10QSB/A 1 mkby08210610qsba.htm AMENDED QTR. FILING

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549


_____________


FORM 10-QSB/A


(Mark One)


[ X ]

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

  
 

For the quarterly period ended June 30, 2006

  

[    ]

Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

  
 

For the transition period from                 to                


Commission File Number: 000-49690


MCKENZIE BAY INTERNATIONAL, LTD.
(Exact Name of Small Business Issuer as Specified in Its Charter)


Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

51-0386871
(IRS Employer Identification No.)

  

37899 Twelve Mile Road, Ste. 300

Farmington Hills, MI 48331

(Address of Principal Executive Offices)

(248) 489-1961
(Issuer’s Telephone Number, Including Area Code)


Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
Yes   X       No ___


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes           No    X    


APPLICABLE ONLY TO CORPORATE ISSUERS


On August 17, 2006, there were 33,996,383 shares outstanding of the issuer’s common stock.


Transitional Small Business Disclosure Format (check one):  Yes           No    X    




MCKENZIE BAY INTERNATIONAL, LTD.

INDEX TO FORM 10-QSB


 

Page Number

  

Part I. Financial Information

 
  

Item 1.  Financial Statements

1

 

Condensed Consolidated Balance Sheets as of June 30, 2006 (unaudited) and September 30, 2005


1

 

Condensed Consolidated Statements of Loss and Comprehensive Loss for the three and nine months ended June 30, 2006 and 2005 (unaudited)   



2

 

Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2006 and 2005 (unaudited)  


3

 

Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.  Management’s Discussion and Analysis or Plan of Operation

17

Item 3.  Controls and Procedures

19

  

Part II.  Other Information

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 6.   Exhibits

22

   

Signatures

24






-i-


PART I.  FINANCIAL INFORMATION


Item 1.

  Financial Statements.


MCKENZIE BAY INTERNATIONAL, LTD. and subsidiaries

(A development-stage company)

CONDENSED CONSOLIDATED BALANCE SHEETS



  

June 30,

2006

  

September 30,

2005

 
  

(Unaudited)

    

ASSETS

Current:

      

Cash and cash equivalents

$

335,928

 

$

123,221

 

Refundable taxes and other receivables

 

20,443

  

53,396

 

Prepaid expenses and deposits

 

78,685

  

160,920

 

Reclamation cash bond

 

41,000

  

41,000

 

Deferred issue and finance costs (note 3)

 

538,444

  

328,750

 

Total current assets

 

1,014,500

  

707,287

 

Property and equipment

 

439,182

  

26,551

 

Other assets

 

40,357

  

38,599

 

Total assets

$

1,494,039

 

$

772,437

 
       

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current:

      

Bank indebtedness

$

55,801

 

$

97,720

 

Accounts payable and accrued expenses

 

2,887,334

  

3,147,469

 

Loan from directors

 

-

  

72,600

 

Convertible promissory notes, net of discount

 

223,275

  

199,052

 

Promissory notes

 

-

  

1,750,000

 

Current portion of long-term debt

 

174,275

  

354,664

 

Reclamation and closure liabilities

 

40,000

  

40,000

 

Total current liabilities

 

3,380,685

  

5,661,505

 

Secured convertible debentures, net of discount (note 3)

 

145,365

  

-

 

Liability for derivative instruments (note 3)

 

4,878,056

  

-

 

Long-term debt, less current portion

 

1,296,245

  

1,087,711

 

Total liabilities

 

9,700,351

  

6,749,216

 
       

Commitments and Contingencies

      

Stockholders’ equity (deficit):

      

Common stock - $0.001 par value (note 4):

      

150,000,000 shares authorized, 33,516,375 and 30,686,376 issued and outstanding

 


33,417

  


30,586

 

Additional paid in capital

 

23,921,334

  

22,245,971

 

Deficit accumulated during the development stage

 

(31,370,051

))

 

(27,597,311

))

Accumulated other comprehensive loss

 

(791,012

))

 

(656,025

)

Total stockholders’ deficit

 

(8,206,312

))

 

(5,976,779

))

Total liabilities and stockholder’s deficit

$

1,494,039

 

$

772,437

 



(See accompanying notes to condensed consolidated financial statements)




-1-


MCKENZIE BAY INTERNATIONAL, LTD. and subsidiaries

(A development-stage company)

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited)

 

Cumulative  from

 
   

Three months ended

June 30,

  

Nine months ended

June 30,

  

inception  on August 23,

 
   

2006

  

2005

  

2006

  

2005

  

1996 to June 30, 2006

 

Revenue

$

-

 

$

-

 

$

-

 

$

-

 

$

12,825

 

Expenses:

               

Mineral properties and exploration activities

 


44,108

  


81,375

  


53,260

  


258,920

  


7,621,060

 

Research and development, net

 

291,586

  

253,810

  

831,073

  

1,520,440

  

3,920,879

 

General administration

 

79,801

  

134,596

  

295,769

  

321,137

  

2,222,739

 

Employee wages and benefits

 

132,174

  

118,878

  

368,508

  

146,999

  

1,816,258

 

Management wages and benefits

 


196,577

  


199,032

  


639,678

  


572,001

  


4,918,483

 

Professional fees

 

196,307

  

371,262

  

458,476

  

817,830

  

3,675,437

 

Promotion and travel

 

35,043

  

87,292

  

134,201

  

206,666

  

1,369,449

 

Depreciation

 

1,524

  

1,802

  

4,535

  

5,466

  

416,128

 

Other expense (income):

               

Interest, amortization of debt discounts and finance charges (note 6)

 



1,313,502

  



142,317

  



2,329,854

  



1,477,997

  



4,302,146

 

Asset impairments

 

-

  

-

  

-

  

-

  

1,626,821

 

Incorporation and reorganization costs

 


-

  


-

  


-

  


-

  


152,051

 

Realized loss on marketable securities

 


-

  


-

  


-

  


-

  


1,242,242

 

Gain on sale of property and equipment



-

  


-

  


-

  


-

  


(26,806


)

Gain on settlement of debt

 

-

  

(97

)

    

(176,667

)

 

(176,667

)

Interest income

 

(1,085)

 

(52,184

)

 

(9,384

)

 

(52,272

)

 

(89,181

)

Gain on fair value of derivative liability

 


(1,151,230)


 


-

  


(1,333,230


)

 


-

  


(1,333,230


)

Refundable exploration tax credit and mining tax

 


-

  


-

  


-

  


-

  


(421,905


)

Loss before income taxes and cumulative effect of change in accounting principle

 


 

(1,138,307)

    


 

(1,338,083


 

)

 


 

(3,772,740


 

)

 


 

(5,098,517


 

)

 


 

(31,223,079


 

)

Income taxes

 


-

  


-

  


-

  


-

  


-

 

Loss before cumulative effect of change in accounting principle

 

(1,138,307)

  

(1,338,083

)

 

(3,772,740

)

 

(5,098,517

)

 

(31,223,079



)

Cumulative effect of change in accounting principle for SFAS 142

 



-

  



-

  



-

  



-

  



(146,972



)

Net loss

 

(1,138,307)

  

(1,338,083

)

 

(3,772,740

)

 

(5,098,517

)

 

(31,370,051

)

Foreign currency translation adjustment

 


(110,453)


 

 


3,158

  


(134,987


)

 


(149,834


)

 


(791,012


)

Comprehensive loss

$

(1,248,760)

 

$

(1,334,925

)

$

(3,907,727

)

$

(5,248,351

)

$

(32,161,063

)

Basic and diluted loss per share (note 5)


$


(0.04)

 


$


(0.05


)


$


(0.12


)


$

(0.18


)

   



(See accompanying notes to condensed consolidated financial statements)



-2-


MCKENZIE BAY INTERNATIONAL, LTD. and subsidiaries

(A development-stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

        

Cumulative from

 
  


Nine months ended June 30,

  

inception on August 23,

 
  

2006

  

2005

  

1996 to June 30, 2006

 

Operating activities:

         

Net loss

$

(3,772,740

)

$

(5,098,517

)

$

(31,370,051

)

Items not affecting cash:

         

Cumulative effect of change in accounting principle

 


-

  


-

  


146,972

 

Depreciation

 

4,535

  

5,466

  

416,128

 

Amortization of debt discount and deferred finance costs

 


1,940,127

  


1,222,285

  


3,264,219

 

Expenses settled through issuance of

common stock

 


-

  


24,099

  


1,992,184

 

Asset impairments

 

-

  

-

  

1,626,821

 

Realized loss on marketable securities

 

-

  

-

  

1,242,242

 

Gain on sale of property and equipment

 

-

  

-

  

(26,806

)

Gain on settlement of debt

 

-

  

(176,667

)

 

(176,667

)

Gain on fair value of derivative liability

 

(1,333,230

)

 

-

  

(1,333,230

)

Stock-based payments

 

2,700

  

6,075

  

2,531,551

 

Other

 

-

  

-

  

(30,061

)

Net changes in working capital related to operations:

         

Refundable taxes and other receivables

 

32,848

  

(20,800

)

 

(6,887

)

Prepaid expenses and deposits

 

82,235

  

(456,640

)

 

(28,201

)

Accounts payable and accrued expenses

 

(218,837

)

 

582,667

  

2,932,675

 

Reclamation and closure liabilities

 

-

  

(310,000

)

 

40,000

 

Net cash used in operating activities

 

(3,262,362

)

 

(4,222,032

)

 

(18,779,111

)

Investing activities:

         

Purchase of marketable securities

 

-

  

-

  

(1,767,835

)

Proceeds from sale of property and equipment

 

-

  

-

  

100,000

 

Proceeds from sale of marketable securities

 

-

  

-

  

525,593

 

Redemption (purchase of) reclamation cash bond

 


-

  


297,685

  


(41,000


)

Purchase of property and equipment

 

(416,842

)

 

(2,265

)

 

(2,502,687

)

Acquisition of business, net of cash acquired

 

-

  

-

  

(31,286

)

Net cash used in activities

 

(416,842

)

 

295,420

  

(3,717,215

)

(continued next page)




-3-


MCKENZIE BAY INTERNATIONAL, LTD. and subsidiaries

(A development-stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

        

Cumulative from

 
  


Nine months ended June 30,

  

inception on August 23,

 
  

2006

  

2005

  

1996 to June 30, 2006

 
 

Financing activities:

         
 

Issuance in notes payable

$

-

 

$

-

 

$

350,000

 
 

(Decrease) increase in bank

   indebtedness

 

(39,899

)

 

(12,163

)

 

39,764

 
 

Proceeds from issuance of convertible promissory notes

 


-

  


-

  


1,228,280

 
 

Increase in promissory notes

 

-

  

3,500,000

  

3,500,000

 
 

Repayment of promissory notes

 

(1,750,000

)

 

(1,375,000

)

 

(3,500,000

)

 

Repayment of convertible promissory

   notes

 

-

  

-

  

(175,000

)

 

Loan from directors

 

-

  

-

  

72,600

 
 

Repayment of loan from directors

 

(50,000

)

 

-

  

(50,000

)

 

Proceeds from secured convertible

   debentures

 

6,500,000

  

-

  

6,500,000

 
 

Payment of financing fees and issue

   costs

 

(742,500

)

 

-

  

(1,482,500

)

 

Issuance of long-term debt

 

159,000

  

-

  

296,435

 
 

Repayment of long term debt

 

-

  

-

  

(137,435

)

 

Repayment of government assistance

 

(187,980

)

 

(128,289

)

 

(378,105

)

 

Receipt of repayable government

   assistance

 

-

  

118,307

  

1,288,978

 
 

Proceeds from sale of common stock

 

-

  

1,420,000

  

15,430,558

 
 

Proceeds from sale of options

 

-

  

-

  

33,160

 
 

Redemption of redeemable common

   stock

 

-

  

-

  

(37,500

)

 

Purchase of common stock for treasury

 

-

  

-

  

(149,622

)

 

Net cash provided by financing activities

 

3,888,621

  

3,522,855

  

22,829,613

 
 

Effect of foreign currency exchange rate

change on cash and cash equivalents

 


3,290

  


(7,058


)

 


2,641

 
 

Net increase (decrease) in cash and cash equivalents

 


212,707

  


(410,815


)

 


335,928

 
 

Cash and cash equivalents, beginning of period

 


123,221

  


562,250

  


-

 
 

Cash and cash equivalents, end of period

$

335,928

 

$

151,435

 

$

335,928

 

(continued next page)




-4-


MCKENZIE BAY INTERNATIONAL, LTD. and subsidiaries

(A development-stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

        

Cumulative from

 
  


Nine months ended June 30,

  

inception on August 23,

 
  

2006

  

2005

  

1996 to June 30, 2006

 
 

Supplemental information:

         
 

Cash paid for interest

$

247,403

 

$

23,545

 

$

516,732

 
 

Issuance of common stock in lieu of settlement of debt

 


116,200

  


74,750

  


190,950

 
 

Issuance of common stock upon conversion of secured convertible debentures

 


1,200,000

  


-

  


1,200,000

 
 

Issuance of common stock upon conversion of promissory notes

 


-

  


825,000

  


850,626

 
 

Issuance of common stock in lieu of payment of issue costs

 


-

  


270,000

  


550,000

 
 

Issuance of common stock in lieu of repurchasing redeemable common stock

 


-

  


32,500

  


202,500

 
 

Issuance of common stock in lieu of payment of notes payable

 


-

  


-

  


356,424

 
 

Issuance of stock options in lieu of repurchasing redeemable common stock

 


-

  


-

  


605,210

 
 

Repurchase of common stock in settlement of accounts receivable

 


-

  


-

  


11,300

 

 

(See accompanying notes to condensed consolidated financial statements)




-5-


MCKENZIE BAY INTERNATIONAL, LTD. and subsidiaries

(A development-stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

JUNE 30, 2006


1.

Nature of operations

McKenzie Bay International, Ltd. and subsidiaries (Company) is a development stage company with no operations.  The Company’s primary business activity is the development of wind powered alternative energy systems.  In addition, the Company holds mining claims to a vanadium deposit in Northern Quebec.

2.

Accounting policies

(a)

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-QSB.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals and other asjustments) considered necessary for a fair presentation have been included.  The accompanying financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2005. Operating results for any interim period are not necessarily indicative of the results of operations that may be expected for the fiscal year ending September 30, 2006.


 

The accompanying financial statements have been prepared on the basis of the Company continuing as a going concern, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

 

 

The Company has suffered recurring losses and has a deficiency in net assets that raise substantial doubt about its ability to continue as a going concern. The Company’s continued existence is dependent upon its ability to raise additional capital and generate profits. Although management believes that it will be successful at raising additional capital in the short-term and will have profitable operations in the long-term, there are no firm commitments as of the filing date of this Form 10-QSB (see also Part I, Item 2, Management's Discussion and Analysis or Plan of Operation).

 

  
 

The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.




-6-



2.

Accounting policies (continued)

(b) Consolidation

 

These financial statements include the activities of the Company and its wholly-owned subsidiaries, Lac Doré Mining Inc., Great Western Diamond Company, Dermond Inc., WindStor Power Company and a 62.5% interest in Ptarmigan Energie Inc.  All intercompany balances and transactions have been eliminated in consolidation.


(c) New accounting pronouncements

Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment, replaces existing requirements under SFAS No. 123, Accounting for Stock-Based Compensation, and eliminates the ability to account for share-based compensation transactions using Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.  As a result, compensation cost relating to share-based payment transactions will be measured based on the fair value of the equity or liability instruments issued.  This statement does not change the accounting for similar transactions involving parties other than employees.  The Company will be required to adopt this statement on October 1, 2006.  This statement applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date.  Although the Company has not completed its evaluation of the impact of adopting the new statement on its consolidated financial statements, additional compensation costs will be recorded if the use of options for employee and director compensation continues.

 

(d) Share-Based Payment

 

The Company has stock-based compensation plans which are described in note 4.  The Company uses the fair value method of accounting for all stock options and common shares issued to non-employees for services in accordance with the provisions of SFAS No. 123 and the intrinsic value method for stock options granted to employees, officers and directors in conformity with APB Opinion No. 25 and its related interpretations, as allowed by SFAS No. 123.  Under the fair value method, compensation cost is measured at the date of the grant and recognized over the vesting period, as is the case under the intrinsic value method when the exercise price is lower than the current market price at the date of the grant.


-7-



2.

Accounting policies (continued)

(d) Share-Based Payment (continued)

   
  

Had the compensation cost for stock options issued to employees, officers and directors been determined based on the fair value method consistent with SFAS No. 123, the Company’s net loss and loss per share would have been as follows for the periods ended June 30, 2006 and 2005:

  
   

Three months ended

June 30,

  

Nine months ended

June 30,

  
   

2006

  

2005

  

2006

  

2005

 
              
 

Net loss as reported

$

(1,138,307)

 

$

(1,338,083

)

$

(3,772,740

)

$

(5,098,517

)

              
 

Add:  Stock-based employee compensation expense included in reported net income, net of related tax effects

 




900

  




2,025

  




2,700

  




6,075

 
              
 

Deduct:  Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects

 





(73,544





)

 





(149,156





)

 





(549,260





)

 





(1,021,318





)

              
 

Pro forma net loss

$

(1,210,951

 )

$

(1,485,214

)

$

(4,319,300

)

$

(6,113,760

)

              
 

Basic and diluted loss per share:

            
 

As reported

 

$(0.04

 )  

$(0.05

)

 

$(0.12

)

 

$(0.18

)

 

Pro forma

 

$(0.04

 )  

$(0.05

)

 

$(0.14

)

 

$(0.22

)



The fair value of options was estimated as of the date of grant using the Black-Scholes option-pricing method with the following weighted average for the period ended June 30, 2006 and 2005:



(e) Reclassifications


   Certian amounts from the prior year have been reclassified to conform to the current year presentation.



-8-



3.

Securities Purchase Agreement with Cornell Capital Partners

 

On October 11, 2005, the Company entered into a Securities Purchase Agreement (Agreement) with Cornell Capital Partners (Cornell Capital) wherein Cornell Capital agreed to purchase up to $5,000,000 of the Company’s Secured Convertible Debentures. On the same date, Cornell Capital purchased a Secured Convertible Debenture from the Company in the face amount of $3,000,000. The principal sum together with accrued but unpaid interest at an annual rate of approximately 10.14% is payable on or before October 11, 2007. On November 14, 2005, Cornell Capital purchased a second Secured Convertible Debenture in the face amount of $2,000,000 with substantially identical terms.

 

The Company, upon giving three days prior written notice, can redeem a portion or all amounts outstanding under the Secured Convertible Debentures. The amount paid on redemption will be equal to the amount of principal and accrued interest being redeemed plus a premium calculated as the amount redeemed times the greater of 20% or the percentage difference between the closing bid price of the Company’s common stock and $1.10.

 

The Secured Convertible Debentures are convertible into shares of the Company’s common stock at the option of Cornell Capital. The number of shares issuable upon a conversion equals the quotient obtained by dividing the then outstanding amount of the Secured Convertible Debenture to be converted by the price per share equal to the lesser of (a) $1.10 or (b) 80% of the lowest closing bid price of the Company’s shares for the five trading days immediately preceding the conversion, subject to adjustments set forth in the Secured Convertible Debenture. If, however, at the time of any conversion: (1) the number of the Company’s shares authorized, unissued and unreserved for all purposes, or held as treasury stock, is insufficient to fund the conversion; (2) its shares are not listed or quoted for trading on the Nasdaq OTC Bulletin Board, Nasdaq Capital Market, New York Stock Exchange, American Stock Exchange or the Nasdaq National Market; (3) the Company has failed to timely satisfy the conversion; or (4) the conversion would be prohibited by the terms of the Secured Convertible Debenture, then, at the option of Cornell Capital, the Company, in lieu of delivering shares, must deliver, an amount in cash equal to the product of the outstanding principal amount to be converted plus any interest due divided by the then conversion price and multiplied by the highest closing price of the shares from date of the conversion notice until the date that such cash payment is made. Other adjustments of the conversion price are similar to the adjustment to the exercise price of the warrant the Company issued to Cornell Capital as described below.

 

If an event of default, as defined in the Secured Convertible Debentures, occurs, Cornell Capital may declare the entire unpaid balance of principal and interest due and payable. If such an event of default occurs and remains uncured, then the conversion price will be reduced to $0.10 per share.

 

Additionally April 18, 2006, the Company entered into a new Agreement with Cornell Capital. Upon the terms and subject to the conditions contained in the original Agreement, the Company agreed to sell to Cornell Capital and Cornell Capital agreed to purchase up to $1,500,000 of the Company’s Secured Convertible Debentures.

 

Pursuant to this new Agreement, Cornell Capital purchased the Secured Convertible Debentures from the Company in the face amount of $500,000 on April 19, 2006, May 12, 2006 and June 27, 2006 each. The principal sum together with accrued but unpaid interest at an annual rate of 10% is payable on or before April 19, 2008, May 12, 2008 and June 27, 2008 respectively.

 





-9-



3.

Securities Purchase Agreement with Cornell Capital Partners (continued)

 

The terms and conditions of the new Agreement are substantially the same as the original Agreement as described above with the exception that the price to redeem the debentures or convert the debentures to common stock is based on $0.75 per share as opposed to $1.10 per share.

 

The Secured Convertible Debentures are secured pursuant to the terms of Pledge and Escrow Agreements wherein the Company pledged and delivered to an escrow agent 35,869,564 shares of the Company’s common stock to secure payment of the Secured Convertible Debentures.  In the event of a default by the Company under the Secured Convertible Debentures or other agreements relating to them, the escrow agent is authorized to deliver the pledged shares to Cornell Capital.  The undelivered shares are not considered outstanding for purposes of computing earnings per share of the Company.

 

Pursuant to the Securities Purchase Agreements, the Company issued warrants to Cornell Capital to purchase 5,000,000 and 5,000,000 shares of the Company’s common stock for a period of five years at an exercise price of $1.00 and $0.75 per share, respectively, subject to adjustment as set forth in the warrants.  In no event, however, shall Cornell Capital be entitled to exercise a warrant for a number of shares in excess of that number of shares which, upon giving effect to such exercise, would cause the aggregate number of shares of the Company’s common stock beneficially owned by Cornell Capital and its affiliates to exceed 4.99% of the outstanding shares of the Company’s common stock following such exercise, except within sixty days of the expiration of the warrant.  If at the time of exercise of either of the warrants, the underlying shares are not subject to an effective registration statement under the Securities Act of 1933 or if an event of default under the Secured Convertible Debentures or certain other documents has occurred, Cornell Capital, in lieu of making payment of the exercise price in cash, may elect a cashless exercise in accordance with the formula set forth in the warrants.

 

If, subject to the exceptions set forth in the warrants, during the time that the warrants are outstanding, the Company issues or sells, or are deemed to have issued or sold, any shares of common stock for a consideration per share less than a price equal to the then exercise price of the warrants, then the exercise price will be reduced to an amount equal to such consideration per share. Upon each such adjustment, the number of shares issuable upon exercise of the warrants will be adjusted to the number of shares determined by multiplying the exercise price in effect immediately prior to such adjustment by the number of shares issuable upon exercise of the warrants immediately prior to such adjustment and dividing the product by the exercise price resulting from such adjustment. Similar adjustments will be made upon any issuance or sale by the Company of options to purchase the Company’s shares or convertible securities.

 

On October 11, 2005, the Company entered into a Registration Rights Agreement with Cornell Capital wherein the Company agreed to prepare and file with the Securities and Exchange Commission (SEC) the registration statement for the resale by Cornell Capital of at least 39,062,500 shares to be issued upon conversion of the Secured Convertible Debentures and 5,000,000 shares underlying the warrants.


On April 25, 2006, the Company also entered into an additional Registration Rights Agreement with Cornell Capital wherein the Company agreed to prepare and file with the SEC a registration statement for the resale by Cornell Capital of at least 13,586,956 shares to be issued upon conversion of the Secured Convertible Debentures and 5,000,000 shares underlying the warrants. The registration statement was effective with the SEC on June 23, 2006.

 
 


-10-



3.

Securities Purchase Agreement with Cornell Capital Partners (continued)


The Company has the right, at its option, provided that the shares issuable under the warrants are registered as described above, to force Cornell Capital to exercise the warrants in whole or in part if the closing bid price of its common stock is $1.25 or greater for 15 consecutive trading days and such bid price is higher than the then exercise price of the warrant.

 

The Company has agreed to indemnify Cornell Capital against certain losses, costs or damages which may arise in connection with the registration statement, including those that may arise under the Securities Act of 1933.

 

The holder of the Secured Convertible Debentures and warrants has registration rights that required the Company to file a registration statement with the SEC to register the resale of the common stock issuable upon conversion of the Secured Convertible Debentures and the exercise of the warrants.  Under EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, the ability to register stock was deemed to be outside of the Company's control.  Accordingly, the initial estimated aggregate fair value of the derivatives (warrants and conversion feature) of $6,500,000 was recorded as a derivative liability in the consolidated balance sheet, with a corresponding reduction in the face value of the debenture liability treated as debt discount that will be amortized over the life of the debentures.  Changes in the estimated fair value of the derivative liability are recorded in the statement of operations at the end of each reporting period.  The change in the estimated fair value of the derivative liability since the date of issuance of the debentures and warrants for the three and nine months ended June 30, 2006 resulted in a gain of $1,151,230 and $1,333,230, respectively.

 

Pursuant to the Securities Purchase Agreements, the Company paid Yorkville Advisors Management LLC , the general partner of Cornell Capital, fees of $457,500.  Additionally, the Company has paid commissions of $285,000 in connection with the issuance of the Secured Convertible Debentures to Spencer Clarke LLC, at 6% of the proceeds received from Cornell Capital from the sale of the Secured Convertible Debentures.  The Company has deferred and is amortizing these fianance costs on a basis that approximates the interest method over the expected term of the related debentures.  Total amortization recorded as finance charges for the three and nine months ended June 30, 2006 is $79,350 and $204,056, respectively, and the unamortized deferred finance costs is $ 538,444 as of June 30, 2006.

 

In addition, the Company agreed to issue warrants to Spencer Clarke to the extent that the number of shares underlying the warrants will be equal to 10% of the number of shares acquired by Cornell Capital upon conversion of the Secured Convertible Debentures, at a price equal to the conversion price, plus $0.05 per share, for a period of 5 years. The Company has issued warrants to Spencer Clarke for the purchase of 271,740 shares of the Company's common stock during the nine months ended June 30, 2006.

 

During the three and nine months ended June 30, 2006, $1,000,000 and $1,200,000 of the Secured Convertible Debentures were converted into 2,346,519 and 2,717,399 common shares respectively.  The principal amount of the Secured Convertible Debentures outstanding as of June 30, 2006 was $5,300,000.  The debt discount attributable to the conversion feature is being amortized as additional non-cash interest expense over the life of the debt using the effective interest method.  Total amortization recorded as interest expense during the three and nine months ended June 30, 2006 is $1,058,336 and $1,345,365, respectively, and the unamortized discount of the debt is $5,154,635 as of June 30, 2006.




-11-



 

4.

Common stock


The following table summarizes the activity related to common stock and additional paid in capital for the nine months ended June 30, 2006:

  
 


Shares

 

Common stock

 

Additional paid in capital

  


Total

Balance, September 30, 2005

30,686,376

$

30,586

$

22,245,971

 

$

22,276,557

Reclassification of warrants and options to derivative liability



-

 



-

 



(422,000)

  



(422,000)

Stock options issued for compensation


-

 


-

 


900

  


900

Balance, December 31, 2005

30,686,376

 

30,586

 

21,824,871

  

21,855,457

         

Common shares issued for settlement of loan from director



22,600

 



23

 



22,577

  



22,600

Common shares issued on conversion of secured convertible debentures (note 3)




370,880

 




371

 




199,629

  




200,000

Stock options issued for compensation


-

 


-

 


900

  


900

Stock options issued for services


-

 


-

 


23,122

  


23,122

         

Balance, March 31, 2006

31,079,856

 

30,980

 

22,071,099

  

22,102,079

         

Common shares issued for services ($1.04 Wt. Avg./share)



90,000

 



90

 



93,510

  



93,600

Common shares issued on conversion of secured convertible debentures (note 3)




2,346,519

 




2,347

 




1,755,825

  




1,758,172

Stock options issued for compensation


-

 


-

 


900

  


900

Balance June 30, 2006

33,516,375

$

33,417

 

23,921,334

 

$

23,954,751

  
 

On March 9, 2006, the shareholders approved an increase in the aggregate number of common shares the Company is authorized to issue from 75,000,000 shares to 150,000,000 shares.



-12-



4.

Common stock (continued)

 

(a)

Share-based incentive plans

 

The Company has three share-based incentive plans, each being limited so that options to acquire no more than 2,500,000 common shares per plan may be outstanding at any one time.

 
 

(i)

Under the 2001 Employee Incentive Stock Option Plan, options may be granted at an exercise price equal to the market price on the date of the grant.  All options expire no later than ten years from the grant date.  In the event an option is granted to an employee who owns 10% or more of the voting power of common stock of the Company, the purchase price of each share shall be 110% of the market price on the date of grant and the expiration date of the option shall be no more than five years from the date of grant of such option.  As of June 30, 2006, options to purchase an aggregate of 1,440,000 common shares have been issued under this plan.

   
 

(ii)

Under the 2001 Employee Non-Qualified Stock Option Plan, options may be granted to employees or certain non-employees at an exercise price as determined by the administrator of the plan on the date of the grant.  The options expire ten years from the date of grant.  As of June 30, 2006, options to purchase an aggregate of 1,830,000 common shares have been issued under this plan.

   
 

(iii)

Under the 2001 Directors Non-Qualified Stock Option Plan, options may be granted to directors of the Company or certain non-employees for terms of up to ten years at an exercise price as determined by the administrator on the date of the grant.  The options vest over three years.  As of June 30, 2006, options to purchase an aggregate of 2,189,314 common shares have been issued under this plan.

   




-13-


4.

Common stock (continued)

 

The following tables contain information with respect to all options granted by the Company, in addition to those granted under the preceding incentive plans:




  

Outstanding options

 

Exercisable options

 




Price




Shares

 

Weighted

Average

Remaining
life
(years)

 

Weighted
average
price
/share

 




Shares

 

Weighted
average
price
/share

 

$0.67 – 1.07

12,094,147

 

3.27

 

     $1.00

 

11,164,147

 

     $1.00

 

1.22-1.25

617,400

 

2.18

 

1.24

 

517,400

 

1.25

 

1.30-1.50

2,059,167

 

5.35

 

1.37

 

1,509,167

 

1.39

 

1.88

525,000

 

7.26

 

1.88

 

525,000

 

1.88

 

2.00-3.00

75,000

 

2.49

 

2.70

 

75,000

 

2.70

  

15,370,714

     

13,790,714

  




-14-


4.

Common stock (continued)


(b)

Stock warrants

  
   

As of June 30, 2006, the following warrants for the purchase of common stock were outstanding:

 
  

Number

of warrants

 
 

Outstanding, September 30, 2005

2,554,461

 
 

Issued

5,000,000

 
 

Expired

(66,143

)

 

Outstanding, December 31, 2005

7,488,318

 
 

Issued

37,088

 
 

Expired

(15,730

)

 

Outstanding, March 31, 2006

7,509,676

 
 

Issued

5,234,652

 
 

Expired

(186,550

)

 

Outstanding, June 30, 2006

12,557,778

 
 

The warrants outstanding at June 30, 2006, can be exercised at prices ranging from $0.29 to $1.42.  The expiration dates of the warrants range from August 13, 2006 to June 26, 2011.

5.

Basic and diluted loss per common share

             
  

Three months ended June 30,

  

Nine months ended June 30,

 
  

2006

  

2005

  

2006

  

2005

 
             

Net loss

$

(1,138,307)

 

$

(1,338,083)

 

$

(3,772,740

)

$

(5,098,517)

 

Total weighted average number of common shares

 



32,274,496

  



 28,821,709

  



31,347,568

  



27,783,450

 


Net loss per common share


$


(0.04)

 


$


(0.05)

 


$


(0.12)

 


$


(0.18)

 
         
  

The following outstanding common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders as they had an anti-dilutive effect:

 
            
      

         Shares at end of

            period June 30,

       

2006

  

2005

 
            
  

Shares issuable upon exercise of stock options

  

15,370,714

  

14,813,484

 
  

Shares issuable upon exercise of warrants

  

12,557,778

  

2,281,388

 
  

Shares issuable upon conversion of convertible promissory notes

  

183,745

  

80,200

 
  

Shares issuable upon conversion of secured convertible debentures

  

20,703,125

  

-

 





-15-



6.

Interest, amortization of debt discounts and finance charges


Interest and finance charges consists of:

  

Three months ended

June 30,

  

Nine months ended

June 30,

  
  

2006

  

2005

  

2006

  

2005

 
             

Amortization of deferred finance charges paid in connection with the secured convertible debentures (2006 issues)




$




79,350

 




$




-

 




$




204,056

 




$




-

 

Amortization of debt discount related to the fair value of the conversion feature and warrants issued in connection with the secured convertible debentures (2006 issues)

 







1,058,336

  







-

  







1,345,365

  







-

 

Amortization of the fair value of warrants issued for placement fees (2006 issues)

 



36,458

  



-

  



47,458

  



-

 

Amortization of deferred finance charges paid and debt discount related to the intrinsic value of beneficial conversion feature and warrants issued in connection with the convertible promissory notes (2005 issue)

 







-

  







-

  







343,248

  







-

 

Amortization of deferred finance charges and issue costs paid

 


-

  


-

  


-

  


79,724

 

Amortization of the fair value of warrants issued for placement fees (2004 issue)

 



-

  



-

  



-

  



119,395

 

Amortization of debt discount related to the intrinsic value of the beneficial feature and warrants issued in connection with the convertible promissory notes (2004 issue)

 






-

  






-

  






-

  






1,023,166

 

Interest paid on convertible promissory notes

 


1,234

  


90,172

  


3,595

  


168,095

 

Interest paid on secured convertible debentures

 


128,320

  


-

  


343,802

  


-

 

Other interest

 

9,804

  

52,145

  

42,330

  

87,617

 
 

$

1,313,502

 

$

142,317

 

$

2,329,854

 

$

1,477,997

 



-16-


Item 2.  

Management’s Discussion and Analysis or Plan of Operation.



Development of WindStor


Construction of the 200 kW WindStor® system (“WindStor”), which includes the vertical axis WindStor Wind Turbine (“WWT”), began during the quarter at Pioneer Bluff in Ishpeming, Michigan.  All permits and engineering drawings are in place.  Delays in receiving final drawings for WindStor Wind Turbine components coupled with longer than indicated delivery times for certain parts and components, however, have put the Pioneer Bluff project several months behind schedule.  “Expedited” production and delivery of parts and components caused by later than expected orders provided to manufacturers, plus, price increases in materials and cost overruns in engineering and design have increased the planned installed cost of the Pioneer Bluff pilot commercial project by approximately $500,000.  Increased project costs, coupled with the lengthy delay in completing the project, contributed to the exhaustion of our capital resources before the installation at Pioneer Bluff could be completed.  We are seeking significant additional capital to complete the installation at Pioneer Bluff and to continue the roll out of WindStor.  If do not obtain that capital, we will not be able to accomplish either of those activities.  There can be no assurance that we will be successful in obtaining any additional capital on terms not unfavorable to us, if at all.


We continue to believe that the inquiries being received domestically and abroad about WindStor installations are indicative of significant demand for the technology.  Optimization of the WindStor system, particularly anticipated reductions in the installed cost of the WWT as production cost efficiencies are obtained, will be critical to our success.  We are planning additional engineering work, including WWT efficiency, WWT construction, component materials, and sourcing of parts and components, to reduce installed WWT costs.   


During the quarter, we spent approximately $292,000 on WindStor related research and development.  In addition, we spent $148,000 direclty on the Pioneer Bluff installation.

 

Our business model continues to focus on retained ownership of the WindStor installations and the sale of electricity generated by WWTs to WindStor prospective customers.  If the Pioneer Bluff pilot installation performs as we anticipate, we will seek equity partners with tax oriented investment objectives and debt financing to fund a significant portion of future WindStor installations.  We will, however, require significant additional amounts of capital to install WindStor and for general and administrative expenses.  For foreign WWT opportunities and some domestic projects, we intend to sell the WindStor system to the interested party.  We may retain an ownership position in these projects, but this is not a condition of a transaction.


To conserve our extremely small financial resources, we have reduced our staff to the core operating requirements.  We have released, laid-off and accepted the retirement of additional employees.  We have also evaluated and reduced our overhead.

 

In the very near term, our anticipated allocation of funding is as follows, if we are able to obtain the funds:




-17-


       

USE

AMOUNT

TIME FRAME

   

Pioneer Bluff installation

$650,000

2 Months

Marketing and Capital Raising

$350,000

4 Months

Administrative Costs

$500,000

4 Months


If we are successful in obtaining funds to be utilized in connection with WindStor, in addition to the near term funding requirements described above, we intend to allocate them as follows (based on a maximum amount of funds received below):


Marketing and administrative support for WWTs and WindStor

$  3,000,000

Repayment of promissory notes

$       85,000

Continued WWT development, fund WWT projects and other corporate purposes


$  6,915,000

TOTAL

$10,000,000


Lac Doré Mining Co.


We continue to investigate the market possibilities for divesting the Lac Doré deposit.  We do not have any indications of interest for a purchase.  Funding concerns have delayed our engaging the specialists in mine construction and recovery chemistry, who were instrumental in the pre-feasibility study of Lac Doré, to provide technical support in the divestiture of the deposit.


We only intend to continue the maintenance of our claims rather than any other activities at Lac Doré.  Whether the refining technology developed during the preliminary feasibility study is part of a potential sale of Lac Doré will depend upon the value allocation.  We may consider a license of the technology rather than sale if the prospects of increased value is determined.


Cash Requirements for 2006 Fiscal Year Administrative Costs


As noted above, we must obtain substantial additional capital to engage in our proposed businesses.


Our approximate cash requirements for administrative costs for the fiscal year ending September 30, 2006 (including direct support of subsidiary operations) follows:


Use

Amount

Employee salaries

$180,000

 

Professional costs (includes consultants, outside accountants, independent auditors and legal counsel)


$220,000

General and administrative (includes lease obligations, travel and other administrative costs)


$100,000




-18-





Neither we nor our subsidiaries will be able to continue commercial or administrative functions unless substantial additional funding becomes available.


As stated in the notes to our consolidated financial statements, because we have suffered recurring losses and a have a deficiency in net assets and working capital, there is substantial doubt about our ability to continue as a going concern.  Our auditors have included a statement to that effect in their report dated December 20, 2005 on our consolidated financial statements as of September 30, 2005.


Additional Employees and other Employment related activities


Currently, we have five fulltime employees.  WindStor Power Co. will need to add a number of employees in anticipation of successful commercial roll out of WindStor and the WWT.  Additions include project managers and administrative personnel.  McKenzie Bay International, Ltd. intends to add administrative personnel, including a controller.


Forward-Looking Statements


This Form 10-QSB contains statements that are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “estimates,” “anticipates,” “plans,” “believes,” “projects,” “expects,” “intends,” “predicts,” “potential,” “future,” “may,” “contemplates,” “will,” “should,” “could,” “would” or the negative of such terms or other comparable terminology. These statements relate to our future operations and financial performance or other future events.  Many of the forward-looking statements are based on current expectations, management beliefs, certain assumptions made by our management and estimates and projections about our industry.


Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict with respect to timing, extent, likelihood and degree of occurrence.  Therefore, actual events, results, performance or achievements may differ materially from the events, results, performance or achievements expressed, forecasted or contemplated by any such forward-looking statements.  In addition to factors described in this Quarterly Report on Form 10-QSB for the quarter ended December 31, 2005, and other periodic reports filed with the SEC including those disclosed in our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2005 under the caption “FORWARD LOOKING STATEMENTS AND CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK,” which disclosure is hereby incorporated by reference, could cause actual results to differ from those described in the forward-looking statements.


Item 3.  Controls and Procedures.


An evaluation was conducted under the supervision and with the participation of our management, including the Chief Executive Officer (CEO)/Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2006. Based on that evaluation, the CEO/CFO concluded that our controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



-19-


PART II.  

OTHER INFORMATION


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.


Pursuant to the Securities Purchase Agreement dated as of April 18, 2006 between Cornell Capital Partners, LP and us, Cornell Capital Partners purchased a Secured Convertible Debenture from us in the face amount of $500,000 for a like amount on April 25, 2006. The principal sum together with accrued but unpaid interest at an annual rate of 10% is payable on or before April 18, 2008.  On May 19, 2006, Cornell Capital Partners purchased an additional Secured Convertible Debenture in the face amount of $500,000 for a like amount. Cornell Capital Partners purchased a third such Secured Convertible Debenture for a like amount on June 27, 2006. Each of the Secured Convertible Debentures is convertible into shares of our common stock at the option of its holder. The number of shares issuable upon a conversion equals the quotient obtained by dividing the outstanding amount of the Secured Convertible Debentures to be converted by the lesser of (a) $.75 or (b) 80% of the lowest closing bid price of our shares for the five trading days immediately preceding the conversion, subject to adjustments set forth in the Secured Convertible Debentures. If, however, at the time of any conversion: (1) the number of our shares authorized, unissued and unreserved for all purposes, or held as treasury stock, is insufficient to pay principal and interest in our shares; (2) our shares are not listed or quoted for trading on the Nasdaq OTC Bulletin Board, Nasdaq Capital Market, New York Stock Exchange, American Stock Exchange or the Nasdaq National Market; (3) we have failed to timely satisfy the conversion; or (4) the conversion would be prohibited by the terms of the Secured Convertible Debentures, then, at the option of the holder of the Secured Convertible Debentures, we, in lieu of delivering shares, must deliver, an amount in cash equal to the product of the outstanding principal amount to be converted plus any interest due divided by the then conversion price and multiplied by the highest closing price of the shares from date of the conversion notice until the date that such cash payment is made. Other adjustments of the conversion price are similar to the adjustment to the exercise price of the warrant we issued to Cornell Capital Partners as described below. If an event of default, as defined in the Secured Convertible Debentures, occurs and remains uncured, then the amount of $.75 which would otherwise be used in the computation of the conversion price will be reduced to $.10 for such purpose.


During the quarter ended June 30, 2006, Cornell Capital Partners converted $1,000,000 of the face amount of the Secured Convertible Debentures into 2,346,519 shares of our common stock. We have registered an aggregate of 50,348,724 shares underlying the Secured Convertible Debentures under the Securities Act of 1933 for public resale by Cornell Capital Partners.


Pursuant to the Securities Purchase Agreement, we issued a warrant to Cornell Capital Partners to purchase 5,000,000 shares of our common stock for a period of five years at an exercise price of $.75 per share, subject to adjustment as set forth in the warrant.  In no event, however, shall the holder of the warrant be entitled to exercise the warrant for a number of shares in excess of that number of shares which, upon giving effect to such exercise, would cause the aggregate number of shares of our common stock beneficially owned by the holder and its affiliates to exceed 4.99% of the outstanding shares of our common stock following such exercise, except within sixty days of the expiration of the warrant. If at the time of exercise of the warrant, the underlying shares are not subject to an effective registration statement under the Securities Act of 1933 or if an event of default under the Secured Convertible Debentures or certain other documents has occurred, the holder of the warrant, in lieu of making payment of the exercise price in cash, may elect a cashless exercise in accordance with the formula set forth in the warrant. We have registered the shares underlying the warrant under the Securities Act of 1933 for public resale by Cornell Capital Partners.


-20-


We have paid a commission to Spencer Clarke LLC, a selling stockholder, of $195,000 in connection with the issuance of the Secured Convertible Debentures and agreed that if the Secured Convertible Debentures were converted into common stock, we would issue warrants to Spencer Clarke LLC for the purchase of our common stock equal to 10% of the shares converted by Cornell Capital Partners, at a price equal to the conversion price, plus $0.05 per share, for a period of 5 years.  Accordingly, during the quarter ended June 30, 2006, we issued warrants to Spencer, Clarke for the purchase of 234,652 shares of our common stock with an exercise price of $0.48 per share. We intend to register the shares underlying the warrants, as well those underlying any additional such warrants we may issue, under the Securities Act of 1933 for public resale by Spencer Clarke LLC.


The disclosure in our prospectus dated June 23, 2006 filed with the SEC pursuant to Rule 424(b)(3) under the Securities Act of 1933 contains additional terms and conditions and such disclosure is hereby incorporated by reference.


We did not receive any “offering proceeds” within the meaning of Rule 463 under the Securities Act of 1933 during the period covered by this report.




-21-


Item 6.  

Exhibits.


 

Exhibit
Number


Description

 

2.1

Share Purchase Agreement between McKenzie Bay International, Ltd. and Jacquelin Dery, Laurent Mondou and Experts Conseils Dermond Inc. of February 12, 2002. Previously filed as an exhibit to Amendment No. 2 to our registration statement on Form 10-SB and hereby incorporated by reference.

 

3.1

Certificate of Incorporation, as amended prior to March 28, 2006. Previously filed as an exhibit to our registration statement on Form 10-SB and hereby incorporated by reference.

 

3.2

Amendment to Certificate of Incorporation dated March 28, 2006.  Previously filed as an exhibit to our Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2006 and hereby incorporated by reference.

 

3.3

Bylaws. Previously filed as an exhibit to our registration statement on Form 10-SB and hereby incorporated by reference.

 

4.1

See Exhibits 3.1 and 3.2.

 

4.3

Specimen Stock Certificate. Previously filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2002 and hereby incorporated by reference.

 

4.4

Form of Warrant. Previously filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2002, and hereby incorporated by reference.

 

4.5

Form of Subscription Agreement. Previously filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2002 and hereby incorporated by reference.  Previously filed as an exhibit to our Quarterly Report on Form 10-QSB for the quarterly period year ended June 30, 2004 and hereby incorporated by reference.

 

4.6

Promissory Note and Warrant issued on August 13, 2004, letter of August 16, 2004 amending certain terms and “Debenture” setting forth certain terms.  Previously filed as an exhibit to our Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2004 and hereby incorporated by reference.

 

4.7

Promissory Note and Warrant issued on September 7, 2004 and “Debenture” setting forth certain terms.  Previously filed as an exhibit to our Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2004 and hereby incorporated by reference.

 

4.8

Form of Debenture dated July 14, 2005 payable to Centre local de développement MRC Rouyn-Noranda and related Loan Agreement, Suretyship and form of warrant.  Previously filed as an exhibit to Post-Effective Amendment No. 2 to our registration statement on Form SB-2, file number 333-119493 and hereby incorporated by reference.

 

4.9

Form of Promissory Note issued to Gary L. Westerholm. Previously filed as an exhibit to our registration statement on Form SB-2, file number 333-129673, and hereby incorporated by reference.

 

4.10

Form of Secured Convertible Debentures issued to Cornell Capital Partners, LP.  Previously filed as an exhibit to our registration statement on Form SB-2, file number 333-129673, and hereby incorporated by reference.




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4.11

Form of Secured Convertible Debentures issued to Cornell Capital Partners, LP pursuant to Securities Purchase Agreement as of April 18, 2006.  Previously filed as an exhibit to Post-Effective Amendment No. 1 to our registration statement on Form SB-2, file number 333-129673, and hereby incorporated by reference.

 

4.12

Form of warrants issued to Cornell Capital Partners, LP.  Previously filed as an exhibit to our registration statement on Form SB-2, file number 333-129673, and hereby incorporated by reference.

 

4.13

Form of warrant issued to Cornell Capital Partners, LP pursuant to Securities Purchase Agreement as of April 18, 2006. Previously filed as an exhibit to Post-Effective Amendment No. 1 to our registration statement on Form SB-2, file number 333-129673, and hereby incorporated by reference.

 

10.1

Securities Purchase Agreement dated as of April 18, 2006 between Cornell Capital Partners, LP and McKenzie Bay International, Ltd. Previously filed as an exhibit to Post-Effective Amendment No. 1 to our registration statement on Form SB-2, file number 333-129673, and hereby incorporated by reference.

 

10.2

Investor Registration Rights Agreement dated as of April 18, 2006 between Cornell Capital Partners, LP and McKenzie Bay International, Ltd. Previously filed as an exhibit to Post-Effective Amendment No. 1 to our registration statement on Form SB-2, file number 333-129673, and hereby incorporated by reference.
 

10.3

Pledge And Escrow Agreement dated as of April 18, 2006 between Cornell Capital Partners, LP, David Gonzalez, Esq. and McKenzie Bay International, Ltd. Previously filed as an exhibit to Post-Effective Amendment No. 1 to our registration statement on Form SB-2, file number 333-129673, and hereby incorporated by reference.

 

10.4

Deferred Compensation Agreement of July 31, 2006 by and between McKenzie Bay International, Ltd. and Gary L. Westerholm. Previously filed as an exhibit to Post-Effective Amendment No. 1 to our registration statement on Form SB-2, file number 333-134109 and hereby incorporated by reference. *

 

31.1

Rule 13a-14(a) Amended Certification. **

 

32.1

Section 1350 Amended Certification.. **


**

Filed herewith.





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SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.



 

McKENZIE BAY INTERNATIONAL, LTD.

  
  

Date:  August 21, 2006

By:

/s/ Gregory N. Bakeman

  

Gregory N. Bakeman

Principal Executive Officer, Principal Financial Officer and  Chief Accounting Officer




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