Stuart Energy Announces Results for Quarter Ended September 30, 2003.Business Editors TORONTO--(BUSINESS WIRE)--Nov. 10, 2003 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 second quarter ended September September: see month. 30, 2003. Total sales revenue for the quarter increased to $3.8 million, a significant improvement from $357,000 in the second quarter of fiscal 2003, and a 26% increase from $3.0 million in the first quarter of fiscal 2004. Sales of Hydrogen Energy Station (HES) products for vehicle fueling and power generation systems generated $2.3 million in revenue, representing 60% of the total sales revenue for the current quarter. The balance of the revenue was derived from the sale of industrial HES products and after market sales and support. "This is our fourth consecutive quarter of record sales revenue," commented 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. "In the first half of fiscal 2004 we have achieved sales revenue of $6.9 million, already outstripping total sales revenue for all of fiscal 2003. Enhanced by the acquisition of Vandenborre Technologies in February February: see month. 2003, the strength of our sales revenue performance in the first half of the year is consistent with our commitment to achieve triple-digit revenue growth for this fiscal year." The net loss for the second quarter was $7.9 million or $0.28 per share compared to $8.8 million or $0.42 per share for the same quarter of fiscal 2003, representing an 11% improvement. Cost of product sales and service in the second quarter exceeded revenue by $2.1 million. This compares to $1.7 million in the same quarter of last year, which had significantly lower revenue. Net cash outflows were $7.3 million during the second quarter, a 34% improvement from $11.0 million in the same period a year ago, and a 27% improvement from $10 million in the previous quarter of this year. On September 30, 2003, the Company had cash, cash equivalents and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has on hand of $49.0 million. "At the start of this fiscal year, we set an aggressive cash utilization target of approximately $23 million, which represents a 50% reduction over last year's cash utilization, excluding the Vandenborre acquisition. We have been successful in reducing cash utilization from $22.4 million in the first half of last fiscal year to $17.3 million during the first half of this year, although we are a larger organization today because of the acquisition. However, in the second quarter, we realized lower than expected sales margins combined with increased working capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. , which caused us to exceed our planned cash utilization for the first half of the year. While we are making significant progress and expect to continue such improvements in the second half, it is unlikely that we will achieve our cash utilization objective for this year," commented Mr. Slangerup. The Company has taken steps that have improved cash utilization during the second quarter including reduced capital expenditures and overhead costs overhead costs see fixed costs. in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . Also, during the second half of the fiscal year, the Company plans to implement additional cost reduction measures, including strategic sourcing, 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 and further reductions in operating and overhead costs. Hydrogen Energy Station Update In mid-August Noun 1. mid-August - the middle part of August period, period of time, time period - an amount of time; "a time period of 30 years"; "hastened the period of time of his recovery"; "Picasso's blue period" , most of Ontario Ontario, city, United States Ontario, city (1990 pop. 133,179), San Bernardino co., S Calif., near Los Angeles, in a region of vineyards; inc. 1891. and large parts of northeastern United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. experienced the largest power failure in decades. As the lights went out, Stuart Energy's HESfp restored power to its critical operations within eight seconds. The system used its stored hydrogen to run the 120 kW power module that provided clean 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 to the Company's critical systems, including computer network, telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. systems, elevators, fire and security systems and emergency lighting. "The recent power outages This is a list of famous wide-scale power outages. 1965
 r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). underscore The underscore character (_) is often used to make file, field and variable names more readable when blank spaces are not allowed. For example, NOVEL_1A.DOC, FIRST_NAME and Start_Routine. (character) underscore - _, ASCII 95. the pressing need for reliable back-up power sources. Our integrated, multi-purpose HESfp addresses this need by delivering clean, secure and distributed energy," said Mr. Slangerup. The HESfp provides emission-free hydrogen for vehicle fuel and power generation. Also in the quarter, the Company delivered HESfp modules to strategic partner Cheung Kong Kong is the Danish word for king, but can also refer to the following:
CKI Cheung Kong Infrastructure Holdings Ltd (Hong Kong) CKI Chair-Keyboard Interface CKI Crypt Key Instant ) 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. . Stuart Energy and CKI continue to work with local Hong Kong authorities to establish codes and standards for hydrogen fueling and power generation, with a view to marketing HES systems in the Asia-Pacific The term Asia-Pacific generally applies to littoral East Asia, Southeast Asia and Australasia near the Pacific Ocean, plus the states in the ocean itself (Oceania). region. The establishment of hydrogen codes and standards remains a critical pacing item to the market adoption of HES products. "We continue to view the commercialization of H2ICE solutions as an important strategic accelerator accelerator: see particle accelerator. (1) A key combination such as Alt-G or Ctrl-Shift H that is used to activate a task. (2) An incubator that expects to develop the company considerably faster than normal. See incubator. to our business model and a bridge to the future of fuel cells. There is a growing global interest in H2ICE solutions, including H2ICE power generators and hybrid electric vehicles A hybrid electric vehicle (HEV) is a vehicle which combines a conventional propulsion system with an on-board rechargeable energy storage system (RESS) to achieve better fuel economy than a conventional vehicle without being hampered by range from a charging unit like an ," commented Mr. Slangerup. "These applications are becoming an early market opportunity for the Company's HES products." Also during the quarter, Stuart Energy announced the unveiling of Sweden's first hydrogen fueling station for Sydkraft, a major Northern European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. energy provider. Sydkraft purchased a Stuart Energy HESf to provide a blend of hydrogen and natural gas to the City of Malmo's bus fleet. Sydkraft currently supplies natural gas to Malmo's bus fleet. With regard to the Company's Clean Urban Transport Europe (CUTE) projects, Stuart Energy delivered 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. HESf, complete with hydrogen generation, compression, storage and dispensing dispensing provision of drugs or medicines as set out properly on a lawful prescription. A prescription can only be filled, the drugs supplied, by a registered pharmacist, veterinarian, dentist or member of the medical profession. , to 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. , 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. . To date, the Company has also delivered HES hydrogen generation modules for CUTE's 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. sites. Operations Stuart Energy has made significant progress in standardizing the HES product platform using IMET IMET international military education and training (US DoD) IMET Incident Meteorologist (NOAA) IMET Integrated Market Enforcement Team (Royal Canadian Mounted Police) (R) technology. The Company has also progressed with the implementation of its 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. (ERP (Enterprise Resource Planning) An integrated information system that serves all departments within an enterprise. Evolving out of the manufacturing industry, ERP implies the use of packaged software rather than proprietary software written by or for one customer. ) system at its 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 in support of product standardization. The ERP system will enable access to real time data for co-ordinating efficient operational and management decision making in multiple locations. "We have initiated a multi-phase product standardization plan and are on track to complete standardization of all HES modules by the end of the fourth quarter," commented Peter Wressell, Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. of Stuart Energy. "While there are front-end front-end adj. 1. Of or relating to the initial phase of a project: a front-end investment. 2. Of or relating to the forward parts of a vehicle: a front-end alignment. costs associated with product standardization around our IMET(R) technology, we believe that it is essential in reducing costs in the near term while giving us the ability to offer a wide range of product configurations." Strategic Alliances During the quarter, the Company signed a preferred supplier agreement for on-site water electrolysis electrolysis (ĭlĕktrŏl`əsĭs), passage of an electric current through a conducting solution or molten salt that is decomposed in the process. hydrogen generation equipment with Linde Gas. Linde Gas is a division of Linde AG, a world leading industrial gas supplier based in Germany. This agreement is in addition to existing preferred supplier agreements with other leading industrial gas companies: Air Products, Air Liquide
Also during the second quarter, Stuart Energy and Dynetek Industries announced the signing of a strategic alliance agreement relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the supply of Dynetek's stationary Stationary can mean:
Hydrogen storage is the main technological problem of a viable hydrogen economy. Some attention has been given to the role of hydrogen to provide grid energy storage for unpredictable energy sources, like systems for Stuart Energy's HES product line. The agreement formalizes and extends the existing relationship between the two companies, providing a strong platform for continued work on product pricing and certifications. Dynetek designs, produces and markets lightweight, advanced hydrogen storage tanks for use in vehicles and ground storage systems. Board of Directors At its recent Annual General Meeting, Stuart Energy announced changes to its Board of Directors. After co-founding Stuart Energy and serving as Chairman of the Board of Directors for 55 years, Alexander K. Stuart, retired in September. Mr. Stuart's extensive experience established him as a recognized authority on hydrogen and its applications. He has received lifetime achievement awards from both the National Hydrogen Association and the 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. Hydrogen Association, as well as the Order of Canada The Order of Canada is Canada's highest civilian honour within the Canadian system of honours, with membership awarded to those who exemplify the Order's Latin motto Desiderantes meliorem patriam, which means "(those) desiring a better country" (Hebrews 11:16). for his work as an environmentalist environmentalist a person with an interest and knowledge about the interaction of humans and animals with the environment. , hydrogen expert and exporter. Mr. Stuart has been appointed as Chairman Emeritus e·mer·i·tus adj. Retired but retaining an honorary title corresponding to that held immediately before retirement: a professor emeritus. n. pl. and will continue to provide his industry knowledge and guidance to Stuart Energy. Mr. Stuart is succeeded as Chairman by Dr. Hugo Vandenborre, founder of Vandenborre Technologies, which was acquired by Stuart Energy in February 2003. Dr. Vandenborre developed the IMET(R) cell stack, a leading edge pressurized pres·sur·ize tr.v. pres·sur·ized, pres·sur·iz·ing, pres·sur·iz·es 1. To maintain normal air pressure in (an enclosure, as an aircraft or submarine). 2. hydrogen generation technology. Dr. Vandenborre is a founding member of HYNET, the European Hydrogen Energy Thematic the·mat·ic adj. 1. Of, relating to, or being a theme: a scene of thematic importance. 2. Network. He has served on various advisory committees of the Commission of the European Union European Union (EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the European Community and in 2002 was appointed as member of the "High Level Group" to advise the European Commission European Commission, branch of the governing body of the European Union (EU) invested with executive and some legislative powers. Located in Brussels, Belgium, it was founded in 1967 when the three treaty organizations comprising what was then the European Community President, Romano Prodi, on hydrogen and fuel cells. In addition, Mr. Douglas Alexander, C.A., was elected to the Board of Directors and appointed as Chairman of the Audit Committee of the Board of Directors. Mr. Alexander has over sixteen years experience as a chief financial officer with various Canadian public companies. 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 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 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. , 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, whether as a result of new information, future events or otherwise. 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 OF OPERATING RESULTS Second Quarter (July 1, 2003 through September 30, 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 six-month periods ended September 30, 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" 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 six-month periods ending September 30, 2002 that are contained in this report. RESULTS FROM OPERATIONS Revenue Revenue in the second quarter increased by $3.5 million as compared to the same quarter for fiscal 2003. For the six-month period ended September 30, 2003, total revenue increased approximately $5.8 million to $6.9 million as compared to the same period in the previous fiscal year. Product sales and service revenue for the three and six-month periods ended September 30, 2003 can be broken down as follows:
Three Months Ended Six Months Ended
September 30 September 30
2003 2002 $Change 2003 2002 $Change
-----------------------------------------
Transportation
and power applications $2,323 $- $2,323 $3,595 $24 $3,571
Industrial applications 1,324 - 1,324 2,757 401 2,356
After market sales and service 199 357 (158) 542 628 (86)
-----------------------------------------
Total $3,846 $357 $3,489 $6,894 $1,053 $5,841
The increase in revenue from transportation and power applications in the second quarter and for the six-month period ended September 30, 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 modules to our partner Cheung Kong Infrastructure Holdings (CKI). Revenue generated from industrial applications has increased $1.3 million as compared with the second quarter of fiscal 2003 and $2.4 million as compared with the six-month period ended September 30, 2002. This increase is attributed to an improvement in our key industrial markets and an improved product portfolio. The decrease in after market sales and service during fiscal 2004 can be attributed to a softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. of demand in the market for these products and services as compared with the previous fiscal year. Cost of product sales and service Cost of product sales and service for the second quarter of fiscal 2004 was $5.9 million compared to $2.1 million in the second quarter of fiscal 2003. For the six-month period ended September 30, 2003, cost of product sales and service was $9.2 million compared to $3.9 million in the six-month period ended September 30, 2002. For the second quarter, cost of product sales and service exceeded sales revenue resulting in a direct loss on sales of $2.1 million compared to $1.7 million in the same period of the previous fiscal year. The result for the current period is attributable to a combination of competitive pricing pressure which negatively impacted the expected gross margin on two contracts entered into prior to our acquisition of Vandenborre in February 2003 as well as front-end costs incurred on these two projects associated with fitting these projects with IMET(R) technology as part of our product standardization program. Further, we encountered additional costs on our HESfp modules delivered to strategic partner Cheung Kong Infrastructure Holdings (CKI) in Hong Kong primarily as a result of the discontinuation dis·con·tin·u·a·tion n. A cessation; a discontinuance. Noun 1. discontinuation - the act of discontinuing or breaking off; an interruption (temporary or permanent) discontinuance of support by a former supplier of the gensets for the product. For the six-month period ended September 30, 2003, cost of product sales and service exceeded sales revenue resulting in a direct loss on sales of $2.3 million compared to $2.8 million in the same period of the previous fiscal year. This improvement is 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 increased revenue during the first quarter of fiscal 2004 which offset additional fixed manufacturing costs as compared with the first quarter of the previous fiscal year. Research and product development The investment in research and product development was $1.6 million in the second quarter ended September 30, 2003 compared to $3.1 million in the second quarter ended September 30, 2002. For the six-month period ended September 30, 2003, research and development expenditures were $4.3 million compared to $5.9 million in the same period of the previous fiscal year. This decrease 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 second quarter of fiscal 2004 were $3.0 million compared to $2.7 million in the second quarter of the previous fiscal year. For the six-month period ended September 30, 2003, general and administrative expenditures were $6.8 million compared to $4.8 million during the six-month period ended September 30, 2002. 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. Amortization The charge for amortization for the second quarter of fiscal 2004 was $1.5 million compared to $0.7 million during the second quarter of fiscal 2003. For the six-month period ended September 30, 2003, the charge for amortization was $3.2 million compared to $1.2 million during the six-month period ended September 30, 2002. These increases reflect additional amortization charges taken on investments in equipment and 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. 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 $0.3 million in the second quarter of fiscal 2004 from $0.9 million in the same period of the previous fiscal year. For the six-month period ended September 30, 2003, investment and other income increased to $1.4 million from $0.9 million during the six-month period ended September 30, 2002. As average balances of cash 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 have decreased as compared with the previous year, so has the income earned on these balances. However, in the first quarter of fiscal 2004, 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 six-month period ended September 30, 2003. Net loss The net loss for the second quarter of fiscal 2004 was $7.9 million, a decrease of $1.0 million as compared with the second quarter of fiscal 2003. For the six-month period ended September 30, 2003, the net loss was $15.1 million, a decrease of $0.2 million as compared with the six-month period ended September 30, 2002. These decreases are primarily the result of changes in revenue and research and product development costs noted above partially offset by increased amortization, cost of product sales and service and general and administrative expenses. CASH FLOWS Cash and cash equivalents and short-term investment balances were $49.0 million at September 30, 2003, a decrease of $7.3 million from $56.3 million at June 30, 2003 and a decrease of $17.3 million from $66.3 million at March 31, 2003. This is compared to cash and cash equivalents and short-term investments on hand at September 30, 2002 of $99.3 million a decrease of $10.9 million from $110.2 million at June 30, 2002 and a decrease of $22.3 million from $121.6 million at March 31, 2002. Net cash outflows from operations during the second quarter of fiscal 2004 are equivalent to those of the same period of the previous fiscal year. For the six-month period ended September 30, 2003, net cash outflows from operations have decreased by $0.7 million. This decrease is primarily attributable to increased cash inflows from improved accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying collections partially offset by increased outflows from payment of 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. primarily attributable to 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 per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to equipment built and shipped in the fourth quarter of fiscal 2003. Net expenditures on investing activities decreased to $0.5 million for the quarter from $4.2 million during the same period of the previous fiscal year. For the six-month period ended September 30, 2003 net expenditures on investing activities decreased to $1.9 from $6.2 million during the six-month period ended September 30, 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 throughout the balance of the previous 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 six-months ended September 30, 2003. Accounts receivable Accounts receivable at September 30, 2003 decreased to $2.0 million from $4.9 million at March 31, 2003. This decrease is primarily the result of improved collection experience on orders shipped during the period as well as increased progress payments on equipment sold. Inventories As compared with March 31, 2003, inventories have increased by $1.2 million to $9.9 million at September 30, 2003. This is primarily attributed to an increase in work in process as the Company progressed on several projects scheduled for delivery in the third and fourth quarters. Capital assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) Capital assets at September 30, 2003 decreased to $13.2 million from $13.9 million at March 31, 2003. This is the result of amortization during the period partially offset by the addition of capital assets totalling $1.5 million. Investments in capital assets during the period were primarily for expenditures on demonstration equipment and fueling products on lease and leasehold improvements in our Belgian facility. Accounts payable and accrued liabilities As compared to March 31, 2003, accounts payable and accrued liabilities have decreased by $5.3 million to $9.9 million. This decrease is primarily attributable to cash expenditures for previously accrued 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. Customer deposits At September 30, 2003, customer deposits were $3.2 million compared to $3.0 million at March 31, 2003. This increase reflects increased progress payments received for current projects in progress as compared with March 31, 2003 partially offset by deliveries of equipment during the period. 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 (see Note 4) 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. OUTLOOK Stuart Energy is committed to achieving its stated corporate milestones for the fiscal year 2004 and is focused on improving margins and revenue. However, in the second quarter, the Company realized lower than expected sales margins, which, coupled with increased working capital requirements to support higher sales, has resulted in cash utilization in excess of plan for the first half of the year. As a result, management believes that it is unlikely that the Company will achieve its cash utilization target for the year. During the quarter, Stuart Energy moved ahead with its plan to standardize stan·dard·ize v. 1. To cause to conform to a standard. 2. To evaluate by comparing with a standard. the HES product line with its IMET(R) technology. Management believes that implementation of the plan, scheduled to be complete by the end of fiscal 2004, will enable the Company to realize cost reductions and margin improvements. The Canadian and U.S. governments have increased the momentum for adoption of hydrogen as the ultimate replacement of fossil fuels fossil fuel: see energy, sources of; fuel. fossil fuel Any of a class of materials of biologic origin occurring within the Earth's crust that can be used as a source of energy. Fossil fuels include coal, petroleum, and natural gas. , and have announced significant levels of federal funding and support of hydrogen projects. Stuart Energy is actively pursuing opportunities to access this development and demonstration funding.
STUART ENERGY SYSTEMS CORPORATION
Unaudited Consolidated Balance Sheets
September 30, 2003 and March 31, 2003
(in thousands of dollars)
September 30, March 31,
2003 2003
---------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $4,519 $2,988
Short-term investments 44,473 63,303
Accounts receivable 1,976 4,931
Income taxes receivable 57 138
Inventories 9,929 8,680
Prepaid expenses 315 380
Current portion of notes receivable 50 50
-------------------
61,319 80,470
Notes receivable 413 50
Capital assets 13,158 13,909
Intangible assets 17,423 18,510
Goodwill 10,889 11,097
Other 786 898
-------------------
$103,988 $124,934
-------------------
-------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $9,910 $15,160
Customer deposits 3,218 3,013
Income taxes payable - 8
-------------------
13,128 18,181
Shareholders' Equity:
Share capital 195,349 195,349
Cumulative foreign currency translation adjustment (911) (155)
Deficit (103,578) (88,441)
-------------------
90,860 106,753
$103,988 $124, 934
-------------------
-------------------
(Signed) Jon Slangerup (Signed) Douglas S. Alexander
Director Director
STUART ENERGY SYSTEMS CORPORATION
Unaudited Consolidated Statements of Operations
Three Months and Six Months ended September 30, 2003 and 2002
(in thousands of dollars except loss per share)
Three Months Ended Six Months Ended
September 30 September 30
2003 2002 2003 2002
---------------------------------------------------------------------
Product sales
and service revenue $3,846 $357 $6,894 $1,053
Cost of revenue and expenses:
Cost of product sales
and service 5,931 2,069 9,202 3,891
Retrofit costs - 1,500 - 1,500
Research
and product development 1,602 3,078 4,290 5,885
General and administrative 2,978 2,711 6,764 4,822
Amortization 1,524 696 3,160 1,152
-------------------------------------------
12,035 10,054 23,416 17,250
Loss before undernoted (8,189) (9,697) (16,522) (16,197)
Investment and other income 333 862 1,388 918
-------------------------------------------
Loss before income taxes (7,856) (8,835) (15,134) (15,279)
-------------------------------------------
Income taxes
Current - - 3 27
Future - - - -
-------------------------------------------
- - 3 27
Net loss $(7,856) $(8,835) $(15,137) $(15,306)
-------------------------------------------
Basic and diluted net
loss per share $(0.28) $(0.42) $(0.54) $(0.74)
-------------------------------------------
Weighted average number
of common shares
outstanding 28,215,497 20,800,088 28,211,313 20,784,404
-------------------------------------------
STUART ENERGY SYSTEMS CORPORATION
Unaudited Consolidated Statements of Deficit
Three Months and Six Months ended September 30, 2003 and 2002
(in thousands of dollars)
Three Months Ended Six Months Ended
September 30 September 30
2003 2002 2003 2002
---------------------------------------------------------------------
Deficit, beginning
of the period $(95,722) $ (60,855) $(88,441) $(54,384)
Net loss (7,856) (8,835) (15,137) (15,306)
-------------------------------------------
Deficit, end of period $(103,578) $ (69,690) $(103,578) $(69,690)
-------------------------------------------
STUART ENERGY SYSTEMS CORPORATION
Unaudited Consolidated Statements of Cash Flows
Three Months and Six Months ended September 30, 2003 and 2002
(in thousands of dollars)
Three Months Ended Six Months Ended
September 30 September 30
2003 2002 2003 2002
---------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss for the period $(7,856) $(8,835) $(15,137) $(15,306)
Items not involving cash:
Amortization of capital assets 1,086 569 2,289 897
Amortization of intangible assets 382 61 759 122
Amortization of deferred product
development costs - 16 - 34
Amortization of deferred charge 56 50 112 99
Change in non-cash operating
working capital (436) 1,358 (3,405) (1,950)
-------------------------------------
(6,768) (6,781) (15,382) (16,104)
Financing:
Proceeds from issuance
of common shares - 1 - 1
Investments:
Decrease in short
term investments 9,747 10,125 18,830 22,386
Purchase of capital assets (341) (4,138) (1,538) (6,053)
Patents (1) (66) (16) (276)
Funds received (advanced)
under notes receivable, net (192) - (363) 50
-------------------------------------
9,213 5,921 16,913 16,107
-------------------------------------
Increase (decrease) in cash
and cash equivalents $2,445 $(859) $1,531 $4
Cash and cash equivalents,
beginning of period 2,074 $1,028 $2,988 $165
-------------------------------------
Cash and cash equivalents,
end of period $4,519 $169 $4,519 $169
Supplemental Cash flow Information:
Interest paid $7 $5 $ 18 $22
Income taxes paid (recovered), net $9 $(21) $ 70 $(82)
STUART ENERGY SYSTEMS CORPORATION
Notes to the Unaudited Consolidated Financial Statements
Three and six months ended September 30, 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 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 Note 4. 2. Share Capital As of September 30, 2003, there were 28,217,519 (March 31, 2003-28,173,359) shares outstanding. Stock Option Plan: Stock option transactions during the six-month periods ended September 30th are summarized as follows:
2003 2002
---------------------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
---------------------------------------
Outstanding, beginning of
period 2,907,150 $5.48 2,908,480 $5.36
Granted 169,500 2.97 173,000 4.50
Exercised (44,160) 0.01 (67,760) 0.01
Cancelled (133,010) 6.15 (119,117) 5.15
--------- ---------
Outstanding, end of period 2,899,480 $5.39 2,894,603 $5.45
--------- ---------
Options exercisable,
end of period 1,911,751 $5.27 1,308,219 $4.88
--------- ---------
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 September 30, 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 second quarter of fiscal 2004, 5,000 options with a weighted average fair value of $3.24 were granted and valued using the following weighted average assumptions;
September 30, 2003
-------------------------------------------------------
Risk free interest rate 4.64%
Expected volatility 86%
Expected life (in years) 10
Expected dividends nil
-------------------------------------------------------
The pro forma impact of the compensation expense related to the fair
value of the stock options granted during the three and six months
ended September 30 would be as follows;
---------------------------------------------------------------------
Three months ended Three months ended
(in thousands) September 30, 2003 September 30, 2002
---------------------------------------------------------------------
Loss attributable
to common shareholders -as reported $(7,856) $(8,835)
Stock-based compensation expense 189 83
Loss attributable
to common shareholders-pro forma $(8,045) $(8,918)
---------------------------------------------------------------------
Loss per share - as reported $(0.28) $(0.42)
Loss per share - pro forma $(0.29) $(0.43)
---------------------------------------------------------------------
Weighted average number
of shares outstanding 28,215,497 20,800,088
---------------------------------------------------------------------
Six months ended Six months ended
(in thousands) September 30, 2003 September 30, 2002
---------------------------------------------------------------------
Loss attributable
to common shareholders -as reported $(15,137) $(15,306)
Stock-based compensation expense 391 134
Loss attributable
to common shareholders-pro forma $(15,528) $(15,440)
---------------------------------------------------------------------
Loss per share - as reported $(0.54) $(0.74)
Loss per share - pro forma $(0.55) $(0.74)
---------------------------------------------------------------------
Weighted average number
of shares outstanding 28,211,313 20,784,404
---------------------------------------------------------------------
3. Research and product development Research and development expenses are recorded net of program funding received or receivable. For the three and six-months ended September 30, 2003 and 2002, the following research and development expenses had been incurred and program funding received or receivable:
Three Months Six Months
Ended Ended
September 30 September 30
2003 2002 2003 2002
---- ---- ---- ----
Research and product development 1,702 3,339 4,390 6,434
expenses
Research and product development funding (100) (261) (100) (549)
--------------------------
Total research
and product development expense 1,602 3,078 4,290 5,885
--------------------------
--------------------------
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 September 30, 2003, the Company has outstanding standby letters of credit and letters of guarantee issued by several financial institutions of $3,181,000 (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 October, 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 $96,000 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
September 30, 2003 Group Group
---------------------------------------------------------------------
Total revenue from
external customers $4,246 $1,643 $( 2,043) $3,846
Segment loss (995) (6,861) - (7,856)
Amortization of capital
assets and intangibles 491 1,033 - 1,524
Additions to capital assets 211 130 - 341
---------------------------------------------------------------------
Six-months ended Vandenborre Stuart Energy Inter-segment Total
September 30, 2003 Group Group
---------------------------------------------------------------------
Total revenue from
external customers $6,766 $2,171 $( 2,043) $6,894
Segment loss (2,680) (12,454) - (15,134)
Amortization of capital
assets and intangibles 1,103 2,057 - 3,160
Additions to capital assets 841 697 - 1,538
Segment assets 37,667 66,321 - 103,988
---------------------------------------------------------------------
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 Six Months Ended
September 30 September 30
2003 2002 2003 2002
---- ---- ---- ----
China $72 $- $749 $-
Hong Kong 914 - 934 -
India - 1 1 402
Portugal 804 - 804 -
Spain - - 1,199 -
United States 198 191 319 313
Other 1,858 165 2,888 338
---------------- ---------------
$3,846 $357 $6,894 $1,053
---------------- ---------------
---------------- ---------------
6. Comparative figures: Certain fiscal 2003 figures have been reclassified to conform with the method of financial statement presentation adopted in fiscal 2004. |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion