Stuart Energy Announces Results for Quarter Ended December 31, 2003.Energy Editors/Business Editors/High-Tech Writers TORONTO--(BUSINESS WIRE)--Feb. 19, 2004 Stuart Energy Systems Corporation (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :HHO HHO Hava Harp Okulu (Turkish Air Force Academy) HHO Hard HO (Handover) (telecommunications) HHO Hard Hand Off HHO Home and Home Office ) announced today its unaudited consolidated financial results for the third quarter ended December December: see month. 31, 2003. "We are pleased to report our fifth consecutive quarter of record sales revenue," said Jon JON Jonah JON Jesus of Nazareth JON Job Order Number JON Johnston Island, US, Outlying Islands (Airport Code) Slangerup Slangerup is a town in Frederikssund municipality in Region Hovedstaden in the northern part of the island of Zealand (Sjælland) in eastern Denmark. The town of Slangerup The town was established by the Viking Slangir at the time of Harald Bluetooth. , President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Stuart Energy. "Strong sales, coupled with improving gross sales Gross Sales A measure of overall sales that isn't adjusted for customer discounts or returns, calculated simply by adding all sales invoices, and not including operating expenses, cost of goods sold, payment of taxes, or any other charge. margins and declining costs, resulted in the third consecutive quarter of reduced cash utilization." Total sales revenue for the quarter increased to $5.2 million, an increase of $2.6 million or 101% compared to the same quarter of fiscal 2003, and an increase of $1.3 million or 35% from the second quarter of fiscal 2004. Supported by the acquisition of Vandenborre Technologies in February February: see month. 2003, total sales revenue for the nine-month period ended December 31, 2003 was $12.1 million, an increase of $8.4 million or 233% compared to the same period of the previous year. Hydrogen Energy Station (HES) product sales for the fiscal year to date were $7.4 million for industrial applications, or 61% of sales revenue, and $3.9 million, or 32%, for transportation and power applications. After-market af·ter-mar·ket n. The market for parts and accessories used in the upkeep or enhancement of a previous purchase, as of a car or computer. af sales and service revenue was $0.8 million, or 7% of total sales revenue. As of February 18, 2004, Stuart Energy had a sales order The sales order, sometimes abbreviated as SO, is an order received by a business from a customer. A sales order may be for products and/or services. Given the wide variety of businesses, this means that the orders can be fulfilled in several ways. backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. in excess of $14 million. "Sales of our HES systems for early stage transportation applications continue to expand along with strong growth in the industrial side of our business. The revenue in the first three quarters positions us to achieve our stated milestone of triple-digit revenue growth this fiscal year," commented Mr. Slangerup. The net loss for the third quarter was $14.4 million, including a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. charge of $9.8 million related to the previously disclosed final phase of the Company's integration of Vandenborre Technologies, or $0.51 per share compared to $7.3 million or $0.35 per share for the same quarter of fiscal 2003. The results of this integration are expected to yield annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. savings in excess of $7.5 million from product standardization standardization In industry, the development and application of standards that make it possible to manufacture a large volume of interchangeable parts. Standardization may focus on engineering standards, such as properties of materials, fits and tolerances, and drafting , facilities rationalization rationalization, in psychology: see defense mechanism. , workforce reduction and streamlined business processes. Approximately 48% of this charge is non-cash. The cash implications of the charge will be approximately $0.7 million for fiscal 2004 and approximately $1.3 million for fiscal 2005, with the remaining amounts to be paid in subsequent fiscal years. Cost of product sales and service in the third quarter exceeded revenue by $0.3 million. This improvement compares to cost of product sales and service exceeding revenue by $1.6 million in the same quarter of last year, and $2.1 million in the previous quarter of this year. "Improving our gross sales margins continues to be a key corporate priority. Our efforts to standardize stan·dard·ize v. 1. To cause to conform to a standard. 2. To evaluate by comparing with a standard. products and reduce costs are beginning to drive improvements in our margins," said Jon Slangerup. Net cash outflows were $6.7 million during the third quarter, a 26% improvement from $9.0 million in the same period a year ago, and an 8.2% improvement from $7.3 million in the previous quarter of this year. For the nine month period ended December 31, 2003, net cash outflows were $24.0 million, representing a 23% improvement from the net cash outflows for the same period in the previous fiscal year. On December 31, 2003, the Company had cash, cash equivalents and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments of $42.3 million, excluding the funds raised from the recently completed public offering. "We continue to make progress toward commercial sustainability, with our third consecutive quarter of reduced cash utilization," commented Mr. Slangerup. "Our overall improved performance, coupled with our leading position in the expanding hydrogen infrastructure market, is fueling our Company's sustained growth." Hydrogen Energy Station Projects During the quarter, Fortum For the antibiotic marketed by GlaxoSmithKline plc, see . Fortum Oyj is a Finnish public listed energy company, which focus on Nordic and Baltic countries, Poland and the north-west of Russia. The head of the company is Mikael Lilius, President and CEO. AB, Sweden's second largest power company, officially opened its first Hydrogen Energy Station for fueling (HESf), which was supplied by Stuart Energy. The station is capable of providing 120kg per day of high-purity, high-pressure high-pres·sure adj. 1. Of or relating to pressures higher than normal, especially higher than atmospheric pressure. 2. Informal a. hydrogen fuel to three fuel cell buses as part of the Clean Urban Transport for Europe Clean Urban Transport for Europe (CUTE, HyFLEET:CUTE) is an European Union initiative to fund, among other things, local hydrogen-powered public transportation, especially by buses. The CUTE project started on November 23, 2001 and concluded on May 22, 2006. (CUTE) project. Of the nine cities involved in the CUTE project, Stockholm Stockholm (stŏk`hôlm'), city (1995 pop. 692,954), capital of Sweden and of Stockholm co., E Sweden, situated where Lake Mälaren flows into the Baltic Sea. has the harshest winter providing an opportunity to showcase the robust design and durability du·ra·ble adj. 1. Capable of withstanding wear and tear or decay: a durable fabric. 2. of the HES product line. Stuart Energy has delivered 4 of the 5 electrolytic e·lec·tro·lyt·ic adj. 1. Of or relating to electrolysis. 2. Produced by electrolysis. 3. Of or relating to electrolytes. e·lec hydrogen fueling systems for the CUTE project, including HES hydrogen generation modules to the cities of Amsterdam Amsterdam, city, Netherlands Amsterdam (ăm`stərdăm', Dutch ämstərdäm`), city (1994 pop. 724,096), constitutional capital and largest city of the Kingdom of the Netherlands, North Holland prov. , Barcelona Barcelona (bär'səlō`nə, Catalan bär'səlō`nə, Span. bär'thālō`nä), city (1990 pop. 4,738,354), capital of Barcelona prov. and chief city of Catalonia, NE Spain, on the Mediterranean Sea. and Porto Porto Portuguese Oporto Seaport city (pop., 2001 prelim.: 262,928), northwestern Portugal. On the right (north) bank of the Douro River, Porto was called Portus Cale in Roman times and was earlier a flourishing settlement on the Douro's south bank. . Stuart Energy also provided a hydrogen fueling station for bus operations in Malmo, Sweden Sweden, Swed. Sverige, officially Kingdom of Sweden, constitutional monarchy (2005 est. pop. 9,002,000), 173,648 sq mi (449,750 sq km), N Europe, occupying the eastern part of the Scandinavian peninsula. . Stuart Energy also announced a contract with the South Coast Air Quality Management District The South Coast Air Quality Management District (SCAQMD), formed in 1976, is the air pollution agency responsible mainly for regulating stationary sources of air pollution for most of Los Angeles, San Bernardino, Riverside County, and all of Orange county. to supply a turn-key See turnkey system. (jargon, application) turn-key - A term which describes a complete system (hardware and software) which can be used for a specific application without requiring further programming or software installation. HESfp in Diamond Bar, California Diamond Bar is a city in Los Angeles County, California, United States. The population was 56,287 at the 2000 census. It is named after the "diamond over a bar" branding iron registered in 1918 by ranch owner Frederick E. Lewis. . The HESfp, with both fueling and power capabilities, will generate approximately 25 kg/day of hydrogen fuel for fleet vehicles. The hydrogen will also be used to fuel a 120kw power module expected to be used to provide clean, hydrogen-based power applications such as peak shaving and back-up In cartography, an image printed on the reverse side of a map sheet already printed on one side. Also the printing of such images. power. The power module is based on a hydrogen-powered internal combustion engine Internal combustion engine A prime mover, the fuel for which is burned within the engine, as contrasted to a steam engine, for example, in which fuel is burned in a separate furnace. (H2ICE) generator generator, in electricity, machine used to change mechanical energy into electrical energy. It operates on the principle of electromagnetic induction, discovered (1831) by Michael Faraday. set employing Ford technology. During the quarter, Stuart Energy participated in a Hydrogen Technology Forum hosted in Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. by the Hong Kong Polytechnic University The Hong Kong Polytechnic University (Abbreviated:PolyU or HKPU Traditional Chinese: 香港理工大學 and Cheung Kong Kong is the Danish word for king, but can also refer to the following:
 A Half Minute of Backup This roomful of lead acid batteries stands ready to drain itself entirely in less than a minute. for buildings. Stuart Energy remains focused on demonstration of the HESfp, which is currently being installed for both fueling and power applications in early fiscal 2005. Operations Stuart Energy expects to complete the standardization of its Hydrogen Energy Station product line on the IMET IMET international military education and training (US DoD) IMET Incident Meteorologist (NOAA) IMET Integrated Market Enforcement Team (Royal Canadian Mounted Police) (R) technology by the end of the fourth quarter of this fiscal year. This standardization effort will help improve product costs, supply chain management and gross sales margin performance. The implementation of the enterprise resource planning See ERP. (application, business) Enterprise Resource Planning - (ERP) Any software system designed to support and automate the business processes of medium and large businesses. system in Belgium is progressing and the system is expected to go live in the coming fiscal year. This system is expected to enable further working capital reductions at our Belgian Belgian having some relationship to Belgium. Belgian barge dog see schipperke. Belgian black pied cattle black, Belgian dairy cattle. Belgian blue dual-purpose cattle; blue, white or blue roan. facility. To date, the Company has completed the first two commercial projects from its North American operations North American operation Surgical oncology Radical surgery of a 'frozen pelvis', consisting of radical en bloc resection of the uterus and urinary bladder. See 'Frozen pelvis.'. Cf 'All-American' and 'South American' operations. featuring the IMET(R) technology. These projects demonstrated the North American operations ability to successfully integrate the IMET(R) technology and meet the applicable codes and standards. In addition, Stuart Energy's advanced engineering team has successfully integrated component technologies from both North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. and European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. operations, resulting in the identification of a number of cost savings, which will be introduced into production during the coming fiscal year. Strategic Alliances In October, Stuart Energy signed a joint cooperation agreement with Statkraft SF and Corporacion Energia Hidroelectrica de Navarra S Navarra conventional Navarre Autonomous community (pop., 2006 est.: 601,874) and province, northern Spain. Established in 1982, it has an area of 4,012 sq mi (10,391 sq km) and is bordered by France. .A. (EHN EHN European Heart Network EHN Environmental Health Network EHN End Hunger Network EHN Ecology and Human Needs EHN European Heritage Network ) to assess, demonstrate and develop advanced renewable energy Renewable energy utilizes natural resources such as sunlight, wind, tides and geothermal heat, which are naturally replenished. Renewable energy technologies range from solar power, wind power, and hydroelectricity to biomass and biofuels for transportation. based hydrogen production Hydrogen production is commonly completed from hydrocarbon fossil fuels via a chemical path. Hydrogen may also be extracted from water via biological production in an algae bioreactor, or using electricity (by electrolysis) or heat (by thermolysis); these methods are presently not and distribution solutions. This partnership is the product of a common belief between these companies that hydrogen will be a vital future energy carrier for renewable energy sources. This venture will combine the hydrogen expertise of Stuart Energy with the considerable knowledge of renewable energy and wind power of both Statkraft and EHN to develop hydrogen enabled renewable power systems. These systems allow excess renewable energy to be stored as hydrogen for later redeployment re·de·ploy tr.v. re·de·ployed, re·de·ploy·ing, re·de·ploys 1. To move (military forces) from one combat zone to another. 2. as fuel for either vehicles or electrical power generation. Both Statkraft and EHN have purchased HES hydrogen generation modules for evaluation and demonstration of vehicle and power applications. Financing Activities Subsequent to the third quarter, on February 12, 2004, Stuart Energy announced it had completed a public offering of 7 million common shares at $3.00 per share for aggregate gross proceeds of $21 million. National Bank Financial Inc. was the lead manager for the offering, and CIBC World Markets CIBC World Markets is the investment banking division of the Canadian Imperial Bank of Commerce. It helps governments, large companies, and other large institutions obtain capital and credit and is a primary dealer in U.S. Treasury securities. Inc. and RBC Dominion Securities
The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders purposes. Conference Call A conference call to discuss the financial results for the third quarter ended December 31, 2003 will be held on Thursday, February 19, 2004 at 10:00 am (EST EST electroshock therapy. EST abbr. electroshock therapy ). To access the conference call, participants may call 1-866-207-8482 five minutes prior to the start time. A simultaneous webcast can be accessed from the Stuart Energy website at www.stuartenergy.com which will require that Windows Media Player Digital jukebox software for Windows from Microsoft that plays a variety of audio, video and streaming formats including MP3, WMA, CD audio and MIDI. Starting with Version 6.2 in 1999, the Windows Media Rights Manager was added for securing copyrighted content. be installed prior to the call. An archived webcast will be available for approximately three months at Stuart Energy's website. About Stuart Energy Stuart Energy Systems Corporation (TSX: HHO) is the world leading developer and supplier of integrated hydrogen solutions that use the Company's proprietary hydrogen generation water electrolysis electrolysis (ĭlĕktrŏl`əsĭs), passage of an electric current through a conducting solution or molten salt that is decomposed in the process. technology with products from corporate partners to serve existing and emerging markets for power generation, transportation and industry. The Company's website address is http://www.stuartenergy.com This release includes forward -looking statements, which are based on certain assumptions and reflect management's current expectations as contemplated under the Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the U.S. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward -looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Some of these factors include: general global economic conditions; general industry and market conditions and growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. ; uncertainty as to whether our strategies and business plans will yield the expected benefits; increasing competition; availability and cost of capital; the ability to identify, develop and achieve commercial success for new products, services and technologies; the level of expenditures necessary to maintain or improve the quality of products and services; changes in technology; changes in laws and regulations, including codes and standards, intellectual property rights, and tax matters; the uncertainties of the emerging hydrogen economy, including the hydrogen economy growing at a slower pace than is anticipated; our ability to secure and maintain strategic relationships; the availability of, and ability to retain, key personnel; and the failure of the Company to effectively integrate acquisitions. Additional factors are discussed in our materials filed with the securities regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities from time to time. We disclaim dis·claim v. dis·claimed, dis·claim·ing, dis·claims v.tr. 1. To deny or renounce any claim to or connection with; disown. 2. To deny the validity of; repudiate. 3. any intention or obligation to update or revise any forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. , whether as a result of new information, future events or otherwise. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS Third Quarter (October 1, 2003 through December 31, 2003) Fiscal Year Ending March 31, 2004 This discussion and analysis covers our interim unaudited consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge for the three and nine-month periods ended December 31, 2003. As well, it provides an update to the discussion and analysis contained in our 2003 Annual Report. This discussion and analysis should be read in conjunction with the "Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial " and the annual audited consolidated financial statements contained in our 2003 Annual Report. On February 28, 2003, Stuart Energy completed the acquisition of Vandenborre Technologies NV (Vandenborre). As such, the operating results of Vandenborre are included in the consolidated financial statements from February 28, 2003, and are not reflected in the comparative figures for the three and nine-month periods ending December 31, 2002 that are contained in this report. RESULTS FROM OPERATIONS Revenue Revenue in the third quarter increased by $2.6 million as compared to the same quarter for fiscal 2003. For the nine-month period ended December 31, 2003, total revenue increased approximately $8.4 million as compared to the same period of the previous fiscal year. Product sales and service revenue for the three and nine-month periods ended December 31, 2003 can be broken down as follows:
Three Months Ended Nine Months Ended
December 31 December 31
2003 2002 $ Change 2003 2002 $Change
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Transportation and
power applications $ 267 $1,723 ($1,456) $3,862 $1,723 $2,139
Industrial
applications 4,640 528 4,112 7,398 928 6,470
After market sales
and service 273 323 (50) 814 976 (162)
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Total $5,180 $2,574 $2,606 $12,074 $3,627 $8,447
The decrease in revenue from transportation and power applications in the third quarter of fiscal 2004 is primarily attributable to timing differences in the shipments of Hydrogen Energy Stations (HES) systems for these purposes. During the third quarter of fiscal 2003 there were sales of two large HES systems for transportation applications. These sales represented the majority of transportation and power application revenue recognized in fiscal 2003 whereas in fiscal 2004 revenue from sales of HES systems have primarily been concentrated in the first and second quarters. Further shipments of Hydrogen Energy Stations for transportation and power applications are anticipated in the fourth quarter of fiscal 2004. Consistent with the previous quarter, the increase in revenue from transportation and power applications for the nine-month period ended December 31, 2003 is attributed to a combination of increased revenue generated from deliveries of HES systems for Clean Urban Transport Europe projects in Portugal, Spain, Sweden and The Netherlands as well as delivery of an HESfp to our partner Cheung Kong Infrastructure Holdings (CKI CKI Circle K International (collegiate services) CKI Cheung Kong Infrastructure Holdings Ltd (Hong Kong) CKI Chair-Keyboard Interface CKI Crypt Key Instant ). Revenue generated from industrial applications has increased $4.1 million as compared with the third quarter of fiscal 2003 and $6.5 million as compared with the nine-month period ended December 31, 2002. Consistent with the first and second quarters of fiscal 2004, this increase is attributed to an improvement in our key industrial markets, an improved product portfolio and the effect of the acquisition of Vandenborre Technologies on February 28, 2003. Revenue generated from after-market sales and service has decreased $50,000 as compared with the third quarter of fiscal 2003 and $162,000 as compared to the nine-month period ended December 31, 2002. During fiscal 2003, the Company focused on satisfying a backlog of demand in after-market sales and service, which provided significant revenue in fiscal 2003. In the current fiscal year, revenue has decreased as this demand was satisfied and focus is placed on meeting current demand for after market sales and service. Cost of product sales and service For the third quarter of fiscal 2004, cost of product sales and service exceeded revenue resulting in a direct loss on sales of $0.3 million compared to $1.6 million in the same period of the previous fiscal year. For the nine-month period ended December 31, 2003, cost of product sales and service exceeded revenue resulting in a direct loss on sales of $2.6 million compared to $4.5 million in the same period of the previous fiscal year. These improvements are reflective Refers to light hitting an opaque surface such as a printed page or mirror and bouncing back. See reflective media and reflective LCD. of a combination of improved product portfolio which resulted in higher margins being earned on direct costs incurred to manufacture product as well as increased revenue during the quarter which offset additional fixed manufacturing overhead costs overhead costs see fixed costs. as compared with the same periods of the previous fiscal year. Research and product development For the three-month period ended December 31, 2003, there was net research and product development funding recoveries of $0.4 million compared to net expenditures of $3.2 million during the same period of the previous fiscal year. This decrease is the result of increased research and product development funding of $1.5 million as well as decreased research and product development expenditures of $2.1 million. For the nine-month period ended December 31, 2003, there was net research and product development expenditures of $3.9 million compared to $9.1 million during the nine-month period ended December 31, 2002. Gross research and product development expenditures for the three-month period ended December 31, 2003 was $1.3 million, a decrease of $2.1 million as compared with the same period in the previous fiscal year. Gross research and development expenditures for the nine-month period ended December 31, 2003 was $5.7 million, a decrease of $4.2 million as compared to the nine-month period ended December 31, 2002. The increase in research and product development funding is primarily the result of the renegotiation of a research and product development funding agreement Funding Agreement Illiquid insurance contracts that provide guaranteed principal repayment and interest payments for a predetermined period of time. Notes: Funding agreements are marketed to mutual fund companies and municipal reinvestments. during the third quarter of fiscal 2004 in order to better align align (  līn),v to move the teeth into their proper positions to conform to the line of occlusion. our funding agreement with our research and product development plans and goals. Under the terms of the renegotiated contract, certain expenditures incurred in previous quarters became allowable for purposes of reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. , resulting in the recognition of a total funding recovery of approximately $1.7 million, of which $0.3 million was related to research and development work conducted in the third quarter. This decrease in research and product development expenditures is primarily the result of the fact that certain investments in long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. testing and research and product development expenses associated with the HESfp prototype incurred in the previous year have not been repeated in the current year. Further, as a greater percentage of our overall activities are commercial in nature, there has also been a corresponding decrease in the amount of overhead allocated to research and product development. General and administrative General and administrative expenditures for the third quarter of fiscal 2004 increased $0.5 million as compared with the same period of the previous fiscal year. General and administrative expenditures for the nine-month period ended December 31, 2003 increased $2.6 million as compared with the nine-month period ended December 31, 2002. Consistent with previous quarters, these increases are primarily attributable to additional general and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. incurred as a result of the acquisition of Vandenborre and the resulting larger consolidated organization. Restructuring charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. As announced on November 27, 2003, during the third quarter we implemented the final phase of our integration of Vandenborre. In total, the integration plan is expected to yield additional savings from product standardization, facilities rationalization, workforce reduction and streamlined business processes. Since the acquisition of Vandenborre on February 28, 2003, we have become increasingly confident in the high reliability, competitive life cycle costs, scalability and serviceability (system) serviceability - The ease with which corrective maintenance or preventative maintenance can be performed on a system (e.g. by a hardware service technician). Higher serviceability improves availability and reduces service cost. Serviceability is one component of RAS. of the IMET cell stack technology previously developed by Vandenborre. In addition, our combined experience using the IMET cell stack technology indicates that we will be able to realize higher sales margins than other product offerings. As a result, we implemented a more aggressive integration plan related to standardization of our commercial HES product offering around the IMET cell stack technology. Accordingly, we have taken a charge of $2.9 million during the third quarter of fiscal 2004 associated with the rationalization of existing inventories around the IMET technology. Also during the quarter, we implemented a further decrease in our workforce of approximately 20% and have taken a charge of $1.6 million associated with these workforce reductions. In addition to our product standardization efforts and additional workforce reductions, our cost reduction plan also includes the closure of one manufacturing facility and downsizing (1) Converting mainframe and mini-based systems to client/server LANs. (2) To reduce equipment and associated costs by switching to a less-expensive system. (jargon) downsizing of another manufacturing facility. We have recognized charges totaling $5.3 million related to these activities during the third quarter of fiscal 2004. Of the facility rationalization charges, $1.9 million related to the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of leasehold improvements Leasehold Improvement Improvements on a leased asset that increase the value of the asset. Notes: A leasehold improvement is classified as an asset that must be depreciated over time. and deferred charges with the balance pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to remaining lease obligations. Amortization The charge for amortization for the third quarter of fiscal 2004 increased $0.9 million as compared with the same period of the previous fiscal year. For the nine-month period ended December 31, 2003, the charge for amortization increased $2.9 million as compared with the nine-month period ended December 31, 2002. These increases reflect additional amortization charges taken on investments in equipment and leasehold improvements made in fiscal 2003. This increase also reflects additional amortization charges related to product technology, customer relationships, trademarks and trade names and proprietary software resulting from the acquisition of Vandenborre during the fourth quarter of fiscal 2003. Investment and other income Investment and other income decreased to $0.2 million in the third quarter of fiscal 2004 from $0.9 million during the third quarter of fiscal 2003. For the nine-month period ended December 31, 2003, investment and other income decreased to $1.6 million compared to $1.8 million during the nine-month period ended December 31, 2002. These decreases can be explained by the fact that as average balances of cash and short-term investments have decreased as compared with the previous year, so has the income earned on these balances. This decrease was partially offset during the first quarter of fiscal 2004 when we experienced an increase in the market value of short-term investments held as a result of a decrease in prevailing market interest rates, which resulted in increased investment and other income during the first quarter. Net loss The net loss for the third quarter of fiscal 2004 increased $7.0 million as compared with the same period of the previous fiscal year. For the nine-month period ended December 31, 2003, the net loss increased $7.0 million as compared with the nine-month period ended December 31, 2002. These increases are primarily the result of the charges for synergies, product standardization and our cost reduction plan recognized during the third quarter of fiscal 2004 offset by increased product sales and service revenue. CASH FLOWS Cash and cash equivalents and short-term investment balances were $42.3 million, a decrease of $6.7 million from $49.0 million at September 30, 2003 and a decrease of $24.0 million from $66.3 million at March 31, 2003. This is compared to cash and cash equivalents and short-term investments on hand at December 31, 2002 of $90.3 million down $9.0 million from $99.3 million at September 30, 2002 and down $31.3 million from $121.6 million at March 31, 2002. Net cash outflows from operations during the third quarter of fiscal 2004 decreased $1.3 million compared to the same period of the previous fiscal year. For the nine-month period ended December 31, 2003, net cash outflows from operations decreased $2.0 million as compared with the nine-month period ended December 31, 2002. These decreases are primarily attributable to increased cash flow from reduced inventories as a result of sales during the quarter. Net expenditures on investing activities decreased to $2.1 million for the quarter from $3.1 million during the same quarter of the previous fiscal year. For the nine-month period ended December 31, 2003 net expenditures on investing activities decreased to $4.0 million from $9.4 million during the nine-month period ended December 31, 2002. These decreases are primarily the result of a decrease in expenditures on leasehold improvements and equipment as a result of the completion of the expansion of our manufacturing facilities, which began in the first quarter of fiscal 2003 and continued into the fourth quarter of the previous fiscal year. This decrease in expenditures for leasehold improvements is partially offset by increased investments in demonstration equipment and equipment on lease during the current fiscal year. FINANCIAL CONDITION Cash and cash equivalents and short-term investments See discussion above for analysis of movement of cash and cash equivalents and short-term investments during the nine-months ended December 31, 2003. Inventories As compared with March 31, 2003, inventories have decreased $2.9 million. This decrease is primarily attributable to charges taken during the third quarter of fiscal 2004 associated with the rationalization of inventories around the IMET technology as a result of our product standardization plan announced in November 2003. Capital assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) Capital assets at December 31, 2003 decreased $1.7 million as compared with March 31, 2003. This is the result of a combination of amortization during the period as well as write-offs of leasehold improvements totalling $1.2 million associated with our facilities rationalization program announced in November 2003. These decreases have been partially offset by additions of capital assets of $3.2 million primarily for expenditures on demonstration equipment and HES systems on lease. Accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. As compared to March 31, 2003 accounts payable and accrued liabilities have decreased by $1.0 million to $14.2 million. This decrease is primarily attributable to cash expenditures for previously accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. costs pertaining to equipment built and shipped in the fourth quarter of fiscal 2003 as well as funds expended ex·pend tr.v. ex·pend·ed, ex·pend·ing, ex·pends 1. To lay out; spend: expending tax revenues on government operations. See Synonyms at spend. 2. to pay off accounts payable and accrued liabilities of Vandenborre which existed at the time of acquisition. These decreases are partially offset by accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. totalling $5.0 million related to our synergies, product standardization and cost reduction plans announced in November 2003. BUSINESS RISKS Operating and financial risks and risk management strategies are detailed on pages 19 to 27 in the Management's Discussion and Analysis ("MD&A") included in the Company's 2003 Annual Report. ACCOUNTING STANDARDS IMPLEMENTED IN 2003 Effective April 1, 2003, the Company implemented the new Canadian New Canadian Noun Canad a recent immigrant to Canada Accounting Guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. 14 -"Disclosure of Guarantees" issued by the Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. . This guideline requires the Company to disclose significant information about guarantees it has provided without regard to the likelihood that the Company will have to make any payment under those guarantees. See financial statement Note 4. Effective April 1, 2003, the Company adopted the new recommendations of the CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) with respect to stock-based compensation and other stock-based payments on a prospective basis. See financial statement Note 1(a). OUTLOOK Stuart Energy expects continued annual revenue growth with stronger performance in the industrial market and the emergence of additional early stage hydrogen vehicle A hydrogen vehicle is a vehicle that uses hydrogen as its on-board fuel for motive power. The term may refer to a personal transportation vehicle, such as an automobile, or any other vehicle that use hydrogen in a similar fashion, such as an aircraft. fueling projects. During the quarter, Stuart Energy continued to move ahead with plans to improve sales margins and reduce costs. This includes ongoing standardization of the HES product line around the IMET stack technology.
STUART ENERGY SYSTEMS CORPORATION
Unaudited Consolidated Balance Sheets
December 31, 2003 and March 31, 2003
(in thousands of dollars)
December 31, March 31,
2003 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,785 $ 2,988
Short-term investments 37,523 63,303
Accounts receivable 4,297 4,931
Income taxes receivable 51 138
Inventories 5,795 8,680
Prepaid expenses 769 380
Current portion of notes receivable 50 50
---------------------------------------------------------------------
53,270 80,470
Notes receivable 818 50
Capital assets 12,201 13,909
Intangible assets 17,739 18,510
Goodwill 11,305 11,097
Other 79 898
---------------------------------------------------------------------
$ 95,412 $ 124,934
---------------------------------------------------------------------
---------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 14,172 $ 15,160
Customer deposits 3,533 3,013
Income taxes payable - 8
---------------------------------------------------------------------
17,705 18,181
Shareholders' Equity:
Share capital 195,350 195,349
Cumulative foreign currency
translation adjustment 217 (155)
Contributed surplus 215 -
Deficit (118,075) (88,441)
---------------------------------------------------------------------
77,707 106,753
$ 95,412 $ 124,934
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(Signed) Jon Slangerup (Signed) Douglas S. Alexander
Director Director
STUART ENERGY SYSTEMS CORPORATION
Unaudited Consolidated Statements of Operations
Three Months and Nine Months ended December 31, 2003 and 2002
(in thousands of dollars except loss per share)
Three Months Ended Nine Months Ended
December 31 December 31
2003 2002 2003 2002
---------------------------------------------------------------------
---------------------------------------------------------------------
Product sales and
service revenue $ 5,180 $ 2,574 $ 12,074 $ 3,627
Cost of revenue
and expenses:
Cost of product sales
and service 5,514 4,196 14,716 8,087
Retrofit costs - - - 1,500
Research and product
development (433) 3,248 3,857 9,133
General and administrative 2,976 2,451 9,883 7,273
Restructuring charge 9,828 - 9,828 -
Amortization 1,839 911 4,999 2,063
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19,724 10,806 43,283 28,056
Loss before undernoted (14,544) (8,232) (31,209) (24,429)
Investment and
other income 190 893 1,578 1,811
---------------------------------------------------------------------
Loss before income taxes (14,354) (7,339) (29,631) (22,618)
---------------------------------------------------------------------
Income taxes
Current - (21) 3 6
Future - - - -
---------------------------------------------------------------------
(21) 6
Net loss $ (14,354) $ (7,318) $ (29,634) $ (22,624)
---------------------------------------------------------------------
Basic and diluted net
loss per share $ (0.51) $ (0.35) $ (1.05) $ (1.09)
---------------------------------------------------------------------
Weighted average number
of common shares
outstanding 28,228,166 20,829,717 28,216,951 20,799,564
---------------------------------------------------------------------
STUART ENERGY SYSTEMS CORPORATION
Unaudited Consolidated Statements of Deficit
Three Months and Nine Months ended December 31, 2003 and 2002
(in thousands of dollars)
Three Months Ended Nine Months Ended
December 31 December 31
2003 2002 2003 2002
---------------------------------------------------------------------
---------------------------------------------------------------------
Deficit, beginning of
the period $ (103,721) $ (69,690) $ (88,441) $ (54,384)
Net loss (14,354) (7,318) (29,634) (22,624)
---------------------------------------------------------------------
Deficit, end of
period $ (118,075) $ (77,008) $ (118,075) $ (77,008)
---------------------------------------------------------------------
STUART ENERGY SYSTEMS CORPORATION
Unaudited Consolidated Statements of Cash Flows
Three Months and Nine Months ended December 31, 2003 and 2002
(in thousands of dollars)
Three Months Ended Nine Months Ended
December 31 December 31
2003 2002 2003 2002
---------------------------------------------------------------------
---------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss for the period $ (14,354) $ (7,318) $ (29,634) $ (22,624)
Items not involving cash:
Loss on write-off
leasehold improvements 1,885 - 1,885 -
Stock-based compensation 72 215
Amortization of
capital assets 1,379 680 3,668 1,577
Amortization of
intangible assets 423 63 1,182 185
Amortization of deferred
product development costs - 119 - 153
Amortization of
deferred charge 37 49 149 148
Change in non-cash
operating working capital 5,931 518 2,526 (1,432)
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(4,627) (5,889) (20,009) (21,993)
Financing:
Proceeds from issuance
of common shares 1 - 1 1
Investments:
Decrease in short term
investments 6,950 10,804 25,780 33,190
Purchase of capital
assets (1,641) (3,079) (3,179) (9,132)
Patents (12) (15) (28) (291)
Proceeds from /
(Issuance of) note
receivable (405) - (768) 50
---------------------------------------------------------------------
4,892 7,710 21,805 23,817
---------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 266 1,821 1,797 1,825
Cash and cash equivalents,
beginning of period 4,519 169 2,988 165
---------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 4,785 $ 1,990 $ 4,785 $ 1,990
---------------------------------------------------------------------
Supplemental Cash flow
Information:
Interest paid $ 71 $ 21 $ 89 $ 42
Income taxes paid
(recovered), net $ (6) $ (40) $ (84) $ 42
STUART ENERGY SYSTEMS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Three and nine months ended December 31, 2003, and 2002
(in thousands of dollars)
1. Significant Accounting Policies The notes to these interim unaudited consolidated financial statements have been prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting but do not contain all of the disclosures required by generally accepted accounting principles for annual financial statements. Accordingly, these interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2003 and the notes thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. . These interim unaudited consolidated financial statements follow the same accounting policies and methods of application as the audited consolidated financial statements for the year ended March 31, 2003, except as described in Notes 1(a) and 4. (a) Stock-Based Compensation Effective April 1, 2003, the Company adopted the new recommendations of the CICA with respect to stock-based compensation and other stock-based payments on a prospective basis. The Company has a stock based compensation plan for employees and members of the Board of Directors to which it applies the fair value method of accounting. The new standard requires that compensation expense be recorded on the grant of options to employees. Options are valued using the Black-Scholes option-pricing model Black-Scholes option-pricing model A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return. and the resulting value of the options is recorded as contributed surplus over the vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period of the options. For stock options issued from April 1, 2002 through to March 31, 2003, the Company applied the settlement method of accounting, which permitted the Company to not record compensation costs on the granting of stock options to employees. The pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma disclosures of the impact on loss and loss per share of recording stock options at their fair value during this period are disclosed in note 2. 2. Share Capital As of December 31, 2003, there were 28,245,479 (March 31, 2003-28,173,359) shares outstanding. Stock Option Plan: Stock option transactions during the nine-month periods ended December 31st are summarized as follows:
2003 2002
---------------------------------------------------------------------
---------------------------------------------------------------------
Number Weighted Number Weighted
of Shares Average of Shares Average
Exercise Exercise
Price Price
---------------------------------------------------------------------
---------------------------------------------------------------------
Outstanding,
beginning of
period 2,907,150 $5.48 2,908,480 $5.36
Granted 169,500 2.97 206,500 4.19
Exercised (72,120) 0.01 (93,480) 0.01
Cancelled (154,010) 6.36 (127,770) 5.05
---------------------------------------------------------------------
Outstanding, end
of period 2,850,520 $5.43 2,893,730 $5.47
---------------------------------------------------------------------
Options exercisable,
end of period 1,908,442 $5.34 1,434,555 $4.83
---------------------------------------------------------------------
The assumed exercise of these options would not have a dilutive effect Dilutive effect Result of a transaction that decreases earnings per common share (EPS). on loss per share thereby resulting in the same weighted average number of shares outstanding at December 31, 2003 being used for purposes of calculating the basic and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of figures. The Company uses the Black-Scholes option pricing model option pricing model A mathematical formula for determining the price at which an option should trade. The model expresses the value of an option as a function of the value of the underlying asset, length of time until maturity, exercise price, yields on to estimate the fair value at the date of grant for options granted subsequent to April 1, 2002. In the third quarter of fiscal 2004, no options were granted. Options were issued in the quarters as follows:
Three months ended Three months ended
June 30, 2003 September 30, 2003
---------------------------------------------------------------------
Options granted 164,500 5,000
Weighted average fair value $2.46 $3.24
Risk free interest rate (%) 4.50% 4.64%
Expected volatility (%) 86% 86%
Expected life (in years) 5-10 10
Expected dividends nil nil
---------------------------------------------------------------------
Compensation expense of $72 ($215 for the nine months ended December 31, 2004) related to the amortization of stock options granted subsequent to March 31, 2003 has been recorded as an expense and allocated to contributed surplus during the quarter. The pro forma impact of the compensation expense related to amortization of the fair value of the stock options granted from April 1, 2002 through to March 31, 2003, is as follows;
---------------------------------------------------------------------
Three months ended Three months ended
(in thousands) December 31, 2003 December 31, 2002
---------------------------------------------------------------------
Loss attributable to common
shareholders -as reported $ (14,354) $ (7,318)
Stock-based compensation expense 113 92
Loss attributable to common
shareholders-pro forma $ (14,467) $ (7,410)
---------------------------------------------------------------------
Loss per share - as reported $ (0.51) $ (0.35)
Loss per share - pro forma $ (0.51) $ (0.36)
---------------------------------------------------------------------
Weighted average number of
shares outstanding 28,228,166 20,829,717
---------------------------------------------------------------------
Nine months ended Nine months ended
(in thousands) December 31, 2003 December 31, 2002
---------------------------------------------------------------------
Loss attributable to common
shareholders -as reported $ (29,634) $ (22,624)
Stock-based compensation expense 361 226
Loss attributable to common
shareholders-pro forma $ (29,995) $ (22,850)
---------------------------------------------------------------------
Loss per share - as reported $ (1.05) $ (1.09)
Loss per share - pro forma $ (1.06) $ (1.10)
---------------------------------------------------------------------
Weighted average number of
shares outstanding 28,216,951 20,799,564
---------------------------------------------------------------------
3. Research and product development Research and development expenses are recorded net of program funding received or receivable. For the three and nine-months ended December 31, 2003 and 2002, the following research and development expenses had been incurred and program funding received or receivable:
Three Months Nine Months
Ended Ended
December 31 December 31
2003 2002 2003 2002
---------------------------------------------------------------------
Research and product
development expenses 1,317 3,506 5,707 9,940
Research and product
development funding (1,750) (258) (1,850) (807)
---------------------------------------------------------------------
Total research and product
development expense (433) 3,248 3,857 9,133
---------------------------------------------------------------------
---------------------------------------------------------------------
4. Guarantees Effective April 1, 2003, the Company implemented Accounting Guideline 14 - "Disclosure of Guarantees", issued by the Canadian Institute of Chartered Accountants, which requires a guarantor guarantor n. a person or entity that agrees to be responsible for another's debt or performance under a contract, if the other fails to pay or perform. (See: guarantee) GUARANTOR, contracts. He who makes a guaranty. 2. to disclose in its notes to the consolidated financial statements significant information about guarantees it has provided. Under this guideline, a guarantee is defined as a contract or indemnification Indemnification Used in insurance policy agreements as to compensation for damage or loss. In the context of corporate governance, Director Indemnification uses the bylaws and/or charter to indemnify officers and directors from certain legal expenses and judgements resulting from agreement, which requires the Company to make payments (cash, financial instruments, other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. , the Company's own shares or the provision of services) to a third party contingent on Adj. 1. contingent on - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent upon, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent future events. These payments are contingent on either (i) changes in an underlying interest rate, security price, commodity price, foreign exchange rate or other variables that are related to an asset, liability or an equity security of the guaranteed party, (ii) the failure of another entity to perform under an obligating agreement or (iii) the failure of another party to pay its indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. when due (a "Guarantee"). The disclosures are required even when the likelihood of the guarantor having to make any payment under the Guarantee is remote. Standby standby Medtalk adjective Referring to the immediate availability of a certain specialist–anesthesiologist, surgeon, who can be deployed in a medical emergency. Cf Concurrent. Letters of Credit and Letters of Guarantee As at December 31, 2003, the Company has outstanding standby letters of credit and letters of guarantee issued by several financial institutions of $3,356,000 (March 31, 2003 - $3,123,000) which have various expiry dates expiry date expire n → date f d'expiration; (on label) → à utiliser avant ... expiry date expire n → Ablauftermin m extending through to August, 2005. These instruments primarily relate to obligations in connection with the terms and conditions of the Company's sales contracts Sales Contract Contract between a seller and buyer for the sale of goods, services, or both. . The standby letters of credit and letters of guarantee may be drawn upon by the customer if the Company fails to perform its obligations under the sales contracts and the Company would be liable to the financial institution for the amount of the standby letter of credit Standby Letter of Credit A stipulation that states a letter of credit will be called back if the payer defaults. Notes: A letter of credit is typically used in international transactions. or letter of guarantee in the event that the instruments are drawn upon by the customer. Leased Premises The Company has outstanding letters of credit issued by a financial institution in the amount of $900,000 and $100,000 related to a lease agreement for premises. These letters of credit expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. in July, 2004 and November, 2011, respectively The letters of credit may be drawn upon by the lessor One who rents real property or Personal Property to another. A lessor of land is a landlord. Cross-references Landlord and Tenant. lessor n. the owner of real property who rents it to a lessee pursuant to a written lease. if the Company fails to pay amounts as they become due in connection with the lease agreement and the Company would be liable to the financial institution for the amount of the letter of credit in the event that the instruments are drawn upon by the lessor. Indemnification Provisions The Company from time to time enters into agreements in the normal course of its business, such as service arrangements and leases, and in connection with business or asset acquisitions or dispositions. These agreements by their nature may provide for indemnification of counterparties Counterparties The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position. . These indemnification provisions may be in connection with breach of representations and warranties and for future claims for certain liabilities. The terms of these indemnification provisions vary in duration and can extend for an unlimited period of time. Given the nature of these indemnification provisions, the Company is unable to reasonably estimate its total maximum potential liability as certain indemnification provisions do not provide for a maximum potential amount and the amounts are dependent on the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, the Company has not made any significant payments in connection with these indemnification provisions 5. Segment Information As a result of the acquisition of Vandenborre in February 2003, the Company now considers the Stuart Energy Group and the Vandenborre Group to be separate reportable operating segments. The Vandenborre Group operations encompass the operations of Vandenborre Technologies and the Stuart Energy Group operations encompass all other operations of the Company, including corporate activities.
Three-months ended Vandenborre Stuart Energy Inter-segment Total
December 31, 2003 Group Group
---------------------------------------------------------------------
Total revenue from
external customers $ 3,094 $ 2,116 $ (30) $5,180
Segment loss (1,751) (12,603) (14,354)
Amortization of capital 703 1,136 1,839
assets and intangibles
Additions to capital
assets 278 1,363 1,641
---------------------------------------------------------------------
Nine-months ended Vandenborre Stuart Energy Inter-segment Total
December 31, 2003 Group Group
---------------------------------------------------------------------
Total revenue from
external customers $ 9,860 $ 4,287 $ (2,073) $ 12,074
Segment loss (4,431) (25,200) (29,631)
Amortization of capital
assets and intangibles 1,806 3,193 4,999
Additions to capital
assets 1,119 2,060 3,179
Segment assets 41,003 54,409 95,412
---------------------------------------------------------------------
Segment loss is defined as loss before income taxes.
Summarized product sales and service revenue by geographic region as
determined by location of the customers is as follows:
Three Months Ended Nine Months Ended
December 31 December 31
2003 2002 2003 2002
---------------------------------------------------------------------
Belgium $ 626 $ - $ 812 $ -
Egypt 602 - 604 -
India 694 - 694 402
Spain 821 - 2,007 -
Sri Lanka 629 - 629 -
Sweden 1,139 1 1,563 1
Turkey 9 497 10 514
United States 98 1,790 417 2,103
Other 562 286 5,338 607
---------------------------------------------------------------------
$ 5,180 $ 2,574 $ 12,074 $ 3,627
---------------------------------------------------------------------
---------------------------------------------------------------------
6. Comparative figures: Certain fiscal 2003 figures have been reclassified to conform with the method of financial statement presentation adopted in fiscal 2004. 7. Subsequent event: On February 12, 2004, the Company issued 7,000,000 common shares at $3.00 through a public offering. |
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