Mail Stop 3561
September 26, 2005
Mr. Brian Richardson
Chief Financial Officer
Dynamotive Energy Systems Corporation
1700 West 75th Avenue, Suite 230
Vancouver, BC V6P 6G2
Canada
Re: Dynamotive Energy Systems Corporation
Form 20-F for the Fiscal Year Ended December 31, 2004
File No. 000-27524
Dear Mr. Richardson:
We have reviewed your filing and have the following
comments.
We have limited our review to your financial statements and
related
disclosures and do not intend to expand our review to other
portions
of your document. Where indicated, we think you should revise
your
disclosures in response to these comments. If you disagree, we
will
consider your explanation as to why our comment is inapplicable or
a
revision is unnecessary. Please be as detailed as necessary in
your
explanations. In some of our comments, we may ask you to provide
us
with information so we may better understand your disclosure.
After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Consolidated Statements of Cash Flows, page 58
1. Please provide us with the details of your property, plant and
equipment as of December 31, 2003 compared to the balance as of
December 31, 2004 showing all activity between periods.
Notes to Consolidated Financial Statements, page 59
Note 2 - Significant Accounting Policies, page 60
Foreign Currency Translation, page 61
2. We note your disclosure that your non-monetary assets are
translated using historical rates of exchange. Since your
translation methodology does not appear to be permitted under US
GAAP, tell us why you have not included the difference arising
from
your foreign currency translation as a US GAAP difference.
Note 4 - Border Biofuels Ltd., page 68
3. We note your presentation of the results of your discontinued
operations. Please explain to us the circumstances surrounding
your
recognition of a gain on the disposal of Border Biofuels Ltd.
(BBL)
and provide us the details of the calculation. Also, please
explain
what the net loss from discontinued operations in 2003 represented
since you disposed of BBL in 2002.
Note 9 - Convertible Debenture, page 84
4. We note your disclosure related to the convertible debenture
you
entered into in December 2004. Please expand your disclosure to
indicate that the conversion terms require you to issue additional
warrants upon conversion and specify the number or rate at which
you
will issue these additional warrants.
5. Also, we note that the fair value of the 500,000 warrants
issued
in connection with the CDN $1,000,000 convertible debenture was
approximately CDN $1.05 per warrant which differed from the fair
value of CDN $.22 of the 312,500 warrants issued in connection
with
the CDN $1,000,000 long-term loan. Please explain the basis for
this
difference in fair value.
Note 11 - Share Capital, page 74
[c] - Shares to be issued, page 74
6. Please expand your discussion of each escrow agreement to
include
the following:
* The transaction, service or agreement giving rise to the
original
escrow agreement and the date;
* The conditions for release of the shares escrowed and the length
of
each escrow agreement;
* Your accounting policy for escrowed shares including their
impact
on earnings per share.
Note 17 - Government Assistance, page 88
[a] Technology Partnerships Canada, page 88
7. We note your disclosure related to your contribution
agreement
with TPC. Please tell us the likelihood that you will attain
commercial viability as defined by the agreement. If you believe
that commercial viability is probable, please tell us the amount
you
have recorded as a liability for the repayment of any assistance
provided by TPC; if you have not recorded a liability, please
explain.
Note 20 - Reconciliation of Generally Accepted Accounting
Principles,
page 91
8. We note that for US GAAP purposes, you account for stock
appreciation rights and performance based stock options as
variable
compensation under APB 25 and that compensation related to
variable
plans is recorded in your US GAAP reconciliation when it becomes
probable that the award will be earned. We advise you that
variable
equity awards should be expensed over the period or periods the
employee performs the related services and adjusted in subsequent
periods up to the measurement date for changes, either increases
or
decreases, in the quoted market value of the shares of the
employer`s
stock covered by the grant but shall not be adjusted below zero.
Therefore, it appears that you should revise your US GAAP net
income
for all periods presented to properly account for your variable
plans
or tell us why a revision is unnecessary. Refer to paragraphs 3
and
4 of FIN 28.
9. Please revise your US GAAP reconciliation to disclose the
following:
* Balance sheet differences from Canadian GAAP;
* Present the tax effects of adjustments to Canadian GAAP.
* * * * *
As appropriate, please amend your filings and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendments to expedite our review. Please furnish a cover
letter
that keys your responses to our comments and provides any
requested
information. Detailed cover letters greatly facilitate our
review.
Please understand that we may have additional comments after
reviewing your amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Scott Ruggiero at (202) 551-3331 if you have
questions regarding comments on the financial statements and
related
matters. Please contact me at (202) 551-3716 with any other
questions.
Sincerely,
William Choi
Branch Chief
Mr. Brian Richardson
Dynamotive Energy Systems Corporation
September 26, 2005
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