10.11.05

10.11.2005: Meldung: Dynetek Industries Ltd.: 2005 third quarter results

Dynetek reports 2005 third quarter results
Tuesday November 8, 4:02 pm ET

CALGARY, Nov. 8 - Dynetek Industries Ltd. a leader in the design, manufacturing and marketing of proprietary fuel storage cylinders and systems for compressed natural gas (CNG) and hydrogen, today reported results for the three months and nine months ended September 30, 2005. Conference call information is provided below.

Financial Highlights
- Total revenue for the nine months ended September 30, 2005 of
$20.0 million increased $2.2 million or 12% from the same period
of 2004.
- Cylinder and systems revenues for the nine months ended
September 30, 2005 of $17.7 million increased $3.7 million or 26%
compared with the nine months ended September 30, 2004.
- Total revenues for the three months ended September 30, 2005 of
$6.0 million, which is comparable to the same period of 2004.
- Cylinder and system revenues for the three months ended
September 30, 2005 of $5.6 million increased $0.3 million or 6%
from the comparative third quarter of 2004.
- Confirmed order book in excess of $14.5 million to be delivered in
the fourth quarter of 2005 and the first and second quarters of
2006.
- Seventh consecutive quarter of positive EBITDA(1).
- Increased contribution margins from 25% in second quarter 2005 to
27% in third quarter of 2005, despite higher raw material costs.
- The year to date loss was $1.8 million and a third quarter loss
$1.2 million. The year to date loss was mainly due to impairment
of other assets of $0.5 million and foreign exchange loss of
$0.7 million.


Robb Thompson, President and Chief Executive Officer, said the third quarter results reflect the further effects of unbudgeted increased raw material costs during the last two quarters, write-down of other assets, and a continued exposure to foreign exchange fluctuations. Dynetek"s long-term commitment continues to be the focus on CNG cylinder and systems sales to target market of buses and trucks to customers predominately in Europe and Southern California.

"Our most important strategic thrust continues to be our focus on the CNG market place where the opportunities to support revenue growth leading towards profitability are near term," commented Mr. Thompson. "We were able to regain our 27% contribution margin in the third quarter because we took significant steps to sell to markets where margins could be maintained even with higher raw material costs. Although this strategy increased our contribution margins from the second quarter, it did affect our CNG sales where lower margin work was deferred until later quarters as we continue to work on further production efficiencies and reduction in our raw material costs."

"In addition, because of our leadership position in compressed hydrogen storage with major OEMs and our continued research and development programs for product cost reductions, we do report quarters where research and development expenses are incurred in advance of when research and development revenue is invoiced and earned," said Mr. Thompson. "Our goal over the fiscal period is to at least break even with these programs, however we will experience quarters in the year where costs are in excess of billings."

"We believe we are still on the path to profitability, if our annual growth of CNG system and cylinder sales continues, if we maintain or increase contribution margins despite increased raw material costs, if our steps to reduce foreign exchange exposure are successful and our research and development invoicing increases." Mr. Thompson went on to say.

(1) Earnings before interest, taxes, non-cash foreign exchange,
impairment of other assets, stock based compensation, depreciation and
amortization (EBITDA) is a non-GAAP measure and may not be comparable to
similar measures used by other companies. Management believes EBITDA is a
useful measure to assist in the assessment of Dynetek"s ability to
generate cash flows from its operations.

OPERATIONAL HIGHLIGHTS


In the third quarter, Dynetek achieved total revenues of $6.0 million (2004 - $6.0 million) with cylinder and system sales of $5.6 million (2004 - $5.3 million) being the major contributor to these third quarter results. The Company"s goal is to achieve increased sales in each quarter compared to the prior year comparative quarter. The nine months total revenues were $20.0 million (2004 - $17.8 million) and cylinder and system sales were $17.7 million (2004 - $14.0 million). The Company continues to have positive EBITDA(1) with the third quarter of 2005 representing the seventh consecutive quarter.

The Company continues to focus its compressed natural gas cylinder sales in areas such as California and Europe where the availability of natural gas is prevalent and fueling infrastructure is established. In the third quarter Dynetek received compressed natural gas cylinder orders representing revenue of approximately $2.0 million (USD) from two major transit bus manufacturers with deliveries to the United States in the third and fourth quarters of 2005. Dynetek"s cylinder solution is to be used for the US transit bus market and provides the performance standards required of any transit bus, including extended driving range, cylinder reliability and ease of maintenance.

In Europe, the Company has seen strong growth due to the need to meet regulatory environmental requirements and the price differential of natural gas compared to diesel. In the third quarter, Dynetek"s European operations achieved cylinder and system sales of $2.8 million and had cylinder and system sales of $11.2 million for the first nine months of 2005. Dynetek"s proprietary technology provides advantages such as less weight, more compressed natural gas on board and less operating costs, being the value proposition we offer our customers that our competitors cannot provide. This same model was used to develop the California market for heavy-duty trucks.

The cylinder and system sales to the United States for the nine month period were $4.2 million, a decrease of 4% when compared to the same period of 2004. In late 2004 and for the first half of 2005 there was a dispute in the fleet rules for California which affected most of the Los Angeles area"s fleet vehicles, ranging from airport vehicles, sweepers and garbage trucks, to school and transit buses. In August 2005 the South Coast Air Quality Management District re-commenced its enforcement of disputed fleet rules following a favourable court ruling in May. With this ruling, Dynetek has seen an increase in the amount of tenders for compressed natural gas opportunities in southern California for the later part of 2005 and into 2006.

Dynetek"s research and development team continues to focus its efforts on the hydrogen economy and its storage requirements. During 2005 the Company achieved KHK and TUV certification for its 700bar (10000psi) cylinder solution, which helps bring hydrogen vehicles the necessary range to compete with gasoline powered internal combustion engine vehicles. The Company continues to work with 10 different OEMs, including Ford, Hyundai, DaimlerChrysler and Nissan, to design, manufacture and deliver the hydrogen storage solution on 15 confidential development programs. The research and development team continues to work on CNG solutions to increase the effectiveness of the product, while reducing production costs.

In September Dynetek delivered three Advanced Lightweight Fuel Storage Systems(TM) to Tsinghua University located in Beijing, the People"s Republic of China. These roof mount hydrogen fuel storage systems are in direct response to the Chinese governments clean air initiatives, whose goal is to improve the country"s air quality by 2008 when China will be host to the summer Olympic Games.

In September Dynetek Industries Ltd. was included in the Deloitte 2005 Canadian Technology Fast 50 list as one of the 50 fastest growing Canadian technology companies, based on percentage revenue growth over a five-year period. The Deloitte Technology Fast 50 is an annual award specifically for technology companies in Canada.

Dynetek announced in October its participation in the Integrated Waste Hydrogen Utilization Project (IWHUP), a Government of Canada and Sustainable Development Technology Canada (SDTC) funded project in Vancouver, BC. The demonstration project will operate eight light-duty trucks that will run on hydrogen using Dynetek"s Dynecell(R) cylinders and Advanced Lightweight Fuel Storage Systems(TM). Dynetek will develop a 450bar (6,500psi), inter-modal compressed hydrogen storage and bulk hauling transportation system. This high volume Hydrogen transport system will also be capable of supplying Hydrogen fuel to many of the larger Hydrogen powered vehicles such as the four Hydrogen buses, which will be part of this project.

(1) Earnings before interest, taxes, non-cash foreign exchange,
impairment of other assets, stock based compensation, depreciation and
amortization (EBITDA) is a non-GAAP measure and may not be comparable to
similar measures used by other companies. Management believes EBITDA is a
useful measure to assist in the assessment of Dynetek"s ability to
generate cash flows from its operations.

MANAGEMENT"S DISCUSSION AND ANALYSIS


The following sets out management"s discussion and analysis of our financial position and results of operations for the nine months and three months ended September 30, 2005 and 2004. The interim management"s discussion and analysis (MD&A) updates our annual MD&A included in our 2004 Annual Report to Shareholders, to which readers are referred. No update is provided where an item is not material or where there has been no material change from the discussion in our annual MD&A.

Financial Highlights
(tabular amounts in thousands of Canadian dollars, except share capital
and per share data)
(unaudited) Three months Nine months
ended ended
September 30 September 30
-----------------------------------------------
2005 2004 2005 2004
Revenue

Cylinder and system sales 5,631 5,270 17,663 14,037

Research and development
income 362 723 2,238 3,673

Investment and other income 12 10 80 99
-----------------------------------------------
6,005 6,003 19,981 17,809

Net loss (1,297) (370) (1,846) (926)
Net loss per common share
(basic and fully diluted) (0.06) (0.02) (0.09) (0.05)
EBITDA(1) 144 381 940 834
Capital expenditures 423 628 1,233 1,263
Cash and cash equivalents 2,555 3,522 2,555 3,522
Non-cash working capital(2) 13,711 15,259 13,711 15,259
Cash flow from operations (2,177) (1,287) 122 (4,831)
Total assets 43,696 45,808 43,696 45,808
Long-term debt 1,645 1,675 1,645 1,675
Common shares outstanding 20,939,701 20,286,857 20,939,741 20,286,857
Weighted average common
shares outstanding 20,741,994 20,200,740 20,741,994 20,200,740
-------------------------------------------------------------------------
(1) Earnings before interest, taxes, non-cash foreign exchange,
impairment of other assets, stock based compensation, depreciation and
amortization (EBITDA) is a non-GAAP measure and may not be comparable to
similar measures used by other companies. Management believes EBITDA is a
useful measure to assist in the assessment of Dynetek"s ability to
generate cash flows from its operations.

(2) Non-cash working capital is current assets after cash less current
liabilities.

Cylinder and system sales for the nine months ended September 30, 2005
were $17.7 million, up 26% from $14.0 million for the same period of 2004.
Cylinder and system sales for the three months ended September 30, 2005 were
$5.6 million up from $5.3 million or 6% for the same period in 2004. The
Canadian dollar to US dollar exchange rate averaged $1.23 during the first
nine months of 2005 compared to $1.33 for the same period of 2004. Had the
U.S. dollar to Canadian dollar exchange rate achieved the levels of the first
nine months of 2004 in the first nine months of 2005, revenues would have been
$0.5 million higher. The Canadian dollar to Euro exchange rate averaged $1.55
during the first nine months of 2005 compared to $1.63 for the same period of
2004. Had the Euro to Canadian dollar exchange rate achieved the levels of the
first nine months of 2004 in the first nine months of 2005, revenues would
have been $0.6 million higher.
During the third quarter of 2005, customers who purchased the DyneCell
fuel storage systems for CNG included: Marubeni Metals Corp. (Japan), McNeilus
Truck (United States), Iris Bus (Italy), Thomas Built Buses (United States),
NEOMAN (Europe), Heuliez Bus (Europe), BredaMenarinibus (Europe) and
Pleasanton Truck Equipment (United States). Customers who purchased hydrogen
and other compressed gas fuel storage systems included: DaimlerChrysler
(Germany), Ford Motor Company (United States), Nissan (Japan), and Ballard
Power (Canada).

Research and development income for the nine months ended September 30,
2005 was $2.2 million, down 41% or $1.5 million from the same period in 2004.
Research and development income for the third quarter was $0.4 million, down
57% or $0.4 million from the same period of 2004. During the first nine months
of 2005, Dynetek continued to be involved with Natural Resources Canada
(NRCan) and 10 different OEMs, including Ford, Hyundai, DaimlerChrysler and
Nissan, to design, manufacture and deliver the hydrogen storage solution on 15
confidential development programs. Revenues received from the OEMs regarding
these projects are recorded on billing milestones outlined in the contracts
and, therefore, timing differences occur between when costs are incurred and
funding is received. Non-repayable cost shared monies received from NRCan are
recorded as revenue in the period it is invoiced.
During the third quarter of 2005, Dynetek received non-repayable cost
shared monies of $0.1 million from Natural Resources Canada (NRCan) for the
development and testing of a 700bar (10000psi) complete fueling system.

Investment and other income for the nine months ended September 30, 2005
was $0.1 million, comparable to the same period in 2004. In the third quarter
of 2005, investment and other income was twelve thousand dollars compared to
ten thousand dollars for the same period of 2004.

Cost of goods sold was $13.1 million for the nine months ended
September 30, 2005 compared to $10.4 million for the same period in 2004. Cost
of goods sold was $4.1 million for the three months ended September 30, 2005
compared to $3.9 million for the same period in 2004. Corresponding
contribution margins for the nine months ended September 30, 2005 were
$4.6 million, or 26% of sales compared to $3.6 million or 26% of sales for the
same period of 2004. Corresponding contribution margins for the three months
ended September 30, 2005 were $1.5 million or 27% of sales compared to
$1.4 million or 26% of sales for the same period of 2004.

General and administrative expense was $2.5 million for the nine months
ended September 30, 2005, which was comparable to the same period of 2004.
General and administrative expense was $0.8 million for the three months ended
September 30, 2005 compared to $0.7 million for the same period of 2004.
Overall general and administration costs decreased as a percentage of sales
from 17% in the first nine months of 2004 to 14% in the first nine months of
2005. Overall general and administration costs decreased as a percentage of
sales from 14% in the third quarter of 2004 to 13% in the third quarter of
2005.

Research and product development expense was $2.3 million for the nine
months ended September 30, 2005 compared to $2.7 million for the same period
in 2004. Research and product development expense was $0.6 million for the
quarter ended September 30, 2005 compared to $0.5 million for the same period
in 2004. Research and development expense consists of materials, labour and
costs of benefits and overhead related to research and development activity.
The majority of Dynetek"s research and development programs are co-funded
with major OEMs and government (NRCan). The funding from the OEMs for the
research and development programs is recorded as research and development
revenue based on billing milestones outlined in the contracts. This can result
in timing differences between when costs are incurred and funding is received.
The government funding is recorded either as research and development income
or loans. The cost shared monies received from NRCan, which is non-repayable,
are recorded as research and development revenue in the period it is invoiced
and the repayable government cost shared monies are recorded as a loan.

Marketing expense was $1.2 million for the nine months ended
September 30, 2005, compared to $1.4 million for the same period of 2004.
Marketing expense was $0.3 million for the three months ended September 30,
2005, compared to $0.5 million for the same period of 2004. Overall marketing
expense was 7% of sales for the nine months ended September 30, 2005 compared
to 10% of sales for the same period of 2004. Overall marketing expense was 6%
of sales for the three months ended September 30, 2005 compared to 9% of sales
for the same period of 2004.

Depreciation was $0.9 million for the nine months ended September 30,
2005, compared to $1.0 million for the same period of 2004. Depreciation was
$0.3 million for the three months ended September 30, 2005, which is
comparable to the same period of 2004.

Amortization was $0.3 million for the nine months ended September 30,
2005, which is comparable to the amount in the same period of 2004.
Amortization was $0.1 million for the three months ended September 30, 2005,
which is comparable to the amount in the same period of 2004. Items included
in amortization expense include process and development costs, patents and
deferred start-up costs for the European operation.

Foreign exchange for nine months ended September 30, 2005 was a loss of
($0.7) million compared to a loss of ($0.2) million in the same period of
2004. Foreign exchange for three months ended September 30, 2005 was a loss of
($0.4) million compared to a loss of ($0.2) million for the same period of
2004. The foreign exchange loss in the first nine months of 2005 is a result
of a weakening of both the United States dollar and the Euro against the
Canadian dollar resulting in a negative impact on the foreign denominated
accounts receivable and cash held at September 30.
The loss in the quarter is a result of both the US dollar and the Euro
weakened on September 30, 2005 from the average in the quarter. The Canadian
dollar averaged $1.20 per US dollar for the third quarter and as at
September 30, 2005 was $1.16 per US dollar. The Canadian dollar averaged $1.46
per Euro for the third quarter and as at September 30, 2005 was $1.40 per
Euro.

Impairment of other assets
Other long-term assets represented amounts receivable from a customer for
which the Company agreed to revise the terms of repayment. In 2003 the
customer approached all secured and unsecured creditors to revise their
payment terms as the customer worked their way out of a working capital
shortfall. All creditors, including their secured bank lender, agreed to their
terms. The revised terms of repayment provided for the receivable to be repaid
in full on or before June 30, 2006, with interest accruing at a rate of 3%.
These revised terms of repayment were granted based on financial information
provided by the customer which supported their ability to repay the receivable
within the time period noted above.
As a result of revised terms of repayment, the Company reviewed, on a
quarterly basis, the ability of the customer to repay this receivable in full
and consequently the valuation of the receivable. As of September 30, 2005
based on current financial information provided by the customer during the
third quarter of 2005, management believed the full amount of the receivable
had been impaired and collection of the receivable was not likely to occur by
June 30, 2006 or any time subsequent to that date. This impairment resulted in
the one time charge of $0.5 million being expensed in the income statement.

Net loss for the nine months ended September 30, 2005 was ($1.8) million
or ($0.09) per common share compared to ($1.3) million or ($0.05) per common
share for the same period of 2004. Net loss for the three months ended
September 30, 2005 was ($1.3) million or ($0.06) per common share compared to
($0.4) million or ($0.02) per common share for the same period of 2004. The
loss in the first nine months is substantially the result of an unrealized
foreign exchange loss due to the US dollar and the Euro weakening against the
Canadian dollar, impairment of other assets, and timing differences in costs
incurred in research and development expenses exceeding revenues billed.

VALVE DIVISION

The Valve Division is focused entirely on research and development
activities. During the first nine months of 2005 the Valve Division received
$0.2 million of non-repayable cost shared monies from NRCan compared to
$1.5 million for the same period of 2004. In the third quarter ended September
30, 2005 the Valve Division received no government funding, compared to
$0.2 million in 2004.

EUROPEAN OPERATIONS

Dynetek Europe GmbH ("Dynetek Germany") has progressed considerably since
its inception in 2001 by obtaining cylinder and production certification,
developing infrastructure, and marketing the DyneCell(R) primarily throughout
Europe.
In the nine months ended September 30, 2005 the subsidiary generated
$11.2 million of revenue compared to $6.2 million in the same period of 2004.
For the three months ended September 30, 2005 the subsidiary generated
$2.9 million of revenue compared to $2.5 million for the same period of 2004.

Summary of Quarterly Results
The following table shows selected unaudited financial information for
the past nine quarters ending September 30, 2005. The information has been
obtained from our quarterly unaudited financial statements, which have been
prepared in accordance with Canadian GAAP and, in the opinion of management,
have been prepared using accounting policies consistent with the audited
financial statements and include all adjustments necessary for the fair
presentation of the results of the interim periods. We expect our operating
results to vary significantly from quarter to quarter and they should not be
relied upon to predict future information.

(thousands of
Canadian dollars
except per -------------------------------------------------
share data) Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30
(unaudited) 2003 2003 2004 2004 2004
-------------------------------------------------

Revenues
Cylinder and system
sales 4,739 5,275 4,364 4,403 5,270
Research & development
income 1,003 681 1,544 1,406 723
Investment & other
income 75 110 71 18 10
-------------------------------------------------
5,817 6,066 5,979 5,827 6,003
Operating expenses
Cost of goods sold 3,612 4,203 3,261 3,277 3,893
Marketing & general
and admin. 1,147 1,385 1,259 1,336 1,239
Research & product
development 962 795 1,176 1,044 490
-------------------------------------------------
5,721 6,383 5,696 5,657 5,622
-------------------------------------------------
Earnings before interest,
income taxes, impairment
of other assets, stock
based compensation,
non-cash foreign exchange,
depreciation &
amortization(1) 96 (317) 283 170 381
-------------------------------------------------
Foreign exchange
(gain) loss (195) 134 1 (37) 226
Depreciation &
amortization 475 437 422 416 430
Stock based compensation - - 92 87 88
Impairment of other assets - - - - -
Income taxes 20 - 13 15 7
-------------------------------------------------
300 571 528 481 751
-------------------------------------------------
Net loss (204) (888) (245) (311) (370)
-------------------------------------------------
-------------------------------------------------

Earnings (loss) per share
Basic and fully diluted (0.01) (0.05) (0.01) (0.01) (0.02)
-------------------------------------------------
-------------------------------------------------


(thousands of
Canadian dollars
except per -----------------------------------------
share data) Dec. 31 Mar. 31 June 30 Sept. 30
(unaudited) 2004 2005 2005 2005
-----------------------------------------
Revenues
Cylinder and system
sales 8,177 5,676 6,356 5,631
Research & development
income 576 1,193 683 362
Investment & other
income 29 57 11 12
-----------------------------------------
8,782 6,926 7,050 6,005
Operating expenses
Cost of goods sold 6,090 4,175 4,796 4,139
Marketing & general
and admin. 1,479 1,154 1,347 1,118
Research & product
development 860 1,063 645 604
-----------------------------------------
8,429 6,392 6,788 5,861
-----------------------------------------
Earnings before interest,
income taxes, impairment
of other assets, stock
based compensation,
non-cash foreign exchange,
depreciation &
amortization(1) 353 534 262 144
-----------------------------------------
Foreign exchange
(gain) loss 71 241 127 357
Depreciation &
amortization 447 373 411 449
Stock based compensation 144 95 99 100
Impairment of other assets - - - 535
Income taxes 4 - - -
-----------------------------------------
666 709 637 1,441
-----------------------------------------
Net loss (313) (175) (375) (1,297)
-----------------------------------------
-----------------------------------------

Earnings (loss) per share
Basic and fully diluted (0.02) (0.01) (0.02) (0.06)
-----------------------------------------
-----------------------------------------

(1) Earnings before interest, taxes, non-cash foreign exchange,
impairment of other assets, stock based compensation, depreciation and
amortization (EBITDA) is a non-GAAP measure and may not be comparable to
similar measures used by other companies. Management believes EBITDA is a
useful measure to assist in the assessment of Dynetek"s ability to
generate cash flows from its operations.


Intangible assets and deferred costs
(thousands of Canadian dollars)
(unaudited) Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------------------

Patents 34 49 292 54
Certification costs 233 - 610 -
-------------------------------------------------------------------------
267 49 902 54
-------------------------------------------------------------------------

Intangible asset expenditures for the nine months ended September 30,
2005 were $0.9 million compared to fifty-four thousand for the same period of
2004. The additions for the three and nine months ended September 30, 2005
were due to certification and patent costs incurred during the period. The
Company will invest in patents and costs associated with product certification
in future years to ensure protection of our intellectual property, developed
products and production processes.

Capital Expenditures
(thousands of Canadian dollars)
(unaudited) Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------------------

Building and leaseholds 31 11 379 20
Manufacturing equipment 685 73 3,473 499
Office furniture and other
equipment 52 127 52 127
Computer hardware and software 38 4 45 21
Manufacturing equipment under
construction (383) 413 (2,716) 596
-------------------------------------------------------------------------
423 628 1,233 1,263
-------------------------------------------------------------------------

Capital expenditures for the nine months ended September 30, 2005 were
$1.2 million compared to $1.3 million for the same period in 2004. Capital
expenditures for the three months ended September 30, 2005 were $0.4 million
compared to $0.6 million for the same period in 2004. During the first nine
months of 2005, the Company deployed $2.7 million of manufacturing equipment
previously included in assets under construction into the commercial
production process. The efficiencies and high production capabilities of the
new manufacturing process will contribute directly to cost reductions and
higher production output.
The Company"s capital resource requirements consist of capital
expenditures to maintain and improve the existing production line.

Financial Resources and Liquidity

The Company"s principal liquidity requirements relate to the increase in
working capital required to maintain our increase in sales.
As at September 30, 2005 Dynetek had cash and cash equivalents of
$2.6 million, compared to $4.8 million at June 30, 2005 and $3.3 million at
March 31, 2005. Dynetek was cash flow positive from operations of $0.7 million
for the nine months ended September 30, 2005 but was cash flow negative from
operations of ($1.6) million for the three months ended September 30, 2005.
Dynetek"s working capital level is $20.8 million at September 30, 2005, as a
result of the growth of the Company"s revenues and the increase in production
levels to meet demand.
The Company"s investment in inventory resulted in an increase of
$0.7 million to $10.2 million at September 30, 2005 from December 31, 2004.
Work-in-progress represented by confirmed orders increased by $0.3 million to
$3.0 million. Raw material levels increased by $0.3 million to $3.3 million as
a result of increased amounts of carbon fibre purchased by the Company in
anticipation of continued increased production in the fourth quarter of 2005.
Finished goods inventory increased by $0.1 million to $3.9 million from the
December 31, 2004 levels.
At September 30, 2005 accounts receivable was $7.7 million a reduction of
$0.7 million when compared to December 31, 2004. The Company manages the
collection of receivables and the payment of payables in a manner that working
capital levels will continue to fund ongoing operations. Accounts payable at
September 30, 2005 was $3.8 million, compared to $4.4 million as at December
31, 2004.
The Company"s actual funding requirements will vary depending on a number
of factors, including the increase of the CNG system sales on a global basis,
the progress of research and development projects and the development of
additional relationships with strategic partners. Dynetek remains committed to
enhancing its technological leadership and remaining a market leader in the
industrial gas fuel storage industry, including CNG and hydrogen.
The long-term debt relates to repayable research and development funding
supplied by NRCan. These agreements allow Dynetek to retain the intellectual
property and to receive long-term funding. The debt is repayable only in the
form of royalties based on specific related commercial product sales and is
interest free. The Company has $0.1 million to be repaid in 2005 and first
quarter of 2006. The Company believes that additional cost shared monies will
continue to be available from governments and OEMs for future research and
development projects.
Dynetek continues to build on the strong strategic alliances with several
major OEMs whereby confidential joint funding has been obtained to develop
complete hydrogen fuel storage systems. Other research programs with strategic
partners, such as government bodies, who provide financial and technical
support, are also in place to explore other storage applications in the energy
marketplace.
At September 30, 2005, the Company had an unused $5.0 million line of
credit facility with a major chartered bank.

Principal Risks and Uncertainties

As Dynetek looks forward to the fourth quarter of 2005, there are a
number of factors in addition to the previous disclosure in the 2004 Annual
Report and 2005 interim reports contained in the Management"s Discussion and
Analysis that may impact our future results:

Contribution Margin
The contribution margin averaged 26% of sales for the first nine months
of 2005. The ability of Dynetek to maintain EBITDA(1) and positive cash flow
from operations depends primarily on its ability to maintain the contribution
margin and increasing sales volumes.
The Company has experienced an additional increase in carbon fibre
pricing in the third quarter of 2005. Should the Company see any additional
increases in carbon fiber pricing during the fourth quarter of 2005 or early
2006, the price increase may negatively impact the contribution margins the
Company receives.

Foreign Exchange
Dynetek"s Canadian operation invoices the majority of its revenue in US
dollars. The Canadian dollar to the US dollar exchange rate averaged $1.23
Canadian for the nine months ended September 30, 2005 compared to $1.33
Canadian per US dollar for the same period of 2004. If the Canadian dollar
continues to strengthen against the US dollar the revenues of Dynetek"s
Canadian operations would be negatively impacted. If however, the Canadian
dollar were to weaken against the US dollar this would positively impact the
revenues of the Canadian operations.
Dynetek"s European operation invoices its revenue in Euros. The Canadian
dollar to the Euro exchange rate averaged $1.55 Canadian for the first nine
months of 2005, compared to $1.63 Canadian for the same period of 2004. The
Euro weakened over the first nine months of 2005 and closed on September 30,
2005 at $1.40 Canadian per Euro. This weakening negatively impacted the
Company"s results in the first nine months of 2005. If the Canadian dollar
continues to strengthen against the Euro the revenues of Dynetek"s European
operations would be negatively impacted. If however, the Canadian dollar were
to weaken against the Euro this would positively impact the revenues of the
European operations.

Research and Development

Dynetek"s research and development programs are co-funded with major OEMs
and government (NRCan). The funding from the OEMs for the research and
development programs is recorded as research and development revenue based on
billing milestones outlined in the contracts. This can result in timing
differences between when costs are incurred and funding is received. The
ability of Dynetek to maintain EBITDA(1) and positive cash flow from
operations for any specific quarter may depend on whether the research and
development income exceed costs incurred in the period.

(1) Earnings before interest, taxes, non-cash foreign exchange,
impairment of other assets, stock based compensation, depreciation and
amortization (EBITDA) is a non-GAAP measure and may not be comparable to
similar measures used by other companies. Management believes EBITDA is a
useful measure to assist in the assessment of Dynetek"s ability to
generate cash flows from its operations.

Transactions with Related Parties
For the nine months ended September 30, 2005, the Company purchased under
normal terms and conditions $5.1 million (2004 - $2.6 million) of material
used in the production of lightweight fuel storage systems from Mitsubishi
Rayon Corporation, a shareholder of the Company.

Outstanding Share Data

Issued and outstanding:
Number of Shares Amount
Balance at December 31, 2004 20,547,232 52,589
Warrants exercised(i) 360,594 (225)
Options exercised 31,875 30
Reclassification of contributed surplus - 38
-------------------------------------------------------------------------
Balance at September 30, 2005 20,939,701 52,432
-------------------------------------------------------------------------
(i) On May 7, 2005 885,000 share purchase warrants were exercised in a
cashless conversion and 360,594 common shares were issued.

September 30 December 31
2005 2004
-------------------------------------------------------------------------

Securities convertible into common shares:
Stock options 2,151,625 2,226,750
Warrants - 2,069,294
-------------------------------------------------------------------------

As at October 28, 2005 Common shares outstanding were 20,939,701 and
options outstanding of 2,151,625.

OUTLOOK

Revenues from CNG cylinder and system sales in the fourth quarter of 2005
are expected to increase over the comparative quarter in 2004. This growth is
expected primarily from the Company"s existing European operations and from
new opportunities in United States.
In March 2005, in the Letter to Shareholders of the 2004 Annual Report
the company stated it remained committed to exiting 2005 as a profitable
company if certain uncontrollable factors such as the price of commodities did
not rise over the next twelve months. Certain of our raw material costs have
risen close to 100% over the last year and the Canadian dollar has
strengthened considerably compared to the US dollar and Euro creating
unbudgeted foreign exchange losses. While the Company is optimistic that it
will continue to generate positive EBITDA for the fourth quarter the company
does not anticipate exiting the 4th quarter of 2005 profitable.
Revenue from hydrogen cylinder and system sales will continue to vary on
a quarter-to-quarter and year-to-year basis. This revenue is dependent on the
hydrogen storage requirements of OEMs and other industrial hydrogen companies.
Many of these companies have a singular focus on hydrogen and are striving to
increase their revenues and attain profitability by reducing internal costs
and improving product offerings through corporate consolidations and strategic
rationalizations. Dynetek is still one of a few companies with a current
revenue stream moving to profitability with CNG and serving the hydrogen
industry. The Company continues to review all alternatives in the market place
to ensure the Company maximizes value.
Research and development income is directly related to the Company plans
for new products or processes which have the best opportunity of creating
near-term revenues. The ability to generate funding from customers and
partners dictates how much research and development occurs over any 12-month
period. Timing differences can occur between when research and development
costs are incurred and when revenue is invoiced and earned. Therefore a
deficiency or surplus of revenues over expenditures may vary on a quarter-by-
quarter basis.
Dynetek believes that its internally generated cash and its $5.0 million
operating line of credit are sufficient to fund current operations over the
foreseeable future. Although its cash balance may vary from quarter to quarter
because of the timing of payments from customers, payments to suppliers and
inventory turns, the Company believes its working capital position will remain
sufficient to maintain its current growth rate.
The Company believes it has the manufacturing assets in place to support
its current rate of growth and has no plans for significant expenditures on
capital assets during the remainder of 2005 and 2006. The Company will
continue to seek international opportunities for additional production
locations to provide near-term ongoing revenue growth. Potential production
strategic partnerships and opportunities to finance international growth are
reviewed on a case-by-case basis.

Additional information relating to Dynetek
Additional information concerning Dynetek, including the AIF, is
available on SEDAR at www.sedar.com.

Dynetek Industries Ltd. is a leading international company engaged in the
design, manufacturing and marketing of fueling systems and high-pressure
components including valves and regulators. The key component of the storage
system is the DyneCell(R) cylinder, capable of storing high pressure gases
including compressed natural gas (CNG), hydrogen, and various industrial
gases. Dynetek"s cylinder and fuel storage systems applications include but
are not limited to: the transportation industry, including passenger
automobiles, light and heavy-duty trucks, transit and school buses; the bulk
hauling of compressed gases; and stationary storage or ground storage
refueling applications.

Conference Call

On Tuesday, November 8, 2005 management will hold a conference call and
web cast at 2:30 p.m. MST (4:30 p.m. EST) to discuss its Third Quarter 2005
financial and operating results and to provide an update on developments at
the Company. Participants in the continental United States and Canada can
access the conference call at 1-888-303-1331. Participants calling from the UK
geographic area can access the call at 1-800-528-0626 or 44-870-001-3126.
Digital replay of the call will be available approximately one hour after
the call is completed and until November 22, 2005. To access the replay in the
continental United States or Canada call 1-800-558-5253 or from outside this
geographic area, call 1-416-626-4100. To access the replay in the UK
geographic area call 1-800-692-0831 or 44-870-000-3081. The confirmation
number for the replay is 21266818. The audio web cast can be accessed on
Dynetek"s web site at www.dynetek.com and it will be archived for replay for
30 days.

Forward looking statements

In addition to historical information, this Interim Report and the
management"s discussion and analysis of financial condition and results of
operations contains forward-looking statements and should be read in
conjunction with the financial statements and related notes for the year ended
December 31, 2004. Forward-looking statements are based upon current
assumptions, expectations and estimates that involve a number of risks and
uncertainties and actual results could differ materially from those discussed
in the forward-looking statements. Readers are encouraged to review the
section in the Management"s Discussion and Analysis titled "Principal Risks
and Uncertainties" for a discussion of factors that could affect Dynetek"s
future operations and financial results. Forward-looking statements are based
upon management"s assumptions, expectations and estimates at the time the
statements are made. Dynetek does not update forward-looking statements should
circumstances or management"s assumptions, expectations or estimates change.



Dynetek Industries Ltd.
Consolidated Balance Sheets
(thousands of Canadian dollars)
(unaudited)

September 30 December 31
2005 2004
-------------------------------------------------------------------------

ASSETS
Current assets
Cash and cash equivalents 2,555 4,139
Accounts receivable 7,160 8,410
Inventory (note 3) 10,183 9,491
Prepaid expenses 337 615
-------------------------------------------------------------------------
20,235 22,655

Other asset (note 4) - 554

Intangible assets and deferred costs 4,767 4,202

Capital assets 16,189 15,851

Future income tax 2,505 2,505
-------------------------------------------------------------------------

43,696 45,767
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 3,838 4,387
Current portion of long-term debt 131 109
-------------------------------------------------------------------------
3,969 4,496

Long-term debt 1,645 1,667

SHAREHOLDERS" EQUITY
Share capital (note 5) 52,432 52,589
Contributed surplus 2,077 1,596
Deficit (16,427) (14,581)
-------------------------------------------------------------------------
38,082 39,604

43,696 45,767
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to the unaudited consolidated financial statements



CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(thousands of Canadian dollars except share capital and per share
amounts)
(unaudited)
Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------------------

REVENUE
Sales 5,631 5,270 17,663 14,037
Research and development 362 723 2,238 3,673
Investment and other income 12 10 80 99
-------------------------------------------------------------------------
6,005 6,003 19,981 17,809
EXPENSES
Cost of goods sold 4,139 3,893 13,110 10,431
General and administrative 771 743 2,462 2,461
Research and product
development 604 490 2,312 2,710
Marketing 347 496 1,157 1,373
Depreciation 327 329 895 972
Amortization of intangible
assets and deferred costs 122 101 337 296
Foreign exchange loss (gain) 357 226 725 190
Stock based compensation
(note 5) 100 88 294 267
Impairment of other assets
(note 4) 535 - 535 -
-------------------------------------------------------------------------
7,302 6,366 21,827 18,700
-------------------------------------------------------------------------
Loss before income taxes (1,297) (363) (1,846) (891)
-------------------------------------------------------------------------

PROVISION FOR TAXES
Large corporations tax - 7 - 35
-------------------------------------------------------------------------
- 7 - 35
-------------------------------------------------------------------------

NET LOSS (1,297) (370) (1,846) (926)
-------------------------------------------------------------------------

Deficit, beginning of period (15,130) (13,898) (14,581) (13,297)
Conversion of share purchase
warrants - - - (45)
-------------------------------------------------------------------------
Deficit, beginning of period (15,130) (13,898) (14,581) (13,342)
-------------------------------------------------------------------------
DEFICIT, END OF PERIOD (16,427) (14,268) (16,427) (14,268)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Per Share Information
Net loss per share (basic
and diluted) (0.06) (0.02) (0.09) (0.05)
Weighted average number of
common shares
outstanding 20,741,994 20,200,740 20,741,994 20,200,740
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to the unaudited consolidated financial statements



CONSOLIDATED STATEMENT OF CASH FLOWS
(thousands of Canadian dollars)
(unaudited)
Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------------------

Cash flows provided by (used for)
operating activities
NET LOSS (1,297) (370) (1,846) (926)
Items not involving cash
Depreciation 327 329 895 972
Amortization of intangible
assets and deferred costs 122 101 337 296
Stock based compensation 100 88 294 267
Impairment of other assets
(note 4) 535 - 535 -
Unrealized foreign exchange
loss (gain) 277 412 677 228
-------------------------------------------------------------------------
64 560 892 837
Changes in non-cash working
capital
Accounts receivable 59 (1,129) 1,250 (2,601)
Inventory (56) (1,482) (692) (4,448)
Prepaid expenses 114 253 278 372
Accounts payable and accrued
liabilities (1,526) 752 (549) 1,147
Unrealized foreign exchange
gain (loss) in non-cash
working capital (297) (241) (522) (138)
-------------------------------------------------------------------------
Cash flow from operations
(deficiency) (1,642) (1,287) 657 (4,831)
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Other assets - 35 - 15
Additions to intangible
assets and deferred costs (267) (49) (902) (54)
Additions to capital assets (423) (628) (1,233) (1,263)
Unrealized foreign exchange
gain (loss) in investing
activities 19 (35) 19 (15)
-------------------------------------------------------------------------
(671) (677) (2,116) (1,317)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Exercise of options - - 30 -
Repayment, long-term debt - (86) - (86)
-------------------------------------------------------------------------
- (86) 30 (86)
-------------------------------------------------------------------------

Foreign exchange gain (loss)
on cash held in a foreign
currency 30 (136) (155) (75)
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (2,283) (2,186) (1,584) (6,309)

Cash and cash equivalents,
beginning of period 4,838 5,708 4,139 9,831
-------------------------------------------------------------------------

Cash and cash equivalents,
end of period 2,555 3,522 2,555 3,522
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Interest income received during the nine month period ended September 30,
2005 was $0.1 million (2004 - $0.1 million) and interest paid during the
period ended September 30, 2005 was $ nil (2004 - $ nil).

See accompanying notes to the unaudited consolidated financial statements



SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 2005 and 2004 and as at
December 31, 2004
(tabular amounts in thousands of Canadian dollars, except share capital
amounts)
(unaudited)

1. BASIS OF PRESENTATION

The unaudited interim consolidated financial statements of Dynetek
Industries Ltd. ("Dynetek" or "the Company") have been prepared by
management in accordance with Canadian generally accepted accounting
principles. The unaudited interim consolidated financial statements have
been prepared following the same accounting policies and methods of
computation as the most recent annual audited consolidated financial
statements for the year ended December 31, 2004. The unaudited interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto in the
Company"s Annual Report for the year ended December 31, 2004.

2. SIGNIFICANT ACCOUNTING POLICIES

a) Revenue recognition

Cylinder and system revenue is recognized when finished goods are shipped
to the customer.
Research and development revenue is generated by projects co-funded with
the original equipment manufacturers (OEMs) and government agencies. This
revenue is recognized when contractual deliverables and milestones are
met. Timing differences can occur between when costs are incurred and
when revenue is invoiced and earned.

b) Research and development costs

Research and development costs are expensed as incurred.

3. INVENTORY

September 30 December 31
2005 2004
---------------------------------------------------------------------

Raw materials 3,253 3,007
Work-in-progress 3,045 2,699
Finished goods 3,885 3,785
---------------------------------------------------------------------
10,183 9,491
---------------------------------------------------------------------

4. OTHER LONG-TERM ASSETS

Other long-term assets represented amounts receivable from a customer for
which the Company agreed to revise the terms of repayment. The revised
terms of repayment provided for the receivable to be repaid in full on or
before June 30, 2006, with interest accruing at a rate of 3%. These
revised terms of repayment were granted based on financial information
provided by the customer which supported their ability to repay the
receivable within the time period noted above. The Company reviews, on a
quarterly basis, the ability of the customer to repay this receivable in
full and consequently the valuation of the receivable. As of
September 30, 2005 based on updated financial information provided by the
customer during the third quarter, management believes the full amount of
the receivable has been impaired and collection of the receivable is not
likely to occur by June 30, 2006 or any time subsequent to that date.

5. SHARE CAPITAL

The issued and outstanding common shares of the Company along with
securities convertible into common shares are as follows:

Issued and outstanding:
Number of Shares Amount
Balance at December 31, 2004 20,547,232 52,589
Warrants exercised(i) 360,594 (225)
Options exercised 31,875 30
Reclassification of contributed surplus - 38
-------------------------------------------------------------------------
Balance at September 30, 2005 20,939,701 52,432
-------------------------------------------------------------------------
(i) On May 7, 2005 885,000 share purchase warrants were exercised in a
cashless conversion and 360,594 common shares were issued.


September 30 December 31
2005 2004
-------------------------------------------------------------------------

Securities convertible into common shares:
Stock options 2,151,625 2,226,750
Warrants - 2,069,294
-------------------------------------------------------------------------

The estimated fair value of the options used for accounting purposes has
been determined using the Black Scholes option-pricing model with the
following assumptions:

Nine months ended
September 30
-------------------------------------------------------------------------
2005 2004

Weighted average risk-free interest rate 1.75% 1.75%
Weighted average expected life 5 years 5 years
Estimated volatility in the market price of the
common shares 85% 97%
Dividend yield 0% 0%

The weighted average fair value per option was $2.08 for the nine months
ended September 30, 2005 and $1.75 for the comparable period of 2004.

10,500 options were issued to employees during the third quarter of 2005.

6. TRANSACTIONS WITH RELATED PARTIES

For the nine months ended September 30, 2005, the Company purchased under
normal terms and conditions $5.1 million (2004 -$2.6 million) of material
used in the production of lightweight fuel storage systems from
Mitsubishi Rayon Corporation, a shareholder of the Company.

7. SEGMENTED INFORMATION

The Company currently operates in one operating segment, which involves
the manufacture and sale of lightweight fuel storage systems. The
majority of the Company"s operations and assets relating to commercial
production were located in Canada at September 30, 2005. Revenues
attributed to foreign countries are based on the location of the
customer.

Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
Cylinder and system sales
Canada 321 590 685 1,397
United States 1,744 1,659 4,122 4,447
Japan 204 266 833 525
European Union 2,840 2,755 11,286 7,668
Other 522 - 737 -
-------------------------------------------------------------------------
5,631 5,270 17,663 14,037
-------------------------------------------------------------------------



Corporate Information

Board of Directors Officers and Management Bankers
Bank of Nova Scotia
Heinz O. Portmann Heinz O. Portmann Calgary, Alberta
Chairman of the Board Chairman of the Board
Dynetek Industries Ltd. Auditors
Calgary, Alberta Robb D. Thompson Deloitte & Touche LLP
President and Chief Calgary, Canada
Andrew T.B. Stuart(x)(t) Executive Officer
President and Chief Legal Counsel
Executive Officer Michael D. Portmann Gowling Lafleur
Sustainability Shift Inc Vice President and Henderson LLP
Toronto, Ontario General Manager Calgary, Alberta

Peter A. Leus(t)(v) Ulrich Imhof Transfer Agent and
Director Vice President, Registrar
Starlaw Holdings Ltd. Engineering CIBC Mellon Trust
Montreal, Quebec Company
Dr. Christian Rasche with offices in
Michael J. Lang(x)(t) Managing Director Toronto, Montreal and
Chairman Dynetek Europe GmbH Calgary
Stonebridge Merchant
Capital Corp. Karen Y. Minton Stock Listing
Calgary, Alberta Vice President, Finance Toronto Stock
and Administration Exchange
Larry A. Wright(x)(v) Trading Symbol: DNK
Executive Vice President Norman E. Hall
Multimatic Inc Corporate Secretary Investor Relations
Markham, Ontario To obtain additional
information about
William K. Kovalchuk Corporate Head Office Dynetek or to be
President 4410 - 46th Avenue SE placed on our
Claret Asset Management Calgary, Alberta, Canada mailing list for
Corp. T2B 3N7 quarterly reports
Montreal, Quebec Tel (403) 720 0262 please contact:
Fax (403) 720 0263 Robb D. Thompson
Robb D. Thompson Web site: Dynetek Industries
President and Chief http://www.dynetek.com Ltd.
Executive Officer Investor Relations
Dynetek Industries Ltd. Subsidiary 4410 - 46th Avenue SE
Calgary, Alberta Dynetek Europe GmbH Calgary, Alberta,
Breitscheider Weg 117a Canada
(x) Audit Committee D-40885 Ratingen T2B 3N7
member Germany Tel (403) 720 0262
(t) Compensation Fax (403) 720 0263
Committee member Email:
(v) Corporate invest(at)dynetek.com
Governance
Committee member



For further information

Robb D. Thompson, President and Chief Executive Officer, Dynetek Industries Ltd., 4410-46 Avenue S.E., Calgary, Alberta, T2B 3N7, Tel: (403) 720-0262, Toll-free: 1-888-396-3835, Fax: (403) 720-0263, Web: www.dynetek.com


Source: Dynetek Industries Ltd.
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