DynaMotive Energy Systems Corporation
FORM 6-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
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)
-----------------
Suite 230 - 1700 West 75th Avenue
Vancouver, BC
Canada V6P 6G2
(604) 267-6000
(Address of principal executive offices)
-----------------
[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 June 30, 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 June 30, 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
- ------------------
Andrew Kingston
President and CEO,
Dynamotive Energy Systems Corporation
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
1.1 Date
This Management's Discussion and Analysis of financial condition and results
of operations ("MD&A") is dated August 29, 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 six months ended June, 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. The plant was
shut down and repaired, including the installation of additional fire-
preventive measures. Re-commencement of plant operations occurred in July,
2008.
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.
Operations in Guelph have been temporarily shut down in recognition of the
incident at West Lorne. During the second quarter, due to the fire incident
at West Lorne, additional fire preventive measures are being incorporated in
Guelph based on what we have learned. The Company is currently focusing its
efforts on the West Lorne operations and expects to re-start operations in
Guelph in the near future.
Page 1 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
Project Development
The Company continues with a significant number of project developments in
multiple markets, though activity slowed during the quarter due to the
required repairs in West Lorne as a result of the fire and the subsequent
temporary shut down of Guelph to incorporate additional fire prevention
measures. Following the restart of operations (in West Lorne), the Company
has received renewed expressions of interest for both its products and plant
developments.
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.
Dynamotive USA has begun evaluating engineering contractors to provide
construction management for the U.S. BioOil projects. Subject to agreements
being completed, the Company expects to launch engineering phase of the first
US project before the end of 2008.
We are also working with First Nations communities through our subsidiary
First Resources Corporation which is currently in development activities on
four 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 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 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 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 and
Bulgaria 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 has scaled back operations while it focuses on confirming
financing, while they continues to make limited progress on its flagship
project. The 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 June 30, 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
Page 3 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
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, 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 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 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
1.4 Results of Operations
In the six month period ended June 30, 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.
Page 4 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
Staffing levels remained broadly the same, but with increased emphasis on
Ontario, United States and Argentinean operations.
Revenue
Revenue for the second quarter of 2008 and 2007 were $nil. Revenue for the
first six months of 2008 was $500,000 compared to $nil for the same period in
2007. The increased revenue for 2008 were due to the Company recognizing the
Rika Ltd. master license fee of $500,000 at the end of the two year agreement
term.
Interest and other income decreased to $4,312 in the second quarter of 2008
compared to $36,116 in the same quarter in 2007. Interest and other income
decreased to $5,669 in the first six months of 2008 from $115,350 in the same
period in 2007. The decrease in 2008 was due mainly to lower cash balances and
therefore decreased interest income from investments in short-term money
market deposits.
Expenses
During the second quarter ended June 30, 2008, the Company recorded a net loss
of $2,908,763, while the net loss for the same quarter in 2007 amounted to
$3,502,236. During the first six months of 2008, the Company recorded a net
loss of $4,341,583, while the net loss for the same period in 2007 amounted to
$6,741,332. The decrease in operating 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 second quarter was $0.01
per share compared to $0.02 for the same quarter in 2007. The basic and
diluted loss per common share the first six months of 2008 decreased to $0.02
compared to $0.04 for the same period in 2007. The basic and diluted loss per
share for the current periods was lower because of the decrease in operating
loss and the increase in the weighted average number of Common Shares
outstanding. The weighted average number of Common Shares increased to
209,570,784 shares for the second quarter ended June 30, 2008 from 185,378,751
for the same quarter in 2007. The weighted average number of Common Shares
increased to 208,789,678 shares for the first six month period ended June 30,
2008 from 181,511,983 for the same period in 2007.
Marketing and business development expenses for the second quarter of 2008
decreased to $190,543 from $348,524 for the same quarter in 2007. Marketing
and business development expenses for the first six months of 2008 decreased
to $509,795 from $694,752 for the same period in 2007. These decreases were
due to decreases in business development activities and participation in a
major environmental conference during the 2008 period.
For the second quarters of 2008 and 2007 the Company had expended on a
quarterly basis $377,258 and $616,927 respectively, on research and
development. In the second quarter 2008, the Company also offset product sales
of $60,035 (2007 - $481) 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. For the first six months in 2008 and
Page 5 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
2007 the Company had expended $623,655 and $1,523,324 respectively, on
research and development. These amounts were net of $75,510 (2007 - $13,157)
of product sales. These decreases in research and development expenses were
due to reduced activity in engineering development of the commercial scale
plant and other product development activities.
General and administrative expenses in the second quarter of 2008 decreased to
$2,209,795 from $2,576,956 for the same quarter in 2007. General and
administrative expenses in the first six months of 2008 decreased marginally
to $4,662,442 from $4,670,695 for the same period in 2007. The minor decrease
in 2008 was a combination of decreased activity in the general and
administrative area and management of the Company's development activities
related to its 200 tpd plant in Guelph, Ontario, a decrease in non-cash
compensation expenses, and a reduction in bonus accrual during the six months
ended June 30, 2008, partially offset by increased activities in the Company's
U.S. and Argentina offices.
Amortization and depreciation expenses increased slightly to $38,256 in the
second quarter of 2008 from $34,374 in the same quarter in 2007. Depreciation
and amortization expenses increased to $75,421 in the first six months of 2008
from $64,580 in the same period in 2007.
Interest expenses increased in the second quarter of 2008 to $48,502 from
$2,606 in the same quarter in 2007. Interest expenses increased in the first
six months of 2008 to $66,241 from $2,659 in the same period in 2007. The
interest expenses incurred in 2008 were due mainly to the accretion of the
asset retirement obligation liability, expenses incurred on the long-term debt
and the short-term debt with company's directors, officers and shareholders.
Currency exchange loss in the second quarter amounted to $98,783 compared to
the loss $54,322 in the same quarter in 2007. Currency exchange loss in the
first six months of 2008 amounted to $113,218 compared to the loss $37,679 in
the same period 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 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, 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. Also, beginning in 2008, lower research and
Page 6 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
development expenditures as the plants in Ontario progressed through
commissioning also contributed towards a lower operating loss.
With the small fire in West Lorne in April 2008, operations were suspended in
both West Lorne (for repair and to install preventative changes) and in Guelph
(to install the same preventative changes). Operations re-started in West
Lorne in July and will re-start in Guelph shortly.
The following table provides summary financial data for the last eight
quarters:
Three months ended
Jun 30 Mar 31 Dec 31 Sep 30
2008 2008 2007 2007
-----------------------------------------
(US Dollars) $ $ $ $
Revenue -- 500,000 -- --
Net loss from continuing
operations (2,908,763) (1,432,819) (4,299,404) (3,179,667)
Net loss per share (0.01) (0.01) (0.02) (0.02)
Net loss (2,908,763) (1,432,819) (4,299,404) (3,179,667)
Net loss per share (0.01) (0.01) (0.02) (0.02)
Weighted average common shares
outstanding in the period 209,570,784 208,008,571 205,329,005 189,679,200
Three months ended
Jun 30 Mar 31 Dec 31 Sep 30
2007 2007 2006 2006
-----------------------------------------
$ $ $ $
Revenue -- -- -- --
Net loss from continuing
operations (3,502,236) (3,239,097) (4,111,675) (3,086,964)
Net loss per share (0.02) (0.02) (0.02) (0.02)
Net loss (3,502,236) (3,239,097) (4,111,675) (3,086,964)
Net loss per share (0.02) (0.02) (0.02) (0.02)
Weighted average common shares
outstanding in the period 185,378,751 177,602,251 168,463,261 162,278,171
1.6 Liquidity
During the second quarter ended June 30, 2008, the Company generated cash from
financing activities of $1,731,891, and used cash in operating activities and
investing activities of $341,280 and $1,296,605, respectively. During the
first six months ended June 30, 2008, the Company generated cash from
financing activities of $2,824,413, and used cash in operating activities and
investing activities of $1,022,877 and $3,546,062, respectively.
Page 7 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
The Principal sources of liquidity during second quarter ended June 30, 2008
were (i) $1,051,616 increase in short term loans with the Company's directors,
officers and shareholders; (ii) $681,250 in deposits for Common Shares to be
issued in 2008 pursuant to the Company's recent private placement; (iii)
$8,000 in net proceeds after deducting related issue costs and expenses from
private placement offerings of the Company's Common Shares; and offset by (iv)
$8,975 in repayment of loan. Principal sources of liquidity during the six
months ended June 30, 2008 were (i) $1,213,863 increase in short term loans
with the Company's directors, officers and shareholders; (ii) $947,250 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, (iii) $681,250 in deposits for Common
Shares to be issued in 2008 pursuant to the Company's recent private
placement; and offset by (iv) $17,950 in repayment of loan.
For the quarter ended June 30, 2007 the principal sources of liquidity were
(i) $3,149,866 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) $500,000
increase in joint-venture deposit received; (iii) $353,017 increase in long
term loan; and (iv) $396,621 decrease in government grants receivable.
Principal sources of liquidity during the six months ended June 30, 2007 were
(i) $9,095,471 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) $500,000
increase in joint-venture deposit received; (iii) $353,017 increase in long
term loan; and (iv) $396,621 decrease in government grants receivable.
Overall change in cash position during the second quarter of 2008 was a
decrease in cash of $4,628 as compared to a decrease of $2,887,533 during the
same quarter in 2007. Overall change in cash position during the first six
months of 2008 was a decrease in cash of $1,784,803 as compared to a decrease
in cash of $7,846,973 during the same period in 2007. Overall cash flows
decreased during the first six months of 2008 due to significantly decreased
financing activities, operating activities and investing activities.
The net amount of cash used in operating activities in the second quarter of
2008 decreased to $341,280 from cash used of $688,221 in the same quarter of
2007. Cash used in operating activities consisted primarily of a net loss from
operations for the second quarter 2008 of $2,908,763, less non-cash expenses
of (i) equity compensation expenses of $612,456, (ii) amortization of $38,256,
(iii) accretion interest on convertible loan of $9,113, (iv) a net change in
non-cash working capital balances related to operations of $1,808,875, and (v)
translation loss of $98,783. Cash used in operating activities in the second
quarter 2007 consisted of a net loss from operations for the second quarter
2007 of $3,502,236 and non-controlling interest of $94,876, less non-cash
expenses of (i) equity compensation expenses of $711,293, (ii) amortization of
$34,374, (iii) a net change in non-cash working capital balances related to
operations of $2,108,902, and (iv) translation loss of $54,322.
The net amount of cash used in operating activities in the first six months of
2008 decreased to $1,022,877 from cash used of $3,010,212 in the first six
months of 2007. Cash used in operating activities consisted primarily of a net
loss from operations for the first six months of 2008 of $4,341,583, and the
recognition of (non-cash) deferred revenue of $500,000, less non-cash expenses
of (i) equity compensation expenses of $1,284,469, (ii) amortization of
$75,421, (iii) accretion interest on convertible loan of $18,275, (iv) a net
change in non-cash working capital balances related to operations of
$2,327,323, and (v) translation loss of $113,218. Cash used in operating
activities in the first six months of 2007 consisted of a net loss from
operations for the first six months of 2007 of $6,741,332 and non-controlling
interest of $123,850, less non-cash expenses of (i) equity compensation
Page 8 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
expenses of $1,546,547, (ii) amortization of $64,580, (iii) a net change in
non-cash working capital balances related to operations of $2,206,164, and
(iv) translation loss of $37,679.
Financing activities during the second quarter 2008 generated a net increase
in cash of $1,731,891, primarily from the short-term debt with the Company's
directors, officers and shareholders of $1,051,616 and the Company's private
placements of Common Shares. Financing activities during the second quarter
2007 generated a net increase in cash of $4,399,504, primarily from the
Company's private placements of Common Shares.
Financing activities during the first six months of 2008 generated a net
increase in cash of $2,824,413, primarily from the short-term debt with the
Company's directors, officers and shareholders of $1,213,863 and the
Company's private placements of Common Shares. Financing activities during
the first six months of 2007 generated a net increase in cash of $10,347,615,
primarily from the Company's private placements of Common Shares.
Investing activities in the second quarter 2008 resulted in use of cash, in
the amount of $1,296,605. This amount was incurred in the acquisition of
capital assets (Guelph and West Lorne plants). Investing activities in the
second quarter 2007 resulted in use of cash, in the amount of $6,717,324. This
amount was incurred in the acquisition of capital assets of $5,858,324 and
increase of long term deferred assets of $859,000.
Investing activities in the first six months of 2008 resulted in use of cash,
in the amount of $3,546,062. This amount was incurred in the acquisition of
capital assets (Guelph and West Lorne plants) of $3,372,728 and an increase of
long-term loan receivable of $173,334. Investing activities in the first six
months of 2007 resulted in use of cash, in the amount of $15,377,912. This
amount was incurred in the acquisition of capital assets of $14,518,912 and
increase of long term deferred assets of $859,000.
1.7 Capital Resources
As at June 30, 2008, the Company had working capital deficiency of $8,230,840,
has an accumulated deficit of $91,661,766 and has incurred a net loss of
$4,341,583 for the six months period ended June 30, 2008.
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") 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 contemplated equity offerings during 2008, 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
Page 9 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
2005 and technical and project related expenditures in 2006. The Company's
agreement with Technology Partnerships Canada pertains to maximum funding of
US$8.1 million (C$8.235 million), of which $7.3 million (C$ 7.4 million) has
been received as of June 30, 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.
During the second quarter of 2008, the Company raised subscription funds of
$0.7 million relating to the private placement commenced during the second
quarter of 2008 at subscription price at $0.35 per share. 1.95 million shares
and 0.97 million 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 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 an 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
related to the 200 tpd plant, the Company has outstanding construction
commitments of approximately $0.8 million at June 30, 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(s) which are expected to be developed during 2008. Any delay in
securing project funding for a project will delay the construction and
commissioning of that project.
1.8 Off-Balance Sheet Arrangements
None.
Page 10 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
1.9 Transactions with Related Parties
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 June 30, 2008:
1) Paid or accrued management compensation of $233,143 (2007 - $415,383) to
directors and officers of the Company;
2) Paid or accrued consulting fees of $41,458 (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 $61,259 (2007 - $60,090) to directors of
the Company.
The Company had the following transactions with related parties during the six
month period ended June 30, 2008:
4) Paid or accrued management compensation of $497,794 (2007 - $714,014) to
directors and officers of the Company;
5) Paid or accrued consulting fees of $71,559 (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.
6) Paid or accrued director fees of $70,307 (2007 - $67,896) to directors of
the Company.
As at June 30, 2008, accounts receivable includes $nil (2007 - $35,306)
receivable from directors and officers of the Company. As of the same date,
accounts payable and accrued liabilities includes $1,332,258 (2007 -
$1,845,326) 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.
During the quarter, the Company entered into loan agreements with directors
and officers for $457,963 (2007 - $nil). The loans are due on demand and bear
interest at 8% per annum (on the outstanding loan of $300,885) and at 23% per
annum, the borrowing cost of the lender, (on the outstanding loan of
$157,078).
1.10 Fourth Quarter
Not applicable.
Page 11 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
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.
- - 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.
Page 12 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
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;
Research and Development Expenses
Breakdown by major category:
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2008 2007 2008 2007
-----------------------------------------------
$ $ $ $
Material 66,255 44,396 66,255 232,707
Salary and benefits 105,561 149,905 263,441 160,979
Engineering and Consulting Fees 83,861 347,627 120,136 1,049,473
Miscellaneous Costs 121,581 74,999 173,823 80,165
-----------------------------------------------
377,258 616,927 623,655 1,523,324
Less: Product and services sales (60,035) (481) (75,510) (13,157)
Less: Government assistance programs -- -- -- --
----------------------------------------------
317,223 616,446 548,145 1,510,167
==============================================
(c) deferred development costs;
Not applicable.
(d) general and administration expenses;
Breakdown by major category:
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2008 2007 2008 2007
-----------------------------------------------
$ $ $ $
Office supplies, telephone,
and insurance 194,851 149,548 389,417 283,979
Professional fees 431,837 475,306 739,043 790,793
Rent 101,629 107,448 246,026 194,786
General and admin. salaries
and benefits 1,481,478 1,844,654 3,287,956 3,401,137
----------------------------------------------
2,209,795 2,576,956 4,662,442 4,670,695
==============================================
(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 August 29, 2008, the Company's outstanding share data was as follows:
Common shares outstanding: 214,740,810
Stock options: 21,020,117
Share purchase warrants: 11,213,532
Page 13 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
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 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.
Page 14 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
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.
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
Page 15 of 16
Dynamotive Energy Systems Corp. Amended and Restated
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six-month period ended June 30, 2008 compared to the six-month period ended
June 30, 2007
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:
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 16 of 16