<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number: 0-27524
--------------------------------------------------------------------------------
DYNAMOTIVE TECHNOLOGIES CORPORATION
(Exact name of small business issuer as specified in its charter)
--------------------------------------------------------------------------------
British Columbia N/A
----------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 105 - 1700 West 75th Avenue
----------------------------------------
Vancouver, B.C. V6P 6G2
(Address of principal executive offices)
(604) 267-6000
--------------------------
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of Common
Stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding as at September 30, 2000
---------------------------------------------------------------------------
<S> <C>
Common Stock, no par value 35,285,184
</TABLE>
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [ X ]
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. While adhering to these
Canadian accounting principles results in financial statements disclosing an
information content substantially similar to financial statements that comply
with United States generally accepted accounting principles, there are material
variations in the two country's accounting principles, practices and methods
used. Reference should be made to the notes that accompany the Company's
financial statements as well as to Note 15 of the Company's annual report on
Form 10-KSB which discusses the material variations in the accounting principles
in Canada as compared to those followed in the United States.
<TABLE>
<CAPTION>
Interim Financial Statements Page
<S> <C>
Consolidated Balance Sheet 4
Consolidated Statement of Loss and Deficit 5
Consolidated Statement of Cash Flow 6
Notes to Interim Financial Statements 7-15
</TABLE>
2
<PAGE> 3
CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
DYNAMOTIVE TECHNOLOGIES CORPORATION
SEPTEMBER 30, 2000
3
<PAGE> 4
DYNAMOTIVE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
$ $
------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and term deposits 2,128,402 223,769
Accounts receivable 215,643 384,743
Government grants receivable 271,886 158,942
Inventory 2,794 37,950
Prepaid expenses and deposits 342,925 129,530
------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,961,650 934,934
------------------------------------------------------------------------------------
Capital assets 1,263,570 848,292
Patents 746,779 529,209
------------------------------------------------------------------------------------
4,971,999 2,312,435
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 434,128 437,631
Deferred Revenue 293,400 265,124
Current portion of long-term debts 282,061 190,095
Lease Obligations 7,972 --
------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,017,561 892,850
Long-term debt -- --
------------------------------------------------------------------------------------
1,017,561 892,850
------------------------------------------------------------------------------------
Commitments and contingencies [note 3(c)]
SHAREHOLDERS' EQUITY
Shares to be issued 326,513 36,912
Share capital, net [note 3] 20,564,162 15,461,939
Contributed surplus 409,030 409,030
Cumulative translation adjustment [note 2] (361,688) (310,385)
Deficit (16,983,579) (14,177,911)
------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,954,438 1,419,585
------------------------------------------------------------------------------------
4,971,999 2,312,435
====================================================================================
</TABLE>
See accompanying notes
4
<PAGE> 5
DYNAMOTIVE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(in U.S. dollars)
<TABLE>
<CAPTION>
THREE MONTHS Three months NINE MONTHS Nine Months
ENDED ended ENDED ended
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
2000 1999 2000 1999
$ $ $ $
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Sales 138,760 369,015 584,511 789,752
Interest and other income 40,455 7,150 92,609 21,941
--------------------------------------------------------------------------------------------------------------
179,215 376,165 677,120 811,693
--------------------------------------------------------------------------------------------------------------
EXPENSES
Amortization and depreciation 73,841 60,012 218,937 205,946
Amortization of prepaid expenses -- -- -- 88,801
Cost of sales 94,340 277,620 371,346 651,183
Research and development 66,623(2) 55,077 237,648 232,787
Interest expense 12,370 1,064 19,597 1,752
Marketing 135,227 119,693 600,085 303,644
Office supplies, telephone and insurance(1) 109,272 60,376 169,789 146,988
Professional fees 12,601 40,598 193,919 167,481
Professional fees on convertible debenture
settlement -- -- -- 46,244
Royalties 3,613 21,279 21,865 22,787
Rent 64,836 32,525 133,767 95,684
General and administrative salaries
and benefits [note 7] 352,435 255,206 1,140,979 725,158
Severance costs -- -- -- 82,122
--------------------------------------------------------------------------------------------------------------
925,158 923,450 3,107,932 2,770,577
--------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (745,943) (547,285) (2,430,812) (1,958,884)
OTHER REVENUE & EXPENSES
Board compensation & staff bonus [note 7] -- -- 276,665 --
Overtime settlement expenses [note 7] -- -- 65,616 --
SAR Redemption [note 7] 7,960 -- 7,960 --
Loss on disposal of equipment -- 5,802 24,615 5,802
--------------------------------------------------------------------------------------------------------------
7,960 5,802 374,856 --
--------------------------------------------------------------------------------------------------------------
LOSS FOR THE PERIOD (753,903) (553,087) (2,805,668) (1,964,686)
Deficit, beginning of period (16,229,676) (13,144,578) (14,177,911) (11,732,980)
--------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (16,983,579) (13,697,665) (16,983,579) (13,697,666)
==============================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 34,048,212 23,020,981 32,138,953 20,552,431
--------------------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE (0.02) (0.02) (0.09) (0.10)
==============================================================================================================
</TABLE>
(1) Office expenses include unrealized foreign currency exchange loss/(gain)
(2) Shown net of government grant
See accompanying notes
5
<PAGE> 6
DYNAMOTIVE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
<TABLE>
<CAPTION>
THREE MONTHS Three months NINE MONTHS Nine Months
ENDED ended ENDED ended
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
2000 1999 2000 1999
$ $ $ $
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Loss for the period (753,903) (553,088) (2,805,668) (1,964,686)
Add items not involving cash:
Amortization and depreciation 73,841 60,012 218,937 205,946
Non-cash expenses 126,906 -- 705,759 --
Net change in non-cash working capital
balances related to operations [note 4] (46,531) 28,300 (73,974) 22,296
----------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (599,687) (464,776) (1,954,946) (1,736,444)
----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
New borrowing/Retirement of debt (24,336) -- 91,966 --
Long-term debt -- (31,381) -- (25,727)
Lease Obligations (1,136) -- 7,972 --
Convertible debentures retired -- -- -- (1,480,000)
Share capital issued 8,000 141,731 4,436,129 2,510,880
Share subscription deposit -- (117,432) -- 132,568
----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES (17,472) (7,082) 4,536,067 1,137,721
----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase in patents costs (18,748) (245) (29,280) (19,982)
Purchase of capital assets (net of grants) (316,293) (16,745) (596,793) (74,671)
Sale of Equipment -- 1,142 -- 1,142
----------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (335,041) (15,848) (626,073) (93,511)
----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 26,725 (28,943) (50,415) 3,351
----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (925,475) (516,649) 1,904,633 (688,883)
Cash and cash equivalents,
beginning of period 3,053,877 973,651 223,769 1,145,886
----------------------------------------------------------------------------------------------------------------
CASH AND TERM DEPOSITS, END OF PERIOD 2,128,402 457,002 2,128,402 457,003
================================================================================================================
</TABLE>
See accompanying notes
6
<PAGE> 7
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
1. NATURE OF BUSINESS
DynaMotive Technologies Corporation was incorporated on April 11, 1991 under the
laws of the Province of British Columbia. Since its inception the Company has
been engaged in the process of commercializing several new technologies that are
in various stages of development.
Successful completion of the Company's product development program, and its
transition, ultimately, to attaining profitable operations is dependent upon
obtaining additional financing adequate to continue its research and development
activities, and achieving a level of revenues adequate to support the Company's
cost structure. Management intends to obtain this financing primarily through
the offering of securities and other forms of financing. However, there can be
no assurance that the Company will be able to obtain such financing, which may
impact the Company's ability to continue as a going concern. While the Company
believes that it has sufficient operating revenue and cash reserves to fund
ongoing operations for the year 2000, it is in the process of seeking additional
funding in connection with further development for its BioOil division.
2. SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the unaudited quarterly consolidated financial
statements reflect all adjustments consisting only of normal and recurring
adjustments necessary to present fairly the financial position at September 30,
2000 and the results of operations and changes in cash flow for the nine months
ended September 30, 2000, in accordance with accounting principles generally
accepted in Canada.
These financial statements should be read in conjunction with the Company's
financial statements and notes thereto related to the year ended December 31,
1999.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company and its consolidated subsidiaries are measured using
the Canadian dollar as the functional currency. Assets and liabilities are
translated into U.S. dollars using current exchange rates in effect at the
balance sheet date, while the share capital and contributed surplus accounts are
translated at historical exchange rates. Revenues and expenses are translated
using weighted average exchange rate during the period. Gains and losses
resulting from this process are recorded in shareholders' equity as an
adjustment to the cumulative translation account.
7
<PAGE> 8
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
3. SHARE CAPITAL
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
$ $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED
100,000,000 common shares
100,000,000 preferred shares Class A with $5.00 par value
ISSUED AND OUTSTANDING
35,285,184 [December 31, 1999 - 24,617,402] $20,564,162 $15,461,939
--------------------------------------------------------------------------------------------------
</TABLE>
(a) During the first nine months of 2000:
[i] Pursuant to a private placement on February 11, 2000, the Company
issued 7,000,000 common shares for total proceed of $3,500,000.
[ii] Pursuant to a private placement on February 29, 2000, the Company
issued 1,547,300 common shares for $773,650 cash.
[iii] Pursuant to an private placement during the first quarter, 232,500
shares were issued for $116,250 cash.
[iv] 368,748 common shares were issued to directors and employees at
prices from $0.468 and $0.50 per common share in lieu of cash
compensation.
[v] 1,000,000 restricted common shares were issued pursuant to the
purchase of the exclusive worldwide pyrolysis patents from Resource
Transforms International, Ltd on February 10, 2000.
[vi] 184,731 common shares were issued as payment for commercial services
based upon reported share prices ranging from $0.50 to $1.00 per
common share. 330,703 shares were issued pursuant to the exercise of
option with exercise prices ranging from $0.40 to $1.00 per common
share. 3,800 shares were issued pursuant to the redemption of
employee Stock Appreciation Rights.
8
<PAGE> 9
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
3. SHARE CAPITAL (CONT'D.)
<TABLE>
<CAPTION>
$ Number of Shares
---------------------------------------------------------------------------------
<S> <C> <C>
SHARE CAPITAL, DECEMBER 31, 1999 15,461,939 24,617,402
Private placement 4,389,900 8,779,800
Shares issued from exercise of options 167,510 330,703
Shares issued, directors & employees compensation 178,737 368,748
Shares issued, RTI patent purchase 250,000 1,000,000
Shares issued, for commercial services 108,116 184,731
Shares issued, redemption of SARs 7,960 3,800
SHARE CAPITAL, SEPTEMBER 30, 2000
Common shares without par value 20,564,162 35,285,184
---------------------------------------------------------------------------------
</TABLE>
(b) At September 30, 2000 the following stock options to Directors, employees
and others were outstanding:
<TABLE>
<CAPTION>
NO. OF COMMON EXERCISE PRICE
SHARES ISSUABLE $ DATE OF EXPIRY
-----------------------------------------------------------------------------------------------
<S> <C> <C>
935,182 0.40 October 31, 2000 - December 10, 2004
525,000 0.50 January 31, 2001 - January 31, 2005
868,569 1.00 April 30, 2002 - February 2, 2005
2,673,400 1.50 April 30, 2001 - June 14, 2005
20,000 1.95 June 14, 2005
115,000 2.00 January 31, 2001 - December 19, 2002
14,400 2.50 November 1, 2000
6,000 2.75 December 1, 2002
10,000 3.00 November 30, 2000
12,000 3.13 November 15, 2001
3,985 4.00 October 31, 2002
50,000 5.50 November 12, 2001
-----------------------------------------------------------------------------------------------
5,233,536
===============================================================================================
</TABLE>
Options become exercisable at dates determined by the Board of Directors at the
time of granting the option.
9
<PAGE> 10
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
3. SHARE CAPITAL (CONT'D.)
(c) During 1998, the Company established a stock appreciation rights plan
whereby the participants will be entitled to require the Company to redeem the
stock appreciation rights ("SARs") for an amount equal to the excess of the
market value of the underlying common shares over the initial value of the SAR
at the date of grant. The SARs vest as the Company achieves Capitalized Stock
Values as defined in the agreement. The Company also has the rights to redeem
the SARs at its option under certain circumstances. The number of SARs that can
be granted under the plan until December 31, 2008 cannot exceed 2,500,000.
At September 30, 2000, the following stock appreciation rights were outstanding:
<TABLE>
<CAPTION>
INITIAL EXPIRATION
SARS OUTSTANDING VALUE DATE
-------------------------------------------------------------------------------------
<S> <C> <C>
1,255,000 $0.400 January 28, 2004
200,000 $0.625 May 1, 2004
207,500 $1.000 May 1, 2004
75,000 $1.000 March 8, 2004
-------------------------------------------------------------------------------------
1,737,500
=====================================================================================
</TABLE>
During the first nine months of 2000, 1,111,667 of the company's 1,742,500 total
issued SARs vested, having met the first and second vesting provisions of the
company's 1998 SAR Plan as a result of the Capitalized Stock Value of the
company exceeding $50 million over a consistent 20-day trading period. The
precise amount of the company's liability cannot be established until such time
that the SARs are, in fact, redeemed. Based upon the market closing price of
$1.97 for the company's shares as at September 30, 2000, the company would have
been obligated to pay $1,626,032 if all vested SARs had been redeemed on that
date. Under the SAR Plan, the company may elect to make payment of any
redemption liability either in cash or with shares. As of the end of the third
quarter, the company has redeemed a total of 5,000 vested SARs for a total of
$7,960
(d) Warrants outstanding as at September 30, 2000:
<TABLE>
<CAPTION>
NUMBER OF COMMON EXERCISE EXPIRATION
SHARES ISSUABLE PRICE DATE
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series A Warrants(1) -- $6.500 September 9, 2000
Series B Warrants(2) -- $5.375 September 9, 2000
Series C Warrants(3) -- $4.000 May 30, 2000
Series D Warrants 275,000 $3.000 December 22, 2000
Series F Warrants 2,075,000 $1.500 January 1, 2003-March 5, 2005
Series G Warrants 300,000 $2.500 March 1, 2003
Series H Warrants 15,000 $1.750 May 31, 2002
Series I Warrants 15,000 $2.500 May 31, 2002
Series J Warrants 880,000 $2.000 July 31, 2002-July 31, 2003
Series K Warrants 75,000 $1.500 July 31, 2003
-------------------------------------------------------------------------------------------------
</TABLE>
(1) 1,447,586 of the 1,472,000 Series A Warrants required to be issued, as set
out in the Company's Initial Public Offering prospectus dated March 26,
1996, expired on September 9, 2000.
(2) 315,625 Series B Warrants expired on September 9, 2000.
(3) 358,492 Series C Warrants expired on May 30, 2000.
10
<PAGE> 11
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
4. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
<TABLE>
<CAPTION>
THREE MONTHS Three Months NINE MONTHS Nine Months
ENDED ended ENDED ended
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
2000 1999 2000 1999
$ $ $ $
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable 77,210 170,323 167,821 92,300
Government grants receivable (118,407) (64,149) (112,944) 44,885
Inventory (2,794) 9,103 35,156 45,191
Prepaid expenses and deposits (164,094) (92,953) (213,395) 10,878
Deferred Revenue 163,494 32,068 28,276 46,560
Accounts payable and accrued liabilities (1,940) (31,893) (3,503) (223,320)
Loss on Sale of Equipment -- 5,802 24,615 5,802
---------------------------------------------------------------------------------------------------
(46,531) 28,300 (73,974) 22,296
===================================================================================================
</TABLE>
5. SEGMENTED INFORMATION
The Company has five reportable segments. The segments are DynaPower(R),
Actuators, BioTherm(TM), Corporate, and Other. DynaPower(R) is a process for
cleaning metal without the use of chemicals. The actuator technology is used in
both steel and aluminum welding. BioTherm(TM) is a waste-to-energy technology
that converts low value forest waste and agricultural by-products into BioOil,
while Corporate consists of interest and rent. Other includes a pulverizing
technology which disintegrates a variety of solid materials and organic waste
into a form suitable for the production of BioOil.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on many factors, including net income or loss.
11
<PAGE> 12
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
5. SEGMENTED INFORMATION (CONT'D.)
<TABLE>
<CAPTION>
SEPTEMBER 2000 December 1999
$ $
------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Actuator -- 66,197
DynaPower(R) 585,752 1,189,446
BioTherm(TM) 811 4,025
Other -- --
Corporate 90,557 25,126
------------------------------------------------------------------------------------------------
677,120 1,284,794
------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS), see below for further breakdown
Actuator (13,118) 39,005
DynaPower(R) (244,628) (257,110)
BioTherm(TM) (754,567) (822,514)
Other (11,990) (19,400)
Corporate (1,781,365) (1,384,912)
------------------------------------------------------------------------------------------------
(2,805,668) (2,444,931)
------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES (NET OF GRANT),
including patents and non-cash expenditures
Actuator -- 68
DynaPower(R) 109,351 41,775
BioTherm(TM) 572,782 36,086
Other 3,734 258
Corporate 190,206 17,181
------------------------------------------------------------------------------------------------
876,073 95,368
================================================================================================
AMORTIZATION
Actuator 13,118 16,880
DynaPower(R) 72,064 92,555
BioTherm(TM) 96,448 129,689
Other 11,990 19,400
Corporate 25,317 34,160
------------------------------------------------------------------------------------------------
218,937 292,684
================================================================================================
</TABLE>
12
<PAGE> 13
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
5. SEGMENTED INFORMATION (CONT'D.)
<TABLE>
<CAPTION>
SEPTEMBER 2000 December 1999
$ $
-----------------------------------------------------------------------------
<S> <C> <C>
TOTAL ASSETS
Actuator 83,021 95,908
DynaPower(R) 481,518 468,594
BioTherm(TM) 1,173,990 682,226
Other 66,192 73,840
Corporate 3,167,278 991,867
-----------------------------------------------------------------------------
4,971,999 2,312,435
=============================================================================
</TABLE>
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER 2000 December 1999
$ $
-----------------------------------------------------------------------------
<S> <C> <C>
REVENUE
United States 505,860 835,008
Italy 11,206 190,868
Canada 155,100 185,102
Germany -- 66,197
Other 4,954 7,619
-----------------------------------------------------------------------------
677,120 1,284,794
=============================================================================
</TABLE>
DETAILS OF OPERATING INCOME/(LOSS) FOR THE PERIOD ENDING SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ACTUATOR DYNAPOWER BIOTHERM OTHER CORPORATE TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE -- 585,752 811 -- 90,557 677,120
COST OF SALES -- (371,346) -- -- -- (371,346)
------------------------------------------------------------------------------
GROSS MARGIN -- 214,406 811 -- 90,557 305,774
------------------------------------------------------------------------------
EXPENSES
Salaries -- 182,802 167,195 -- 1,141,223 1,491,220
R&D -- 54,299 173,428 -- 9,921 237,648
Interest Expense -- -- -- -- 19,597 19,597
Marketing -- 836,666 177,378 -- 339,041 600,085
Office Supplies/Exp -- 38,926 45,766 -- 85,097 169,789
Professional fees -- 6,752 16,816 -- 170,351 193,919
Royalty -- -- 21,865 -- -- 21,865
Rent -- 20,525 56,482 -- 56,760 133,767
Amortization 13,118 72,064 96,448 11,990 25,317 218,937
(Gain)/loss on asset disposal -- -- -- -- 24,615 24,615
------------------------------------------------------------------------------
TOTAL EXPENSES 13,118 459,034 755,378 11,990 1,871,922 3,111,441
------------------------------------------------------------------------------
NET INCOME/(LOSS) (13,118) (244,628) (754,567) (11,990) (1,781,365) (2,805,668)
==============================================================================
</TABLE>
13
<PAGE> 14
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
6. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Canadian GAAP), which in the case of
the Company, conform in all material respects with those in the U.S. (U.S.
GAAP), except as fully described in note 15 to the consolidated financial
statements as at December 31, 1999.
IF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES WERE FOLLOWED,
THE EFFECT ON THE CONSOLIDATED STATEMENT OF LOSS WOULD BE:
<TABLE>
<CAPTION>
THREE MONTHS Three months NINE MONTHS Nine Months
ENDED ended ENDED ended
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
2000 1999 2000 1999
$ $ $ $
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss for the period, as reported 753,903 553,088 2,805,668 1,964,688
Adjustment for patent cost amortization (1,127) 11,423 (8,940) 19,868
--------------------------------------------------------------------------------------------------------------
Adjustment for stock based compensation employee -- -- -- 7,642
Adjustment for stock based
compensation (commercial)(1) 623,237 -- 816,133 --
Adjustment for variable accounting expenses(2) (188,574) -- 308,142 --
Unrealized gain/(loss) from foreign currency
translation (25,596) -- 51,357 --
--------------------------------------------------------------------------------------------------------------
Loss for the period, as adjusted 1,161,843 564,511 3,972,360 1,992,198
==============================================================================================================
Weighted average number of
common shares outstanding 34,048,212 23,020,981 32,138,953 20,552,431
==============================================================================================================
LOSS PER COMMON SHARE (0.03) (0.02) (0.12) (0.10)
==============================================================================================================
</TABLE>
(1) Stock-based compensation during the third quarter of 2000 based on the
Black-Scholes option pricing model. Stock-based compensation paid to
employees during the same quarter amounts to $68,953 under the same model.
(2) Variable accounting expenses arise from re-pricing of options in December
1999.
CONSOLIDATED BALANCE SHEET ITEMS UNDER ACCOUNTING PRINCIPLES GENERALLY ACCEPTED
IN THE UNITED STATES WOULD BE AS FOLLOWS:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
$ $
-------------------------------------------------------------------------------
<S> <C> <C>
Patents 657,486 449,440
===============================================================================
Total assets 4,708,826 2,232,666
===============================================================================
Convertible debentures -- --
Share deposit 336,013 36,912
Share capital 21,954,593 16,852,369
Contributed surplus 409,030 409,030
Cumulative translation adjustment (361,742) (310,385
Deficit (19,620,470) (15,648,110)
-------------------------------------------------------------------------------
Shareholders' equity 2,717,424 1,339,816
===============================================================================
</TABLE>
14
<PAGE> 15
DYNAMOTIVE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000 (in U.S. dollars)
7. STAFF & BOARD COMPENSATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
2000
$
--------------------------------------------------------------------------------
<S> <C>
Regular payroll 790,723
Consulting fees 350,256
--------------------------------------------------------------------------------
Sub Total $1,140,979
--------------------------------------------------------------------------------
Board compensation(1) 109,722
Staff Bonus(2) 166,943
Overtime settlement(3) 65,616
SAR(4) 7,960
--------------------------------------------------------------------------------
Total $1,491,220
================================================================================
</TABLE>
(1) Board compensation was for services rendered for all of 1999 and for the
first quarter of 2000. Payment was made in restricted common shares.
(2) Staff bonus, approximately 10% of the gross annual amount, for services
rendered in 1999. A significant portion of the payment was made in
restricted common shares.
(3) A one-time settlement of overtime accumulated during previous years.
Payment was made in restricted common shares.
(4) Employee SARs redemption.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-QSB may contain forward-looking statements, within the meaning of
the United States Securities Act of 1933, as amended, and the United States
Securities Exchange Act of 1934, as amended, regarding DynaMotive Technologies
Corporation. Actual events or results may differ materially from the Company's
expectations, which are subject to a number of known and unknown risks and
uncertainties including but not limited to the Company's ability to obtain
financing in the near future, changes and/or delays in product development plans
and schedules, customer acceptance of new products, changes in pricing or other
actions by competitors, and general economic and market conditions. Other risk
factors discussed in the Company's past filings with the United States
Securities and Exchange Commission may also affect the actual results achieved
by the Company.
INTRODUCTION
DynaMotive Technologies Corporation (the "Company") develops and
commercializes environmental technologies that provide clean, competitive
alternatives to traditional industrial processes. Over the past five years, the
Company has successfully commercialized two technologies and is in the process
of bringing its BioOil production technology to market. The Company intends to
be the world's leading developer of technology for the production of BioOil
fuels and derivative products.
DynaMotive was incorporated in 1991, became publicly traded in 1996 and is
currently traded on the OTCBB under the symbol "DYMTF." The Company is
headquartered in Vancouver, BC, Canada and currently has a staff of 50,
including consultants. DynaMotive Europe Limited (formerly named DynaMotive
Technologies UK Ltd.), a wholly owned subsidiary located in London, UK,
coordinates European BioOil activities. The Company's US subsidiary, DynaMotive
Corporation, oversees BioOil activities in the United States from its office in
Los Angeles, CA. A Canadian subsidiary, DynaMotive Canada Inc., was recently
established to develop, build and operate BioOil production facilities in
Canada.
DynaMotive's primary focus is to commercialize its BioOil production
technology and establish this technology as the worldwide industry standard for
production of BioOil clean fuels. To support this goal we plan over the next two
years to expand upon our existing operations in Europe, the U.S. and Canada as
well as to develop commercial presence in Asia and Latin America.
The Company has previously brought two technologies to market: DynaPower
industrial metal cleaning systems, and motion control actuator systems used in
the automotive manufacturing industry. These technologies were commercialized in
1995 and have produced sales to date in eleven countries. The Company sold
certain of its rights to the actuator technology in 1997 but continues to have
ongoing royalty revenue rights.
As of September 30, 2000 DynaMotive has active inventions protected by 25
patents issued and 56 patents pending via in-house development or license, with
the earliest U.S. patent scheduled to expire on September 30, 2013. It has also
entered into license agreements with others that provide for the Company to
receive rights to new patents for technologies and inventions that may be
developed in the future.
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The principal executive office of the Company is Suite 105 - 1700 West 75th
Avenue, Vancouver, British Columbia, Canada V6P 6G2. Telephone: 604-267-6000.
STRATEGIC BUSINESS UNITS
The Company is presently organized into two strategic business units. The
BioOil Business Unit is commercializing a unique waste-to-energy technology that
converts low value forest and agricultural biomass wastes into liquid BioOil
that can be used as a "green" fuel for power generation or as the base source
for a range of derivative products. The DynaPower Business Unit develops and
markets industrial metal wire cleaning systems that provide exceptional levels
of product cleanliness while eliminating the need for toxic chemical cleaning
systems traditionally used by the wire industry. The Company recently
established the DynaPower division as a wholly owned operating subsidiary named
DynaPower, Inc.
BIOOIL BUSINESS UNIT
DynaMotive's BioOil Business Unit develops and markets technology for the
production of BioOil, a renewable "green" fuel made from organic waste that can
be used for power generation in gas turbines, diesel engines and boilers.
DynaMotive aims to position its technology as the worldwide industry standard
for the production of BioOil clean fuels and plans to develop a commercial
presence in key markets -- Canada, Europe, the U.S., Latin America and the Far
East -- over the next five years to support expansion efforts.
BioOil can also be used as the basis for a range of derivative products
including, but not limited to, blended fuels for transportation, slow release
fertilizers and specialty chemicals. The Company continues to pursue its
strategy to secure industrial partners to develop commercial products from
BioOil derivative prototypes developed by DynaMotive. This strategy allows the
Company to leverage its resources.
By virtue of being derived from biomass waste, all BioOil fuels are
considered to be carbon dioxide ("CO2") and greenhouse gas neutral. When
combusted, they produce virtually no sulfur dioxide ("SOX") and significantly
reduced nitrogen oxide ("NOX") emissions compared with diesel fuel, therefore
having significant advantages over fossil fuels with respect to reduction of
atmospheric pollution.
BioOil is produced using DynaMotive's patented fast pyrolysis process --
trade named BioTherm(TM) -- that converts waste forest and agricultural biomass
including, but not limited to, forest industry residues (sawdust, bark,
shavings), sugar cane bagasse and wheat straw into a liquid fuel.
In the BioTherm(TM) reactor, organic waste materials are rapidly heated in
the absence of oxygen. The rapidly vaporized volatiles are then quickly
condensed, forming a liquid referred to as BioOil. Depending upon the feedstock
used (many different sources of feedstock have been bench tested thus far), the
process typically produces 60-70 tons of BioOil and 15-25 tons of charcoal from
100 tons of waste with virtually no waste products. The overall simplicity of
the BioTherm(TM) process gives the Company competitive advantages over other
pyrolysis conversion
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technologies such as lower capital and operating costs, higher product yield, a
significantly higher quality BioOil and the flexibility to process a wide
variety of feedstocks.
In February 2000 the Company acquired the exclusive worldwide patent rights
to the BioTherm(TM) process from Resource Transforms International Ltd. (RTI),
the original developer of the technology, as well as a right of first refusal
for new products derived from BioOil including fuels and slow release
fertilizers that may be developed by RTI.
The Company began producing batch quantities of BioOil in 1997 in its 0.5
tonne per day BioTherm(TM) pilot plant located at the Company's research and
development facility in Vancouver BC. By the end of 1998, the BioOil Business
Unit had upgraded, commissioned and operated the plant to a capacity of two
tonnes per day on a continuous basis. In 1999, further changes were made to the
feed system, BioTherm(TM) reactor, cyclone, and instrumentation and control
systems to provide increased stable operation. Once these changes were made, the
BioTherm(TM) was re-commissioned and produced BioOil of sufficiently high
quality to meet fuel specification requirements as defined by our engine testing
partners.
In March 2000, the Company announced plans for a 10 tonne per day BioOil
pilot facility. Construction of the new demonstration plant is underway and the
project is on schedule, on budget and expected to be completed by the end of
2000. This will be followed by a commissioning period of 3-6 months. The new
plant will be located at B.C. Research Inc. (BCR) in Vancouver BC where
DynaMotive has expanded its operations.
Once the new 10 tpd BioOil plant is fully commissioned, the Company plans
to build a 25 tpd commercial demonstration plant in 2001 which is intended to
serve as a springboard for design and construction of full scale, 100 to 400 tpd
commercial plants to be built in Canada, Europe, Brazil, Asia and other
international markets.
The nearest term and most appropriate commercial application for BioOil is
as a clean burning fuel to replace fossil fuels for generating power and heat in
stationary diesel engines, gas turbines and boilers. In late 1998, the Company
began shipping BioOil from the pilot plant to various engine manufacturers and
users for testing purposes.
In October 1999, the Company signed an agreement with Orenda Aerospace, a
division of Magellan Aerospace Corporation, to test DynaMotive BioOil as a clean
fuel to generate "green" power in their gas turbines. The test program between
DynaMotive and Orenda involves a series of combustion and turbine tests in
Canada and Europe to determine the combustion characteristics, emissions
profile, key aspects of engine performance and the economics for a packaged
power system. In February 2000 Orenda Aerospace completed its initial round of
gas turbine tests with very positive results. A second stage test plan has been
developed and is currently in progress.
In June 2000, the Company signed an agreement with Genergy plc of the UK to
test DynaMotive's BioOil as a clean fuel to generate "green" power in the Solar
Taurus 60 unit which is marketed by Genergy under license, within their Dale Gas
Power turbine range. This testing program is significant as it will further
expand the gas turbine market for potential users of
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BioOil fuels. The testing, which is being coordinated by Genergy, is currently
underway at the Solar facility in San Diego, California.
Solar Turbines, a wholly owned subsidiary of Caterpillar Inc., is the world
leader in industrial turbines in the 1-15 megawatt (MW) capacity. Genergy, a
wholly owned subsidiary of TT Group, has been packaging gas turbines for thirty
years under their Dale brand and Solar Turbines for over twenty years for use in
cogeneration schemes or in static and mobile standby power applications.
The Company's initial target market for BioOil fuel is in Europe where, at
current price projections, BioOil fuel for power generation is likely to be
competitive. Strong regulatory pressures coupled with high SOX, NOX and CO2
taxes on fossil fuels, renewable energy tax incentives and subsidies make BioOil
an attractive renewable energy option in this market. Similar regulatory
pressure and incentives are also creating opportunities in North America that
are being pursued by the Company.
There are also significant opportunities for the application of BioOil as a
fuel for power generation in countries that are heavily reliant on fossil fuel
imports and have a strong agricultural base as a means of replacing fossil fuels
while utilizing an abundant local resource. This is particularly applicable to
island economies (Caribbean/South Pacific) and to certain regions in Latin
America, the Far East, Australia and Africa.
During first quarter 2000, the Company successfully completed a production
run of sugar cane bagasse -- an abundant, solid pulp material remaining after
the extraction of juice from sugar cane. The bagasse was shipped from Usina
Santa Helena, a large sugar mill owned by Cosan Bom Jesus, one of Brazil's
largest sugar and ethanol producers. The resulting BioOil was of high quality.
Validating production of BioOil from sugar cane bagasse was a major milestone in
the commercial development of the Company's BioOil technology, opening up
significant opportunities for commercial applications of the technology in sugar
producing countries worldwide. A second stage bagasse testing program is now
underway.
In May 2000, DynaMotive announced a CDN $250,000 contribution from Natural
Resources Canada (NRCan) to support ongoing research and development of BioOil.
The investment from the Canadian federal government reinforces Canada's
commitment to alternative, environmentally friendly fuels. It will help improve
DynaMotive's BioOil production technology and further the development of
renewable BioOil fuels and derivative products. NRCan's CANMET Energy Technology
Centre will provide laboratory support to DynaMotive and research data on the
combustion of BioOils.
The Company has participated in two important renewable energy conferences
and trade fairs this year. Chief Technology Officer Keith Morris presented a
technical paper at the 1ST World Conference & Exhibition On Biomass For Energy &
Industry in Seville, Spain in June; DynaMotive Europe staff exhibited at the
Renewable Energy 2000 conference and trade fair held in Brighton, UK July 1-4.
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Five patents have been issued and 16 patents are pending for the Company's
BioOil related technology. Thirteen patents are issued and active for the
Company's BioLime(R) technology with three patents pending.
DYNAPOWER BUSINESS UNIT
The Company's DynaPower(R) technology cleans ferrous and non-ferrous metals
in a cost-effective manner without acids, caustics or solvents traditionally
used by the steel and wire industry, thus eliminating the risks and costs
associated with handling harmful chemicals and disposing of hazardous waste. The
metal wire cleaning system uses bipolar electrolysis and ultrasound
(DynaSonics(R)) to peel away scale, remove lubricants and create a metal surface
that is exceptionally clean, dry, pH-neutral and rust-resistant. The DynaPower
Business Unit focuses on the following product applications: stainless steel,
mid and high carbon steel, extrusion clad steel, copper and aluminum wire
products.
DynaPower(R) technology also allows the customer to use the process to
create specialized metal surfaces ready for standard industry metal treatments
such as electroplating, hot-dip zinc coating and rubber adhesion. The Company's
wire cleaning equipment can continuously process wire at a rate comparable to or
better than conventional chemical cleaning processes but without the added
expenses and hazards otherwise encountered when using acid, caustics or
solvents.
In the third quarter of 2000, DynaPower sold a cleaning system to Sural
S.p.A., Italy. The sale of this system follows successful cleaning trials it
conducted at the company's facilities in Italy.
DynaPower recently completed delivery of wire cleaning systems to American
Spring Wire, Bedford Heights, OH; Greening Donald Ltd., Erin, ON; and Andrew
Corporation, Orland Park, IL. All three systems have been commissioned and are
operating at full production capacity. In addition, all three are repeat orders.
American Spring Wire is a world leader in the manufacture valve quality spring
wire used in automotive engines. Greening Donald is one of North America's
leading producers of stainless steel and specialty wire, woven wire cloth and
perforated tube products. Andrew Corporation is a world leader in the
manufacture of communications equipment.
An extensive study was conducted into the market for DynaPower systems in
China. DynaPower is currently working on establishing an agent for the Chinese
market.
The Company has also filed patents in the USA and Canada for a new
application of its DynaSonics(R) cleaning technology that it believes has
significant commercial potential for ultrasonic cleaning of wire drawing dies.
The Company has developed a novel process for cleaning diamond or tungsten
carbide dies which are used by the wire industry for drawing a variety of metal
wires. Die makers and wire mills have been aggressively looking for an effective
cleaning process to replace old, ineffective and slow processes. DynaMotive
believes that its new technology can be used by die makers to quickly and
effectively clean their dies during the manufacturing or servicing processes and
by wire mills to clean their dies during regular maintenance. The Company
anticipates it will begin in-plant trials shortly.
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DynaPower staff showcased its wire cleaning technology at two major wire
industry trade fairs so far this year: Wire 2000 -- Europe's largest wire
industry trade show held in Dusseldorf, Germany and Wire Expo 2000 in Nashville
TN. In-plant trials were arranged in North America and Europe from contacts
obtained at these wire shows.
DynaMotive currently holds seven patents on this technology with 37 patents
pending.
RESULTS OF OPERATIONS
Total revenues for the Company decreased to $179,215 for the third quarter
of 2000 compared to $376,165 for the same quarter in 1999. Sales revenue
accounted for $138,760 of total revenues in the third quarter of 2000; the
remainder $40,455 was from interest and other income. During the third quarter
of 1999, sales revenue accounted for $369,015 while interest and other income
totaled $7,150. Total revenue for the nine months ending September 30, 2000
decreased to $677,120 from $811,693 for the same period in 1999. Sales revenue
accounted for $584,511 of total revenues in the first nine months of 2000; the
remainder, $92,609, was from interest and other income. During the first nine
months of 1999, sales revenue accounted for $789,752 while interest and other
income totaled $21,941.
The loss for the third quarter of 2000 was $753,903 as compared to $553,087
for the same period in 1999. The result is a combination of lower sales, cost of
sales and higher marketing and general administrative salaries and benefits. Use
of cash in operating activities for the third quarter of 2000 increased to
$599,687 compared to $464,776 in the same quarter in 1999. The result is due to
an increased cash loss of $61,080 and increased working capital accounts of
$73,831 over the same period in 1999, which included changes in accounts
receivable, accounts payable, prepaid expenses and deferred revenues. The loss
for the first nine months of 2000 was $2,805,668 as compared to $1,964,686 for
the same period in 1999. The result is a combination of lower cost of sales and
higher marketing and general administrative salaries and benefits. Use of cash
in operating activities for the first nine months of 2000 increased to
$1,954,946 compared to $1,736,444 during the same period in 1999. The result is
due to an increased cash loss of $122,232 and increased working capital accounts
of $96,270 over the same period in 1999, which included changes in account
receivable, in accounts payable and deferred revenues.
The loss per common share was two cents ($0.02) for the third quarter of
2000 is the same as the third quarter in 1999. Even though the loss for the
third quarter of 2000 increased as compared to the same quarter in 1999, the
loss per share remained the same due to an increase in the weighted average
number of shares outstanding at September 30, 2000. The loss per common share
for the first nine months of 2000 was nine cents ($0.09) is slightly less than
the loss per share ($0.10) for the same period in 1999. Even though the loss for
the first nine months of 2000 is higher, the loss per share decreased slightly
due to an increase in the weighted average number of shares outstanding at
September 30, 2000. The end-of-period deficit increased from $13,697,665 at
September 30, 1999 to $16,983,579 at September 30, 2000 due to accumulated loss
incurred during the period.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash equivalent and term deposits
of $2,128,402, an increase of $1,904,633 from the $223,769 as at December 31,
1999. The primary sources of liquidity for the Company during the third quarter
of 2000 were from the Company's private placement offerings totaling $4,389,900
in the first quarter. At the end of the same quarter in 1999, the Company had
cash and cash equivalents of $457,003. Primary sources of liquidity for the
third quarter of 1999 were from the Company's private placement offerings.
During the third quarter of 2000, the Company used cash in operating, in
investing, and in financing activities in the amounts of $599,687, $335,041, and
$17,472, respectively. For the same quarter in 1999, the Company used cash in
operating, in investing, and in financing activities in the amounts of $464,776,
$15,848, and $7,082, respectively.
Cash used in operating activities for the third quarter of 2000 consists of
a loss for the period of $753,903, was partially offset by amortization, and
non-cash compensation expenses in the amount of $73,841 and $126,906,
respectively. Non-cash working capital items increased by $46,531 during the
third quarter of 2000. Cash used for the same quarter in 1999 in operating
activities consisted of a loss of $553,088, which was partially offset by
amortization of $60,012 and decrease in non-cash working capital balances of
$28,300.
Financing activities for the third quarter of 2000 included a repayment of
short-term debt of $24,336. Investing activities resulted in a net decrease of
cash by $335,041 for the third quarter of 2000 consisted of $316,293 incurred in
acquisitions and upgrades of capital assets, and $18,748 in patent expenditures.
For the same quarter in 1999, investing activities resulted in the net decrease
in cash by $15,848.
Successful completion of the Company's product development program, and its
transition, ultimately, to attaining profitable operations is dependent upon
obtaining additional financing adequate to continue its research and development
activities, and achieving a level of revenues adequate to support the Company's
cost structure. Management intends to obtain this financing primarily through
the offering of securities and other forms of financing. However, there can be
no assurance that the Company will be able to obtain such financing, which may
impact the Company's ability to continue as a going concern. While the Company
believes that it has sufficient operating revenue and cash reserves to fund
ongoing operations for the year 2000, it is in the process of seeking additional
funding in connection with further development for its BioOil division.
RECENT DEVELOPMENTS AND FUTURE EVENTS
BIOOIL BUSINESS UNIT
During third quarter 2000, work continued on DynaMotive's new 10 tpd BioOil
demonstration plant located at the BC Research Inc. (BCR) facilities. BCR, a
technology
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development complex located at UBC in Vancouver, has taken an equity
position in DynaMotive which plans to further expand its operations and R&D
program at the facility.
The Technology Group has completed all detailed design engineering and
procurement for the new BioOil plant, and is now fully engaged in the next phase
of the project, construction and assembly, which is expected to completed by the
end of this year. The larger plant will enable the Company to validate the
process technology at the next level of scale-up and to test the new equipment.
The plant has been built to industrial specifications complete with state of the
art control systems used worldwide in commercial facilities. With a production
capacity of 6,000 litres of BioOil per day, it will provide much larger
quantities of BioOil for engine and combustion test programs.
Orenda Aerospace, a division of Magellan Aerospace Corporation, has
initiated a second phase program to develop a commercial gas turbine package to
operate on DynaMotive's BioOil fuel following a successful first round of fuel
tests earlier this year. The program involves completion of turbine
modifications required for Orenda's 2.5 MW (megawatt) GT2500 gas turbine to run
on BioOil, coupled with a full scale engine testing program in Canada and Europe
to validate long-term commercial operation of BioOil fuelled gas turbines.
In a testing program earlier this year, DynaMotive's BioOil proved to be
the first pyrolysis oil capable of being used as a commercial fuel in Orenda's
gas turbines for power generation purposes. The tests demonstrated that BioOil
can both effectively power a gas turbine engine and simultaneously reduce
emissions compared to traditional fossil fuels. Based on the results of these
initial tests, Orenda has now started a development program to produce the
technology to run its turbines successfully on this fuel. The engine
modifications required are currently in progress. Orenda and DynaMotive are
currently evaluating various commercial scenarios for the integrated package
which involve stacking multiple turbines in combined cycle mode to produce
15-20 MW of electricity.
Brazilian sugar producer Cosan Bom Jesus and DynaMotive have begun 2nd
stage testing of bagasse aimed at optimizing technical design for bagasse-based
BioOil pyrolysis plants. Preliminary production runs earlier this year have
proven DynaMotive's capabilities to produce BioOil from bagasse -- an abundant,
solid pulp material remaining after the extraction of juice from sugar cane.
Bagasse will be supplied from one of Cosan's sugar mills in Brazil for this
program. The launching of the second phase testing program as a precursor for
the development of bagasse-specific technology is a critical step in the
development program. During this stage, the Company will concentrate on
optimizing the design for a bagasse-fed BioOil pyrolysis plant and further
validating the applications, fuel quality and chemical composition of BioOil
made from bagasse.
DynaMotive also recently completed a series of production runs converting
100% softwood bark derived from spruce, pine and fir into fuel quality BioOil.
From a commercial perspective, demonstrating the capability to produce a fuel
quality BioOil from both bark and bark/white wood blends is a significant
milestone, opening up the entire wood residue market to the Company's BioOil
production technology.
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Lower value bark residues are a major problem for the forest industry as
bark has little or no value and is costly to dispose of. Canada produces
approximately 18 million tonnes of sawmill residues per year of which 5 to 6
million tonnes are considered wastes and are subsequently incinerated or
landfilled. This wood waste could potentially be converted to 15 million barrels
of BioOil per year and represents a significant commercial opportunity for
DynaMotive.
DYNAPOWER BUSINESS UNIT
In July 2000, the Company announced that it has established the DynaPower
wire cleaning division as a wholly owned operating subsidiary to be named
DynaPower, Inc. James Alexander, formerly General Manager of the division, was
appointed President & CEO and Andrew Kingston was appointed Chairman of the
Board of the new Company. DynaMotive Technologies Corporation will continue to
hold the intellectual property rights to the patented DynaPower(R) and
DynaSonics(R) metal cleaning technologies and will license these technologies to
DynaPower, Inc. The subsidiary has moved to new headquarters in Vancouver, BC
where it will conduct day to day operations and expand its marketing activities.
During the third quarter of 2000, the Company completed the general design
of its new die cleaning system using its patented DynaSonics(R) technology.
Following successful pilot scale demonstration of the cleaning speed and
effectiveness of the new system, the Company has received significant interest
from major die makers in the U.S. It plans to build two prototype cleaning
stations by the end of December 2000 which will be ready for in-plant trials in
early 2001.
OPERATING SUBSIDIARIES
DynaMotive has now established operating companies in Europe, the US and
Canada; the Company intends to establish additional companies in Brazil, the Far
East and other key markets. The main function of these subsidiaries is the
development and implementation of market specific strategies for the
establishment of our technology in their specific markets. The subsidiaries will
develop, build and operate BioOil production facilities in their regions,
license the BioTherm technology and market BioOil as a greenhouse gas neutral
fuel in domestic and international markets. DynaMotive will continue to develop
its BioOil technology, conduct R&D on BioOil fuels and derivative products, and
provide services to the operating companies.
DynaMotive recently announced the establishment of DynaMotive Canada Inc.
and the appointment of its board and senior management team. The primary mandate
of the wholly owned subsidiary is to develop, build and operate BioOil
production facilities in Canada and to market BioOil as a greenhouse gas neutral
fuel in domestic and international markets.
The newly formed Canadian subsidiary has an experienced board and
management team, with a proven track record in technology development, energy,
environment and management. The Board of Directors is chaired by Ken McCready
(former President & CEO of TransAlta Corporation) and includes Dr. Jim Miller
(Chairman and former President & CEO of Inex Pharmaceuticals Inc.) and Andrew
Kingston (President and CEO of DynaMotive Technologies).
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Jonathan Rhone has been appointed Chief Operating Officer. The team is supported
by a number of senior consultants including Alan Cornford, Brian McCloy and
Christopher Henderson.
Establishing DynaMotive Canada Inc. is an important step in commercializing
the Company's BioOil technology. The Company intends to tap Canada's vast
reserves of biomass, particularly forest and agro waste by-products, to produce
clean burning BioOil for domestic and export markets and believes that the
application of BioOil as an alternative to fossil fuel, initially in power and
heat markets and later in transportation markets, has the potential to help
Canadian industry achieve significant reductions in greenhouse gases.
DynaMotive Europe Limited has moved to new corporate offices in Central
London and begun staffing the office in preparation for increased European
BioOil development operations. A fuel testing agreement is currently underway to
test DynaMotive's BioOil in the Solar Taurus 60 unit which is marketed by
Genergy under license. DynaMotive Europe continues to work with potential BioOil
strategic partners in the UK and Europe to conduct market and commercial
research for BioOil production and applications in Europe and to broaden the
awareness of the European and international activities of the DynaMotive group
of operating companies to UK and European financial institutions and investors.
During the third quarter of 2000, the Company's US subsidiary, DynaMotive
Corporation, continued its preliminary market research program into
opportunities in the US market. The Company intends to actively pursue those
commercial opportunities in the 4th quarter of 2000 and into 2001. Being well
positioned in the US renewable energy market is key to furthering the commercial
prospects of the Company, particularly with deregulation of electricity and the
rising cost of fossil fuel. DynaMotive US is pursuing opportunities in agra
waste products (sugar cane bagasse, wheat straw, etc.) as well as forest
by-products. Furthermore DynaMotive US has established contacts with engine
manufacturers for further testing of its greenhouse gas neutral fuel.
DynaMotive has been added to an investor tracker in the UK and an index in
Canada that track the growth of environmental and renewable energy public
companies and compare their growth with that of established exchanges or
investment funds. The Renewable Energy Tracker appears monthly in the Financial
Times Renewable Energy Report. The Climate Change Innovative Technologies Index
is published in Environmental Business Canada by Ottawa-based The Delphi Group.
The FT Renewable Energy Tracker is an indicator of the overall industry
performance of dedicated companies, now including DynaMotive, in the
international renewable energy sector. The FT Renewable Energy Tracker is
compared to the Impax Capital Environmental Technology-50 Index (ICET-50) -- a
performance tracking index dedicated solely to public quoted companies that have
core businesses in the development and operation of environmental technologies.
The Delphi Group's Climate Change Innovative Technologies Index tracks 11
publicly traded companies in Canada, all engaged in developing solutions to
tackle the growing issue of climate change by reducing greenhouse gases that are
being pumped into the atmosphere. In
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addition to DynaMotive, companies on the index include Ballard Power Systems
(fuel cell development), Westport Innovations (developers of a system to convert
diesel engines to natural gas) and Global Thermoelectric (electric generator and
cell-development).
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PART II -- OTHER INFORMATION
ITEM 1. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Board approved during the third quarter of 2000, the allotment and
issuance of 1,075,000 Warrants to various consultants in lieu of cash
compensation. Of these warrants, 890,000 were granted and the remaining 185,000
are reserved for future allocation by the Compensation Committee of the Board.
During the first nine months of 2000, 1,111,667 of the Company's 1,742,500
total issued SARs vested, having met the first and second vesting provisions of
the Company's 1998 SAR Plan as a result of the Capitalized Stock Value of the
Company exceeding $50 million over a consistent 20-day trading period. The
precise amount of the Company's liability presently cannot be established until
such time that the SARs are, in fact, redeemed. Based upon the market closing
price of $1.97 for the Company's shares as at September 30, 2000, the Company
would have been obligated to pay $1,626,032 if all vested SARs had been redeemed
on that date. Under the SAR Plan, the Company may elect to make payment of any
redemption liability either in cash or with shares. As of the end of the third
quarter, the Company has redeemed a total of 5,000 vested SARs for a total of
$7,690. During the first nine months of 2000, two thirds (2/3) of the Escrow
shares (450,666) have also vested based on the release provisions of the SAR's
Plan. Of the 450,666 shares, a total of 225,333 have been released from escrow
in May, 2000 and balance was released in July, 2000.
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
------- -----------
3.1 Company Act Memorandum of DynaMotive Technologies Corporation,
as amended to date.
3.2 Articles of DynaMotive Technologies Corporation, as amended to
date.
The Exhibits are incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 2000.
(b) Reports on Form 8-K
None.
27
<PAGE> 28
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DYNAMOTIVE TECHNOLOGIES
CORPORATION
Date: November 13, 2000 /s/ Andrew Kingston
-------------------------------------
Andrew Kingston
President and Chief Executive Officer
Date: November 13, 2000 /s/ Steve Ives
-------------------------------------
Steve Ives
Chief Financial Officer
28
<PAGE> 29
EXHIBIT INDEX
Exhibit Description
------- -----------
3.1 Company Act Memorandum of DynaMotive Technologies Corporation,
as amended to date.
3.2 Articles of DynaMotive Technologies Corporation, as amended to date.
29
