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 INTERIM 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 interim financial statements and Amended
interim MD&A (together the interim filings) of Dynamotive Energy Systems
Corporation (the "issuer") for the interim period ending March 31, 2008.
2. No misrepresentations: Based on my knowledge, having exercised
reasonable diligence, the interim 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 interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable
diligence, the interim financial statements together with the other
financial information included in the interim 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 interim 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 INTERIM 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 interim financial statements and Amended
interim MD&A (together the interim filings) of Dynamotive Energy Systems
Corporation (the "issuer") for the interim period ending March 31, 2008.
2. No misrepresentations: Based on my knowledge, having exercised
reasonable diligence, the interim 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 interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable
diligence, the interim financial statements together with the other
financial information included in the interim 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 interim 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
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Andrew Kingston
President and CEO,
Dynamotive Energy Systems Corporation
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
1.1 Date
This Management's Discussion and Analysis of financial condition and results
of operations ("MD&A") is dated May 30, 2008 and should be read in conjunction
with the unaudited interim Consolidated Financial Statements and Notes of the
Company included in this Quarterly Report, and with the audited Consolidated
Financial Statements and Notes, included in the Company's Annual Report for
the year ended December 31, 2007.
The following sets out management's discussion and analysis of our financial
position and results of operations for the three months ended March 31, 2008
and 2007.
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 continued with commissioning of the Guelph 200 tonne per day
capacity commercial plant in the first quarter of 2008. Subsequent to March
31, 2008, due to the fire 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
Page 1 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
shipments have been completed including 22 tonnes of fuel to Rockford,
Illinois, Eclipses Combustion Facility, for tests of BioOil vs. Fuel Oil # 2.
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 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.
Page 2 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
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 the 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 March 31, 2008, 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; First Resources Corporation, incorporated under the
laws of British Columbia, Canada in 2006; and Dynamotive Biomass Resource
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
Page 3 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
West Lorne BioOil Co-Generation LP, 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.
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 interim financial statements are prepared in
accordance with Canadian generally accepted accounting principles (GAAP).
As at As at As at
December December 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 loss per share (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, Cdn GAAP - 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 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
1.4 Results of Operations
In the three month period ended March 31, 2008, the Company had a similar
level of operating activity as in 2007, but with the focus on commissioning of
the Guelph plant and the re-start of the West Lorne plant, as well as
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.
Revenue
Revenue for the quarter ending March 31, 2008 was $500,000 compared to $nil
for the same quarter in 2007. The increased revenue for 2008 were due to the
Company recognized Rika Ltd. master license fee of $500,000 at the end of the
agreement term.
Interest and other income decreased to $1,357 in the first quarter of 2008
compared to $79,234 in the same quarter in 2007. The decrease in 2008 was due
mainly to lower cash balances and therefore decreased in interest income from
investments in short-term money market deposits.
Expenses
During the quarter ended March 31, 2008, the Company recorded a net loss of
$1,432,819, while the net loss for the same quarter in 2007 amounted to
$3,239,097. The decrease in loss was primarily attributable to (i) a decrease
in marketing and business development related expenses; (ii) a decrease in
research and development expenses; (iii) an increase in license revenue of
$500,000; and by (iv) an increase in gain on reduction in bonus and vacation
accrual. The Company recorded a gain on reduction in bonus and vacation
accrual of $1,137,983 during the quarter ended March 31, 2008. On May 29, 2008
the Company's Compensation Committee agreed with the motion of certain Company
executives to make this reduction in the accrual. These amounts were
previously accrued as at December 31, 2007 and included in results to that
time.
The basic and diluted loss per common share for the quarter was $0.01 per
share compared to $0.02 for the same quarter in 2007. The decrease in basic
and diluted loss per share for the current periods was due to a combination of
the decrease in the operating loss and the increase in the weighted average
number of Common Shares outstanding. The weighted average number of Common
Shares for the quarter increased to 208,008,571 shares for the quarter ended
March 31, 2008 from 177,602,251 for the quarter ended March 31, 2007.
Marketing and business development expenses for the first quarter of 2008
decreased to $319,252 from $346,228 for the same quarter in 2007. These
decreases were due to decreases in business development activities and
participation in a major environmental conference during the 2007 period.
For first quarters 2008 and 2007, the Company had expended research and
development activities on a quarterly basis $246,397 and $906,396
respectively. In the first quarter 2008, the Company also offset product sales
of $15,475 (2007 - $12,675) 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
Page 5 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
development expenditure has decreased in the first quarter 2008 compared to
the same quarter in 2007. The decrease was due to reduced activity in
engineering development of the commercial scale plant and other product
development activities.
General and administrative salaries and benefits in the first quarter of 2008
increased to $2,452,647 from $2,093,740 for the same quarter in 2007. The
increase in 2008 was mainly due to an increase in the Company's development
activities with its 200 tpd plant in Guelph, Ontario, and the establishment of
new offices in the U.S. and Argentina.
Amortization and depreciation expenses increased slightly to $37,165 in the
first quarter of 2008 from $30,206 in the same quarter in 2007.
Interest expenses increased in the quarter to $17,738 from $53 in the same
quarter in 2007. The interest expenses incurred in the first quarter 2008 were
due mainly to the accretion of the asset retirement obligation liability and
expenses incurred on the long-term debt.
Currency exchange loss in the quarter amounted to $14,435 compared to the gain
$16,642 in the same quarter in 2007. These non-cash changes were due to the
depreciation of the US dollar. For further explanation on foreign exchange
accounting practice, please refers to Note 2 to the unaudited interim
financial statements for the quarter.
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 $1.5 million.
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. However, in the first quarter of 2008, lower research
and development expenditures as the plants in Ontario progressed through
commissioning, the recognition of $500,000 of revenue and the realization of a
$1.1 million gain on reduction in bonus and vacation accrual resulted in a
lower loss for the three month period ended March 31, 2008.
During the first quarter of 2008, the Company completed the upgrade and
expansion of its plant in West Lorne and re-started operations in March 2008.
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.
Page 6 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
The following table provides summary financial data for the last eight
quarters:
Three months ended
Mar 31 Dec 31 Sep 30 Jun 30
2008 2007 2007 2007
-------------------------------------------------
(US Dollars) $ $ $ $
Revenue 500,000 - - -
Net loss from continuing
operations (1,432,819) (4,299,404) (3,179,667)(3,502,236)
Net loss per share (0.01) (0.02) (0.02) (0.02)
Net loss (1,432,819) (4,299,404) (3,179,667)(3,502,236)
Net loss per share (0.01) (0.02) (0.02) (0.02)
Weighted average common shares
outstanding 208,008,571 205,329,005 189,679,200 185,378,751
Three months ended
Mar 31 Dec 31 Sep 30 Jun 30
2007 2006 2006 2006
-------------------------------------------------
$ $ $ $
Revenue - - - -
Net loss from continuing
operations (3,239,097) (4,111,675) (3,086,964)(3,755,849)
Net loss per share (0.02) (0.02) (0.02) (0.02)
Net loss (3,239,097) (4,111,675) (3,086,964)(3,755,849)
Net loss per share (0.02) (0.02) (0.02) (0.02)
Weighted average common shares
outstanding 177,602,251 168,463,261 162,278,171 151,402,079
1.6 Liquidity
The Principal sources of liquidity during the quarter ended March 31, 2008
were (i) $939,250 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, and (ii) $162,247
increase in short term debts.
The Principal sources of liquidity during the quarter ended March 31, 2007
were (i) $5,901,254 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 and warrants for cash, (ii) $94,857 in
deposits for Common Shares to be issued in 2007 pursuant to the exercise of
warrants.
Overall change in cash position during the first quarter of 2008 was a
decrease in cash of $1,780,175 as compared to a decrease of $4,959,440 during
the same
Page 7 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
quarter in 2007. Overall cash flows decreased during first quarter 2008 due
to significantly decreased financing activities, operating activities and
investing activities.
The net amount of cash used in operating activities during the first quarter
of 2008 decreased to $682,731 from cash used of $2,313,652 in the first
quarter of 2007. Cash used in operating activities consisted primarily of a
net loss for the first quarter 2008 of $1,432,819 and the recognition of
deferred revenue of $500,000, less non-cash expenses of (i) amortization of
$37,165, (ii) equity compensation expenses of $672,013, and (iii) a net
change in non-cash working capital balances related to operations of
$517,313. The net amount of cash used in operating activities during the
first quarter of 2007 increased to $2,313,652 from cash used of $1,394,185 in
the first quarter of 2006. Cash used in operating activities consisted
primarily of a net loss for the first quarter 2007 of $3,239,097, $28,975
of non-controlling interest and $16,642 of translation gain that were offset
by (i) non-cash equity compensation expenses, $835,254, (ii) amortization of
non-cash items in the sum of $30,206, and (iii) a net change in non-cash
working capital balances related to operations of $105,602.
Financing activities during the first quarter 2008 generated a net increase
in cash of $1,092,522, primarily from the Company's private placements of
Common Shares. Financing activities during the first quarter 2007 generated
a net increase in cash of $5,996,111, primarily from the Company's private
placements of Common Shares.
Investing activities in the first quarter 2008 resulted in use of cash, in
the amount of $2,249,457. This amount was incurred in the acquisition of
capital assets (Guelph and West Lorne plants) of $2,076,123 and an increase
of long term loan receivable of $173,334. Investing activities in the first
quarter 2007 resulted in use of cash, in the amount of $8,660,588. This
amount was incurred in the acquisition of capital assets.
1.7 Capital Resources
As at March 31, 2008, the Company had working capital deficiency of
$5,349,324 and incurred a net loss of $1,432,819 for the quarter-ended
March 31, 2008, and has an accumulated deficit of $88,753,002.
In the quarter ended March 31, 2008, the Company recorded $500,000 license
revenue. 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
("TPC")) 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 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 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$8.2 million (C$8.235 million), of which $7.3 million (C$ 7.4 million) has
Page 8 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
been received as of March 31, 2008 and $0.8 million is included in government
grants receivable.
During the first quarter of 2008, the Company raised subscription funds of
$1.0 million relating to the private placement commenced during the first
quarter of 2008 at subscription price $0.65 per share. 1.48 million shares
and 56,430 Common Share Purchase Warrants were issued as a result of this
funding.
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.
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 construction
advances related to the 200 tpd plants, the Company has committed to
outstanding construction commitments of approximately $2.0 million at
March 31, 2008.
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
Page 9 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
The 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 three month period ended March 31, 2008:
1) Paid or accrued management compensation of $264,651
(2007 - $298,632) to directors and officers of the Company;
2) Paid or accrued consulting fees of $30,101 (2007 - $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 $9,048 (2007 - $7,806) to directors
of the Company.
As at March 31, 2008, accounts receivable includes $7,909 (2007 - $23,436)
receivable from directors and officers of the Company. As of the same date,
accounts payable and accrued liabilities includes $1,026,416 (2007 -
$1,387,338) 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
Not applicable.
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, 2008, the Company adopted the following new CICA
guidelines:
- Revised Section 1506, Accounting Changes, which establishes criteria for
changing accounting policies, together with the accounting treatment and
disclosure of changes in accounting policies, changes in estimates and
correction of errors.
- Section 1535, Capital Disclosures, which requires companies to disclose
their objectives, policies and processes for managing capital, quantitative
data about what the entity regards as capital, and whether companies have
complied with externally imposed capital requirements and, if not in
compliance, the consequences of such non-compliance.
Page 10 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
- Section 3862, Financial Instruments - Disclosures, and Section 3863,
Financial Instruments - Presentation. These standards replace CICA
3861, Financial Instruments - Disclosure and Presentation. These
standards increase the disclosures currently required, which will enable
users to evaluate the significance of financial instruments for an
entity's financial position and performance, including disclosures about
fair value. In addition, disclosure is required of qualitative and
quantitative information about exposure to risks arising from financial
instruments, including specified minimum disclosures about credit risk,
liquidity risk, and market risk. The quantitative disclosures must
provide information about the extent to which the company is exposed to
such risk, based on information provided internally to the entity's key
management personnel.
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.
(b) expensed research and development costs;
Three Months Ended
March 31
2008 2007
---------------------
$ $
Materials - 188,311
Salaries and Benefits 157,880 11,074
Consulting 36,275 701,846
Miscellaneous Costs 52,242 5,165
---------------------
246,397 906,396
Less: Product & services sales (15,475) (12,675)
---------------------
230,922 893,721
=====================
(c) deferred development costs;
Not applicable.
(d) general and administration expenses;
Page 11 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
Three Months Ended
March 31
2008 2007
----------------------
$ $
Office supplies, telephone, and insurance 194,566 134,432
Professional fees 307,206 315,488
Rent 144,397 87,338
General and admin. salaries and benefits 1,806,478 1,556,482
----------------------.
2,452,647 2,093,740
======================
(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 May 30, 2008, the Company's outstanding share data was as follows:
Common shares outstanding: 209,582,505
Stock options: 20,029,367
Share purchase warrants: 12,380,830
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 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 2007 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
Page 12 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
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 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.
Page 13 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 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.
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:
Page 14 of 15
Dynamotive Energy Systems Corp. Amended and Restated
Management's discussion and analysis
Three-month period ended March 31, 2008 compared to the three-month period
ended March 31, 2007
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 15 of 15