20.02.03

20.2.2003: Meldung: Stuart Energy Third Quarter Fiscal 2003 Results

Stuart Energy Systems Corporation (TSX: HHO - News) today announced its consolidated financial results for the third quarter ended December 31, 2002.

Revenue from product sales and service for the third quarter was $2.6 million compared to $0.8 million in the same quarter of the previous year, an increase of 218%. Of the $2.6 million, $1.7 million was generated from hydrogen fuel station sales. The net loss for the quarter was $7.3 million or $0.35 per share compared to $7.9 million or $0.38 per share for the same quarter of fiscal 2002. As of December 31, 2002, the Company had cash and short-term investments of $90.3 million compared to $99.3 million at September 30, 2002 and $121.6 million at March 31, 2002.

During the quarter, Stuart Energy announced that it entered into an agreement to acquire Vandenborre Technologies NV, a privately owned Belgian company, which operates under the name Vandenborre Hydrogen Systems. Vandenborre Technologies is the industry leader in the design, manufacture and sale of pressurized hydrogen generation systems based on advanced alkaline water electrolysis. The acquisition of Vandenborre Technologies is consistent with Stuart Energy"s previously expressed commitment to develop, partner or acquire technology and product solutions that satisfy market requirements and advance the Company"s strategy for global growth.

"This was an exciting quarter for Stuart Energy on all fronts," commented Jon Slangerup, President and CEO of Stuart Energy. "Our sales revenues have increased substantially led by very strong results in the transportation sector. In addition, our decision to acquire Vandenborre Technologies was well received by both the capital markets and customers alike. Vandenborre"s pressurized alkaline cell stack technology is an excellent strategic fit with our own technology portfolio and significantly advances our product development program. In addition to technical synergies, Vandenborre Technologies also has the leading market position in Europe through extensive sales channels, including with leading major merchant gas companies, and strong brand recognition. These compelling attributes complement our strength in North America and Asia. This acquisition will position Stuart Energy with leading-edge hydrogen generation technologies and will enable the development of the next generation of intelligent hydrogen energy stations for the global market."

A special meeting of shareholders will be held on February 25, 2003 at the TSX Conference Centre to approve the transaction valued at approximately CDN $9.9 million in cash and 7.3 million common shares of Stuart Energy. Subject to the satisfaction of all closing conditions, including shareholder approval, the acquisition is expected to close on February 28, 2003.

During the quarter, Stuart Energy continued to demonstrate its leadership in the transportation sector by partnering with Toyota Motor Sales U.S.A. to provide on-site hydrogen fueling infrastructure in support of Toyota"s new fuel cell vehicle program. Toyota purchased a Stuart Energy fueling station, which was installed at their U.S. headquarters in Torrance, California - their first on-site hydrogen fueling station.

Also during the quarter, Stuart Energy installed a patented intelligent hydrogen fueling station to support the fuel cell vehicles of the members of the California Fuel Cell Partnership (CaFCP) - the first time the CaFCP will use water electrolysis to generate hydrogen fuel on-site for its vehicles. The station is located in the community of Richmond, California at the Richmond Operating Division of AC Transit, an associate member of the CaFCP. This installation allows CaFCP vehicles much greater driving range from their home base in Sacramento and easy access to the San Francisco Bay Area.

"Strategically, California is an important market for us and we are very focused on providing hydrogen infrastructure to support the early rollout of hydrogen vehicles," said Mr. Slangerup. "President Bush"s recent State of the Union address highlighted the future role of hydrogen in addressing the issues of energy security and the environment. Our hydrogen fueling stations currently operating in California and elsewhere in the United States illustrate that we have the infrastructure solution today."

Also, Stuart Energy completed a significant milestone with strategic partner Hamilton Sundstrand Space Systems International, Inc., a business unit of United Technologies Corp., with the unveiling of a jointly developed prototype hydrogen fueling system at the EVAA Electric Transportation Industry conference in Florida. The prototype system uses water and electricity to produce pure hydrogen for vehicle fueling and power applications. The prototype fueling system is based on Hamilton Sundstrand"s proton exchange membrane (PEM) water electrolysis technology, which Stuart Energy integrated into a fully packaged system. The system is a modular design that incorporates an integrated hydrogen dispenser, compact design and newly developed packaging. The prototype is designed to deliver 1/2 kg of high purity hydrogen per hour at 5,000psi.

During the third quarter, Stuart Energy completed construction of its research and laboratory, product development and manufacturing areas of its Mississauga facility and completed the implementation of Phase II of its company-wide enterprise resource planning system. In addition, the shipment of the replacement components associated with the retrofit program was substantially completed on schedule during the third quarter.

Conference Call

A conference call will be held on Wednesday, February 19, 2003 at 10:00 am (ET) to discuss the Company"s consolidated financial results for the third quarter ended December 31, 2002.

To access the conference call, participants may call 416-640-4127 or 1- 888-881-4892 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 or Real Player be installed prior to the call.

Please confirm your availability with Suzanne DuPerrouzel at Stuart Energy, (905) 282-7700 ext 7780. A taped rebroadcast will be available by calling 416-640-1917 or 1-877-289-8525 (Passcode 237239 No. ) until March 5, 2003 at midnight. An archived webcast will be available for approximately three months at Stuart Energy"s website.

About Stuart Energy

Stuart Energy Systems Corporation (TSX: HHO - News) is a 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, which are based on certain assumptions and reflect management"s current expectations as contemplated under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act 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; 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 from time to time. We disclaim 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 OF OPERATING RESULTS

Third Quarter (October 1, 2002 through December 31, 2002)
Fiscal Year Ending March 31, 2003


This discussion and analysis covers our interim consolidated financial statements for the three and nine-month periods ended December 31, 2002. As well, it provides an update to the discussion and analysis contained in our 2002 Annual Report. This discussion and analysis should be read in conjunction with the "Management"s Discussion and Analysis" and the annual audited financial statements contained in our 2002 Annual Report.
RESULTS FROM OPERATIONS

Revenue

Total revenue for the third quarter of fiscal 2003 was $3.7 million, an increase of $0.9 million or 33% compared to the same period last year. Year-to- date revenue was $6.2 million, a decrease of $5.1 million or 45% from the same period of the previous year.

Revenue from product sales and service in the third quarter of fiscal 2003 was $2.6 million, an increase of $1.8 million or 218% compared to the third quarter of fiscal 2002. This increase is primarily attributable to additional hydrogen fuel station sales of $1.7 million. For the nine-month period ended December 31, 2002, revenue from product sales and service was $3.6 million, of which 47% was from transportation sales, 25% was from industrial sales and 28% was from after-market sales and service. For the nine- month period ended December 31, 2001, revenue from product sales and service was $3.6 million, of which 86% was from industrial sales and 14% was from after-market sales and service.

Revenue from research and product development funding in the third quarter of fiscal 2003 was $0.3 million compared to $0.2 million in the third quarter of fiscal 2002. For the nine-month period ended December 31, 2002, revenue from research and product development funding was $0.8 million compared to $1.3 million in the same period of the previous fiscal year. The decrease in research and product development funding for the nine-month period ended December 31, 2002 compared with the same period in the previous fiscal year is due to the completion of several government funding agreements during the latter half of fiscal 2002. A large portion of the total research and product development effort is currently directed towards new commercialisation programs. Of these programs, a smaller portion is subject to reimbursement under the scope of existing funding agreements.

Investment and other income decreased to $0.9 million in the third quarter of fiscal 2003 from $1.8 million in the third quarter of fiscal 2002. For the three-month period ended December 31, 2002, a combination of low, stable interest rates and lower cash balances provided lower returns on short- term investments compared to the same period in the previous year. For the three-month period ended December 31, 2001, a combination of falling interest rates, leading to positive changes in market values, and higher cash balances provided higher investment returns for the short-term investments. For the nine-month period ended December 31, 2002, the Company realized lower investment income compared to the same period in the previous year. This occurred as a result of lower cash and short-term investment balances in conjunction with a decline in the market value of the short-term investments due to an increase in market interest rates.

Cost of product sales and service

Cost of product sales and service in the third quarter of fiscal 2003 was $3.0 million compared to $2.9 million in the third quarter of fiscal 2002. The cost of product sales and service as a percentage of sales, decreased to 118% in the third quarter of fiscal 2003 from 360% in the third quarter of 2002. In the same period of the previous fiscal year, there was a charge to cost of product sales and service related to the cancellation of a project resulting in a high cost of product sales and service as a percentage of sales for that period. For the nine-month period ended December 31, 2002, cost of product sales and service was $4.9 million compared to $6.3 million in the nine-month period ended December 31, 2001. Cost of product sales and service as a percentage of sales has decreased to 135% in the nine-month period ended December 31, 2002 from 175% in the same period in the preceding year, which included the cost of the cancelled project included above. The decrease also reflects manufacturing process improvement efforts including the introduction of a modular build strategy and the streamlining of shop floor assembly processes.

Retrofit costs

During the fourth quarter of fiscal 2002, we incurred a charge of $6.0 million associated with the retrofit of certain components of previously delivered hydrogen generation systems. Throughout the second and third quarters of fiscal 2003, we made significant progress in the manufacture of replacement components covered under this program. In the second quarter of 2003, we determined that, as a result of unanticipated increases in component manufacturing costs required to meet our new quality objectives, an additional charge of $1.5 million was required to complete the program. This additional charge is included in the cost of revenue and expenses for the nine-month period ended December 31, 2002.

Research and product development

The investment in research and product development was $4.0 million in the third quarter of fiscal 2003 compared to $4.6 million in the third quarter of fiscal 2002. For the nine-month period ended December 31, 2002, the investment in research and product development was $11.6 million compared to $12.9 million in the same period of the previous year. These decreases are primarily the result of a more focused approach to the Company"s research and product development efforts. The scope of research and product development efforts has been limited to meet specifically identified market requirements.

General and administrative

General and administrative expenditures for the third quarter of fiscal 2003 were $3.1 million compared to $2.8 million in the third quarter of fiscal 2002. For the nine-month period ended December 31, 2002, general and administrative expenditures were $8.8 million compared to $6.3 million during the nine-month period ended December 31, 2001. These increases are primarily attributable to a 19% increase in personnel costs and a 70% increase in facility costs offset by a 69% decrease in professional services costs. The increases are associated with strengthening our management team as well as expanding our manufacturing and operational capabilities. The decrease in professional services costs is primarily attributable to costs incurred during fiscal 2002 associated with introducing new product management and product line delivery processes and improved quality management processes.

Amortization

The charge for amortization for the third quarter of fiscal 2003 was $0.9 million compared to $0.3 million during the third quarter of fiscal 2002. For the nine-month period ended December 31, 2002, the charge for amortization was $2.1 million compared to $0.8 million during the nine-month period ended December 31, 2001. These amortization increases primarily reflect additional investments made in equipment and facilities associated with the expansion of our manufacturing, research and product development and testing capabilities in Ontario.

Net Loss

The net loss for the third quarter of fiscal 2003 was $7.3 million, a decrease of $0.6 million as compared with the third quarter of fiscal 2002. This decrease is primarily the result of increased product sales and service revenue noted above. For the nine-month period ended December 31, 2002, the net loss was $22.6 million, an increase of $7.4 million as compared with the nine-month period ended December 31, 2001. This increase is primarily the result of changes in investment and other income, retrofit costs and general and administrative costs noted above.

CASH FLOWS

Cash and cash equivalents and short-term investment balances were $90.3 million, down 9% from $99.3 million at September 30, 2002 and down 26% from $121.6 million at March 31, 2002. This is compared to cash and cash equivalents and short-term investments on hand at December 31, 2001 of $130.4 million, down 2.5% from $133.7 million at September 30, 2001 and down 10% from $145.4 million at March 31, 2001.

Compared to the third quarter of fiscal 2002, there has been a minimal change in net cash outflows from operations. The year-to-date increase in net cash outflows from operations of $7.7 million is primarily the result of decreased investment and other income of $4.6 million, increased retrofit costs of $1.5 million and increased general and administrative costs of $2.5 million. These additional outflows are offset by decreased cost of sales and service of $1.4 million.

Outflows of cash and cash equivalents from investing activities excluding movement in short-term investments were $3.1 million and $9.4 million for the three and nine-month periods ended December 31, 2002. This compares to net cash inflows of $2.2 million and net cash outflows of $1.0 million for the three and nine-month periods of the previous fiscal year. The current quarter and year-to-date increase in net cash outflows from investing activities is primarily attributable to year-to-date expenditures related to: leasehold improvements of $5.8 million; the company-wide enterprise resource planning system of $1.1 million; and demonstration equipment and equipment on lease of $1.9 million.


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, 2002.


Accounts receivable
Accounts receivable at December 31, 2002 decreased to $3.3 million from $3.9 million at March 31, 2002. This decrease is primarily the result of the receipt of increased progress payments on equipment sold throughout the quarter as compared with the end of the prior fiscal year.

Inventories

As compared to March 31, 2002, inventories have increased from $2.0 million to $3.4 million at December 31, 2002. This is primarily attributable to an increase in raw materials and component parts on hand of $1.4 million. This inventory will be used in production of orders scheduled for shipment during the fourth quarter.

Capital assets

Capital assets at December 31, 2002 increased to $12.4 million compared to $4.9 million at March 31, 2002. This increase is primarily attributable to capital expenditures of $5.8 million for facility improvements associated with the expansion of our manufacturing, research and product development and testing capabilities in Ontario. Investments in capital assets also include approximately $1.9 million in demonstration equipment and fueling products on lease and approximately $1.1 million of expenditures related to the company- wide enterprise resource planning system. These additions have been partially offset by amortization taken on these investments.

Accounts payable and accrued liabilities

As compared to March 31, 2002, accounts payable and accrued liabilities have decreased by $0.8 million to $11.1 million at December 31, 2002. This decrease is primarily attributable to cash expenditures for previously accrued costs pertaining to our retrofit program offset by investments in inventories and capital assets.

Customer deposits

As compared with March 31, 2002, customer deposits have increased by approximately $0.4 million to $0.9 million at December 31, 2002. This increase is attributable to an increase in the number of customer orders in progress at December 31, 2002 as compared with March 31, 2002.

OUTLOOK

During this past quarter, we completed the expansion of our manufacturing capabilities and implementation of Phase II of our company-wide enterprise resource planning system and substantially completed the delivery of replacement components associated with our previously announced retrofit program. We continue to be on schedule to achieve the initial customer acceptance of the beta unit of the hydrogen back-up power system as part of our letter of intent with Cheung Kong Infrastructure Holdings. In addition, we are working with the management of Vandenborre Technologies to finalize a detailed integration plan to be implemented following the expected closing of the acquisition of Vandenborre Technologies on February 28, 2003. We expect the cash consideration, acquisition expenses and initial integration costs associated with the Vandenborre Technologies acquisition to be incurred in the fourth quarter.


STUART ENERGY SYSTEMS CORPORATION
Consolidated Balance Sheet


December 31, 2002 and March 31, 2002
(in thousands of dollars)
December 31, March 31,
2002 2002
-------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,990 $ 165
Short-term investments 88,290 121,480
Accounts receivable 3,284 3,873
Income taxes receivable 138 102
Inventories 3,446 2,015
Prepaid expenses 491 344
Current portion of notes receivable 50 50
-----------------------------
97,689 128,029

Notes receivable 527 577
Capital assets 12,422 4,867
Intangible assets 2,013 1,907
Other 1,016 1,317

-----------------------------
$ 113,667 $ 136,697
-----------------------------
-----------------------------

Liabilities and Shareholders" Equity
Current liabilities:
Accounts payable and accrued liabilities $ 11,130 $ 11,940
Customer deposits 886 483
-----------------------------
12,016 12,423

Shareholders" equity:
Share capital (note 3) 178,659 178,658
Deficit (77,008) (54,384)
-----------------------------
101,651 124,274

-----------------------------
See accompanying notes to unaudited
consolidated financial statements. $ 113,667 $ 136,697
-----------------------------


(signed) (signed)
Jon Slangerup Kelly T. Grindle
Director Director



STUART ENERGY SYSTEMS CORPORATION
Consolidated Statement of Operations


Three Months and Nine Months ended December 31, 2002 and 2001
(in thousands of dollars except loss per share)

Unaudited
Three Months Ended Nine Months Ended
December 31 December 31
2002 2001 2002 2001
-------------------------------------------------------------------------

Revenue:
Product sales
and service $ 2,574 $ 810 $ 3,627 $ 3,569
Research and product
development funding 258 166 807 1,336
Investment and
other income 893 1,825 1,811 6,410
----------------------- -----------------------
3,725 2,801 6,245 11,315

Cost of revenue
and expenses:
Cost of product sales
and service 3,048 2,916 4,892 6,251
Retrofit costs - - 1,500 -
Research and product
development 3,962 4,556 11,613 12,864
General and administrative 3,143 2,839 8,795 6,320
Amortization 911 309 2,063 814
----------------------- -----------------------
11,064 10,620 28,863 26,249

Loss before income taxes (7,339) (7,819) (22,618) (14,934)
----------------------- -----------------------
----------------------- -----------------------

Income taxes
Current (21) 20 6 40
Future - 93 - 279
----------------------- -----------------------
(21) 113 6 319

Loss for the period $ (7,318) $ (7,932) $ (22,624) $ (15,253)
----------------------- -----------------------
----------------------- -----------------------

Basic and diluted
loss per share $ (0.35) $ (0.38) $ (1.09) $ (0.74)
----------------------- -----------------------
----------------------- -----------------------
Weighted average number
of common shares
outstanding 20,829,717 20,665,656 20,799,564 20,491,145
----------------------- -----------------------

See accompanying notes to unaudited consolidated financial statements.



STUART ENERGY SYSTEMS CORPORATION

Consolidated Statement of Retained Earnings (Deficit)

Three Months and Nine Months ended December 31, 2002 and 2001
(in thousands of dollars)

Unaudited
Three Months Ended Nine Months Ended
December 31 December 31
2002 2001 2002 2001
-------------------------------------------------------------------------

Deficit, beginning
of the period $ (69,690) $ (32,742) $ (54,384) $ (25,421)

Loss for the period (7,318) (7,932) (22,624) (15,253)
----------------------- -----------------------

Deficit, end of period $ (77,008) $ (40,674) $ (77,008) $ (40,674)
----------------------- -----------------------
----------------------- -----------------------

See accompanying notes to unaudited consolidated financial statements.



STUART ENERGY SYSTEMS CORPORATION
Consolidated Statement of Cash Flows

Three Months and Nine Months ended December 31, 2002 and 2001
(in thousands of dollars)

Unaudited
Three Months Ended Nine Months Ended
December 31 December 31
2002 2001 2002 2001
-------------------------------------------------------------------------
Cash provided by (used in):

Operations
Loss for the period $ (7,318) $ (7,932) $ (22,624) $ (15,253)
Items not involving cash:
Amortization of
capital assets 680 192 1,577 510
Amortization of
intangible assets 63 67 185 186
Amortization of
deferred product
development costs 119 34 153 102
Amortization of
deferred charge 49 16 148 16
Gain on disposal of
investment in affiliate - (30) - (30)
Future income taxes - 93 - 279
Change in non-cash
operating working
capital 518 1,744 (1,432) (99)
----------------------- -----------------------
(5,889) (5,816) (21,993) (14,289)

Financing:
Net proceeds from
issuance of common
shares - 267 1 268
----------------------- -----------------------
- 267 1 268

Investing:
Decrease in short term
investments 10,804 4,308 33,190 14,203
Proceeds from collection
of note receivable - - 50 -
Proceeds received from
sale lease-back
arrangement - 3,938 - 3,938
Proceeds received on
disposal of investment
in affiliate - 49 - 49
Funds advanced under
note receivable - - - (150)
Purchase of capital
assets (3,079) (1,633) (9,132) (4,591)
Patents (15) (169) (291) (244)
----------------------- -----------------------
7,710 6,493 23,817 13,205

----------------------- -----------------------
Increase (decrease) in
cash and cash equivalents 1,821 944 1,825 (816)

Cash and cash equivalents,
beginning of the period 169 324 165 2,084
----------------------- -----------------------

Cash and cash equivalents,
end of the period $ 1,990 $ 1,268 $ 1,990 $ 1,268
----------------------- -----------------------
----------------------- -----------------------

See accompanying notes to unaudited consolidated financial statements.



STUART ENERGY SYSTEMS CORPORATION
Notes to the Consolidated Financial Statements

Three and nine months ended December 31, 2002 and 2001
(in thousands of dollars)

Unaudited

1. Significant Accounting Policies

The notes to these interim consolidated financial statements have
been prepared in accordance with Canadian generally accepted
accounting principles but do not contain all of the disclosures
required by generally accepted accounting principles for annual
financial statements. Accordingly, these interim consolidated
financial statements should be read in conjunction with the
consolidated financial statements for the year ended March 31, 2002
and the notes thereto.

These interim consolidated financial statements follow the same
accounting policies and methods of application as the consolidated
financial statements for the year ended March 31, 2002, except as
described in Note 2.

2. Changes in Accounting Policies

a. Goodwill and other intangible assets

Effective April 1, 2002, the Company has prospectively changed its
method of accounting for goodwill and other intangible assets as
required by the Canadian Institute of Chartered Accountants ("CICA").
The Company had no goodwill or intangible assets with indefinite
useful lives as at April 1, 2002. Under the new policy, intangible
assets with estimable useful lives, continue to be amortized over
their respective useful lives to their estimated residual values and
are reviewed for impairment by assessing recoverability of the
carrying value. Had the new policy been applied in the three months
and nine months ended December 31, 2001, there would be no effect on
the loss reported for the periods.

b. Stock-based compensation

In 2001, the CICA issued a new accounting standard related to the
recognition, measurement and disclosure of stock-based compensation
and other stock-based payments which is effective for the Company"s
fiscal year commencing April 1, 2002. The Company"s current
accounting policies as disclosed in the consolidated financial
statements are consistent with the new standard with the exception of
stock options granted to non-employees which must be accounted for
under the fair value based method for grants on or after April 1,
2002. The new standard permits the Company to continue its existing
policy of recording no compensation expense on the grant of stock
options to employees. However, the new standard requires disclosure
of pro forma net earnings and earnings per share as if the Company
had accounted for stock options granted using the fair value method
and recorded the resulting compensation expense. The adoption of the
new standard had no impact on opening deficit.

3. Share Capital

As of December 31, 2002, there were 20,834,327 (March 31, 2002-
20,740,847) shares outstanding.

Stock Option Plan:

Stock option transactions during the nine-month periods ended
December 31st are summarized as follows:

2002 2001
----------------------- -----------------------
Number Weighted Number Weighted
of Shares Average of Shares Average
Exercise Exercise
Price Price
----------------------- -----------------------

Outstanding, beginning of
period 2,908,480 $5.36 1,887,960 $3.97
Granted 206,500 4.19 1,206,000 6.71
Exercised (93,480) 0.01 (192,240) 1.63
Cancelled (127,770) 5.05 (104,980) 5.24
----------- -----------

Outstanding, end of period 2,893,730 $5.47 2,796,740 $5.26

----------- -----------
Options exercisable,
end of period 1,434,555 $4.83 983,960 $4.73
----------- -----------

The assumed exercise of these options would not have a dilutive
effect on loss per share thereby resulting in the same weighted
average number of shares outstanding at December 31, 2002 being used
for purposes of calculating the basic and diluted earnings per share
figures.

The Company uses the Black-Scholes option pricing model to estimate
the fair value at the date of grant for options granted subsequent to
April 1, 2002. In the third quarter of fiscal 2003, 33,500 options
with a weighted average fair value of $2.23 were granted to employees
and valued using the following weighted average assumptions;

December 31, 2002
------------------------------------------------------------------
Risk free interest rate (%) 4.88%
Expected volatility (%) 84%
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 nine months
ended December 31, 2002 would be as follows:


(In thousands of dollars except Three months Nine months
per share amounts) ended ended
---------------------------------------------------------------------
Loss attributable to common
shareholders - as reported $ 7,318 $ 22,624
Stock-based compensation expense $ 92 $ 226
Loss attributable to common
shareholders-pro forma $ 7,410 $ 22,850
Loss per share - as reported $ 0.35 $ 1.09
---------------------------------------------------------------------
Loss per share - pro forma 0.36 1.10

Weighted average number of
shares outstanding 20,829,717 20,799,564
---------------------------------------------------------------------

4. Segmented Information

Management has determined that the Company operates in one segment
which is the development and sale of electrolytic hydrogen equipment
and hydrogen services.

Summarized net 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
2002 2001 2002 2001
---- ---- ---- ----
India $ - $ - $ 402 $ 1,146
Italy - 566 - 566
Turkey 497 10 514 796
United States 1,790 71 2,103 335
Other 287 163 608 726
-------------------- --------------------
$ 2,574 $ 810 $ 3,627 $ 3,569
-------------------- --------------------
-------------------- --------------------

Summarized research and product development funding revenue by
geographic region as determined by the location of the funding agency
is as follows:

Three Months Ended Nine Months Ended
December 31 December 31
2002 2001 2002 2001
---- ---- ---- ----
Canada $ 119 $ 103 $ 390 $ 858
United States 139 63 417 478
-------------------- --------------------
$ 258 $ 166 $ 807 $ 1,336
-------------------- --------------------
-------------------- --------------------

Substantially all of the capital assets are located in Canada.

5. Comparative Figures:

Certain fiscal 2002 figures have been reclassified to conform with
the method of financial statement presentation adopted in fiscal
2003.

6. Acquisition of Vandenborre Technologies N.V.

On December 23, 2002, the Company entered into a share purchase
agreement to acquire all of the issued and outstanding shares of
Vandenborre Technologies N.V. Under the agreement, consideration for
the purchase consists of US $6,390,118 of cash and the issuance of
7,322,672 of the Company"s common shares. The issuance of the common
shares is subject to shareholder approval. Assuming that shareholder
approval is obtained and other closing conditions are fulfilled, the
closing of the acquisition is expected to take place on February 28,
2003.


For further information:
Stuart Energy Media and Public Relations: Wanda Cutler, (905) 282-7769, wcutler@stuartenergy.com
Madelaine Duke, (604) 742-4258, mduke@hoggan.com
Stuart Energy Investor Relations: Robert McGillivray, (905) 282-7727, rmcgillivray@stuartenergy.com
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