Dynamotive

Introduction

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Dynamotive Energy Systems Corporation is an energy solutions provider headquartered in Vancouver, Canada. http://www.dynamotive.com/ The Company was incorporated in 1991, and is currently traded on the OTCBB under the symbol DYMTF. Dynamotive produces and now markets carbon-neutral liquid fuels produced from cellulosic biomass. They develop biofuel technology and products based on its patented fast pyrolysis technology The first company to have a license on this technology was Encon, a company that had the license from the University of Waterloo for the Waterloo Fast Pyrolysis Process but failed in the attempt to scale up due to the limited amount of heat that could be stored in the fluidizing gas stream.

The Fast Pyrolysis process produces three products, with yields in the range of (by weight): BioOil (65 – 72%) Char (15 – 20%) Non-condensable gases (12 – 18%).

Evolution

The design and development of the first commercial plant at West Lorne started in 2002.The plant started operations in early February 2005 with a design capacity of 100 tonnes per day of waste sawdust. However the plant never went into full production and hardly produced bio-oil, due to mechanical and design difficulties. The company did not wait for the West Lorne plant and started to build a second plant in Guelph in 2006 with a design capacity of 200 tonnes per day. The start up planned for the Q1 2007 has been delayed to Q4 2007 and is still in progress.

Future

About the chances for the Guelph plant, see the article in the Washington Post April 20 2007 http://www.washingtonpost.com/ search:dynamotive  :The Washington Post reporter : " A pilot plant by Dynamotive at West Lorne, Ontario, was heavily subsidized by government agencies, recorded large losses and never did achieve large-scale bio-oil production, a worrisome precursor to the plant being built in Guelph." In that same article the Washington Post reporter did some investigation and talked to researchers, concluding:" While the process works in a laboratory, there are pitfalls to making it successful on a scale large enough to be commercially profitable, researchers acknowledge." In November 2007 Andrew Karsner, the assistant secretary of energy for energy efficiency and renewable energy mentioned in the New York Times Dynamotive and said about this and other approaches: “It’s not obvious, and I don’t think it will be obvious for a very long time” http://www.nytimes.com/2007/11/09/business/09fuel.html?ex=1352350800&en=700d5dc6e61c56c5&ei=5088&partner=rssnyt&emc=rss

CEO Kingston November 29,2007 :“The Company’s commercial activities were adversely affected during the quarter due to delays in the start-up of the Guelph plant resulting from the need for completion of non-core systems and civil works, as well as delays in the supply of equipment which were beyond management control."

Media

Reporter David Baines expressed his straightforward opionion about Dynamotive in the Vancouver Sun.

David Baines has been uncovering white collar crime for the past 20 years. He has an MBA from the University of Western Ontario and has won three National Newspaper Awards.

DAVID BAINES VANCOUVER SUN http://www.canada.com/vancouversun/columnists/davidbaines.html SECURITIES COLUMNIST

There is no situation in business that annoys me more than a company that is losing scads of money, paying obscenely excessive salaries, and is heavily subsidized by taxpayers. That’s the situation with Dynamotive Energy Systems Corp., which is based in Vancouver and trades on the dreadful OTC Bulletin Board in the United States. For years, Dynamotive has been touting a plant in West Lorne, Ont., which turns wood waste into a biodiesel fuel called BioOil. And for years, I have been wondering when the plant is going to get into production and generate some profits. In March 2004, president Andrew Kingston told me the plant would begin commercial production within three months. That didn’t happen. Then in February 2006, he told me the company had commenced commercial shipments during the previous quarter and those sales would be reflected in year- end statements. Alas, financial statements for the year ending Dec. 31, 2005 didn’t show a cent of revenue. But the net loss, which had doubled to $ 10 million US in 2004, jumped another 20 per cent to $ 12 million US. The year 2006 started on a much more promising note. During the first quarter, the company recorded first- ever “ sales” of $ 865,207 US. However, they weren’t really sales, they were mainly licence fees. Sales of BioOil accounted for only $ 8,947 US. By the end of the second quarter, revenues for the sixmonth period had increased to $ 915,522, of which only $ 37,647 was from sales of BioOil. Alas, these revenues soon disappeared as the company reconsidered its accounting policies. Licence fees, even though they were non- refundable, would be classified as deferred revenue and not recognized as revenue until all the contract terms were satisfied. Also, product sales would be netted against operating expenses until the plant reached break- even levels. The accounting changes eliminated all the previously recorded revenues. When the dust settled, the net loss for the nine months ending Sept. 30, 2006 was $ 12.4 million US, 80 per cent higher than the same period the previous year. Clearly, the plant was still a work in progress. Year- end statem e n t s h ave n o t ye t b e e n released, but CFO Brian Richardson said BioOil sales totalled about $ 250,000 last year. Then in January this year, the plant was shut down for a $ 4.5- million US upgrade. Richardson said it won’t reopen until June. This stunned me. This plant cost $ 12.5 million US to build. It produces $ 250,000 worth of BioOil, then shuts down for a half- year, $ 4 . 5- million US upgrade? This strikes me as a disaster, but the company’s compensation committee doesn’t see it that way. According to company documents, Kingston was paid $ 295,494 US in 2005 and then granted a bonus of $ 303,177 US, for total remuneration of about $ 700,000 Cdn. Richard Lin, the company’s chairman and president of China operations, was paid $ 189,960 US plus a bonus of $ 194,900 US, for a total of $ 430,000 Cdn. Richardson, the CFO, was paid $ 142,878 US plus a bonus of $ 136,172 US, for a total of $ 310,000 Cdn. Since then, Richardson’s base salary has been hiked by one third, and both Kingston and Lin have been given cost- of- living increases. Bonuses for 2006 have not yet been established. Meanwhile, the government is heavily subsidizing plant costs. Technology Partnerships Canada has agreed to a $ 8.24- million Cdn repayable contribution, of which $ 7 million has been paid to date. Another federal soup kitchen, Sustainable Development Technology Canada, has made a $ 5- million Cdn nonrepayable contribution. Incredibly, the company has spent another $ 20 million developing a new plant in Guelph. A few days ago, the company started commissioning it. I can’t understand why the company is gearing up a new plant when the old one still hasn’t proven itself. As of Sept. 30, the company’s cumulative losses totalled $ 71 million US, and may now exceed $ 80 million US. The company will have to sell an ocean- full of biofuel to make up that deficit. Like so many of these nascent companies, it seems that the closer you get to the horizon, the more it recedes.

Q3 2007 Operating Results

Dynamotive Energy Systems Corporation (OTCBB: DYMTF) announced today that its net loss for the third quarter ended September 30, 2007 was $3.2 million, or $0.02 per share, compared with net loss of $3.1 million or $0.02 per share in the third quarter of 2006. Dynamotive’s net loss for the nine months ended September 30, 2007 was $9.9 million, or $0.05 per share, compared with a net loss of $10.1 million, or $0.07 per share for the nine months ended September 30, 2006.

Excluding stock-based compensation, the net loss for the third quarter ended September 30, 2007 was $2.1 million, compared with a net loss of $2.4 million for the same quarter in 2006. Dynamotive's net loss for the nine months ended September 30, 2007 was $7.3 million, compared with a net loss of $6.9 million for the same period in 2006.

Total non-cash expenses for the third quarter were $1.1 million in 2007 ($0.7 million in 2006) and for the nine months ended were $2.6 million ($3.8 million in 2006), resulting from non-cash compensation and other non-cash charges.

As at September 30, 2007, the Company had a working capital deficiency of $ 7,629,432

Unaudited Consolidated Balance Sheets : (expressed in U.S. dollars)

September 30,2007	  	 
 (Unaudited)		      	 
        $ 	 	                      
	 	 	 	 	 	 

ASSETS Current

Cash and cash equivalents 10,464

Accounts receivable 179,499

Government grants receivable 821,973

Prepaid expenses and deposits 366,312

Total current assets 1,378,248

Capital assets 50,075,936

Patents 274,828

Long term deferred asset 989,794

Other assets —

TOTAL ASSETS 52,718,806

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current

Accounts payable and accrued liabilities 9,007,680

Total current liabilities 9,007,680

Long term debt [Note 4] 344,042

Deferred revenue [Note 6] 370,000

Total liabilities 9,721,722

Non-controlling interest —

Shareholders’ equity

Share capital 98,715,466

Shares to be issued 2,924,820

Contributed surplus 19,295,792

Cumulative translation adjustments 5,081,784

Deficit (83,020,778 )

Total shareholders’ equity 42,997,084

TOTAL LIABILITIES AND SHAREHOLDERS’

EQUITY 52,718,806

October 9, 2007  : Quercus Makes $10 Million Equity Investment in Dynamotive

Dynamotive Energy Systems Corporation (OTCBB: DYMTF), a leader in biomass-to-biofuel technology, announced today that it has completed a $10.5 million equity financing with Quercus Trust, an environmentally-oriented fund, and several other private investors.