
$
|
|
|
2019
$
|
|
|
|
|
|
|
|
|
Specified service works
|
|
|
1,485,990
|
|
|
|
27,000
|
|
Certified design and engineering works
|
|
|
51,354,969
|
|
|
|
606,725
|
|
Acceptance of delivered equipment to customers
|
|
|
59,608,692
|
|
|
|
1,077,190
|
|
Acceptance of commissioned equipment
|
|
|
17,238,505
|
|
|
|
364,035
|
|
Concentrated solar power contracts
|
|
|
450,418
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
130,138,574
|
|
|
|
2,074,950
|
|
Changes
in the Company’s contract assets and liabilities for the year are noted as below:
|
|
Contract
Assets
$
|
|
|
Sales
(Cost of sales)
$
|
|
|
Contract Liabilities
$
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer receipts and receivables
|
|
|
–
|
|
|
|
–
|
|
|
|
(20,925,437
|
)
|
Sales recognized in earnings
|
|
|
–
|
|
|
|
2,074,950
|
|
|
|
2,074,950
|
|
Payments and accruals under contracts
|
|
|
14,172,975
|
|
|
|
–
|
|
|
|
–
|
|
Costs recognized in earnings
|
|
|
(1,935,150
|
)
|
|
|
(1,935,150
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
12,237,825
|
|
|
|
|
|
|
|
(18,850,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer receipts and receivables
|
|
|
–
|
|
|
|
–
|
|
|
|
(134,841,354
|
)
|
Sales recognized in earnings
|
|
|
–
|
|
|
|
130,138,574
|
|
|
|
130,138,574
|
|
Payments and accruals under contracts*
|
|
|
90,932,669
|
|
|
|
–
|
|
|
|
–
|
|
Costs recognized in earnings
|
|
|
(78,566,155
|
)
|
|
|
(78,566,155
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
24,604,339
|
|
|
|
|
|
|
|
(23,553,267
|
)
|
|
*
|
Payments and accruals under contracts include $12,305,384 presented
as receivables which is subject to the fulfilment of future performance obligations.
|
|
9.
|
Convertible
Debenture and Derivative Liability
|
On
November 10, 2015, the Company entered into a $110,000 convertible debenture with a non-related party, in exchange for $100,000,
net of $10,000 for legal fees which was deferred and amortized over the term of the debenture. Under the terms of the debenture,
the amount is unsecured, bears guaranteed interest at 10% and default interest at 20% per annum and was due on November 10, 2016.
The note is convertible into shares of common stock of the Company equal to the lower of: (a) $0.40 or (b) 60% of the lowest trading
price of the Company’s common stock during the 20 consecutive trading days prior to the date of conversion.
|
9.
|
Convertible
Debenture and Derivative Liability (continued)
|
The
Company analyzed the conversion option under ASC 815, and determined that the conversion feature should be classified as a liability
and recorded at fair value due to there being no explicit limit to the number of shares to be delivered upon settlement of the
conversion option. In 2017, the Company issued 470,000 shares of common stock for the conversion of $80,000 of this debenture.
As at March 31, 2020, the carrying value of the debenture was $30,000 (2019- $30,000) and interest expense on the debenture for
the year was recorded as $6,000 (2019- $6,000).
The
fair value of the derivative liability was calculated using a binomial option pricing model. The fair value of the derivative
liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of
operations. During the year ended March 31, 2020, the Company recorded a gain on the change in fair value of derivative liability
of $257,102 (2019- loss of $356,081). As at March 31, 2020, the Company recorded a derivative liability of $174,484 (2019- $431,586).
The
following inputs and assumptions were used to calculate the fair value of the conversion feature of the convertible debenture
outstanding as at March 31, 2020, assuming no expected dividends:
|
|
As at
March 31,
2020
|
|
|
As at
March 31,
2019
|
|
|
|
|
|
|
|
|
Estimated common stock issuable upon conversion
|
|
|
178,343
|
|
|
|
165,843
|
|
Estimated exercise price per common share
|
|
|
0.40
|
|
|
|
0.40
|
|
Risk-free interest rate
|
|
|
0.11
|
%
|
|
|
2.4
|
%
|
Expected volatility
|
|
|
193.6
|
%
|
|
|
62.0
|
%
|
Expected life (in years)
|
|
|
0.25
|
|
|
|
0.25
|
|
A
summary of the activity of the derivative liabilities is shown below:
|
|
$
|
|
|
|
|
|
Balance, March 31, 2018
|
|
|
75,505
|
|
|
|
|
|
|
Mark to market adjustment
|
|
|
356,081
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
431,586
|
|
|
|
|
|
|
Mark to market adjustment
|
|
|
(257,102
|
)
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
174,484
|
|
|
10.
|
Accounts
payable and accruals
|
|
|
March 31,
2020
$
|
|
|
March 31,
2019
$
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
9,610,748
|
|
|
|
2,135,769
|
|
Accrued liabilities
|
|
|
32,599,586
|
|
|
|
2,375,952
|
|
Payroll liabilities
|
|
|
65,951
|
|
|
|
–
|
|
Long term accrued liabilities
|
|
|
1,622,284
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
43,898,569
|
|
|
|
4,511,721
|
|
During the year ended March 31, 2020, the Company recorded a
non-cash warranty provision of $1,630,541 (March 31, 2019 - $121,345) as the Company provides warranties to customers for the design,
materials, and installation of scrubber units. Product warranty is recorded at the time of sale and will be revised based on new
information as system performance data becomes available. During the year ended March 31, 2020, the Company used 2% to calculate
warranty provision (2019- 5%) based on management’s best estimate.
|
|
March 31,
2020
$
|
|
|
March 31,
2019
$
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
121,345
|
|
|
|
–
|
|
Provision for warranty
|
|
|
1,630,541
|
|
|
|
121,345
|
|
Expense incurred
|
|
|
(662,530
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
1,089,356
|
|
|
|
121,345
|
|
In
addition, the Company incurred warranty and related costs of $794,114 during the year ended March 31, 2019 that were a reduction
to the lease receivable.
|
12.
|
Related
Party Transactions
|
|
(a)
|
As at March 31, 2020, the Company owed $2,154 (March 31, 2019
– $36,800) to companies controlled by a director and officer of the Company. The amounts owing is unsecured, non-interest
bearing, and due on demand.
|
|
(b)
|
As
at March 31, 2020, the Company owed $39,987 (March 31, 2019 – $80,205) to directors
of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.
|
|
(c)
|
During
the year ended March 31, 2020, the Company incurred $2,003,938 (March 31, 2019 –
$750,131) in consulting fees, salaries, and commissions to companies controlled by a
director of the Company.
|
|
(d)
|
During
the year ended March 31, 2020, the Company incurred $323,622 (March 31, 2019 –
$446,366) in consulting fees to directors, or companies controlled by directors, of the
Company.
|
|
(e)
|
On
July 2, 2019, the Company entered into a settlement arrangement with a company that is
an affiliated shareholder and controlled by a director and officer. The Company was notified
that the affiliated shareholder profited from the purchase and sale of the Company’s
common stock within a six month period, in violation of Section 16(b) of the Securities
Exchange Act of 1934. The affiliated shareholder disgorged the full amount of profit
realized by paying the Company approximately $135,454, in exchange for the forbearance
of legal action by the Company.
|
|
(f)
|
On November 10, 2019, the Company entered into a warrant settlement
agreement with a significant shareholder. Per the terms of the agreement, the significant shareholder agreed to the settlement
of 1,000,000 share purchase warrants, exercisable at $1.00 per share, due to expire on November 23, 2019, for cash consideration
totalling $750,000.
|
Common
stock issued during the year ended March 31, 2020:
|
(a)
|
On
December 17, 2019, the Company issued 25,000 common shares, at $2.94 per share, to a
former officer of the Company in settlement of stock options and any compensation otherwise
due. The shares had an aggregate value of $73,500, which was recorded as employee compensation
in the period.
|
|
(b)
|
In February 2020, 125,000 common shares in the Company with
an estimated fair value of $368,750 or $2.95 per share were issued as part of the acquisition of Engin (See note 7).
|
|
(c)
|
In
February 2020,16,532 common shares of the Company were issued to employees in the Company’s
sales division as compensation with a FV of $3.00 per share.
|
Common
stock issued during the year ended March 31, 2019:
|
(a)
|
On
April 28, 2018, the Company issued 206,675 shares of common stock relating to a non-brokered
private placement at a price of $1.00 per share for proceeds of $206,675, which was recorded
as common stock issuable as at March 31, 2018.
|
|
(b)
|
On
May 28, 2018, the Company entered into securities purchase agreements (“SPA’s”)
with seven investors. The SPA’s include subscription agreements for 1,957,333 shares
of common stock at a price of $1.50 per share for proceeds of $2,936,000, and 1,957,333
share purchase warrants exercisable at a price of $2.50 per unit expiring on July 1,
2020. The SPA’s included conditional subscription agreements for the purchase of
an additional 1,342,667 shares of common stock and 1,342,667 share purchase warrants
exercisable at $2.50 per share expiring on July 1, 2020. Upon the Company meeting a specified
sales target by December 31, 2018, the conditional subscriptions will be completed at
$1.50 per unit on or before January 10, 2019. If the Company fails to achieve the specified
sales target, then the investors have the option to complete the conditional subscription
agreements for the purchase of an additional 1,853,998 shares of common stock and 1,853,998
share purchase warrants exercisable at $2.00 per share expiring on July 1, 2020 for $2.00
per unit on or before January 15, 2019. On January 10, 2019, the Company issued 1,342,667
shares of common stock at $1.50 per unit.
|
|
(c)
|
On
June 12, 2018, the Company issued 287,500 shares of common stock with a fair value of
$517,500 to three consultants, in lieu of a cash payment, for six months of consulting
services.
|
|
(d)
|
On
July 5, 2018, the Company issued 50,000 shares of common stock on the exercise of director
stock options in exchange for $500.
|
|
(e)
|
On
September 28, 2018, the Company issued 145,000 shares of common stock with a fair value
of $275,000 to seven consultants, in lieu of a cash payment, for six months of consulting
services.
|
|
(f)
|
On
October 16, 2018, the Company issued 100,000 shares of common stock pursuant to the exercise
of stock options at $0.001 per common share for proceeds of $1,000.
|
|
(g)
|
On
November 5, 2018, the Company issued 500,000 shares of common stock pursuant to the exercise
of stock warrants at $1.00 per share for proceeds of $500,000.
|
|
(h)
|
On
December 1, 2018, the Company issued 76,923 shares of common stock to a consultant in
settlement of $100,000 due under a commission arrangement.
|
|
(i)
|
On
January 22, 2019, the Company issued 8,700 shares of common stock to an employee valued
at $2.30 per share with a fair value of $20,010.
|
|
(j)
|
On
February 15, 2019, the Company issued 61,226 shares of common stock with a fair value
of $134,697 to six consultants, in lieu of a cash payment, for six months of consulting
services.
|
|
14.
|
Share
Purchase Warrants
|
|
|
Number of
warrants
|
|
|
Weighted average exercise
price
$
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
|
1,500,000
|
|
|
|
1.00
|
|
Issued
|
|
|
3,300,000
|
|
|
|
2.50
|
|
Exercised
|
|
|
(500,000
|
)
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
4,300,000
|
|
|
|
2.15
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,000,000
|
)
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
3,300,000
|
|
|
|
2.50
|
|
On
November 10, 2019, the Company entered into an agreement with a warrant holder for the settlement of 1,000,000 share purchase
warrants, with an exercise price of $1.00 per share and expiry of November 23, 2019. Under the terms of the settlement agreement,
the Company paid $750,000 for the surrender and cancellation of these warrants.
As
at March 31, 2020, the following share purchase warrants were outstanding:
Number of warrants outstanding
|
|
|
Exercise
price
$
|
|
|
Expiry date
|
|
|
|
|
|
|
|
|
3,300,000
|
|
|
|
2.50
|
|
|
July 1, 2020
|
|
|
|
|
|
|
|
|
|
|
3,300,000
|
|
|
|
|
|
|
|
See
note 20 for subsequent information.
The
following table summarizes the continuity of stock options:
|
|
Number of
options
|
|
|
Weighted
average
exercise
price
$
|
|
|
Weighted
average
remaining
contractual
life (years)
|
|
|
Aggregate
intrinsic
value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
|
537,500
|
|
|
|
0.01
|
|
|
|
0.7
|
|
|
|
478,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,065,000
|
|
|
|
1.59
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(150,000
|
)
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
3,452,500
|
|
|
|
1.41
|
|
|
|
2.3
|
|
|
|
5,481,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
75,000
|
|
|
|
1.99
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(150,000
|
)
|
|
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
3,377,500
|
|
|
|
1.46
|
|
|
|
1.49
|
|
|
|
6,045,000
|
|
Additional
information regarding stock options outstanding as at March 31, 2020 is as follows:
Outstanding and exercisable
|
|
Number of shares
|
|
|
|
Weighted average
remaining contractual
life (years)
|
|
|
|
Range of
Exercise price
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
487,500
|
|
|
|
0.45
|
|
|
|
0.01
|
|
|
2,865,000
|
|
|
|
1.67
|
|
|
|
1.70
|
|
|
25,000
|
|
|
|
2.29
|
|
|
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,377,500
|
|
|
|
|
|
|
|
|
|
Unless
otherwise noted, the Company estimates the fair value of its stock options using the Black-Scholes option pricing model, assuming
no expected dividends or forfeitures.
On May 24, 2019, the Company
granted 50,000 stock options to an officer of the Company. The stock options were exercisable at a discount to market, estimated
at an average of $1.86 per share, and anticipated to vest on August 26, 2020. The options had an estimated fair value of $3.62
per share. The estimated fair value of the stock options was being recorded over the requisite service period to vesting. For
the year ended March 31, 2020, the fair value of $80,596 was recorded as stock-based compensation. On December 19, 2019, the stock
options were forfeited to the Company.
On
September 20, 2019, the Company agreed to an extension of 175,000 stock options issued to a director which were due to expire.
The stock options have an exercise price of $0.01 per share and have been extended to September 28, 2020. The extension of the
stock options has not resulted in any material incremental fair value to be recorded.
The
Company agreed to an extension of 312,500 stock options issued to the Company’s former President which were due to expire
October 31, 2019. The stock options have an exercise price of $0.01 per share and have been extended to August 31, 2020. The extension
of the stock options has not resulted in any material incremental fair value to be recorded.
|
15.
|
Stock
Options (continued)
|
The
following weighted average assumptions were used in the determination of fair value using the Black-Scholes option pricing model:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
2.31
|
%
|
|
|
2.70
|
%
|
Expected life (in years)
|
|
|
2.75
|
|
|
|
2.8
|
|
Expected volatility
|
|
|
180
|
%
|
|
|
205
|
%
|
The
fair value of stock options vested and recognized during the year ended March 31, 2020 was $91,711 (2019 - $4,993,692), which
was recorded as additional paid-in capital and charged to operations. Options granted and unvested at year end due to varied performance
conditions, were measured and determined to have an insignificant fair value.
|
16.
|
Stock-based
compensation
|
The
fair value of the Company’s share-based transactions are summarized as follows:
|
|
2020
$
|
|
|
2019
$
|
|
|
|
|
|
|
|
|
Fair of stock options granted and vested
|
|
|
91,711
|
|
|
|
4,993,692
|
|
Fair value of shares issued to consultants
|
|
|
–
|
|
|
|
960,349
|
|
Fair value of shares issued to employees
|
|
|
123,096
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,807
|
|
|
|
5,974,041
|
|
Shares
issued to employees or consultants are recorded at their fair value. The fair value for share awards is determined by the
quoted market price of the Company’s shares on the date approved for issuance by the Board.
|
17.
|
Segmented
Information
|
The
Company is located and operates in North America and its subsidiaries are primarily located and operating in Europe and Asia.
|
March 31, 2020
|
|
|
|
North America
$
|
|
|
Europe
$
|
|
|
Asia
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
154,208
|
|
|
|
263,976
|
|
|
|
883,721
|
|
|
|
1,301,905
|
|
Intangible Assets
|
|
|
8,845,823
|
|
|
|
–
|
|
|
|
3,729,480
|
|
|
|
12,575,303
|
|
Right of use assets
|
|
|
83,256
|
|
|
|
1,471,847
|
|
|
|
258,818
|
|
|
|
1,813,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,083,287
|
|
|
|
1,735,823
|
|
|
|
4,872,019
|
|
|
|
15,691,129
|
|
Year Ended March 31, 2020
|
|
North America
$
|
|
|
Asia
$
|
|
|
Europe
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by customer region
|
|
|
10,266,338
|
|
|
|
5,904,418
|
|
|
|
113,967,818
|
|
|
|
130,138,574
|
|
|
17.
|
Segmented
Information (continued)
|
|
|
March 31, 2019
|
|
|
|
North America
$
|
|
|
Europe
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
31,375
|
|
|
|
–
|
|
|
|
31,375
|
|
Intangible assets
|
|
|
9,746,255
|
|
|
|
–
|
|
|
|
9,746,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by customer region
|
|
|
–
|
|
|
|
2,074,950
|
|
|
|
2,074,950
|
|
For
the year ended March 31, 2020, 71% (2019-98%) of the Company’s revenues were derived from the largest customer.
11% (2019- 0%) of the Company’s revenues were derived from the second largest customer.
|
(a)
|
The
Company’s subsidiaries have entered into three long-term operating leases for office premises in London, United Kingdom,
Lysaker, Norway and North Vancouver, Canada. These lease assets are categorized as right of use assets under ASU No. 2016-02.
|
Long-term
premises lease
|
|
Lease
commencement
|
|
Lease
expiry
|
|
Term
(years)
|
|
|
Discount rate*
|
|
|
|
|
|
|
|
|
|
|
|
|
London, United Kingdom
|
|
April 1, 2019
|
|
December 25, 2023
|
|
|
4.75
|
|
|
|
4.50
|
%
|
Lysaker, Norway
|
|
October 1, 2019
|
|
September 30, 2024
|
|
|
5.00
|
|
|
|
4.50
|
%
|
North Vancouver, Canada
|
|
December 1, 2019
|
|
August 31, 2022
|
|
|
2.75
|
|
|
|
4.50
|
%
|
Shanghai, China
|
|
March 1, 2020
|
|
May 31, 2025
|
|
|
5.25
|
|
|
|
4.75
|
%
|
|
*
|
The
Company determined the discount rate with reference to mortgages of similar tenure and terms.
|
Operating
lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over
the lease term at the commencement date. As the Company’s operating lease does not provide an implicit rate, the discount
rate used to determine the present value of the lease payments is the collateralized incremental borrowing rate based on the remaining
lease term. The operating lease asset excludes lease incentives. The operating leases do not contain an option to extend or terminate
the lease term at the Company’s discretion, therefore no probable renewal has been added to the expiry date when determining
lease term. Operating lease expense is recognized on a straight-line basis over the lease term.
Lease cost – for the year ended March 31, 2020:
|
|
|
|
|
Operating lease expense *
|
|
$
|
428,733
|
|
|
*
|
Including
right of use amortization and imputed interest. Lease payments include maintenance, operating expense, and tax.
|
|
18.
|
Commitments
(continued)
|
The
Company has entered into premises lease agreements with minimum annual lease payments expected over the next five years of the
lease as follows:
Calendar Year
|
|
$
|
|
|
|
|
|
2020 (remainder of year)
|
|
|
411,253
|
|
2021
|
|
|
548,338
|
|
2022
|
|
|
536,153
|
|
2023
|
|
|
413,125
|
|
2024
|
|
|
102,690
|
|
2025
|
|
|
14,829
|
|
Total future minimum lease payments
|
|
|
2,026,388
|
|
Imputed interest
|
|
|
(172,328
|
)
|
|
|
|
|
|
Operating lease obligations
|
|
|
1,854,060
|
|
|
(b)
|
On
July 14, 2017, the Company entered into a new memorandum of understanding to establish
a new joint venture company in China with a non-related party (the “Supplier”)
wherein the Supplier would receive and process orders, manufacture, and install products
for the Company’s customers. In return, the Company agreed to design the product, provide
strategic pricing, sales and marketing direction, as well as provide technology licenses
and technical support (the “Technology”) to the Supplier. During the term of
the agreement, the Company will provide the Supplier with a non-transferrable right and
license to use the Technology to manufacture and install the product within the Asia
and Russia region.
|
The
parties will fund the venture proportionately, 50.1% by the Company and 49.9% by the Supplier, and excess operating cash flows
will be distributed on a quarterly basis. Neither party have funded the joint venture to date and there has been no revenue and
expense associated with it.
The
majority of our revenues from international sales are invoiced from and collected by our U.S. entity and recognized as a component
of income before taxes in the United States as opposed to a foreign jurisdiction. The components of income before income taxes
by U.S. and foreign jurisdictions were as follows:
|
|
2020
$
|
|
|
2019
$
|
|
|
|
|
|
|
|
|
United States
|
|
|
9,719,018
|
|
|
|
(16,618,418
|
)
|
Foreign
|
|
|
662,402
|
|
|
|
(1,320,286
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) before taxes
|
|
|
10,381,420
|
|
|
|
(17,938,704
|
)
|
The
following table reconciles the income tax expense (benefit) at the statutory rates to the income tax (benefit) at the Company’s
effective tax rate.
|
|
2020
$
|
|
|
2019
$
|
|
|
|
|
|
|
|
|
Net income (loss) before taxes
|
|
|
10,381,420
|
|
|
|
(17,938,704
|
)
|
Statutory tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (recovery)
|
|
|
2,180,098
|
|
|
|
(3,767,128
|
)
|
Permanent differences and other
|
|
|
387,020
|
|
|
|
1,297,851
|
|
Foreign tax rate difference
|
|
|
(12,973
|
)
|
|
|
33,873
|
|
Change in valuation allowance
|
|
|
(2,554,145
|
)
|
|
|
2,435,404
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
–
|
|
|
|
–
|
|
Deferred
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
–
|
|
|
|
–
|
|
|
19.
|
Income
Taxes (continued)
|
At
March 31, 2020, the Company is in arrears on filing a number of its statutory corporate income tax returns for certain entities,
primarily, in the United States. The amounts presented above are based on estimates and what management believes are prudent filing
positions, where information for fiscal years prior to 2013 has been challenging to obtain. The actual losses available could
differ from these estimates upon assessment and review by taxation authorities.
We
evaluate tax positions for recognition using a more-likely than-not recognition threshold, and those tax positions
eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon
the effective settlement with a taxing authority that has full knowledge of all relevant information. Deferred income
taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes. Deferred income tax assets and liabilities at March 31, 2020 and 2019 are primarily comprised of the following:
|
|
2020
$
|
|
|
2019
$
|
|
|
|
|
|
|
|
|
Net operating losses carried forward
|
|
|
2,387,441
|
|
|
|
5,909,091
|
|
Tax basis of intangibles in excess of book value
|
|
|
1,680,000
|
|
|
|
1,890,000
|
|
Lease receivable without tax basis
|
|
|
(176,743
|
)
|
|
|
(229,884
|
)
|
Warranty and accruals timing differences
|
|
|
1,117,865
|
|
|
|
–
|
|
Deferred tax asset
|
|
|
5,008,563
|
|
|
|
7,569,207
|
|
Valuation allowance
|
|
|
(5,008,563
|
)
|
|
|
(7,569,207
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
–
|
|
|
|
–
|
|
On
December 22, 2017, the US federal tax legislation commonly known as the Tax Cut and Jobs Act (TCJA) was signed into law. The TCJA
made major changes to the Internal Revenue Code, including reducing the US federal income corporate tax rate from 35% to 21% for
tax years beginning after December 31, 2017. Under the TCJA, for net operating losses (“NOLs”) arising in taxable
years beginning after December 31, 2017, the TCJA limits a US corporate taxpayer’s ability to utilize NOL carryforwards
to 80% of the taxpayer’s taxable income (as modified by the CARES Act, as described below). In addition, NOLs arising in
taxable years beginning after December 31, 2017 can be carried forward indefinitely, with no carryback. NOLs generated in tax
years beginning before January 1, 2018 are not be subject to the taxable income limitation and generally has a 20 year carryforward.
On March 27, 2020 the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES
Act introduced various tax changes, including granting a five-year carry back period for NOLs arising in taxable years beginning
after December 31, 2017 and before January 1, 2021, temporary suspension of the 80% taxable income limitation on the use of NOLs
arising in tax years beginning after December 31, 2017 but before January 1, 2021.
The
Company estimates that is has accumulated net operating losses of approximately $8.7 million, which were incurred mainly in the
U.S., some of which begin to expire in 2036. Historical losses in the U.S., are subject to limitations on use due to deemed
changes in control for tax purposes. This impacts the timing and opportunity to use certain losses.
On
July 1, 2020, 3,300,000 share purchase warrants expired unexercised.