10.05.06

10.5.2006: Meldung: Dynetek reports 2006 first quarter results

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 ended March 31, 2006. Conference call information is provided below.

Financial Highlights
- Net income of $0.2 million for the three months ended March 31,
2006 compared to a net loss of ($0.2) million for the comparable
period of 2005.
- Cash flow from operations of $1.0 million for the three months
ended March 31, 2006 compared to a cash flow deficiency from
operations of ($0.2) million for the comparable period of 2005.
- Ninth consecutive quarter of positive EBITDA(1).
- Cylinder and systems sales for the three months ended March 31,
2006 of $8.2 million an increase of $2.5 million or 44% compared
with the three months ended March 31, 2005.
- Record total revenue for the three months ended March 31, 2006 of
$8.9 million an increase of $2.0 million or 29% from the
comparable period of 2005.
- Confirmed order book in excess of $16.0 million to be delivered
during 2006.


Robb Thompson, President and Chief Executive Officer, said reporting net income and cash flow from operations for the first quarter of 2006 reflects the commitment to the Company"s long-term strategy of penetrating the compressed natural gas market. During 2005 the Company faced many short-term negative effects, including increasing raw material costs and foreign exchange fluctuations. The Company believes many of the decisions made in 2005 to forgo CNG sales due to its inability to pass on these raw material price increases, although negative in the short term, have positively positioned the Company for continued future growth.

"Our most important strategic thrust continues to be our focus on the CNG market place where opportunities, especially from our European operations, to support revenue growth leading towards sustainable profitability are near term," commented Mr. Thompson. "We believe appropriate measures have been taken to overcome the hurdles we experienced during the latter part of 2005. Our first quarter results proved by committing to and adhering to our strategy we can be a profitable Company."

"The Company has seen the early benefits in the first quarter of 2006, but the full effect of additional raw material deliveries will likely be greater in the last half of the year," said Mr. Thompson. "The Company"s long-term goals to ensure ongoing net income, include, increased contribution margins, decreased exposure to foreign exchange and continued revenue growth. Our short term goal is to find ways to increase our second quarter revenue with new market opportunities where decreased CNG bus activity exists due to the awarding of contracts in this quarter for deliveries in the latter half of the year."

"These first quarter results of net income and cash flow from operations were achieved with revenue streams from both CNG and compressed hydrogen", Mr. Thompson went on to say. "Although our backlog has reduced to $16 million compared to $20 million at December 31, 2005, our expectation of new contracts being awarded in the second quarter should translate to increased backlog for the remainder of 2006."

OPERATIONAL HIGHLIGHTS

For the three months ended March 31, 2006 Dynetek reported net income of $0.2 million compared to a loss of ($0.2) million for the same period of 2005. In the first quarter of 2006, Dynetek achieved total revenues of $8.9 million (2005 - $6.9 million) with cylinder and system sales of $8.2 million (2005 - $5.7 million) being the major contributor to these first quarter results. The Company"s goal is to achieve increased cylinder and system sales in each quarter compared to the prior year comparative quarter. The Company was cash flow positive from operations of $1.0 million for the three months ended March 31, 2006, compared to a cash flow deficiency of ($0.2 million) for the same period of 2005. The Company continues to have positive EBITDA(1) and reported $0.8 million in the first quarter of 2006 representing the ninth consecutive quarter.

The Company continues to focus its compressed natural gas cylinder sales in areas such as California and Europe. 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 first quarter, Dynetek"s European operations achieved record cylinder and system sales of $5.2 million. 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 from the Canadian operations for the three months ended March 31, 2006 were $3.1 million, an increase of 41% when compared to the comparable period of 2005. During the first quarter of 2006, Dynetek"s Canadian operation delivered approximately one third ($1.6 million CDN) of the bulk transportation modules to John Thompson Engineering PTY, a division of Burns and Roe Worley, located in Sydney Australia. Dynetek"s BT modules will be used to transport compressed natural gas (CNG) to a power plant located in Western Australia. The remainder of the order will be delivered in the second quarter of 2006.

Dynetek"s research and development team continues to focus its efforts on compressed hydrogen and related storage requirements. During the first quarter of 2006 the Company continued to work with 9 different OEMs, including Ford, Hyundai, DaimlerChrysler and Nissan, to design, manufacture and deliver the hydrogen storage solution on 12 confidential development programs.

(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 three months ended March 31, 2006 and 2005. The interim management"s discussion and analysis (MD&A) updates our annual MD&A included in our 2005 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
ended
March 31
-----------------------
2006 2005
Revenue
Cylinder and system sales 8,233 5,676
Research and development income 618 1,193
Investment and other income 19 57
-----------------------
8,870 6,926

Net income (loss) 216 (175)
Net income (loss) per common share (basic and
fully diluted) 0.01 (0.01)
EBITDA(1) 820 534
Capital expenditures 445 362
Cash and cash equivalents 2,966 3,340
Non-cash working capital(2) 12,113 14,540
Working capital(3) 15,079 17,880
Cash flow from operations after changes in
working capital 996 (194)
Total assets 45,758 45,207
Long-term debt 1,478 1,666
Common shares outstanding 20,940,451 20,579,107
Weighted average common shares outstanding 20,939,722 20,573,895
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(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.

(3) Working capital is current assets less current liabilities.


Cylinder and system sales for the three months ended March 31, 2006 were
$8.2 million, up 44% from $5.7 million for the same period of 2005. The
increase in cylinder and system sales is partially due to the customers of the
Company"s European operations having fewer delivery acceptance days for the
month of December 2005 resulting in product being shipped in January 2006. The
Canadian dollar to US dollar exchange rate averaged $1.15 during the first
three months of 2006 compared to $1.23 for the same period of 2005. Had the
U.S. dollar to Canadian dollar exchange rate achieved the levels of the first
three months of 2005 in the first three months of 2006, revenues would have
been $0.2 million higher. The Canadian dollar to Euro exchange rate averaged
$1.39 during the first three months of 2006 compared to $1.61 for the same
period of 2005. Had the Euro to Canadian dollar exchange rate achieved the
levels of the first three months of 2005 in the first three months of 2006,
revenues would have been $0.8 million higher.
During the first quarter of 2006, customers who purchased the DyneCell(R)
fuel storage systems for CNG included: Marubeni Metals Corp. (Japan),
Carmenita Truck Centers (United States), Iris Bus (Italy), Thomas Built Buses
(United States), NEOMAN (Europe), Heuliez Bus (Europe), BredaMenarinibus
(Europe) and John Thompson Engineering (Australia). Customers who purchased
hydrogen and other compressed gas fuel storage systems included:
DaimlerChrysler (Germany), Ford Motor Company (United States), Nissan (Japan),
and Hyundai (Korea).

Research and development income for the three months ended March 31, 2006
was $0.6 million, down 50% or $0.6 million from the same period in 2005.
During the first three months of 2006, Dynetek continued to be involved with
Natural Resources Canada (NRCan) and 9 different OEMs, including Ford,
Hyundai, DaimlerChrysler and Nissan, to design, manufacture and deliver the
hydrogen storage solution on 12 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 first quarter of 2006, Dynetek received non-repayable cost
shared monies of $0.2 million from Natural Resources Canada (NRCan) for the
development and testing of a 700bar (10000psi) complete fueling system.

Investment and other income for the three months ended March 31, 2006 was
$19,000, compared $57,000 for the same period in 2005.

Cost of goods sold was $6.2 million for the three months ended March 31,
2006 compared to $4.2 million for the same period in 2005. Corresponding
contribution margins for the three months ended March 31, 2006 were
$2.0 million, or 24% of sales compared to $1.5 million or 26% of sales for the
same period of 2005. The reduction in the contribution margin is reflective of
the increase in carbon fibre pricing over the last nine months.

General and administrative expense was $0.9 million for the three months
ended March 31, 2006, which was $0.1 million higher than the $0.8 million for
the same period of 2005. Overall general and administration costs decreased as
a percentage of sales from 11% in the first three months of 2005 to 10% in the
first three months of 2006.

Research and product development expense was $0.5 million for the three
months ended March 31, 2006 compared to $1.1 million for the same period in
2005. 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 $0.4 million for the three months ended March 31,
2006, which is comparable to the three months ended March 31, 2005. Overall
marketing expense was 5% of sales for the three months ended March 31, 2006
compared to 6% of sales for the same period of 2005.

Depreciation was $0.3 million for the three months ended March 31, 2006,
which is comparable to the three months ended March 31, 2005.

Amortization was $0.2 million for the three months ended March 31, 2006,
compared to $0.1 million for the three months ended March 31, 2005. Items
included in amortization expense include process and development costs,
patents and deferred start-up costs for the European operation.

Foreign exchange for three months ended March 31, 2006 was a loss of
($70,000) compared to a loss of ($240,000) in the same period of 2005. The
Canadian operations invoices the majority of its revenue in US dollars and the
European operation invoices in Euros. The Company reports its results in
Canadian dollars but the revenues are generated in US dollars, Euros and
Canadian dollars. The foreign exchange loss in the first three months of 2006
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 when translating into Canadian
dollars for financial reporting purposes.
To minimize exposure to foreign exchange fluctuations the Company began
using monthly forward contracts in order to reduce the foreign exchange
translation exposure on accounts receivable, payables and cash. The effect of
the monthly forward contracts was a net cash outflow of $89,000 CAD for the
three months ended March 31, 2006. Had the Company not entered into the
contracts, the Company would have recorded a net foreign exchange gain of
$19,000 CDN.

Net income (loss) for the three months ended March 31, 2006 was
$0.2 million or $0.01 per common share compared to ($0.2) million or ($0.01)
per common share for the same period of 2005. The net income in the first
three months is substantially the result of an increase in cylinder and system
sales, a reduction of stock based compensation and a decrease in the foreign
exchange loss.

VALVE DIVISION

The Valve Division is focused entirely on research and development
activities. During the first three months of 2006 the Valve Division received
no additional funding from NRCan compared to the $0.2 million received in the
three months ended March 31, 2005.

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 three months ended March 31, 2006 the subsidiary generated record
revenue of $5.2 million compared to $3.5 million in the same period of 2005.

Summary of Quarterly Results

The following table shows selected unaudited financial information for
the past nine quarters ending March 31, 2006. 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 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31
data) (unaudited) 2004 2004 2004 2004 2005
--------------------------------------------
Revenues
Cylinder and system sales 4,364 4,403 5,270 8,177 5,676
Research & development
income 1,544 1,406 723 576 1,193
Investment & other income 71 18 10 29 57
--------------------------------------------
5,979 5,827 6,003 8,782 6,926
Operating expenses
Cost of goods sold 3,261 3,277 3,893 6,090 4,175
Marketing & general and
admin. 1,259 1,336 1,239 1,479 1,154
Research & product
development 1,176 1,044 490 860 1,063
--------------------------------------------
5,696 5,657 5,622 8,429 6,392
--------------------------------------------
Earnings before interest,
income taxes, non-cash
foreign exchange, stock
based compensation,
impairment of other assets,
depreciation &
amortization(1) 283 170 381 353 534
--------------------------------------------
Foreign exchange (gain) loss 1 (37) 226 71 241
Depreciation & amortization 422 416 430 447 373
Stock based compensation 92 87 88 144 95
Impairment of other assets - - - - -
Income taxes 13 15 7 4 -
--------------------------------------------
528 481 751 666 709
--------------------------------------------
Net Income (loss) (245) (311) (370) (313) (175)
--------------------------------------------
--------------------------------------------

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

-----------------------------------
June 30 Sept. 30 Dec. 31 Mar. 31
2005 2005 2005 2006
-----------------------------------
Revenues
Cylinder and system sales 6,356 5,631 5,858 8,223
Research & development
income 683 362 603 618
Investment & other income 11 12 317 19
-----------------------------------
7,050 6,005 6,778 8,870
Operating expenses
Cost of goods sold 4,796 4,139 4,538 6,241
Marketing & general and
admin. 1,347 1,118 1,548 1,331
Research & product
development 645 604 461 478
-----------------------------------
6,788 5,861 6,547 8,050
-----------------------------------
Earnings before interest,
income taxes, non-cash
foreign exchange, stock
based compensation,
impairment of other assets,
depreciation &
amortization(1) 262 144 231 820
-----------------------------------
Foreign exchange (gain) loss 127 357 258 70
Depreciation & amortization 411 449 466 486
Stock based compensation 99 100 106 48
Impairment of other assets - 535 -
Income taxes - - -
-----------------------------------
637 1,441 829 604
-----------------------------------
Net Income (loss) (375) (1,297) (598) 216
-----------------------------------
-----------------------------------

Earnings (loss) per share
Basic and fully diluted (0.02) (0.06) (0.03) 0.01
-----------------------------------
-----------------------------------

(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
March 31
2006 2005
-------------------------------------------------------------------------

Patents 1 137
Certification costs 350 100
Deferred Costs 20 -
-------------------------------------------------------------------------
371 237
-------------------------------------------------------------------------

Intangible asset expenditures for the three months ended March 31, 2006
were $0.4 million compared to $0.2 million for the same period of 2005. 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
March 31
2006 2005
-------------------------------------------------------------------------

Building and leaseholds 7 314
Manufacturing equipment 186 2,376
Office furniture and other equipment 5 58
Computer hardware and software 2 2
Manufacturing equipment under construction 245 (2,388)
-------------------------------------------------------------------------
445 362
-------------------------------------------------------------------------

Capital expenditures for the three months ended March 31, 2006 were
$0.4 million which is comparable to the same period of 2005.
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 March 31, 2006 Dynetek had cash and cash equivalents of
$3.0 million, compared to $2.8 million at December 31, 2005. Dynetek was cash
flow positive from operations of $1.0 million for the three months ended
March 31, 2006 compared to a cash flow deficiency from operations of ($0.2)
million for the three months ended March 31, 2005. Dynetek"s working capital
level was $15.1 million at March 31, 2006, as a result of the growth of the
Company"s revenues and related increases in production levels to meet demand.
At March 31, 2006 accounts receivable was $7.1 million an increase of
$0.6 million when compared to December 31, 2005. The Company seeks to manage
the collection of receivables, the use of the line of credit and the payment
of payables in a manner that working capital levels will continue to fund
ongoing operations. Accounts payable at March 31, 2006 was $6.4 million,
compared to $5.1 million as at December 31, 2005.
The Company"s investment in inventory resulted in an increase of
$0.6 million to $11.0 million at March 31, 2006 from December 31, 2005.
Work-in-progress represented by confirmed orders increased by $0.6 million to
$3.3 million. Raw material levels increased by $0.3 million to $3.4 million as
a result of increased amounts of carbon fibre purchased by the Company in
anticipation of continued increased production for the remainder of 2006.
Finished goods inventory decreased by $0.3 million to $4.4 million from the
December 31, 2005 levels.
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 fiscal 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 March 31, 2006, the Company had an unused $5.0 million line of credit
facility with a major chartered bank.

Transactions with Related Parties

For the three months ended March 31, 2006, the Company purchased under
normal terms and conditions $2.4 million (2005 - $1.3 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, 2005 20,939,701 52,432
Options exercised 750 1
-------------------------------------------------------------------------
Balance at March 31, 2006 20,940,451 52,433
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March 31 December 31
2006 2005
-------------------------------------------------------------------------

Securities convertible into common shares:
Stock options 1,190,250 1,180,500
Warrants 1,174,294 1,174,294
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As at May 1, 2006 Common shares outstanding were 20,940,451, options
outstanding of 1,190,250 and warrants outstanding of 1,174,294.

FINANCIAL INSTRUMENTS

During the first quarter of 2006 the Company began using monthly forward
contracts in order to reduce the foreign exchange translation exposure on
accounts receivable, payables and cash. The effect of the monthly forward
contracts was a net cash outflow of $89,000 CAD for the three months ended
March 31, 2006.

OUTLOOK

Revenues from CNG cylinder and system sales in each quarter of 2006 are
expected to increase over the comparative quarter in 2005. This growth is
expected primarily from the Company"s European operations and from new
opportunities primarily in bulk hauling and the Californian heavy-duty truck
market.
Revenue from compressed 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 compressed hydrogen storage requirements of OEMs and other
industrial hydrogen companies. The Company is unable to influence the timing
of the automotive OEM compressed hydrogen development programs.
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. The Company"s goal over a twelve month fiscal period is to be
at least break-even with the research and development program.
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.
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 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.
The Company continues to review all options to deal with growth and
global prospects. As disclosed in March 2006, a Special Committee has been
formed to review and advise the Board of Directors of strategic alternatives
available to the Company for enhancing shareholder value, including, but not
limited to, raising of capital, strategic partnerships or business
combinations.

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 Wednesday, May 10, 2006 management will hold a conference call and web
cast at 7:00 a.m. MST (9:00 a.m. EST) to discuss its First Quarter 2006
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.
Participants in the continental United States and Canada can access the
conference call at 1-800-741-0104. Participants calling from the UK geographic
area can access the call at 1-800-528-0640 or 44-870-001-3140.
Digital replay of the call will be available approximately one hour after
the call is completed and until May 24, 2006. 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 21291718. 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, 2005. 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)

March 31 December 31
2006 2005
-------------------------------------------------------------------------

ASSETS
Current assets
Cash and cash equivalents 2,966 2,809
Accounts receivable 7,117 6,516
Inventory (note 3) 11,043 10,392
Prepaid expenses 537 719
-------------------------------------------------------------------------
21,663 20,436

Intangible assets and deferred costs 5,272 5,054

Capital assets 16,328 16,216

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

45,768 44,211
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 6,437 5,145
Current portion of long-term debt 147 137
-------------------------------------------------------------------------
6,584 5,282

Long-term debt 1,331 1,341

SHAREHOLDERS" EQUITY
Share capital (note 4) 52,433 52,432
Contributed surplus (note 5) 2,230 2,182
Deficit (16,810) (17,026)
-------------------------------------------------------------------------
37,853 37,588

45,768 44,211
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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
March 31
2006 2005
-------------------------------------------------------------------------

REVENUE
Sales 8,233 5,676
Research and development 618 1,193
Investment and other income 19 57
-------------------------------------------------------------------------
8,870 6,926
EXPENSES
Cost of goods sold 6,241 4,175
General and administrative 895 770
Research and product development 478 1,063
Marketing 436 384
Depreciation 333 271
Amortization of intangible assets and deferred costs 153 102
Foreign exchange loss 70 241
Stock based compensation (note 5) 48 95
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8,654 7,101
-------------------------------------------------------------------------
Net income (loss) before income taxes 216 (175)
-------------------------------------------------------------------------

PROVISION FOR TAXES
Large corporations tax - -
-------------------------------------------------------------------------
- -
-------------------------------------------------------------------------

NET INCOME (LOSS) 216 (175)
-------------------------------------------------------------------------

Deficit, beginning of period (17,026) (14,581)
-------------------------------------------------------------------------
DEFICIT, END OF PERIOD (16,810) (14,756)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Per Share Information
Net Income (loss) per share (basic and diluted) 0.01 (0.01)
Weighted average number of common shares
outstanding 20,939,722 20,573,895
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to the unaudited consolidated financial statements



CONSOLIDATED STATEMENT OF CASH FLOWS
(thousands of Canadian dollars)
(unaudited)

Three months ended
March 31
2006 2005
-------------------------------------------------------------------------

Cash flows provided by (used for) operating
activities
NET INCOME (LOSS) 216 (175)
Items not involving cash
Depreciation 333 271
Amortization of intangible assets and deferred
costs 153 102
Stock based compensation 48 95
Unrealized foreign exchange loss (gain) 80 184
-------------------------------------------------------------------------
830 477
Changes in non-cash working capital
Accounts receivable (601) 19
Inventory (651) (147)
Prepaid expenses 182 117
Accounts payable and accrued liabilities 1,292 (510)
Unrealized foreign exchange gain (loss) in non-cash
working capital (56) (150)
-------------------------------------------------------------------------
Cash flow from operations (deficiency) 996 (194)
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Other assets - (2)
Additions to intangible assets and deferred costs (371) (237)
Additions to capital assets (445) (362)
Unrealized foreign exchange gain (loss) in investing
activities - 2
-------------------------------------------------------------------------
(816) (599)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Exercise of options 1 30
-------------------------------------------------------------------------
1 30
-------------------------------------------------------------------------

Foreign exchange gain (loss) on cash held in a
foreign currency (24) (36)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 157 (799)

Cash and cash equivalents, beginning of period 2,809 4,139
-------------------------------------------------------------------------

Cash and cash equivalents, end of period 2,966 3,340
-------------------------------------------------------------------------
-------------------------------------------------------------------------



SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2006 and 2005 and as at December 31,
2005
(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, 2005. 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, 2005.

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


March 31 December 31
2005 2006
-------------------------------------------------------------------------

Raw materials 3,433 3,105
Work-in-progress 3,246 2,633
Finished goods 4,364 4,654
-------------------------------------------------------------------------
11,043 10,392
-------------------------------------------------------------------------

4. 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, 2005 20,939,701 52,432
Options exercised 750 1
-------------------------------------------------------------------------
Balance at March 31, 2006 20,940,451 52,433
-------------------------------------------------------------------------


March 31 December 31
2005 2006
-------------------------------------------------------------------------

Securities convertible into common shares:
Stock options 1,190,250 1,180,500
Warrants 1,174,294 1,174,294
-------------------------------------------------------------------------

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:

Three months ended
March 31
-------------------------------------------------------------------------
2006 2005

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 82% 97%
Dividend yield 0% 0%

The weighted average fair value per option was $2.35 for the three months
ended March 31, 2006 and $2.16 for the comparable period of 2005.
15,000 options were issued to employees during the first quarter of 2006.

5. CONTRIBUTED SURPLUS

The following table summarizes information about contributed surplus.

Balance at December 31, 2005 2,182
Stock based compensation expense 48
-------------------------------------------------------------------------
Balance at March 31, 2006 2,230
-------------------------------------------------------------------------

6. TRANSACTIONS WITH RELATED PARTIES

For the three months ended March 31, 2006, the Company purchased under
normal terms and conditions $2.4 million (2005 - $1.3 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 March 31, 2006. Revenues attributed
to foreign countries are based on the location of the customer.

Three months ended
March 31
2006 2005
Cylinder and system sales
Canada 83 210
United States 885 1,251
Japan 315 515
European Union 5,181 3,592
Australia 1,619 -
Other 150 108
-------------------------------------------------------------------------
8,233 5,676
-------------------------------------------------------------------------


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
Executive Officer
Andrew T.B. Stuart(i)
Chairman Michael D. Portmann Legal Counsel
Sustainability Shift Inc Vice President and Gowling Lafleur
Toronto, Ontario General Manager Henderson LLP
Calgary, Alberta
Ulrich Imhof
Peter A. Leus(i)(v) Vice President, Transfer Agent and
Director Engineering Registrar
Starlaw Holdings Ltd. CIBC Mellon Trust
Montreal, Quebec Dr. Christian Rasche Company
Managing Director with offices in
Dynetek Europe GmbH Toronto, Montreal and
Calgary
Michael J. Lang(x)(i) Karen Y. Minton
Chairman Vice President,
Stonebridge Merchant Finance and Stock Listing
Capital Corp. Administration Toronto Stock Exchange
Calgary, Alberta Trading Symbol: DNK

Larry A. Wright(x)(v) Norman E. Hall
Executive Vice President Corporate Secretary Investor Relations
Multimatic Inc To obtain additional
Markham, Ontario information about
Dynetek or to be
William K. Kovalchuk(x) placed on our mailing
President Corporate Head Office list for quarterly
Claret Asset Management 4410 - 46th Avenue SE reports please
Corp. Calgary, Alberta, contact:
Montreal, Quebec Canada Robb D. Thompson
T2B 3N7 Dynetek Industries
Tel (403) 720 0262 Ltd.
Robb D. Thompson Fax (403) 720 0263 Investor Relations
President and Chief Web site: 4410 - 46th Avenue SE
Executive Officer http://www.dynetek.com Calgary, Alberta,
Dynetek Industries Ltd. Canada
Calgary, Alberta T2B 3N7
Subsidiary Tel (403) 720 0262
Dynetek Europe GmbH Fax (403) 720 0263
Breitscheider Weg 117a Email:
D-40885 Ratingen invest(at)dynetek.com
Germany


(x) Audit Committee member
(i) Compensation Committee member
(v) Corporate 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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