DynaMotive Energy Systems Corporation
FORM 6-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR October 8, 2008
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
(Exact name of Registrant as specified in its charter)
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Suite 230 - 1700 West 75th Avenue
Vancouver, BC
Canada V6P 6G2
(604) 267-6000
(Address of principal executive offices)
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[Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F:]
FORM 20-F X FORM 40-F
--- ---
[Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to rule 12g3-2(b) under the
Securities Exchange Act of 1934.]
YES NO X
--- ---
[If "Yes " is marked, indicate below the file number assigned to
the registrant in connection with Rule 12g3-2(b):] Not applicable
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
CERTIFICATION OF ANNUAL FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, R. Andrew Kingston, President and Chief Executive Officer for Dynamotive
Energy Systems Corporation, certify the following:
1. Review: I have reviewed the annual financial statements and Amended
annual MD&A (together the interim filings) of Dynamotive Energy Systems
Corporation (the "issuer") for the financial year ending December
31,2007.
2. No misrepresentations: Based on my knowledge, having exercised
reasonable diligence, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, for the period
covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable
diligence, the annual financial statements together with the other
financial information included in the annual filings fairly present in
all material respects the financial condition, results of operations and
cash flows of the issuer, as of the date of and for the periods
presented in the annual filings.
Date: October 7, 2008
/s/ R.Andrew Kingston
- ---------------------
R. Andrew Kingston
President & Chief Executive Officer
NOTE TO READER
In contrast to the certificate required under Multilateral Instrument 52-109
Certification of Disclosure in Issuers' Annual and Interim Filings (MI 52
- -109), this Venture Issuer Basic Certificate does not include representations
relating to the establishment and maintenance of disclosure controls and
procedures (DC&P) and internal control over financial reporting (ICFR), as
defined in MI 52-109. In particular, the certifying officers filing this
certificate are not making any representations relating to the establishment
and maintenance of:
i) controls and other procedures designed to provide reasonable assurance
that information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted under
securities legislation is recorded, processed, summarized and reported
within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes
are in place to provide them with sufficient knowledge to support the
representations they are making in this certificate.
Investors should be aware that inherent limitations on the ability of
certifying officers of a venture issuer to design and implement on a cost
effective basis DC&P and ICFR as defined in MI 52-109 may result in
additional risks to the quality, reliability, transparency and timeliness of
interim and annual filings and other reports provided under securities
legislation.
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
CERTIFICATION OF ANNUAL FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Brian Richardson, Chief Financial Officer for Dynamotive Energy Systems
Corporation, certify the following:
1. Review: I have reviewed the annual financial statements and Amended
annual MD&A (together the interim filings) of Dynamotive Energy Systems
Corporation (the "issuer") for the financial year ending December 31,
2007.
2. No misrepresentations: Based on my knowledge, having exercised
reasonable diligence, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, for the period
covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable
diligence, the annual financial statements together with the other
financial information included in the annual filings fairly present in
all material respects the financial condition, results of operations and
cash flows of the issuer, as of the date of and for the periods
presented in the annual filings.
Date: October 7, 2008
/s/ Brian Richardson
- --------------------
Brian Richardson
Chief Financial Officer
NOTE TO READER
In contrast to the certificate required under Multilateral Instrument 52-109
Certification of Disclosure in Issuers' Annual and Interim Filings (MI 52-
109), this Venture Issuer Basic Certificate does not include representations
relating to the establishment and maintenance of disclosure controls and
procedures (DC&P) and internal control over financial reporting (ICFR), as
defined in MI 52-109. In particular, the certifying officers filing this
certificate are not making any representations relating to the establishment
and maintenance of:
i) controls and other procedures designed to provide reasonable assurance
that information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted under
securities legislation is recorded, processed, summarized and reported
within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes
are in place to provide them with sufficient knowledge to support the
representations they are making in this certificate.
Investors should be aware that inherent limitations on the ability of
certifying officers of a venture issuer to design and implement on a cost
effective basis DC&P and ICFR as defined in MI 52-109 may result in
additional risks to the quality, reliability, transparency and timeliness of
interim and annual filings and other reports provided under securities
legislation.
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
Filed via SEDAR
October 7, 2008
To: British Columbia Securities Commission
Re: Dynamotive Energy Systems Corporation
- Amended Form 51-102F1 - Management Discussion and Analysis
("MD&A")
Dear Sirs/Madames:
This is to advise that the Form 51-102F1 - MD&A of the Company for the year
ended December 31, 2007 and the interim periods ended March 31, 2008 and June
30, 2008 were amended to comply with the continuous disclosure review letter
from the British Columbia Securities Commission, dated September 4, 2008. We
confirm that no other changes were made.
Yours truly,
/s/Andrew Kingston
- ------------------
Andrew Kingston
President and CEO,
Dynamotive Energy Systems Corporation
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
1.1 Date
This Management's Discussion and Analysis of financial condition and results
of operations ("MD&A") is dated April 29, 2008 and should be read in
conjunction with the audited Consolidated Financial Statements and Notes of
the Company for the year ended December 31, 2007 and 2006.
The following sets out management's discussion and analysis of our financial
position and results of operations for the years ended December, 2007 and
2006.
All financial information is reported in U.S. dollars unless otherwise noted.
1.2 Overview
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 energy 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 fluctuations often
entailing downtime.
Dynamotive is attempting to establish its patented technology as the industry
standard for the production of liquid biomass based fuels (other than ethanol
and biodiesel), in competition with other pyrolysis technologies, and other
biomass to energy applications. The Company's fast pyrolysis process converts
raw biomass or biomass wastes into three fuel types: Liquid (BioOil), Solid
(char) and Gas (non-condensable gases). The non-condensable gases are used to
fuel the pyrolysis process. The entire system is a closed loop with low
emissions and virtually no waste by-products. The principal by-product, char,
has commercial applications.
Plant Operations
The West Lorne plant experienced a small fire in April 2008 and as of the date
of this report, the cause of the fire has been identified and installation of
preventive measures is progressing. Re-commencement of plant operations is
scheduled in the coming weeks.
Dynamotive has an existing power purchase agreement with the Ontario Power
Authority for the output from the West Lorne 2.5 megawatt generator output at
a rate of $110 per megawatt hour.
The Company continues with commissioning of the Guelph 200 tonne per day
capacity commercial plant. Due to the incident at West Lorne, additional fire
preventive measures are being incorporated in Guelph based on what we have
learned. Ramping up of Guelph operations should continue shortly. Initial
BioOil test shipments have been completed including 22 tonnes of fuel to
Rockford, Illinois, Eclipses Combustion Facility, for tests of BioOil vs. Fuel
Oil # 2.
Page 1 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
Project Development
The Company continues with a significant number of project
developments in multiple markets. In Canada, there are six projects in
the early stages of potential development which will progress subject
to sourcing further capital.
In the United States, the Company plans, subject to availability of
financing, to invest US $24 million to build the first fully
commercial industrial biofuel plant in the U.S. Negotiations on
agreements are progressing. We expect that the facility will be
located on a site in Willow Springs, Missouri, approximately 180 miles
southwest of St. Louis.
In Addition, negotiations are ongoing with officials of North Webster
Parish, Louisiana, as well as other third parties, to ascertain the
feasibility of locating one or more fast-pyrolysis plants in that
vicinity. The size of plants under discussion could process 220 tons
per day of wood waste biomass to produce 225 thousand barrels of
BioOil(R) and 14 thousand tons of carbon char per annum. Dynamotive USA
has begun evaluating engineering contractors to provide construction
management for the U.S. BioOil projects.
We are also working with First Nations communities through our
subsidiary First Resources Corporation which is currently in
development activities on five projects in North America to establish
BioOil plants on traditional aboriginal territory.
In Argentina, progress has been slower than expected due to both the
fire in West Lorne and due to the political situation in Argentina.
The Company has executed contracts for the provision of biomass for
two of its proposed plants in the Province of Corrientes, as has been
previously announced. A total of 2.5 million tons has been secured
over 10 years from the municipality of Virasoro. Dynamotive
Latinoamericano SA has been offered a site for the project within the
Municipality of Virasoro. Negotiations in regard to the site are
progressing. The development plan envisages up to 6 plants with
further potential within the Province of Corrientes.
Dynamotive and regional partners are also investigating other regional
opportunities in Uruguay, Chile, Dominican Republic, Panama and
Brazil.
In Asia, Dynamotive signed a cooperation agreement with Marketech
International Corporation to jointly review the commercial feasibility
and, if warranted, develop and construct the first two commercial
BioOil plants in Taiwan. The companies also entered into a memorandum
to explore further cooperation to potentially develop BioOil projects
in the Greater China area. Several potential projects are currently
under review.
In China, Dynamotive has worked with the China National Development
and Reform Commission on a BioOil feasibility study for two years.
This is a major policy advisory and administrative division of the
Chinese government which can assist in obtaining government subsidies
for BioOil projects in China. With the study completed, NDRC is very
supportive of BioOil production in China.
In August 2007, the Company signed a letter of agreement with
Mitsubishi Corporation. Mitsubishi continues in the process of
conducting technology due diligence. Possible investment in West
Lorne and Guelph is awaiting data on additional plant operating run
time. Discussions and project analysis are ongoing.
Page 2 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
In Europe, the Company is working with Prius Developments and continues
negotiations with several interested groups in Canton of Fribourg,
Switzerland. Discussions in relation to project opportunities in France are
also occurring.
Beyond these opportunities, Dynamotive is currently in the process of
evaluating project opportunities in the Ukraine, the Netherlands, the U.K.,
Spain and Portugal.
In Australia, ROC continues to make progress on its flagship project. First
plant site has been identified and preliminary work has been completed on
permits and approvals. Negotiations are ongoing with several groups interested
in output from the first plant. A joint venture has been formalized with a
major recycling group for certain feed types and co-funding of plants.
Further progress is subject to availability of project and corporate finance.
All of the above opportunities are progressing and are being actively worked
on. However, additional development and access to project finance is expected
to progress slowly until longer term operating results are available from the
Guelph plant over the balance of this year.
Research and Development
The Company and its partners are also engaged in research and development on a
range of derivative products that, if successful, could further enhance the
market and value for BioOil as an alternative fuel and product source.
We continue our work in upgrading BioOil. We believe that beyond the direct
substitution of heating oil # 2, there is a wider market in the potential
refining of BioOil. Our research team are working on a number of paths that
could prove commercially viable and, if successful, would expand the market
for our technology and fuel exponentially. In addition to Dynamotive working
in this area of research, there are strong efforts from energy companies and
government sponsored research in the U.S. and in Europe.
The Company is also investigating a number of market opportunities for its
pyrolytic char. The company is participating in a number of studies and
field tests on the use of Char as a soil enhancer. Dynamotive considers the
production of its BioChar to be a high value opportunity.
Corporate Information
The Company was incorporated on April 11, 1991 in the Province of British
Columbia, Canada, under the name of Dynamotive Canada Corporation. In October
1995, the shareholders approved a change of name to Dynamotive Technologies
Corporation and in June 2001, the shareholders approved a change of name to
the Company's current name.
As at December 31, 2007, the Company had six wholly-owned subsidiaries
Dynamotive Canada Inc., federally incorporated under the laws of Canada in
2000; Dynamotive Corporation, incorporated under the laws of Rhode Island,
U.S.A in 1990; Dynamotive USA Inc. incorporated under the laws of Delaware,
U.S.A. in 2006; Dynamotive Latinoamericana S.A., incorporated under the laws
of Buenos Aires, Argentina in 2006; and First Resources Corporation,
incorporated under the laws of British Columbia, Canada in 2006. In addition,
the Company maintains an 80% ownership interest in Dynamotive Europe Limited,
formally known as Dynamotive Technologies (UK) Ltd, incorporated in the United
Kingdom in 1996 and owns a 99.98% interest in the West Lorne BioOil
Co-Generation LP,
Page 3 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
formed under the laws of Ontario, Canada in 2003. Dynamotive Canada Inc. acts
as the General Partner of the Limited Partnership, which operates the West
Lorne BioOil and electricity generation plant.
The Company also owns 100% shares of Dynamotive Biomass Resource Corporation
("DBRC"), incorporated under the laws of British Columbia, Canada in 2006. In
July 2007, the Company entered into a share exchange agreement with Pendana
Limited BVI ("Pendana"), whereby Pendana has agreed to sell its 49% (490,000
common shares) of DBRC in consideration of the issuance of 2,000,000 common
shares of the Company. 2,000,000 common shares having a fair value of $1.02
per share were issued to Pendana in August 2007.
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 currently listed on the over-the-counter bulletin
board (OTCBB) under the symbol: DYMTF.OB.
The principal executive office of the Company is Suite 230 - 1700 West 75th
Avenue, Vancouver, British Columbia, Canada V6P 6G2 (Telephone: 604-267-6000).
1.3 Selected Annual Information
All financial information is reported in U.S. dollars unless otherwise noted.
Our audited consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles (GAAP).
As at December As at December As at December
31, 2007 31, 2006 31, 2005
(US Dollars) $ $ $
Results of operations:
Revenue --- --- ---
Loss from operations (14,415,849) (14,319,641) (11,822,274)
Loss from continuing
operations (14,220,404) (14,252,382) (11,997,344)
Net Loss (14,220,404) (14,252,382) (11,997,344)
Net per share Loss (0.08) (0.09) (0.11)
Net loss from continuing
operation per share (0.08) (0.09) (0.11)
Financial position
at Year-end:
Total assets 58,935,644 38,193,699 16,962,573
Total liabilities 7,770,670 7,058,287 8,670,165
Non-controlling interest --- 1,354,923 ---
Shareholder's equity 51,164,974 29,780,489 8,292,408
Deficit (87,320,183) (73,099,779) (58,847,397)
Common shares issued 207,749,673 171,765,776 123,211,875
Page 4 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
1.4 Results of Operations
In the year 2007, the Company had a similar level of operating activity as in
2006, but with the focus on completion of the Guelph and West Lorne plants and
expanding project development activities. There were a number of new project
initiatives internationally and the Company has been evolving to better
support these activities along with the sales and operating activities at the
plants. Staffing levels remained broadly the same, but with increased emphasis
on Ontario, United States and Argentinean operations.
During the year ended December 31, 2007, the Company recorded a net operating
loss of $14,220,404 compared to a net operating loss of $14,252,382 for the
year 2006. The decrease in operating loss in 2007 as compared to 2006 was
primarily attributable to (i) a decrease in marketing and business development
expense, (ii) a decrease in research and development expenditures, (iii) a
decrease in interest expense; (iv) an increase in foreign exchange gain;
partially offset by (v) an increase in general and administrative expense and
(vi) an increase in amortization and depreciation. During the year ended
December 31, 2006, the Company recorded a net operating loss of $14,252,382
compared to a net operating loss of $11,997,344 for the year 2005. The
increase in operating loss in 2006 as compared to 2005 was primarily
attributable to (i) increased activity related to construction of a second,
200 tpd plant, (ii) an increase in marketing and business development expense,
(iii) an increase in research and development expenditures and (iv) an
increase in general and administrative expense.
The basic and diluted loss per common share was eight cents ($0.08) for the
year 2007 compared to nine cents ($0.09) for the year 2006. The decrease in
basic and diluted loss per share for 2007 was due to a combination of the
decrease in the loss for the year and the increase in the weighted average
number of Common Shares outstanding from 153,685,553 shares in 2006 to
189,573,764 in 2007. The basic and diluted loss per common share was nine
cents ($0.09) for the year 2006 compared to eleven cents ($0.11) for the year
2005. The decrease in basic and diluted loss per share for 2006 was due to a
combination of the increase in the loss for the year and the increase in the
weighted average number of Common Shares outstanding from 108,009,185 shares
in 2005 to 153,685,553 in 2006.
Marketing and business development decreased to $1,601,723 in 2007 from
$1,768,063 in 2006. The decrease was due mainly to the decrease of business
development activities and participation in major environmental conferences
during the 2006 period. Marketing and business development increased to
$1,768,063 in 2006 from $1,199,959 in 2005. The increase was due mainly to the
increase of business development activities, like public investor relation,
commissions paid on the Company's initial License sales and the corporate
brand implementation, and to increased participation in a major environmental
conference during the year.
For the years 2007, 2006 and 2005, the Company had expended on an annual basis
$2,053,914, $4,629,465 and $3,586,855 respectively, on research and
development. Of these amounts, $nil, $227,121 and $782,423 respectively, were
reimbursed by government funding. In 2007, the Company also offset product
sales of $13,911 (2006 - $154,560; 2005 - $nil) against research and
development expenses, which are considered incidental sales of BioOil until
such time as the Company's plant has reached commercial production levels. The
level of research and development expenditure has decreased in 2007 in support
of development of the commercial scale plant and other product development
activities. The decrease was due to reduced activity in engineering
development of the commercial scale plant and other product development
activities.
General and administrative expenses increased to $11,026,616 in 2007 from
$7,763,275 in 2006. The increase in 2007 was mainly due to increased activity,
an increase in consulting expenses, an increase in
Page 5 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
non-cash compensation of $739,577 and an increase in the Company's development
activities with its 200 tpd plant in Guelph, Ontario. General and
administrative expenses increased to $7,763,275 in 2006 from $6,257,086 in
2005. The increase in 2006 was mainly due to increased activity, an increase
in consulting expenses, an increase in non-cash compensation of $244,014 and
an increase in the Company's development activities with its 200 tpd plant in
Guelph, Ontario.
Amortization and depreciation increased slightly to $144,168 in 2007 from
$124,067 in 2006. Amortization and depreciation decreased to $124,067 in 2006
from $148,556 in 2005 due to the write-off of the 10 tpd pilot plant at the
year end 2005.
Interest and other income decreased to $207,099 in 2007 from $493,610 in 2006
due mainly to lower cash balances and decreased in interest income from
investments in short-term money market deposits. Interest and other income
increased to $493,610 in 2006 from $5,614 in 2005 due mainly to higher cash
balances and the resultant interest income from investments in short-term
money market deposits.
Interest expense decreased in 2007 to $22,207 from $505,340 in 2006 due mainly
to the decrease in long-term and convertible debenture financing. Interest
expense decreased in 2006 to $505,340 from $1,445,918 in 2005 due mainly to
the decrease in long-term and convertible debenture financing. Also, all of
the outstanding convertible debenture and long-term debt financing were paid
off during the first six months of 2006.
Loss on settlement of accounts payable increased to $111,108 in 2007 from
$98,189 in 2006 due to a non-cash compensation payment exceeding the book
value of the outstanding payable.
Loss on sale of interest in subsidiary was $nil in 2007 compared to $420,400
in 2006. The amount of loss $420,400 in 2006 due mainly to the sale of a 20%
interest of Dynamotive Europe Limited and the loss arises from the issue of
common share purchase warrants related to this transaction.
There was no write-down of long-term assets in 2007 and 2006. Loss on the
write-down of long-term assets increased to $200,457 in 2005 as the Company
wrote-off its 10 tpd pilot plant as management determined its value was
permanently impaired.
Currency exchange gain in 2007 amounted to $418,868 compared to a gain of
$88,888 in 2006. Currency exchange gain in 2006 amounted to $88,888 compared
to a gain of $33,677 in 2005. These non-cash changes were due to the
depreciation of the US dollar.
Going forward, the Company expects to have increased sales and project
development activities, both in North America and overseas. With the two
plants in Ontario moving through commissioning, product sales should increase
through the remainder of 2008 and beyond. Also, successful operation of the
plants, in particular the Company's flagship plant in Guelph, should lead to
additional project development activity.
The Company's main commitments going forward are the residual capital
expenditures for commissioning and ramp up of the Guelph and West Lorne
plants, repair of the fire damage in West Lorne (largely covered by insurance)
and the cost to complete the steam system at the Erie Flooring plant in West
Lorne. These amounts total approximately $2 million.
Page 6 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
1.5 Summary of Quarterly Results (Unaudited)
The Company's operations continued at a relatively steady rate over the past
eight quarters, as there was no major changes in staff levels and activities
throughout the period were focused on construction and commissioning of the
plants in West Lorne and in Guelph, plus ongoing business development and
research activities.
The following table provides summary financial data for the last eight
quarters:
Three months ended
Dec 31 Sep 30 Jun 30 Mar 31
2007 2007 2007 2007
-----------------------------------------------
(US Dollars) $ $ $ $
Revenue --- --- --- --
Net Loss from continuing
operations (4,299,404) (3,179,667) (3,502,236) (3,239,097)
Net Loss per share (0.02) (0.02) (0.02) (0.02)
Net Loss (4,299,404) (3,179,667) (3,502,236) (3,239,097)
Net Loss per share (0.02) (0.02) (0.02) (0.02)
Weighted average common shares
outstanding in the period
205,329,005 189,679,200 185,378,751 177,602,251
Dec 31 Sep 30 Jun 30 Mar 31
------------------------------------------------
2006 2006 2006 2006
(US Dollars) $ $ $ $
Revenue --- --- --- ---
Net Loss from continuing
operations (4,111,675) (3,086,964) (3,775,849) (3,297,894)
Net Loss per share (0.02) (0.02) (0.02) (0.03)
Net Loss (4,111,675) (3,086,964) (3,775,849) (3,297,894)
Net Loss per share (0.02) (0.02) (0.02) (0.03)
Weighted average common shares
Outstanding in the period
168,463,261 162,278,171 151,402,079 131,906,042
1.6 Liquidity
During the year ended December 31, 2007, the Company used cash in operating
activities and in investing activities of $10,809,770 and $21,018,846
respectively, and generated cash from financing activities of $24,008,567.
During the year ended December 31, 2006, the Company used cash in operating
activities and in investing activities of $9,402,744 and $10,339,843
respectively, and generated cash from financing activities of $27,641,031.
During the year ended December 31, 2005, the Company
Page 7 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
used cash in operating activities and in investing activities of $6,734,729
and $1,775,189 respectively, and generated cash from financing activities of
$9,769,211.
The principal sources of liquidity during the year ended December 31, 2007
were (i) $22,983,149 in net proceeds after deducting related issue costs and
expenses from private placement offerings of the Company's Common Shares and
the exercise of Common Share options and warrants for cash, (ii) $130,000 in
deposits for Common Shares to be issued in 2008 pursuant to the exercise of
warrants, (iii) $500,000 of joint-venture deposit received, (iv) $419,351
decrease in government grant receivable; less (v) $23,933 in repayment of
loan.
For the previous year ended December 31, 2006, the principal sources of
liquidity during the year ended December 31, 2006 were (i) $27,495,575 in net
proceeds after deducting related issue costs and expenses from private
placement offerings of the Company's Common Shares and the exercise of Common
Share options and warrants for cash, (ii) $18,091 in deposits for Common
Shares to be issued in 2007 pursuant to the exercise of warrants, (iii)
$1,500,000 increase in joint-venture deposit received; less (iv) $899,184
decrease in long term loan and (v) $473,451 increase in government grant
receivable.
For the year ended December 31, 2005 principal sources of liquidity during the
year ended December 31, 2005 were (i) $6,398,254 in net proceeds after
deducting related issue costs and expenses from private placement offerings of
the Company's Common Shares and the exercise of Common Share options for cash,
(ii) $1,957,000 in deposits for Common Shares to be issued in 2006 pursuant to
private placement offerings commenced in 2005, (iii) $1,825,000 increase in
short-term convertible loan, (iv) $42,331 decrease in repayment of short-term
loan and (v) $368,712 increase in government grant receivable.
Overall change in cash position in 2007 was a decrease in cash of $7,549,712
as compared to an increase of $7,918,066 in the previous year in 2006. Overall
cash flows decreased in 2007 due to decreased financing activities and
significantly increased acquisition of capital assets (Guelph and West Lorne
plants). During the previous year ended December 31, 2006, overall change in
cash position was a increase in cash of $7,918,066 as compared to an increase
of $1,291,497 in the previous year in 2005. Overall cash inflows increased
during 2006 due to significantly increased financing activities.
The net amount of cash used in operating activities during 2007 increased by
15% (over cash used in operating activities during 2006) due to the
construction of the Company's 200 tpd plant in Guelph, Ontario. Cash used in
operating activities consisted primarily of a net loss for 2007 of $14,220,404
less non-cash expenses of (i) amortization of $144,168, (ii) loss on
settlement of accounts payable of $111,108, (iii) loss on purchase of interest
in subsidiary of $238,346 and (iv) equity compensation expenses of $3,632,561.
The net amount of cash used in operating activities during 2006 increased by
40% (over cash used in operating activities during 2005) due to the
construction of the Company's 200 tpd plant in Guelph, Ontario and the
resulting increase in business development activities. Cash used in operating
activities consisted primarily of a net loss for 2006 of $14,252,382 less non-
cash expenses of (i) amortization of $124,067, (ii) accretion expense in the
amount of $208,022, (iii) loss on settlement of accounts payable of $98,189,
(iv) loss on sale of interest in subsidiary of $420,400, and (v) equity
compensation expenses of $4,337,590.
The net amount of cash used in operating activities during 2005 increased by
134% (over cash used in operating activities during 2004) due to the
commissioning of the Company's 100 tpd plant in West Lorne, Ontario and the
resulting increase in business development activities. Cash used in operating
Page 8 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
activities consisted primarily of a net loss for 2005 of $11,997,344 less non-
cash expenses of (i) amortization of $148,556, (ii) equity compensation
expenses, $3,697,057, (iii) loss on write-down of property, plant and
equipment of $200,457, and (iv) accretion expense in the amount of $1,068,192.
Financing activities during 2007 generated a net increase in cash of
$24,008,567, primarily from the Company's private placements of Common Shares.
Financing activities during 2006 generated a net increase in cash of
$27,641,031, primarily from the Company's private placements of Common Shares
and contribution received from joint venture. Financing activities during 2005
generated a net cash inflow of $9,769,211, primarily from the Company's
private placements of Common Shares and the proceeds from convertible
debentures.
Investing activities in 2007 resulted in the use of cash, net of grants, in
the amount of $21,018,846 that consisted of $20,172,180 incurred in the
acquisition of capital assets (Guelph plant and West Lorne plant), an increase
of long term deferred assets of $500,000, and an increase of long term loan
receivable of $346,666. Investing activities in 2006 resulted in the use of
cash, net of grants, in the amount of $10,339,843 that consisted of
$10,496,423 incurred in the acquisition of capital assets (Guelph plant),
$21,016 expended on patents, and a $177,596 decrease in restricted cash.
Investing activities in 2005 resulted in the use of cash, net of grants and
disposal, in the amount of $1,775,189 that consisted of $1,580,195 incurred in
the acquisition of capital assets, $22,181 expended on patents and $172,813
increase in restricted cash (funds held in escrow as collateral for short-term
convertible debentures).
The following table provides as of December 31, 2007 the known long term
obligations and commitments of the Company:
Contractual Total Less than 1 - 3 3 - 5 More than
Obligations 1 year years years 5 years
Operating lease
obligations -
office equipment 55,000 23,000 32,000 Nil Nil
Premise lease
obligations 630,000 350,000 280,000 Nil Nil
Business
development
contract 20,000 20,000 Nil Nil Nil
Long-term debt 335,000 36,000 108,000 72,000 119,000
Construction
Commitments 2,347,000 2,347,000 Nil Nil Nil
Total 3,387,000 2,776,000 420,000 72,000 119,000
We have an operating lease for office facilities of our head office.
1.7 Capital Resources
As at December 31, 2007, the Company had a working capital deficiency of
$3,024,446 and incurred a net loss of $14,220,404 for the year ended December
31, 2007, and has an accumulated deficit of $87,320,183.
In the year ended December 31, 2007, Dynamotive had no commercial revenue from
its core BioOil operations. Sales revenue going forward is uncertain and the
Company is therefore dependent on its financing activities to fund its
operations. The proceeds from the recent equity financing, together with
Industrial Technologies Office ("ITO") (formerly known as Technology
Partnerships Canada) funding receivable, will be applied to finance the
Company's ongoing research and development and commercial demonstration
activities and to support its efforts to obtain the award of customer
contracts. Dynamotive will be required to raise sufficient additional funds to
finance its commercialization strategy. The raising
Page 9 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
of additional finance to fund operations is subject to uncertainty.
There is no assurance that such financing will be available on
commercially reasonable terms, if at all. Dynamotive's operations are
subject to all of the risks inherent in the establishment of a new
business enterprise and in particular Dynamotive will require
significant additional financing in the future to develop and market
its technology to its full potential.
In addition to contemplated equity offerings during 2007, the Company
has been able to draw significantly from government grant and loan
facilities, including the Government of Canada's ITO program both for
expenditures made in 2005 and technical and project related
expenditures in 2006. The Company's agreement with Industrial
Technologies Office pertains to maximum funding of US$8.3 million
(C$8.235 million), of which $7.5 million (C$ 7.4 million) has been
received as of December 31, 2007 and $0.8 million is included in
government grants receivable.
During the first quarter of 2007, the Company raised subscription
funds of $2.5 million relating to the private placement commenced
during the first quarter of 2007 at subscription prices ranging from
$1.085 to $1.10 per share. 2.28 million shares and 570,064 Common
Share Purchase Warrants were issued as a result of this funding.
During the second quarter of 2007, the Company raised subscription
funds of $1.6 million relating to the private placement commenced
during the first quarter of 2007 at subscription prices ranging from
$1.02 to $1.10 per share. 1.5 million shares and 260,500 Common Share
Purchase Warrants were issued as a result of this funding.
During the third quarter of 2007, the Company raised subscription
funds of $1.6 million relating to the private placement commenced
during the third quarter of 2007 at subscription prices ranging from
$0.81 to $1.01 per share. 1.8 million shares and 885,610 Common Share
Purchase Warrants were issued as a result of this funding.
During the fourth quarter of 2007, the Company raised subscription
funds of $10.4 million relating to the private placement commenced
during the fourth quarter of 2007 at subscription prices ranging from
$0.90 to $0.92 per share. 11.2 million shares and 4.5 million Common
Share Purchase Warrants were issued as a result of this funding.
In total, the Company raised from private placements during 2007 $16
million in cash for a total of 16.8 million Common Shares and 6
million Common Share Purchase Warrants.
With the current cash on hand, anticipated cash flow from product
sales and the potential to secure equity and debt financing, the
Company anticipates that it will have sufficient cash resources and
available financing to satisfy its cash requirements for the next 12
months. The Company expects to require additional funding for the
commercial expansion of its technologies through the year 2008 and
beyond. Given market conditions and other factors, there can be no
guarantee that the Company will be successful in securing additional
finance. If adequate funds are not available on acceptable terms when
needed, the Company may be required to delay, scale-back or eliminate
the manufacturing, marketing or sales of one or more of its products
or research and development programs. The outcome of these matters
cannot be predicted at this time. The Company's future operations are
dependent on the market's acceptance of its products in order to
ultimately generate future profitable operations, and the Company's
ability to secure sufficient financing to fund future operations.
There can be no assurance that the Company's products will be able to
secure market acceptance. Management plans to raise additional equity
financing to enable the company to complete its development plans.
Page 10 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
Subsequent to the year end, during the period from January 1 to April 11,
2008, the Company issued 1,345,768 common shares for total proceeds of
$874,750, relating to a private placement commencing during the first quarter
of 2008. In addition during the period from January 1 to April 11, 2008, the
Company received $64,500 on the exercise of 25,000 stock options and 75,000
warrants.
The Company's 2008 financing plan is structured to enable completion,
commissioning and ramp-up of the Company's two production plants: The first
200 tonne per day ("tpd") BioOil manufacturing facility (in Guelph, the plant
is to be owned 100% by the Company and leased to Evolution Biofuels Inc., a
company owned 20% by the Dynamotive); and in West Lorne, where the Company is
completing an upgrade and expansion of the plant and related char boiler
system. The core of the strategy surrounds market and project based equity
financing that minimizes equity dilution while raising sufficient capital for
operations and projects. In addition, the Company will seek asset backed debt
financing if such facilities are available on reasonable commercial terms.
In connection with the Company's West Lorne project upgrade and the Guelph
project, the Company has committed to outstanding construction commitments of
approximately $2.3 million at December 31, 2007.
The Company's funding plan for 2008 is structured so that equity placements
explained above will maintain Company and project operations. Additionally,
the Company contemplates a private placement and project finance strategy
which, with other project funding and sales, are expected to fund the 200 tpd
project and the West Lorne Upgrade which are expected to be completed during
2008. Any delay in securing project funding for a project will delay the
commissioning of that project.
1.8 Off-Balance Sheet Arrangements
None.
1.9 Transactions with Related Parties
The following transactions with related parties are in the normal course of
operations and are recorded at amounts established and agreed between the
related parties. The Company had the following transactions with related
parties during the year ended December 31, 2007:
1.Paid or accrued management compensation of $1,670,223 (2006 - $1,476,245;
2005 $1,847,430) to directors and officers of the Company;
2.Paid or accrued consulting fees of $186,080 (2006 - $230,127; 2005 - $Nil)to
a director of the Company. These fees arise from contractual arrangements
based on a fixed monthly fee and stock based compensation. These expenses
have been included in research and development expense in Statement of Loss.
3.Paid or accrued director fees of $75,480 (2006 - $57,203; 2005 - $92,991) to
directors of the Company.
Page 11 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
Included in the above three amounts, is $207,827 (2006 - $543,122; 2005 -
$974,392) paid by stock based compensation.
Consulting fees and share issue costs of $nil for the year ended December 31,
2007 (years 2006 - $nil; 2005 - $87,395) have been paid to a shareholder of
the Company. Included in the amount above, is $nil (2006 - $nil; 2005 -
$1,113) paid by stock based compensation.
As at December 31, 2007, $nil (2006 - $nil; 2005 - $82,529) was advanced to a
Director of the Company in connection with the formation of a joint venture
for the development of the Company's BioOil technology and related products.
The joint venture had not been formalized and the advance was written-off on
December 31, 2005.
As at December 31, 2007, accounts receivable includes $7,215 (2006 - $5,925)
receivable from directors and officers of the Company. As of the same date,
accounts payable and accrued liabilities includes $1,859,232 (2006 -
$1,218,932) due to directors and officers of the Company all of which is for
services rendered. The amounts due from/to related parties are non-interest
bearing, unsecured and due on demand.
1.10 Fourth Quarter
For the quarter ended December 31, 2007, the Company recorded a net loss of
$4,299,404, or $0.02 per share compared to a net loss of $4,111,675, or $0.02
per share for the same period in 2006. The major difference between the
quarters ended December 31, 2007 and 2006 is related to decrease in research
and development, interest expense, and interest and other income; partially
offset by increase in marketing and business development, and general and
administrative expense.
Research and development expenses for the fourth quarter of 2007 decreased to
$296,923 from $1,197,169 for the same period in 2006. These decreases were
due to reduced activity in engineering development of the commercial scale
plant and other product development activities.
Interest expense for the fourth quarter of 2007 decreased to $8,785 from
$58,463 in the same quarter in 2006 due mainly to the decrease in long-term
and short-term debt financing.
Interest and other income decreased to $83,448 in the fourth quarter of 2007
from $127,515 in the same period in 2006. The decrease in 2007 was due mainly
to the decrease of interest income from investments in short-term money market
deposits.
Marketing and business development expenses for the fourth quarter of 2007
increased to $546,073 from $374,038 for the same period in 2006. These
increase was due to increases in business development activities.
General and administrative expenses in the fourth quarter of 2007 increased to
$3,805,037 from $2,481,150 for the same quarter in 2006. The increase was
mainly due to increased activity in the general and administrative area,
management of the Company's development activities related to its initial 200
TPD plant, and the establishment of new offices in the U.S. and Argentina.
Significant fourth quarter events or items that affected the Company's
financial condition and cash flows are included in sections 1.5 and 1.6 above.
Page 12 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
1.11 Proposed Transaction
Not applicable.
1.12 Critical Accounting Estimates
Not applicable. The Company is a venture issuer.
1.13 Changes in Accounting Policies including Initial Adoption
Effective January 1, 2007, the Company adopted five new Canadian Institute of
Chartered Accountants ("CICA") accounting standards: (a) Handbook Section
1530, Comprehensive Income; (b) Handbook Section 3855, Financial Instruments -
Recognition and Measurement; (c) Handbook Section 3861, Financial Instruments
Disclosure and Presentation; (d) Handbook Section 3865, Hedges; and (e)
Handbook Section 1506, Accounting Changes. As a result of adopting these new
standards, the Company reflected a presentational reclassification of amounts
previously recorded in "Cumulative translation adjustment" to "Accumulated
other comprehensive income". Consistent with the requirements of the new
accounting standards, the Company has not restated any prior period amounts as
a result of adopting the accounting changes.
Refer to Note 3 in the Financial Statements for the year ended December 31,
2007 for detailed discussion of these changes in accounting policy.
1.14 Financial Instruments and Other Instruments
None.
1.15 Other MD&A Requirements
1.15.1 Other MD&A Requirements
Not applicable.
1.15.2 Additional Disclosure for Venture Issuers Without Significant Revenue
(a) Capitalized or expensed exploration and development costs;
Not applicable.
Page 13 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
(b) expensed research and development costs;
Research and Development Expenses
Breakdown by major category
2007 2006
-----------------------------------------------
$ $
Material 456,740 1,265,900
Salary and benefits 347,031 139,549
Consulting 1,156,148 2,783,456
Miscellaneous Costs 93,995 440,560
--------------------------------
2,053,914 4,629,465
Less: Government assistance programs -- (227,121)
Less: Product sales - BioOil (13,802) (123,594)
Less: Product sales - Electricity (109) (30,966)
-------------------------------
2,040,003 4,247,784
===============================
(c) deferred development costs;
Not applicable.
(d) general and administration expenses;
Breakdown by major category:
2007 2006
----------------------------
$ $
Office supplies, telephone,
and insurance 825,087 554,209
Professional fees 2,274,614 1,012,219
Rent 478,180 220,337
General and admin. salaries
and benefits 7,448,735 5,976,510
---------------------------------
11,026,616 7,763,275
=================================
The required disclosure is presented in the Statement of Loss.
(e) any material costs, whether capitalized, deferred or expensed, not
referred to in (a) through (d);
None.
1.15.3 Disclosure of Outstanding Share Data
As at April 29, 2008, the Company's outstanding share data was as follows:
Common shares outstanding: 209,582,505
Stock options: 19,079,367
Share purchase warrants: 12,641,208
All financial information is reported in U.S. dollars unless otherwise noted.
Our unaudited consolidated interim financial statements are prepared in
accordance with Canadian generally accepted accounting principles (GAAP).
Certain statements in this report may constitute "forward-looking" statements
within
Page 14 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
the meaning of the "safe harbor" provisions of the U.S. Private
Securities Litigation Reform Law of 1995. Such forward-looking statements are
based on management's current expectations, beliefs, intentions or strategies
for the future, which are indicated by words such as "may, expects, intends,
anticipates, believes, estimates and forecasts" and other similar words. All
forward-looking statements are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those described in
the forward-looking statements. Such factors include, among other things:
technological changes or changes in the competitive environment adversely
affecting the products, markets, revenues or margins of our business; changes
in general economic, financial or business conditions adversely affecting the
business or the markets in which we operate; our ability to attract and retain
customers and business partners; the ability to provide capital requirements
for product development, operations and marketing; and, our dependency on
third party suppliers. Investors are encouraged to review the section in
Management's Discussion and Analysis in the 2006 Annual Report on Form 20-F
entitled "Risk Factors" for a more complete discussion of factors that could
affect Dynamotive's future performance.
1.16 Corporate Governance
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as defined in Rules
13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are designed to ensure that information required to
be disclosed in its reports filed or submitted under the Exchange Act is
processed, recorded, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and
management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation,
under the supervision and with the participation of management, including the
Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of the end of the period covered by this Annual Report.
Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
not effective as December 31, 2007, at the reasonable assurance level, because
of the material weaknesses described in Management's Report on Internal
Control over Financial Reporting.
Notwithstanding the existence of the material weaknesses described below,
management has concluded that the consolidated financial statements in this
Form 20-F fairly present, in all material respects, the Company's financial
position, results of operations and cash flows for the periods presented.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company's internal control over
financial reporting is designed to provide reasonable assurance regarding the
preparation and fair presentation of published consolidated financial
statements
Page 15 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
in accordance with Canadian Generally Accepted Accounting Principles (Canadian
GAAP), including a reconciliation of net loss to US Generally Accepted
Accounting Principles (US GAAP).
The Company's internal control over financial reporting includes those
policies and procedures that (a) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company (b) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of
consolidated financial statements in accordance with Canadian generally
accepted accounting principles and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management
and directors of the Company (c) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company's assets that could have a material effect on the consolidated
financial statements.
Internal controls over financial reporting, no matter how well designed, have
inherent limitations. Therefore, internal control over financial reporting
determined to be effective can provide only reasonable assurance with respect
to financial statement preparation and may not prevent or detect all
misstatements. Moreover, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management performed an assessment of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2007, based on
the criteria set forth in the "Internal Control - Integrated Framework" issued
by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"). The objective of this assessment was to determine whether the
Company's internal control over financial reporting was effective as of
December 31, 2007.
A material weakness, as defined by the Securities and Exchange Commission
rules, is a significant deficiency, or combination of significant
deficiencies, such that there is a reasonable possibility that material
misstatements of the annual or interim consolidated financial statements will
not be prevented or detected. In its assessment of the effectiveness of
internal control over financial reporting as of December 31, 2007, management
determined that there were control deficiencies that constituted material
weaknesses, as described below.
The Company does not have sufficient personnel with experience in the
application of US GAAP. Specifically, the Company's entity level controls
initially failed to identify the impact of new accounting pronouncements on
the disclosures in the US GAAP reconciliation note. These errors were
corrected by management prior to the issuance of the Company's December 31,
2007 consolidated financial statements.
Management performs an oversight function with regard to meeting the Company's
tax obligations. This includes preparation of tax returns, monitoring of new
tax requirements for changes in the Company's operations and preparation of
tax disclosures for income tax, commodity taxes and other tax-related matters.
Staff involved in the Company's tax function have some knowledge and
experience with tax requirements but are not experts in all the tax
regulations to which the company is subject. External tax experts are engaged
by the Company to deal with tax matters, but there is a reasonable possibility
that a material misstatement could occur in the Company's tax note or
regulatory obligations with regard to tax could arise due to management's
limited expertise with regard to tax requirements.
Page 16 of 17
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, 2007 compared to the year period ended
December 31, 2006
The Company did not maintain effective control in preparing financial
statement disclosures in income taxes. Specifically, management initially
failed to apply the correct future enacted tax rate to its future income tax
assets in accordance with CICA HB 3465, "Income Taxes." This error was
corrected by management prior to the issuance of the Company's December 31,
2007 consolidated financial statements.
Based on our assessment and because of the material weaknesses described
above, management has concluded that our internal control over financial
reporting was not effective as of December 31, 2007.
Management's assessment of the effectiveness of the Company's internal control
over financial reporting as of December 31, 2007 has been audited by BDO
Dunwoody, the Company's independent registered public accounting firm, as
stated in their report which appears herein.
Remediation to Address Material Weakness
The Company will enhance its staff training and improve controls with regard
to US GAAP and taxation matters. The Company will expand the use of outside
consultants with expertise in the application of US GAAP and requisite
knowledge of tax regulations in the jurisdictions in which the Company
operates. Management will also implement an improved consultation process
with external auditors in the above areas.
Changes in Internal Control over Financial Reporting
During the fiscal year ended December 31, 2007, there were changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the registrant's
internal control over financial reporting, as follows:
The Company has enhanced its internal control over financial reporting,
including improving the dissemination of corporate governance policies to
employees, performing more formal variance analysis of financial statement
line items and strengthening the documentation with regard to company credit
card transactions.
Page 17 of 17