12.05.05

12.5.2005: Meldung: Dynetek reports 2005 first quarter results

Record first quarter revenue of $6.9 million - up 15% from the first quarter of 2004 - Record first quarter cylinder and system sales of $5.7 million - up 30% from the first quarter of 2004 - Fifth consecutive quarter of positive EBITDA(1) - Contribution margin increased to 26% compared to 25% from the first quarter of 2004

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, 2005. Conference call information is provided below.

Financial Highlights
- Total revenue for the three months ended March 31, 2005 was
$6.9 million an increase of $0.9 million or 15% from the comparable
period of 2004.
- Cylinder and systems sales for the first quarter was $5.7 million an
increase of $1.3 million or 30% compared with the first quarter of
2004.
- The Company"s order book exceeded $15 million at March 31, 2005.
- The Company recorded EBITDA(1) of $0.5 million - the fifth consecutive
quarter of positive EBITDA.
- Despite increased raw material pries, contribution margins were
maintained at 26%, when compared to the fourth quarter of 2004 and an
increase from 25% received in the first quarter of 2004.


Robb Thompson, President and Chief Executive Officer, said the first quarter results continues to reflect Dynetek"s commitment to its strategic plan of increasing sales in CNG cylinder and systems to its target market of bus and truck manufacturers predominately in Europe and Southern California.

"Our goal is to report increased cylinder and system sales revenue on a comparative quarterly basis," commented Mr. Thompson. "We believe the current global CNG opportunities will allow this growth to continue on an annual basis recognizing the majority of our cylinder and system sales occur in the last six months of the year."

"Our strategy of achieving near term revenue growth in CNG and other industrial gas storage markets, along with our leadership position in the emerging compressed hydrogen storage market has positioned Dynetek on the threshold of attaining profitability. This is a very enviable position among companies in the alternative energy market," said Mr. Thompson. "During the first quarter Dynetek would have achieved positive earnings had the Euro not weakened compared to the Canadian dollar. This weakening in the final few weeks of March negatively impacted our Euro denominated receivables at March 31."

Mr. Thompson said Dynetek continues to target its cylinder and complete system solutions on markets where the company"s lightweight cylinder and higher capacity of fuel on board provides customers an economic and competitive advantage that Dynetek"s competitors cannot provide. With the growth profile attained in Europe and the experience gained in replicating the manufacturing process to create this revenue stream, the Company believes this strategy can now be duplicated at reduced cost in other natural gas rich environments around the globe.

(1) Earnings before interest, taxes, non-cash foreign exchange, 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


CNG

In January, Dynetek received a significant CNG system order from a major bus manufacturer in Europe. These systems, which are to be delivered during the first six months of 2005, represent revenue of approximately $1.3 million (CDN). This order continues to demonstrate Dynetek"s penetration of the European transit bus market.

Hydrogen

In January, Dynetek supplied on-board hydrogen fuel storage systems for Ford"s new hydrogen powered V-10, E-450 shuttle bus. The shuttle bus was demonstrated at the 2005 North America International Auto Show in Detroit. Dynetek provided its certified 350bar (5000psi) storage solution for these hydrogen fueled internal combustion engines. Ford is currently marketing to potential fleet customers and is poised for the first commercial deliveries in early 2006.

Dynetek also supplied its certified 350bar (5000psi) hydrogen storage system to Hydrogenics Corporation for its fuel cell-powered forklift project. Two fuel cell-powered forklifts are currently being trial tested at General Motors of Canada Limited"s car plant in Oshawa.

In March, Dynetek delivered its newly developed 700bar (10000psi) high- pressure hydrogen storage system to Nissan Motor Co. Ltd. The advanced on-board 700bar hydrogen storage cylinder increases hydrogen storage capacity by approximately 70% when compared with the previous 350bar (5000psi) hydrogen storage cylinder with the same internal storage dimensions.

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, 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
ended
March 31
-------------------------
2005 2004
Revenue

Cylinder and system sales 5,676 4,364

Research and development income 1,193 1,544

Investment and other income 57 71
-------------------------------------------------------------------------
6,926 5,979

Net loss (175) (245)
Net loss per common share (basic and fully diluted) (0.01) (0.01)
EBITDA(1) 534 283
Capital expenditures 362 308
Cash and cash equivalents 3,340 7,838
Non-cash working capital(2) 14,540 11,669
Cash flow from operations after changes in
working capital (194) (1,690)
Total assets 45,207 45,695
Long-term debt 1,666 1,747
Common shares outstanding 20,579,107 20,120,770
Weighted average common shares outstanding 20,573,895 20,120,395

(1) Earnings before interest, taxes, non-cash foreign exchange, 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 three months ended March 31, 2005 were
$5.7 million, up 30% from $4.4 million for the same period of 2004. The
Canadian dollar to US dollar exchange rate averaged $1.23 during the first
quarter of 2005 compared to $1.32 for the same period of 2004. Had the
exchange rate achieved the levels of 2004 in 2005, revenues would have been
$0.1 million higher. The Canadian dollar to Euro dollar exchange rate averaged
$1.61 during the first quarter of 2005 compared to $1.65 for the same period
of 2004. Had the exchange rate achieved the levels of 2004 in 2005, revenues
would have been $0.1 million higher. The Company"s cylinder and system sales
are traditionally greater in the last six-months of the fiscal year compared
to the first six-months. Bus contracts are awarded in the first and second
quarters with cylinder and system deliveries in the third and fourth quarters.
During the first quarter of 2005, customers who purchased the DyneCell
fuel storage systems for CNG included: Marubeni Metals Corp. (Japan), McNeilus
Truck (United States), 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 three months ended March 31, 2005
was $1.2 million, down 20% or $0.3 million from the same period in 2004.
During the first quarter 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 first quarter of 2005, Dynetek received non-repayable cost
shared monies of $0.5 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, 2005 was
$0.1 million, comparable to the same period in 2004.

Cost of goods sold was $4.2 million for three months ended March 31, 2005
compared to $3.3 million for the same period in 2004. Corresponding
contribution margins for the three months ended March 31, 2005 were
$1.5 million, or 26% of sales compared to $1.1 million or 25% of sales for the
same period of 2004.
Dynetek was able to maintain a contribution margin of 26% despite
increased raw material costs compared to the fourth quarter of 2004. This is
attributed to the efficiencies in production and product mix. The increase in
revenue contributed by the European operations and increases in margin
received for system sales resulted in the overall maintenance of the
contribution margin.
Although there is an increased demand for carbon fibre on a global basis
for many applications, Dynetek has not experienced reduced carbon fibre supply
compared the prior year. The Company has a strategic relationship with a
carbon fibre manufacturer Mitsubishi Rayon, a shareholder of the Company.

General and administrative expense was $0.8 million for the three months
ended March 31, 2005 comparable to the same period of 2004. Overall general
and administration costs decreased as a percentage of revenue from 14% in the
first quarter of 2004 to 11% in the first quarter of 2005.

Research and product development expense was $1.1 million for the three
months ended March 31, 2005 compared to $1.2 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 $0.4 million for the three months ended March 31,
2005, which is comparable to the same period of 2004. Overall marketing
expense was 7% of sales for the three months ended March 31, 2005 compared to
10% of sales for the same period of 2004.

Depreciation was $0.3 million for the three months ended March 31, 2005,
which is comparable to the first quarter of 2004.

Amortization was $0.1 million for the three months ended March 31, 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 three months ended March 31, 2005 was a loss of
($0.2) million compared to a loss of one thousand dollars in the first three
months of 2004. The foreign exchange loss in the first quarter of 2005 is a
result of a weakening of the Euro against the Canadian dollar in the month of
March and its negative impact on the Euro receivables. The results of the
European operations are recorded in Euros and then converted to Canadian
dollars. The Euro weakened from an average in the first quarter of 2005 of
$1.61 per Canadian dollar to $1.57 per Canadian dollar at March 31, 2005
resulting in a reduced value on the Euro receivables and an unrealized foreign
exchange loss of ($0.2) million.

Net loss for the three months ended March 31, 2005 was ($0.2) million or
($0.01) per common share which is comparable to the same period of 2004. The
loss in the period is the direct result of an unrealized foreign exchange loss
due to the Euro weakening against the Canadian dollar. Had the foreign
exchange loss not been incurred Dynetek would have had positive earnings of
$66,000.

VALVE DIVISION

The Valve Division is focused entirely on research and development
activities. During the first quarter of 2005 the Valve Division received
$0.2 million of non-repayable cost shared monies from NRCan.

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 first quarter of 2005, the subsidiary generated $3.5 million of
revenue compared to $1.2 million in the same period of 2004.


Summary of Quarterly Results
The following table shows selected unaudited financial information for
the past eight quarters ending March 31, 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 Mar. 31 June 30 Sept. 30 Dec. 31
share data) (unaudited) 2003 2003 2003 2003
---------------------------------------

Revenues
Cylinder and system
sales 3,278 3,056 4,739 5,275
Research & development
income 1,531 829 1,003 681
Investment & other
income 117 139 75 110
---------------------------------------
4,926 4,024 5,817 6,066
Operating expenses
Cost of goods sold 2,622 2,496 3,612 4,203
Marketing & general
and admin. 1,152 1,278 1,147 1,385
Research & product
development 1,269 1,749 962 795
---------------------------------------
5,043 5,523 5,721 6,383
---------------------------------------
Earnings before interest,
income taxes, stock
based compensation,
non-cash foreign
exchange, depreciation
& amortization(1) (117) (1,499) 96 (317)
---------------------------------------
Foreign exchange
(gain) loss 535 773 (195) 134
Depreciation &
amortization 420 413 475 437
Stock based compensation - - - -
Income taxes 20 19 20 -
---------------------------------------
975 1,205 300 571
---------------------------------------
Net loss (1,092) (2,704) (204) (888)
---------------------------------------
---------------------------------------

Earnings (loss) per share
Basic and fully diluted (0.05) (0.13) (0.01) (0.05)
---------------------------------------
---------------------------------------


-------------------------------------------------
(thousands of Canadian
dollars except per Mar. 31 June 30 Sept. 30 Dec.31 Mar. 31
share 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, stock
based compensation,
non-cash foreign
exchange, 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
Income taxes 13 15 7 4 -
-------------------------------------------------
528 481 751 666 709
-------------------------------------------------
Net loss (245) (311) (370) (313) (175)
-------------------------------------------------
-------------------------------------------------

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

(1) Earnings before interest, taxes, stock based compensation, non-cash
foreign exchange, 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
2005 2004
-------------------------------------------------------------------------

Patents 137 -
Certification costs 100 -
-------------------------------------------------------------------------
237 -
-------------------------------------------------------------------------

Intangible asset expenditures for the three months ended March 31, 2005
were $0.2 million compared to nil for the same period of 2004. The additions
for the quarter ended March 31, 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
March 31
2005 2004
-------------------------------------------------------------------------

Building and leaseholds 314 5
Manufacturing equipment 2,376 372
Office furniture and other equipment 58 17
Computer hardware and software 2 6
Manufacturing equipment under construction (2,388) (92)
-------------------------------------------------------------------------
362 308
-------------------------------------------------------------------------

Capital expenditures for the three months ended March 31, 2005 were
$0.3 million, which is comparable to the same period in 2004. During the first
quarter of 2005, the Company deployed $2.3 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 March 31, 2005 Dynetek had cash and cash equivalents of
$3.3 million, compared to $4.1 million at December 31, 2004. Dynetek"s working
capital level increased to $17.9 million at March 31, 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
$0.1 million to $9.6 million at March 31, 2005 from December 31, 2004.
Work-in-progress represented by confirmed orders decreased by $0.4 million to
$2.3 million. Raw material levels increased by $0.5 million to $3.5 million as
a result of increased amounts of carbon fiber purchased by the Company in
anticipation of increased pricing for 2005. Finished goods inventory increased
by $0.1 million to $3.9 million from the December 31, 2004 levels.
As the Company"s revenues continue to grow the amount of cash the Company
will invest in accounts receivable will increase. At March 31, 2005 accounts
receivable remained unchanged at $8.4 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 March 31, 2005 was $3.9 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. 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, 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 second quarter of 2005, there are a
number of factors in addition to the previous disclosure in the 2004 Annual
Report contained in the section Management"s discussion and Analysis that may
impact our future results:

- 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 three months ended March 31, 2005
compared to $1.32 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 $1.61 Canadian for
the first three months of 2005. The Euro weakened the last two weeks
of March 2005 and closed on March 31, 2005 at $1.57 Canadian per Euro.
This weakening negatively impacted the Company"s results in the first
quarter 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.

- The contribution margin averaged 26% of sales for the first three
months of 2005, which is comparable to the fourth quarter of 2004. The
ability of Dynetek to maintain EBITDA(1) and positive cash flow from
operations depends primarily on its ability to maintain the
contribution margin.

- Due to an expected increased global demand compared to supply of
carbon fiber in 2005 and 2006, the Company anticipates seeing an
increase in carbon fiber pricing from its supplier Mitsubishi Rayon
Corporation ("Mitsubishi"). This increase in pricing may negatively
impact the contribution margins the Company receives.

(1) Earnings before interest, taxes, stock based compensation, non-cash
foreign exchange, 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 three months ended March 31, 2005, the Company purchased under
normal terms and conditions $1.3 million (2004 - $0.5 million) of material
used in the production of lightweight fuel storage systems from Mitsubishi
Rayon Corporation, a shareholder of the Company.


Outstanding Share Data
Number of Shares Amount
Balance at December 31, 2004 20,547,232 52,589
Warrants exercised - -
Options exercised 31,845 30
Reclassification of contributed surplus - 38
-------------------------------------------------------------------------
Balance at March 31, 2005 20,579,107 52,657
-------------------------------------------------------------------------


March 31 December 31
2005 2004
-------------------------------------------------------------------------

Securities convertible into common shares:
Stock options 2,131,625 2,226,750
Warrants 2,069,294 2,069,294
-------------------------------------------------------------------------

Common shares outstanding as at May 10, 2005 were 20,579,107.

OUTLOOK

Revenues from CNG cylinder and system sales are expected to show
increases in each quarter of 2005 in relation to the comparative quarter of
2004. Increased CNG cylinder and system sales are expected from the European
operations, California and opportunities in South America. The Company expects
the trend of cylinder and system sales to continue with the latter half of the
year representing the majority of the sales due to the timing of the awarding
of bus contracts. In 2004 the Company recorded 39% of the cylinder and system
sales in the first six months and 61% in the last six months of the year.
Since the Company received its Transport Canada and Department of
Transport (USA) approvals in 2004, the Company has been marketing the benefits
of lightweight storage over steel tube trailers. The Company expects to record
revenue from its lightweight Dynecell cylinders for bulk hauling of compressed
gases in the latter half of 2005.
Revenue from hydrogen cylinder and system sales will continue to vary on
a quarter-to-quarter basis. This revenue is dependent on the strategic plans
of OEMs and other industrial hydrogen corporate entities requirements for
hydrogen storage solutions, which the Company has no ability to predict.
Dynetek is one of a few companies with a current revenue stream moving towards
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 expenses are directly related to the Company
plans for new products or processes. The ability to generate third party
funding from customers and partners dictates how much research and development
occurs over any twelve-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. Cash usage is dependent on positive cash flow from
operations, the amount of capital asset expenditures to be incurred and
working capital requirements for revenue growth. Although the amount of cash
may vary on a quarter-to-quarter basis, due to timing of accounts receivable
collections, required supplier payments and inventory turns, the Company
believes its current growth profile can be maintained by its current working
capital position. Significant sales order opportunities are reviewed
individually to determine if alternative methods of financing are required.
The Company believes it has the manufacturing assets in place to support
current operational growth and has no plans for significant capital assets
expenditures during 2005. The Company will continue to review opportunities
for capital expansion which provide near term permanent revenue growth and the
many different opportunities for available financing 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
Dynetek will hold a conference call and webcast on Wednesday, May 11,
2005 at 7:00 a.m. MST (9:00 a.m. EST) to discuss its First Quarter 2005
financial and operating results.
Participants in the continental United States and Canada can access the
conference call at 1-888-793-1753. Participants calling from the UK geographic
area can access the call at 1-800-528-0625 or 44-870-001-3125.
Digital replay of the call will be available approximately one hour after
the call is completed and until May 25, 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 21245776. The audio webcast 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 "Principle 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
December 31
(thousands of Canadian dollars)
(unaudited)

March 31 December 31
2005 2004
-------------------------------------------------------------------------

ASSETS
Current assets
Cash and cash equivalents 3,340 4,139
Accounts receivable 8,391 8,410
Inventory (note 3) 9,638 9,491
Prepaid expenses 498 615
-------------------------------------------------------------------------
21,867 22,655

Other asset 556 554

Intangible assets and deferred costs 4,337 4,202

Capital assets 15,942 15,851

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

45,207 45,767
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 3,877 4,387
Current portion of long-term debt 110 109
-------------------------------------------------------------------------
3,987 4,496

Long-term debt 1,666 1,667

SHAREHOLDERS" EQUITY
Share capital (note 4) 52,657 52,589
Contributed surplus (note 4) 1,653 1,596
Deficit (14,756) (14,581)
-------------------------------------------------------------------------
39,554 39,604

45,207 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
March 31
2005 2004
-------------------------------------------------------------------------

REVENUE
Sales 5,676 4,364
Research and development 1,193 1,544
Investment and other income 57 71
-------------------------------------------------------------------------
6,926 5,979
EXPENSES
Cost of goods sold 4,175 3,261
General and administrative 770 822
Research and product development 1,063 1,176
Marketing 384 437
Depreciation 271 325
Amortization of intangible assets and
deferred costs 102 97
Foreign exchange loss 241 1
Stock based compensation (note 4) 95 92
-------------------------------------------------------------------------
7,101 6,211
-------------------------------------------------------------------------
Loss before income taxes (175) (232)
-------------------------------------------------------------------------

PROVISION FOR TAXES
Large corporations tax - 13
-------------------------------------------------------------------------
- 13
-------------------------------------------------------------------------

NET LOSS (175) (245)
-------------------------------------------------------------------------

Deficit, beginning of period as previously
reported (14,581) (12,111)
Change in accounting policy (note 4) - (1,186)
-------------------------------------------------------------------------
Deficit, beginning of period as restated (14,581) (13,297)
DEFICIT, END OF PERIOD (14,756) (13,542)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Per Share Information
Net loss per share (basic and diluted) (0.01) (0.01)
Weighted average number of common shares
outstanding 20,573,895 20,120,770
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to the unaudited consolidated financial statements



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

Three months ended
March 31
2005 2004
-------------------------------------------------------------------------

Cash flows provided by (used for) operating
activities
NET LOSS (175) (245)
Items not involving cash
Depreciation 271 325
Amortization of intangible assets and deferred
costs 102 97
Stock based compensation 95 92
Unrealized foreign exchange loss (gain) 184 (24)
-------------------------------------------------------------------------
477 245
Changes in non-cash working capital
Accounts receivable 19 (1,339)
Inventory (147) (1,192)
Prepaid expenses 117 136
Accounts payable and accrued liabilities (510) 441
Unrealized foreign exchange gain (loss) in
non-cash working capital (150) 19
-------------------------------------------------------------------------
Cash flow from operations (deficiency) (194) (1,690)
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Other assets (2) -
Additions to intangible assets and deferred costs (237) -
Additions to capital assets (362) (308)
Unrealized foreign exchange gain (loss) in
investing activities 2 -
-------------------------------------------------------------------------
(599) (308)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Exercise of options 30 -
-------------------------------------------------------------------------
30 -
-------------------------------------------------------------------------

Foreign exchange gain (loss) on cash held in a
foreign currency (36) 5
-------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (799) (1,993)

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

Cash and cash equivalents, end of period 3,340 7,838
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Interest income received during the period ended March 31, 2005 was
$0.1 million (2004 - $0.1 million) and interest paid during the period
ended March 31, 2005 was $ nil (2004 - $ nil).

See accompanying notes to the unaudited consolidated financial statements



SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2005 and 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

March 31 December 31
2005 2004
---------------------------------------------------------------------

Raw materials 3,469 3,007
Work-in-progress 2,274 2,699
Finished goods 3,895 3,785
---------------------------------------------------------------------
9,638 9,491
---------------------------------------------------------------------

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, 2004 20,547,232 52,589
Warrants exercised - -
Options exercised 31,875 30
Reclassification of contributed surplus - 38
-------------------------------------------------------------------------
Balance at March 31, 2005 20,579,107 52,657
-------------------------------------------------------------------------


March 31 December 31
2005 2004
-------------------------------------------------------------------------

Securities convertible into common shares:
Stock options 2,131,625 2,226,750
Warrants 2,069,294 2,069,294
-------------------------------------------------------------------------

Effective January 1, 2004, the Company adopted the fair value method of
accounting for stock options, on a retroactive basis, without restatement
of prior periods. Prior to January 1, 2004, the Company measured
stock-based compensation using the intrinsic value method for the award
of stock options at the date of grant.

As a result of the adoption of this new accounting policy, the Company
has recorded a charge to retained earnings of ($1.2) million as at
January 1, 2004 to reflect the accumulated expense of stock options
granted under the plan subsequent to January 1, 2002.

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
2005 2004
Weighted average fair value per option $2.16 $1.54
Weighted average risk-free interest rate 1.75% 1.90%
Weighted average expected life 5 years 5 years
Estimated volatility in the market price of the
common shares 91% 122%
Dividend yield 0% 0%

No options were issued to employees or directors during the first quarter
of 2005.

5. TRANSACTIONS WITH RELATED PARTIES
For the three months ended March 31, 2005, the Company purchased under
normal terms and conditions $1.3 million (2004 - $0.5 million) of
material used in the production of lightweight fuel storage systems from
Mitsubishi Rayon Corporation, a shareholder of the Company.

6. 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, 2005. Revenues attributed
to foreign countries are based on the location of the customer.

Three months ended
March 31
2005 2004

Cylinder and system sales
Canada 210 407
United States 1,251 1,403
Japan 515 217
European Union 3,592 2,337
Other 108 -
-------------------------------------------------------------------------
5,676 4,364
-------------------------------------------------------------------------

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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