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

This quarterly report contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the section
entitled "Risk Factors", that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.



Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.

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

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



As used in this quarterly report and unless otherwise indicated, the terms "we",
"us", "our", the "Company", and "our company" mean Pacific Green Technologies
Inc., a Delaware corporation, and our wholly owned subsidiaries, (1) Pacific
Green Innoergy Technologies Ltd., a United Kingdom company, (2) Pacific Green
Marine Technologies Group Inc., a Delaware corporation, (3) Pacific Green Marine
Technologies Inc., a Delaware corporation, (4) Pacific Green Technologies (UK)
Ltd. (Formerly Pacific Green Marine Technologies Ltd.), a United Kingdom
company, (5) Pacific Green Technologies (Middle East) Holdings Ltd., a United
Arab Emirates company, (6) Pacific Green Technologies Arabia LLC, 70% owned, a
Kingdom of Saudi Arabia company, (7) Pacific Green Marine Technologies (USA)
Inc., a Delaware corporation (inactive), (8) Pacific Green Technologies (Canada)
Inc. (Formerly Pacific Green Marine Technologies Inc.), a Canadian corporation,
(9) Pacific Green Solar Technologies Inc., a Delaware corporation, (10) Pacific
Green Corporate Development Inc. (formerly Pacific Green Hydrogen Technologies
Inc.), a Delaware corporation, (11) Pacific Green Wind Technologies Inc., a
Delaware corporation, (12) Pacific Green Technologies International Ltd., a
British Virgin Islands company, (13) Pacific Green Technologies Asia Ltd., a
Hong Kong company, (14) Pacific Green Technologies Engineering Services Limited
(Formally Pacific Green Technologies China Ltd.), a Hong Kong company, (15)
Pacific Green Technologies (Australia) Pty Ltd., an Australia company, (16)
Pacific Green Environmental Technologies (Asia) Ltd., 50.1% owned, a Chinese
company, (17) Pacific Green Technologies (Shanghai) Co. Ltd. (Formerly Shanghai
Engin Digital Technology Co. Ltd.), a Chinese company, (18) Guangdong Northeast
Power Engineering Design Co. Ltd., a Chinese company, (19) Pacific Green Energy
Parks Inc., a Delaware corporation, (20) Pacific Green Energy Storage
Technologies Inc., a Delaware corporation, (21) Pacific Green Energy Storage
(UK) Ltd. (Formerly Pacific Green Marine Technologies Trading Ltd.), a United
Kingdom company, (22) Pacific Green Battery Energy Parks 1 Ltd., 50% owned, a
United Kingdom company, (23) Pacific Green Battery Energy Parks 2 Ltd., a United
Kingdom company, (24) Richborough Energy Park Ltd., 50% owned, a United Kingdom
company, unless otherwise indicated.



Corporate History

Our company was incorporated in Delaware on March 10, 1994, under the name of
Beta Acquisition Corp. In September 1995, we changed our name to In-Sports
International, Inc. In August 2002, we changed our name from In-Sports
International, Inc. to ECash, Inc. In 2007, due to limited financial resources,
we discontinued our operations. Over the course of the ensuing five years, we
sought out new business opportunities.



                                       2

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.

Original Strategy and Recent Business

Since 2012, the Company has focused on marketing, developing and acquiring
technologies designed to improve the environment by reducing pollution. The
Company has acquired technologies, patents and intellectual property from
EnviroTechnologies Inc. through share transfer, assignment and representation
agreements entered into during 2012 and 2013. Following those acquisitions,
management has expanded the registration of intellectual property rights around
the world and pursued opportunities globally for the development and marketing
of the emission control technologies.

Working with a worldwide network of agents to market the ENVI-Systems™ emission
control technologies, the Company has focused on three applications of the
technology:

ENVI-Marine TM



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



ENVI-Pure TM



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



ENVI-Clean TM



EnviroTechnologies Inc. has successfully conducted sulfur dioxide demonstration
tests at the American Bituminous Coal Partners power plant in Grant Town, West
Virginia. The testing achieved a three test average of 99.3% removal efficiency.
The implementation of US Clean Air regulations in July 2010 has created
additional demand for sulfur dioxide removal in all industries emitting sulfur
pollution. Furthermore, China consumes approximately one half of the world's
coal, but introduced measures designed to reduce energy and carbon intensity in
its 12th Five Year Plan. Applications include regional power facilities and
heating for commercial buildings and greenhouses. Typical applications range in
size from 1 to 20 megawatts (MW) with power generation occupying the larger end
of the range. The ENVI-Clean™ system removes most of the sulfur dioxide,
particulate matter, greenhouse gases and other hazardous air pollutants from the
flue gases produced by the combustion of coal, biomass, municipal solid waste,
diesel and other fuels.



                                       3





Vision & Strategy



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



  ? Emission Control Systems ("ECS");




  ? Concentrated Solar Power ("CSP"); and




  ? Battery Energy Storage Systems ("BESS");




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

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

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

engineering company. Engin is a design and engineering business focused

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

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

provide CSP alongside future ammonia and hydrogen production facilities in

    Asia and South America;

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

(“Innoergy”), a UK based designer of BESS whose clients included Osaka Gas Co.

Ltd, in Japan, and Limejump Limited in the UK, a subsidiary of Shell plc. The

    acquisition underpins our entry into the BESS market; and




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

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

    Kent, UK.

In support of this dual strategy, we have adopted a Human Resource Strategy that
seeks to hire the best talent in the core areas of our business. Our hiring plan
includes the addition of sales and project execution specialists.



Strategic Partnerships



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

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

Concentrated Solar Power (“CSP”)

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

in
China, and (2) PowerChina.

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

Battery Energy Storage Systems (“BESS”)

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



                                       4





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



In addition to supply agreements, on December 2, 2020, the Company signed a
joint venture and marketing agreement with AMKEST to assist with the promotion
of the Company's core business platform in the Kingdom of Saudi Arabia and the
wider Middle East. Amkest Group is overseen by its founder, Amr Khashoggi, who
holds board positions in numerous influential companies and government bodies
across the Kingdom and is currently serving as Strategic Advisor to the
Kingdom's prominent new development city, King Abdullah Economic City (KAEC).
Amkest Group's leadership team is led by Chief Executive Officer, Salman
Alireza, whose background includes various founding, executive and
director-level positions in the business development sector within the Kingdom
of Saudi Arabia, in addition to an MBA from London Business School.



Results of Operations



The following summary of our results of operations should be read in conjunction
with our unaudited interim financial statements for the three and six months
ended September 30, 2022, and 2021.



Revenue for the three and six months ended September 30, 2022 was $1,195,353 and
$3,219,229 versus $138,536 and $1,461,787 for the three and six months ended
September 30, 2021. The Company's revenues were mainly derived from the sale of
marine scrubber units and related services. During the three months ended
September 30, 2022, the Company was in the process of commissioning 2 (2021 -
nil) marine scrubber units which contributed to revenue of $699,289 (2021 -
$nil). In February 2021, a major client deferred 32 marine scrubber units. Of
these, 6 units have proceeded (2 commissioned in year ended March 31, 2022 and 4
commissioned in quarter ended June 30, 2022), while 13 were cancelled. The
remainder are still postponed with an option to either proceed or cancel, which
expires on February 9, 2023. During the three and six months ended September 30,
2022, revenue from services, including specific services performed in the marine
business sector and design and engineering services in the solar business
sector, was $496,064 and $864,781 as compared to $138,536 and $719,496 for the
three and six months ended September 30, 2021.



During the six months ended September 30, 2022, the gross profit margin for
products and services were 28% (2021- negative 130%) and 33% (2021- 30%),
respectively. The gross profit margin for products increased in 2022 because of
higher contract value and consistent cost of goods sold for marine scrubbers
delivered in 2022. Overall, the gross profit margin for the six months ended
September 30, 2022 was approximately 29% (2021 - negative 51%).



Expenses for the three and six months ended September 30, 2022, were $2,462,297
and $6,388,954 as compared to $4,053,304 and $7,273,288 for the three and six
months ended September 30, 2021. Management and technical consulting fees
increased due to increased activity in business development and the management
of the BESS development. Management and technical consulting fees were comprised
of fees paid to our directors, officers and advisors for business development
efforts and advisory services. Office-based costs, travel expenses, and
professional fees also increased due to increased business activities.
Additionally, the delivery of units resulted in warranty provision being
recorded for possible maintenance and claim issues within a prescribed period.
For the three and six months period, the Company recorded a warranty expense of
$nil (2021 - $18,159) and $181,600 (2021 - warranty expense recovery of $21,648)
as a result of nil (2021 - nil) and 4 (2021 - 2) vessels being commissioned and
commencing their warranty period. The impact of various international factors on
foreign exchange rates caused fluctuations which saw the Company's foreign
exchange losses increase significantly.



The three and six months ended September 30, 2022, our company recorded a net
loss of $2,393,250 ($0.05 per share) and $5,652,480 ($0.12 per share) as
compared to net loss of $4,361,184 ($0.09 per share) and $7,622,887 ($0.16 per
share) for the three and six months ended September 30, 2021.



                                       5





Our financial results for the three months ended September 30, 2022 and 2021 are
summarized as follows:



                                                  Three Months Ended                    Six Months Ended
                                                    September 30,                        September 30,
                                                                 2021                                 2021
                                                             (As restated-                        (As restated-
                                               2022             Note 2)             2022             Note 2)
                                                $                  $                 $                  $
Revenues
 Products                                       699,289                   -        2,354,447             742,291
 Services                                       496,064             138,536          864,782             719,496
  Total revenues                              1,195,353             138,536        3,219,229           1,461,787
 Cost of goods sold
 Products                                       713,040             474,784        1,700,247           1,704,902
 Services                                       341,640             209,276          582,976             500,167
  Total cost of goods sold                    1,054,680             684,060        2,283,223           2,205,069
Gross profit                                    140,673            (545,524 )        936,006            (743,282 )

Expenses

Advertising and promotion                       158,406             148,323          301,673             317,218
Amortization of intangible assets                   662             171,821            1,350             342,944
Bad debts (recovery) / expense                  (46,534 )                 -          (46,534 )                 -
Depreciation                                     49,487              49,777          103,071              99,543
Foreign exchange (gain) / loss                 (393,375 )            39,705          104,321              51,578
Management and technical consulting             315,240             782,701        1,304,324           1,528,254
Office and miscellaneous expense                527,307             415,567

         990,076             793,830
Operating lease expense                          99,253             120,212          208,990             243,367
Professional fees                               460,635             671,009          747,660             947,678
Research and development                              -                   -           13,772                   -
Salaries and wages                            1,065,710           1,329,480        2,048,624           2,584,686
Transfer agent and filing fees                   17,043             148,048           30,797             161,223
Travel and accommodation                        208,463             158,502          399,230             224,615
Warranty and related expense /
(recovery)                                            -              18,159          181,600             (21,648 )

Total expenses                                2,462,297           4,053,304        6,388,954           7,273,288

Other income / (expense)
Financing interest income                        10,031             195,325           56,300             292,951

Interest (expense) / income and other           (39,360 )            42,318          (77,711 )           100,732

Net loss for the period before
noncontrolling interest                      (2,350,953 )        (4,361,185 )     (5,474,359 )        (7,622,887 )
Share of income attributable to
noncontrolling interest                        (109,082 )                 -           26,742                   -

Net loss for the period                      (2,241,871 )        (4,361,185 )     (5,501,101 )        (7,622,887 )




                                       6

Liquidity and Capital Resources

Working Capital



                             September 30,       March 31,
                                 2022               2022
                                   $                 $
Current assets                    9,367,678       24,854,658
Current liabilities              17,043,040       19,079,665

Working capital (deficit)        (7,675,362 )      5,774,993




Cash Flows



                                              Six Months         Six Months
                                                Ended               Ended
                                            September 30,       September 30,
                                                 2022               2021
                                                  $                   $
Net cash used in operating activities           (4,870,482 )        (7,360,689 )
Net cash used in investing activities          (15,325,769 )          (264,839 )
Net cash provided by financing activities       17,834,507                

250

Effect of exchange rate changes on cash           (899,218 )            

97,547

Net change in cash and cash equivalents (3,260,962 ) (7,527,731 )

As of September 30, 2022, we had $3,025,506 in cash and cash equivalents,
$9,367,678 in total current assets, $17,043,040 in total current liabilities and
a working capital deficit of $7,675,362 compared to working capital of
$5,774,993 as at March 31, 2022. The Company's working capital reduced due

to
reduction of receivables.



During the six months ended September 30, 2022, we used $4,870,482 in operating
activities, whereas we used $7,360,689 from operating activities for the three
months period ended September 30, 2021. The operating cash flow for the six
months ended September 30, 2022, was mainly resulted from increased sales and
collection of payments.



During the six months ended September 30, 2022, we used $15,325,769 in investing
activities, whereas we used $264,839 in investing activities during the three
months ended September 30, 2021. Our investing activities for the three months
ended September 30, 2022, were primarily related to additions of project under
development and equipment.

During the six months ended September 30, 2021, we received $17,834,507 in
financing activities, whereas we received $250 in financing activities for the
six months ended September 30, 2020. Our financing activities for the six months
ended September 30, 2022, were related to cash contribution from noncontrolling
interest.



                                       7

Anticipated Cash Requirements

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

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

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



Should we require additional funding over the next twelve months, we would
intend to raise new cash requirements from private placements, shareholder loans
or possibly a registered public offering (either self-underwritten or through a
broker-dealer). If we are unsuccessful in raising enough money through such
efforts, we may review other financing possibilities such as bank loans. At this
time, we do not have a commitment from any broker-dealer to provide us with
financing. There is no assurance that any financing will be available to us or
if available, on terms that will be acceptable to us.



As of September 30, 2022, we had $3,025,506 cash on hand. Our realized and
anticipated profits derived from sales of ENVI marine units plus anticipated
sales of products and services in our new Batteries and Solar businesses are
expected to fund our planned expenditure levels. After careful consideration we
believe current operations, anticipated deliveries and expected profit from such
deliveries to be sufficient to cover expected cash operating expenses over

the
next 12 months.



Going Concern

Our financial statements for the quarter ended September 30, 2022 have been
prepared on a going concern basis.

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

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to stockholders.



                                       8





Critical Accounting Estimates



The preparation of these consolidated financial statements in conformity with
United States Generally Accepted Accounting Principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Our company bases its estimates and assumptions on current
facts, historical experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by our company may differ materially and
adversely from our company's estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected. Accounting estimates and assumptions discussed in
this section are those that we consider to be the most critical to an
understanding of our financial statements because they inherently involve
significant judgments and uncertainties.

Useful lives of Intangible Assets

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



Patents              17 years straight-line
Software licensing   10 years straight-line

Impairment of Long-lived Assets

We review long-lived assets such as property and equipment and intangible assets
with finite useful lives for impairment whenever events or changes in
circumstance indicate that the carrying amount may not be recoverable. The
determination of whether impairment indicators exist requires significant
judgment in evaluating underlying significant assumptions including expected
sales contracts, operating costs, and current market value of assets. If an
indication is identified, and the total of the expected undiscounted future cash
flows is less than the carrying amount of the asset, a loss is recognized for
the excess of the carrying amount over the fair value of the asset.



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



Goodwill

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



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



Revenue Recognition



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

point
in time.



                                       9





Revenue recognition requires significant judgements from management in regard to
the determination of accounting treatment for contracts with customers.
Management is required to assess contracts with customers to identify whether
performance obligations in the contract are distinct and to determine whether
contract terms provide the Company with a basis to recognize revenue over time.



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

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

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

Contract Liabilities, Prepaid Manufacturing Costs, and Accrued Revenue

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



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



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



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

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

Accounts Receivable



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



Warranty Provision



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



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