Dynamotive Energy Systems (DYMTF) Inactive
Filed: 20 Aug 09, 12:00am
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DYNAMOTIVE ENERGY SYSTEMS CORPORATION
Unaudited Interim Consolidated Financial Statements
For the six months ended June 30, 2009
(In U.S. Dollars)
NOTICE TO READER
The financial statements of Dynamotive Energy Systems Corporation and the accompanying interim consolidated balance sheet as at June 30, 2009 and the interim consolidated statements of loss, changes in shareholders’ equity and cash flows for the six months period then ended are the responsibility of the Company’s management. These consolidated financial statements have not been reviewed on behalf of the shareholders by the independent external auditors of the Company.
The interim consolidated financial statements have been prepared by management and include the selection of appropriate accounting principles, judgments and estimates necessary to prepare these financial statements in accordance with Canadian generally accepted accounting principles.
Contents
Consolidated Financial Statements
Consolidated Balance Sheets
2
Consolidated Statements of Loss and Comprehensive Loss
3
Consolidated Statements of Changes in Shareholders’ Equity
4
Consolidated Statements of Cash Flows
5
Notes to Consolidated Financial Statements
6 - 14
Dynamotive Energy Systems Corporation
Unaudited Consolidated Balance Sheets
(expressed in U.S. dollars)
| June 30, | December 31, |
| 2009 | 2008 |
| (Unaudited) | (Audited) |
| $ | $ |
| ||
ASSETS | ||
Current | ||
Cash and cash equivalents |
40,944
39,927
Receivables
58,026
20,339
Government grants receivable
43,011
336,265
Prepaid expenses and deposits
264,282
321,587
Total current assets
406,263
718,118
Property, plant and equipment
34,581,637
32,769,583
Patents
190,672
193,171
Long-term investments[note 4]
243,443
231,098
Long-term deferred assets[note 5]
640,914
608,413
TOTAL ASSETS
36,062,929
34,520,383
LIABILITIES and SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities[note 6]
8,819,026
9,866,822
Short-term and related party debt
1,242,348
1,257,289
Current portion of long-term debt[note 5]
35,900
35,900
Total current liabilities
10,097,274
11,160,011
Long-term debt[note 5]
245,317
263,267
Asset retirement obligation liability[note 7]
257,397
229,312
Deferred revenue[note 8]
743,182
705,495
Total liabilities
11,343,170
12,358,085
Shareholders’ Equity
Share capital[note 9(b)]
115,953,622
112,883,411
Shares to be issued[note 9(c)]
1,837,517
1,837,398
Contributed surplus
26,443,016
24,729,955
Accumulated other comprehensive loss
(611,939)
(1,612,018)
Deficit
(118,902,457)
(115,676,448)
Total shareholders’ equity
24,719,759
22,162,298
TOTAL LIABILITIES and SHAREHOLDERS’ EQUITY
36,062,929
34,520,383
The accompanying notes are an integral part of these financial statements
Approved by:
“R. Andrew Kingston”
President & CEO
“Richard C. H. Lin” Chairman
2
Dynamotive Energy Systems Corporation
Unaudited Consolidated Statements Of Loss
and Comprehensive Loss
(expressed in U.S. dollars)
The accompanying notes are an integral part of these financial statements
3
Dynamotive Energy Systems Corporation
Unaudited Consolidated Statement Of Changes
In Shareholders’ Equity
(expressed in U.S. dollars)
|
|
|
| Accumulated |
|
|
|
| Shares |
| Other |
|
|
| Share | To be | Contributed | Comprehensive |
|
|
| Capital | Issued | Surplus | Income (loss) | Deficit | Total |
| $ | $ | $ | $ | $ | $ |
Balance, January 1, 2008 (audited) |
109,133,395
1,265,070
22,663,941
5,422,751
(87,320,183)
51,164,974
Issued for cash and proceeds received since prior year
Pursuant to private placement, net of issuance costs
3,273,027
—
—
—
—
3,273,027
Pursuant to exercise of stock options
126,780
—
—
—
—
126,780
Pursuant to exercise of warrants
127,340
—
—
—
—
127,340
Issued for services
222,869
—
—
—
—
222,869
Net change in shares to be issued
—
572,328
—
—
—
572,328
Warrant allocation for private placement
—
—
413,173
—
—
413,173
Stock-based compensation expense
—
—
1,652,841
—
—
1,652,841
Net loss
—
—
—
—
(28,356,265)
(28,356,265)
Foreign currency translation adjustment
—
—
—
(7,034,769)
—
(7,034,769)
Balance, December 31, 2008 (audited)
112,883,411
1,837,398
24,729,955
(1,612,018)
(115,676,448)
22,162,298
Issued for cash and proceeds received in since prior year
Pursuant to private placement, net of issuance costs
1,316,018
—
—
—
—
1,316,018
Issued for settlement of fees payable
1,175,995
—
—
—
—
1,175,995
Issued for services
578,198
—
—
—
—
578,198
Net change in shares to be issued
—
119
—
—
—
119
Warrant allocation for private placement
—
—
1,259,308
—
—
1,259,308
Stock-based compensation expense
—
—
453,753
—
—
453,753
Net loss
—
—
—
—
(3,226,009)
(3,226,009)
Foreign currency translation adjustment
—
—
—
1,000,079
—
1,000,079
Balance, June 30, 2009
115,953,622
1,837,517
26,443,016
(611,939)
(118,902,457)
24,719,759
The accompanying notes are an integral part of these financial statements.
4
Dynamotive Energy Systems Corporation
Unaudited Consolidated Statements Of Cashflow
(expressed in U.S. dollars)
The accompanying notes are an integral part of these financial statements.
5
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
1. DESCRIPTION OF BUSINESS
In this Report, unless the context otherwise requires, the terms the "Company" and "Dynamotive" refer to Dynamotive Energy Systems Corporation and its subsidiaries. The Company is listed on the over-the-counter bulletin board (OTCBB) under the symbol: DYMTF.OB. The executive office of the Company is Suite 140 – 13091 Vanier Place, Richmond, British Columbia, Canada V6V 2J1 (Telephone: 1-604-295-6800).
Dynamotive was incorporated on April 11, 1991 under the laws of the Province of British Columbia. The Company changed its name from Dynamotive Technologies Corporation on June 26, 2001. Dynamotive is focused on the development of innovative energy solutions on its patented fast pyrolysis system. The Company’s focus is to commercialize its patented BioOil production technology and establish this technology for production of BioOil clean fuels.
Dynamotive Energy Systems Corporation (the “Company” and or “Dynamotive”) is commercializing a biomass-to-liquid fuel conversion using a process known as “Fast Pyrolysis” which uses biomass or biomass waste feedstocks to produce BioOil as a fuel and char. BioOil is a clean, renewable fuel which can replace natural gas, diesel and other fossil fuels in certain applications to produce power, mechanical energy and heat in industrial boilers, fuel gas turbines and fuel reciprocating engines. The Company aims to unleash significant amounts of energy production, in the form of BioOil fuels, based upon utilization of abundant biomass waste streams from agricultural and forest operations and other post-industrial biomass residues. The process of biomass to energy conversion is sustainable, renewable and greenhouse gas neutral, and competes with other renewable energy sources such as wind, hydro and solar. One significant advantage of biomass ene rgy over other renewable forms of energy, is that biomass is capable of delivering energy on a 24/7 basis, whereas wind, hydro and solar energy sources are all subject to natural weather fluctuations.
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Dynamotive Canada Inc., federally incorporated under the laws of Canada; Dynamotive USA Inc. incorporated under the laws of Delaware, U.S.A.; Dynamotive Latinoamericana S.A., incorporated under the laws of Buenos Aires, Argentina; First Resources Corporation, incorporated under the laws of British Columbia; Dynamotive Europe Limited, formally known as Dynamotive Technologies (UK) Ltd, incorporated in the United Kingdom; Dynamotive Biomass Resource Corporation (“DBRC”), incorporated under the laws of British Columbia and owns a 99.98% interest in the West Lorne BioOil Co-Generation LP, formed under the laws of Ontario, Canada.
All inter-company balances and transactions have been eliminated on consolidation.
These financial statements have been prepared on the going concern basis, which presumes the Company will be able to realize its assets and discharge its liabilities in the normal course of operations for the foreseeable future.
6
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
2. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited balance sheet at June 30, 2009 and the unaudited interim statements of loss and deficit and cash flows for the six-month periods ended June 30, 2009 and 2008, in the opinion of management, have been prepared on the same basis as the audited consolidated financial statements of the Company for the year ended December 31, 2008. These interim financial statements include all adjustments necessary for the fair statement of results of the interim periods. The data disclosed in the notes to the interim consolidated financial statements for this period are also unaudited. Results for the six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year. These interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2008, and the summary of significant accounting policies included therein.
The accounts of the Company and its consolidated subsidiaries are measured using the Canadian dollar as the functional currency. Monetary items denominated in foreign currencies are translated into Canadian dollars using exchange rates in effect at the balance sheet date and non-monetary items are translated using historical exchange rates. Exchange gains or losses arising on the translation or settlement of foreign currency denominated monetary items are included in the determination of net income.
The Company uses the U.S. dollar as the reporting currency for its consolidated financial statements. Assets and liabilities are translated into U.S. dollars using current exchange rates in effect at the balance sheet date and revenue and expense accounts are translated using the average exchange rate during the Six months. Gains and losses resulting from this process are recorded in shareholders’ deficit as an adjustment to the cumulative translation adjustment account.
3. CHANGE IN ACCOUNTING POLICY
Effective January 1, 2009, the Company adopted the CICA Handbook Section 3064 “Goodwill and Intangible Assets”. This standard, which replaces Canadian GAAP section 3062, “Goodwill and Other Intangible Assets” and 3450, “Research and Development Costs” provides guidance relating to the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The adoption of this standard did not impact the Company’s financial statements.
Future Accounting Changes
Transition to International Financial Reporting Standards (“IFRS”)
In February 2008, the Canadian Accounting Standards Board confirmed that IFRS will replace Canadian GAAP for publicly accountable enterprises for interim and annual financial statements for fiscal years beginning on or after January 1, 2011. The standard also requires that comparative figures for 2010 be based on IFRS. The Company is currently assessing the future impact of IFRS adoption on its financial statements and will continue to invest in training and additional resources to ensure a timely conversion.
4. LONG TERM INVESTMENTS
As at June 30, 2009, Dynamotive holds 3,874,139 (2008 – 3,874,139) common shares of Renewable Energy Corp (“ROC”) incorporated in Victoria, Australia, a subsidiary of Enecon Pyrolysis Pty Limited. It represents an 8.0% (2008 – 8.0%) interest in the entity.
7
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
5. LONG TERM DEFERRED ASSET
In April 2007, the Company entered into amended agreements with Erie Flooring and Wood Products (“Erie”) regarding the supply by Erie of wood chips to the West Lorne BioOil plant over the next 12 years at no charge and the provision of char from the BioOil plant to Erie at no charge. In relation to these agreements, Dynamotive has paid for the purchase and installation of a char based boiler system and related char delivery infrastructure at Erie. The asset will be amortized evenly over the remaining life of the wood supply contract commencing when the Company begins to amortize the West Lorne plant. In 2008 the Company conducted a review of realizable value from its property plant and equipment in West Lorne and Guelph and as a result has recorded an impairment provision of which $196,855 was allocated to the long term deferred asset.
To facilitate the purchase of the boiler system, the Company borrowed $359,000 from Erie. This amount is being repaid to Erie in equal monthly payments plus 8% interest over a 10-year period. The first payment was made in May 2007. As at June 30, 2009, the Company owed Erie $281,217 (2008 - $317,117).
Long-term debt repayment schedule:
| 2009 |
| $ |
2009 – 2010 (Current) | 35,900 |
2010 – 2011 | 35,900 |
2011 – 2012 | 35,900 |
2012 – 2013 | 35,900 |
2013 – 2014 | 35,900 |
Thereafter | 101,717 |
| 281,217 |
6. GUARANTEE PROVIDED BY DYNAMOTIVE
In 2001, Border Biofuels Limited (“BBL”) a company 75% owned by Dynamotive, entered into a credit facility with a UK bank (the “Bank”) for a maximum of $328,980 (£200,000). The credit facility is denominated in British Pounds Sterling and is guaranteed by the Company. During 2002 BBL became insolvent. If the Bank is unable to realize on its collateral with BBL, it has the right to seek settlement from the Company for payment. Although there is currently no indication that theBank will pursue the Company, the Company in 2002 recognized the full amount of the guarantee as a current liability. BBL remains in liquidation at June 30, 2009 and there has been no change in status regarding the settlement of the credit facility.
8
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
7. ASSET RETIREMENT OBLIGATION
The Company expects that at the end of the life of its production plants, there will be residual obligations to remediate the sites and remove equipment. Although the timing and amount of the future obligations are uncertain, the Company has estimated the present value of these future obligations arising from its activities to June 30, 2009 to be $257,397 (2008 - $257,616), being $128,698 (2008 - $128,808) for West Lorne and $128,699 (2008 - $128,808) for Guelph. The present value of the future obligations assumes a discount rate of 15%, an inflation rate of 2% and the commencement of reclamation activities in 15 years from January 1, 2007. The total undiscounted amount of the future obligation is $2,000,000. For the period ended June 30, 2009, the Company recorded $15,265 (2008 - $18,275) in accretion expense which was charged to the Consolidated statement of loss.
The Company is currently reviewing scenarios including the possibility of relocating one of its plants this year. Although the likelihood of relocation cannot be determined at this time, the total undiscounted amount of future obligations associated with a relocation this year would be $745,760 and had been included in the asset retirement obligation at its discounted value.
8. DEFERRED REVENUE
In 2006, the Company received a total of $950,000 in non-refundable payments from Six unrelated companies as licensing fees. $500,000 from Rika Ltd. as payment for a Master License to develop project opportunities in the Ukraine and the Baltic republics using Dynamotive’s patented pyrolysis technology; $150,000 from Classic Power Inc. as an initial payment on a Plant License for Guelph, Ontario, Canada; $200,000 from Renewable Oil Corporation Pty Ltd. (“ROC”) for a Master License to develop project opportunities in Australia and $100,000 from ROC as a deposit on an initial Plant License.
In the first quarter of 2008, the Company recognized Rika Ltd. master license fee of $500,000 at the end of the agreement term. In the forth quarter of 2008 the Company decided to write-off against this revenue the related loan to entities controlled by Rika of $330,000 ($321,894 after foreign exchange effects). These amounts have been removed from the deferred revenue balance. In 2007, deferred revenue was net of the $330,000 loan to entities controlled by Rika Ltd.
In 2007, the Company received common shares of ROC with a fair value of $300,000 as compensation for engineering services performed. The Company subsequently transferred common shares of ROC with a fair value of $150,000 to a sub-contractor as partial settlement for services provided to ROC by the sub-contractor on behalf of the Company. These amounts are included in deferred revenue.
Differences between the amounts described above and deferred revenue per the Balance Sheet result from the Company’s foreign exchange translation policy.
9
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
9. SHARE CAPITAL
[a] Authorized share capital
The Company’s authorized capital consists of an unlimited number of common shares with no par value and unlimited Class A preferred shares with no par value each having attached special rights and restrictions. No preferred shares were issued and outstanding atJune 30, 2009.
[b] Issued and outstanding share capital
| June 30, 2009 | December 31, 2008 |
| $ | $ |
|
|
|
Issued and outstanding |
|
|
Common Shares 241,623,879 [December 31, 2008 –221,312,201] | 115,953,622 | 112,883,411 |
Common Share Issuance Summary for the Period | $ | Number of Shares |
|
| |
Share Capital, December 31, 2008 | 112,883,411 | 221,312,201 |
Private placement issued for cash, net of finder’s fee | 1,316,018 | 9,400,130 |
Issued for settlement of amounts payable | 1,175,995 | 9,356,475 |
Share issued for commercial services | 578,198 | 1,555,073 |
| ||
Share Capital, June 30, 2009 | ||
Common shares without par value | 115,953,622 | 241,623,879 |
|
[c] Shares to be issued
AtJune 30, 2009, the Company has 4,498,429 common shares to be issued which are comprised of:
[i]
4,077,312 common shares which are to be issued tosenior management, directors and non-employees for services rendered under compensation arrangements with a fair value of $1,469,214.
[ii]
421,117 common shares which are to be issued to directors and officers as bonuses for the previous years with a fair value of $368,303.
10
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
9. SHARE CAPITAL (CONT’D)
[d] Stock options
AtJune 30, 2009, the following stock options to Directors, employees and others were outstanding:
| Options Outstanding | Options Exercisable | |||
| Number | Weighted- | Weighted- | Number | Weighted-Average |
|
|
|
|
|
|
$0.19 - $0.24 | 8,780,973 | 2.84 years | $0.21 | 8,780,973 | $0.21 |
$0.30 - $0.48 | 10,573,333 | 3.77 years | $0.43 | 10,573,333 | $0.43 |
$0.50 - $0.58 | 5,780,000 | 2.79 years | $0.61 | 2,763,334 | $0.57 |
$1.00 - $1.31 | 5,549,500 | 1.71 years | $1.21 | 5,549,500 | $1.21 |
$1.50 - $1.60 | 730,000 | 0.17 years | $1.59 | 730,000 | $1.59 |
| 31,413,806 |
|
| 28,397,140 |
|
From time to time, the Company has provided incentives in the form of share purchase options to the Company’s directors, officers, employees and others. The Company has reserved 36,243,582 (15%) of common shares for issuance upon the exercise of stock options of which at June 30, 2009, 4,829,776 are available to be granted. The exercise price and the vesting terms of the options are determined by the Compensation Committee. The exercise price will generally be at least equal to the market price of the common shares at the date of the grant. Stock options granted are also subject to certain vesting provisions as determined by the Compensation Committee.
Stock option transactions for the respective periods and the number of stock options outstanding aresummarized as follows:
No. Common Shares Issuable | Weighted Average Exercise Price | |
Balance, December 31, 2008 | 25,841,218 | 0.66 |
Options granted | 6,632,588 | 0.24 |
Options forfeited or expired | (1,060,000) | 0.72 |
Options exercised | — | — |
Balance, June 30, 2009 | 31,413,806 | 0.57 |
11
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
9. SHARE CAPITAL (CONT’D)
[e] Common share purchase warrants
AtJune 30, 2009 the common share purchase warrants outstanding were as follows:
| No. of Common | Exercise |
|
| Shares Issuable | Price | Expiration Date |
Series S Warrants | 16,676,291 | $0.01 to $1.35 | July 29, 2009 – June 10, 2012 |
Series V Warrants | 4,998,372 | $0.20 | October 3,2012 – January 18, 2013 |
Total | 21,674,663 |
|
|
In 2008 the Company entered into subscription agreements under a private placement including warrants to be issued with an exercise price of $0.20. Due to existing agreements, this resulted in a re-pricing of the 4,998,372 Series V Warrants from an exercise price of $1.06 to an exercise price of $0.20. As the re-pricing resulted from an anti-dilution provision, no adjustment to the financial statements has been recorded.
Summary of warrants exercised and issued during the Six month period endingJune 30, 2009:
| Number of Common Shares Issuable |
| ||||
| at December 31, 2008 | via Warrants Issued during the 6-month Period ending June 30, 2009 | via Warrants exercised during the 6-month Period ending June 30, 2009 | via Warrants cancelled during the 6-month Period ending June 30, 2009 | at June 30, 2009 | Exercise Price |
Series S Warrants | 8,289,610 | 9,678,302 | — | (1,291,621) | 16,676,291 | $0.01 to $1.35 |
Series U Warrants | 239,096 | — | — | (239,096) | — | $0.46 to $0.53 |
Series V Warrants | 4,998,372 | — | — | — | 4,998,372 | $0.20 |
| 13,527,078 | 9,678,302 | — | (1,530,717) | 21,674,663 |
|
12
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
10. RELATED PARTY TRANSACTIONS
The transactions with related parties are recorded at amounts established and agreed between the related parties. In addition to the transactions described in note 8, the Company had the following transactions with related parties during the quarter:
a.
Consulting fees and salaries of $377,809 for the quarter (2008 - $335,860) have been accrued and paid to Directors (or companies controlled by Directors) of the Company. Included in the amount above, is $35,160 (2008 - $43,192) paid by stock based compensation. For the six months ended June 30, 2009 consulting fees and salaries of $683,967 (2008 - $639,660) have been accrued and paid to Directors (or companies controlled by Directors) of the Company. Included in the amount above, is $35,401 (2008 - $65,571) paid by stock based compensation.
b.
In December 2008, the Company entered into loan agreements with directors and officers. As of June 30, 2009, the short-term and related party debt outstanding balance was $1,242,348 (2008 - $1,213,863). Of this amount, $570,000 was from an unrelated party. The loans are due on demand and bear interest at 8% p.a. annum. One of the major loan agreements to a director of the Company is secured by a General Security Agreement as a floating charge over the Company’s assets.
c.
The amounts due from/to related parties, which are non-interest bearing, unsecured and due on demand, are comprised of the following:
| 2009 | 2008 |
| $ | $ |
Receivable | ||
Due from directors and officers | 7,250 | — |
| ||
Payable | ||
Due to directors and officers | $1,915,503 | 1,332,258 |
Note: Of the total amount $1,915,503 (2008 - $1,332,258) due to directors and officers, $491,801 (2008 - $1,036,926) was recorded in the shares to be issued account and $1,423,702 (2008 - $295,332) was recorded as accrued payables.
11. SUPPLEMENTARY CASH FLOW INFORMATION
Components of changes in non-cash balances related to operations are:
| Three Months Ended | Six Months Ended | ||
| June 30, | June 30, | ||
| 2009 | 2008 | 2009 | 2008 |
Net change in non-cash working capital | $ | $ | $ | $ |
Account receivable | 10,386 | (53,352) | (35,593) | (49,944) |
Prepaid expenses and deposits | 28,264 | 64,286 | 66,613 | 209,982 |
Accounts payable and accrued liabilities | 185,753 | 1,797,941 | 298,374 | 2,167,285 |
224,403 | 1,808,875 | 329,394 | 2,327,323 | |
13
Dynamotive Energy Systems Corporation
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 2009 and 2008
(in U.S. dollars)
12. SEGMENTED FINANCIAL INFORMATION
In 2009 and 2008, the Company has only one reportable segment, BioOil Power Generation. The BioOil Power Generation segment relates to the biomass-to-energy technology. Substantially all of the Company’s assets and the large majority of its operations are in Canada and are solely focused on the development and commercialization of its technology. BioOil Power Generation is a biomass-to-energy technology that converts low value forest waste and agricultural by-products into BioOil for use in power generation or other industrial energy purposes.
All of the revenue and loss for the Six month periods ended June 30 2009 ($3,226,009) and June 30, 2008 ($4,341,583) is attributable to the BioOil segment.
14