Jay Taylor & Jim Payne-Chief Executive Officer of dynaCERT interview - January 2017

Jay Taylor:     I’m really pleased to have with me once again Jim Payne. He’s the President and CEO of dynaCERT Inc.. ... and dynaCERT Inc. is a Company that has a proprietary product, its an add-on for trucks that’s currently being applied, that reduces fuel consumption very significantly, and also reduces carbon emissions very significantly. So it is a Company that has gained a considerable amount of favour among the Canadian government, and people that care about their environment. It’s also a Company that I think is going to gain a great deal of favour among companies that want to reduce their fuel consumption and save money as a result of it. So I am really pleased to have Jim with me again. Thanks Jim for joining me again today.

Jim Payne:    Thanks Jay, it’s always a pleasure.

Jay Taylor:     Always good to talk with you. For the sake of people maybe not familiar with your Company, can you perhaps just explain a bit about the technology, how it works in lay terms, and how significant has it been in terms of your trials and in terms of 3rd-party verification now of saving in fuel consumption.

Jim Payne:    Sure. First of all, our technology, we call it the HydraGen^TM. The HydraGen^TM is a very unique patent pending unit that is a fully computerized on-demand electrolysis system. What we do is we essentially take distilled water and we convert it into pure hydrogen and pure oxygen. What we really do is we separate the gasses, and that’s something that really does separate us from the rest and takes us takes us much farther ahead than where this Company was years ago. So by introducing pure hydrogen and pure oxygen, in trace amounts, to a combustion engine, and primarily its diesel engines we’re working with, it does enhance the burn. It enhances the burn to the point where it gives a much cleaner burn, it reduces … [increasing] the fuel economy, it increases the torque, extends the engine oil life, and the reduction in emissions. Now what makes us even that much more special is over the last year we have spent a lot of time, a lot of money, developing what we call the smart-ECU, and this is also patent pending. The smart-ECU, it is the brains behind our technology, it communicates with the engines on-board computer. It’s just like a smart phone. It is learning all the time; its learning the habits of the truck, the altitude, the conditions, the humidity, so many different things, because one thing we’ve learnt over the years … there is what we call a ‘sweet spot’. Now, that sweet spot means there is just the right amount of gases being introduced to enhance the burn – too much hydrogen, or too much oxygen does just the opposite. But with this smart-ECU, like I said, it is communicating with the on-board computer of the truck, it’s learning, it’s altering the flow of gases. So it is changing the flow of gases as the vehicle is running. This is real-time, on-time changes.

Jay Taylor:     Wow, and was that technology in-play as you had your 3rd-party verification recently? Was that technology in-play then? Because your results have been quite good.

Jim Payne:     It was in-play, we had it as a prototype at that point, we did go through 3rd-party validation. We also went through 20 hours of testing transport trucks on dynos and all the wind conditions, it was a wind tunnel that’s the most sophisticated piece of equipment; there are only two of these in the world. This one is at the Ontario Institute of Technology. But, yes we verified our technology; it showed up to 19.2% improved fuel economy, it reduced the greenhouse gasses up to 40%, and the heavy carbons by up to 65%. So a huge huge difference in the emissions.

Jay Taylor:     So there could be some benefits aside for fuel savings for trucks, and for other vehicles I suppose in time, not only from the fuel savings but also from the carbon taxes if that’s in-play in the future.

Jim Payne:    You are absolutely right Jay, and that’s the other thing with our smart-ECU, this is GPRS [General packet Radio Service]. It has built in GPRS capabilities which allows the smart-ECU to be accessed by companies and licensed end-users, so they can track/monitor, not just fuel savings and everything [maintenance], it’s much like a fleet management system, but it’s also collecting the data and converting it to carbon credits.

Jay Taylor:     I guess what this does, this smart-ECU technology will allow you then on an ongoing basis to track the performance of your technology, it will be like an ongoing verification process or data-points that you will have that will allow you to know how well you’re doing. Companies themselves will be able to determine how well your technology is helping them.

Jim Payne:    That’s in fact right Jay. What we’ve done is we’ve developed new back-office and there will be a small monthly fee for … like large fleet owners, they’ll have their own fleet management systems, but this takes the fleet management system to a whole new era, and it does exactly what you said; it is measuring the fuel economy, the fuel improvements, the emissions, and everything else that a fleet management does. But this gives them real-time live data, for a small monthly fee we’ve created a portal where they go in and they can gain access at any given time to anyone of their trucks, log it, track it, know exactly what’s going on.

Jay Taylor:     Alright. Your focus has been, up to this point, I think retrofitting trucks with big diesel engines, and I want to ask you about some other applications, but first can you give us sense of the size of the markets for your HydraGen^TM project.

Jim Payne:    Oh for sure. Just here in North America there is north of 2 million class-8 trucks, now that’s a transport tuck, then there are 3 times that many is in class-6 and 7 trucks, that’s the delivery size trucks. So those are the trucks we are targeting, its everything from the class-6 to class-8 trucks. Like I said, here in North America we are talking 10’s of millions of these and then you get into the India market for an example. We’ve got a new dealer, and the India market is actually 3 times the size of North America. Then you start looking globally, we are talking millions and millions. There are actually 15 million diesel engines produced per year globally.

Jay Taylor:    So it’s a sizeable market and you’ve had 3rd-party verification, I guess the Canadian government or Quebec government, is that right?

Jim Payne:     It is with the Ontario government, it is the Ontario Institute of Technology/University here in Ontario. Yes.

Jay Taylor:     You are going to be marketing this product – are you anticipating, do you have sales now Jim, or will we be hearing about this sometime soon?

Jim Payne:     Jim, you will be hearing about it very soon. As we’ve previously announced, we’ve got a new manufacturing facility, it is up and running now. We’ve got our first 500 unit production run being completed, it’s expected to be shipped by the first week of February. So we will be announcing that. Then as far as production, we’re expecting to ramp the production up with capacity in that facility to 6,000 units per month by the end of the second quarter of this year.

Jay Taylor:     Wow, Okay and you feel that the demand is out there, you’re distribution system is in place so you can actually sell that many units by the second quarter of this year?

Jim Payne:    Distribution there is, you know we’ve already got a prequalified dealer network here in North America and the India market and we are actively interviewing strategic sales firms in different regions across North America and Europe with direct contacts to the local transportation, heavy equipment, and power generation firms. We are getting calls from around the globe Jay since we have announced the validation of our product. The only thing that was holding us back was the final smart-ECU, it was developed, we had to go through a few certification standards, because like I said, its no different than a smart phone. This thing is communicating, sending data world-wide instantly. So we would not sell or put a product out until we had that final certification.

Jay Taylor:     And you have that now. So as I understand it, your plant up there in Toronto would produce, you just said 6,000 units a month. I guess you’ll start out with one shift and produce 2,000 units, and then as the market demand is there you’ll ramp up to 3 shifts per day?

Jim Payne:     Well that’s the way we initially targeted [shifts], but we’ve actually set up production line where we can handle 6,000 units a month. So, now obviously we will not mass produce without sales. We are certainly not producing these things to just put them on the shelf.

Jay Taylor:     Alright -- Just briefly, with another minute or two left here Jim, can you talk about some of the other applications. I mean where do you see … first of all, I guess maybe we shouldn’t be thinking in those terms, because if you talk about 10’s of thousands of trucks, that seems like that’s quite a nut to crack right there. You have potential growth that is amazing I think just on that basis. But I know that you are also excited about some other applications; cars, but ships, and generators for remote locations, that sort of thing. Can you take a minute or two to talk about those applications and how far down the road might they be for you to start to think about, or actually start to try to meet those market demands.

Jim Payne:     Well as far as, again you’re right, I mean the markets we’re looking at .. we’ve now got the trucking industry handled, we are ready to put these things out, but it is now shipping, rail, and large stationary generators. It’s something we’ve already done some preliminary work on. We have just set up a new R&D plant for that. We have a substantial amount of government support here in Canada, both federally and provincially, so as we move into that arena ... you know, our anticipation is that we will spend like the next year and a substantial amount of money to get this thing done and get it right. Now, because you get into the shipping, it’s a huge market. You get into rail, like the trains and stuff like that, we’ve got train companies already lining up wanting product which we don’t have ready for them yet. And then when you talk about cars, the car market or the small automotive market, was not initially a market we we’re looking at penetrating, but there certainly became a need with diesel cars and emissions, so we took it on as just a pet project; we built a small unit, we have it currently being tested down in a university, down in the states, and … it’s not a market we would to be building. If anything, I would dare say we prove this technology, we would likely do a licensing agreement with the end users where they could build this into their own vehicles, because I know in the diesel car industry there are some serious issues with the emissions.

Jay Taylor:     Sure, just briefly here – with this kind of growth ahead I know it requires a great deal of working capital and capital in general, how is your balance sheet and how are you set for financing this growth?

Jim Payne:    That’s a good questions. I mean, the Company is virtually a debt free Company now, we are very well funded. We are sitting with several million dollars in the bank, although as we all know you can go through that very quickly. The nice thing is as we move into the sales … we get purchase orders for trucks, they come with a 25% deposit. That 25% deposit pretty much covers our nut. So I am not overly concerned as far as the financing for the trucking industry. Obviously for the research and development, that is something we’re perusing government funding for and government support for. Yes, as far as the trucking industry, it would be quite a self-sustaining business venture.

Jay Taylor:     One thing I failed to ask you about Jim, I don’t know if you can talk about this, if you have some sense of what your margins are, you just mentioned the 25% down payment basically provides a good part of your costs. Your sense of what you might be able to do on the margin side per unit of those upwards of 6,000 units per month.

Jim Payne:    Jay, we work on 60% gross margin. It’s a very healthy margin, but as you know it’s been $30 million spent to get us to where we are at. So it’s time to see a little pay back I think.

Jay Taylor:     Right, well ‘pay-back’, certainly the market seems to be anticipating it. The shares have traded up beautifully from around 10 cents earlier this year [2016] to 80 cents now. But if the kind of growth you are talking about is there Jim I think 80 cents will look like a very inexpensive stock sometime in the future. Time will tell. You know, the proof will be in the pudding, so they say. But it certainly looks exciting. I want to thank you Jim for being with us and we look forward to keeping up with you in the future. So thank you very much. # # #