22.11.02

22.11.2002: Meldung: Stuart Energy Systems Second Quarter Report

Dear Shareholders,
I would like to provide an update of our progress and review our financial results for the second quarter ended September 30, 2002.

There are profound changes happening in the world around us as people increasingly become focused on issues of climate change, energy supply and personal security. The debate surrounding the Kyoto Accord is raising awareness of not only the environmental and economic benefits of a hydrogen economy, but also on the solutions and systems that are available today.

Strong leadership being demonstrated by industry and government alike is progressing the viability of these hydrogen-based solutions. For instance, the Canadian Federal Government has reaffirmed its commitment to the Kyoto Accord; California has signed a law to regulate vehicular greenhouse gas emissions; and, Honda, Toyota and Ford have all announced or significantly advanced the timeframes for their hydrogen vehicle programs.
During the quarter, we successfully ran the alpha prototype Hydrogen Back-up Power System (H(2)BPS) in our Mississauga facility achieving the second of three milestones in our six-year project with Cheung Kong Infrastructure Holding Ltd. (CKI) of Hong Kong. The system produced hydrogen, which was stored in high-pressure composite tanks before being regenerated into electricity. The electricity generated was sufficient to power a small commercial building.
Through this relationship, we are targeting the commercial backup power market in Hong Kong and Asia Pacific. The completion of this milestone demonstrates the significant progress we have made integrating the alpha system and the value of our strategic partner approach to this market. The alpha prototype phase of the project will also help to establish the codes and standards required to pave the way for installation of the beta prototype in Hong Kong by the end of fiscal 2003. Initial orders for these systems are expected in the later part of fiscal 2004.
The H(2)BPS system is designed as an emission-free replacement for polluting diesel generators currently used to supply backup power to large buildings in many of the world"s major cities. The system consists of three components: a hydrogen electrolyser, storage and generator set powered by a hydrogen internal combustion engine. Hydrogen is produced with off-peak, low-cost electricity - in the event of a power failure, the system converts hydrogen back into electricity to provide power for critical building systems such as elevators, lighting, fire control and other essential systems.
We also announced, during this quarter, that we have entered into a Strategic Alliance Agreement with Hamilton Sundstrand Space Systems International Inc., a division of United Technologies Corp., to jointly develop and market PEM-based integrated hydrogen generation products for industrial, power and transportation uses. We believe this agreement uniquely positions Stuart Energy with access to both PEM and alkaline electrolyser technologies, which also enhances the opportunity to accelerate the development and commercialization of hydrogen infrastructure products.
Also during the quarter, we were awarded a U.S. patent for intelligent hydrogen fueling station technology. This patent grants Stuart Energy exclusive rights to develop and market on-site electrolysis-based hydrogen fuel stations, including PEM and alkaline, where information is exchanged between system components and the user. For example, intelligent information exchange ranges from use of a "smart card" to initiate a fuel purchase to the control of production or supply of hydrogen throughout the fuelling system, including dispensing. These capabilities are critical to provide fuel station users with a convenient and familiar experience. With this patent, we have strengthened our position as an infrastructure leader and our attractiveness as an infrastructure partner. This patent increases our portfolio to a total of 16 patents granted and 118 patent applications on file in key global markets.
The construction and operational upgrades to our Mississauga manufacturing facility continue to progress and will be completed on schedule by the end of the third quarter. In addition to increasing production capacity, the facility also provides product development capabilities and laboratory facilities for material, component and system characterization and long-term testing. These product development and prototyping areas are currently staffed and utilized on a daily basis.
During the past quarter, we completed the implementation of our modular assembly approach, which involved minor product design modifications as well as streamlining the assembly processes. We anticipate, these advancements to lead to further decreases in lead-time. We are also progressing with the implementation of the enterprise resource planning system (ERP) and plan to launch the manufacturing component in December. To date, we have launched the finance, distribution, purchasing and inventory control components. With the addition of the manufacturing module, the company-wide computer information system will provide comprehensive financial and operating data on a real-time basis.
As previously announced, shipments of components related to the retrofit program are scheduled to be substantially completed by the end of the third quarter. During this quarter, we are taking an additional $1.5 million charge for the completion of this retrofit program due to higher than expected associated manufacturing costs.
The net loss for the quarter was $8.8 million or ($0.42) per share compared to $3.6 million or ($0.17) per share for the same quarter of fiscal 2002. As at September 30, 2002, the Company had cash and short-term investments of $99.3 million compared to $110.2 million at June 30, 2002 and $121.6 million at March 31, 2002. We anticipate the expenditures related to the capital investment in manufacturing facilities, implementation of our computer information system and the retrofit program to be substantially completed by the end of the 2003 fiscal year.
Our progress and financial results are consistent with the business plan we established at the end of fiscal 2002. We intend to maintain our leadership position in the emerging hydrogen economy by delivering products based of a comprehensive understanding of our markets coupled with a formalized commercialisation process.
I look forward to providing you with further updates.
Best Regards,

Jon Slangerup
President and CEO



MANAGEMENT"S DISCUSSION AND ANALYSIS OF OPERATING RESULTS

Second Quarter (July 1, 2002 through September 30, 2002)
Fiscal Year Ending March 31, 2003

This discussion and analysis covers our interim consolidated financial statements for the three and six month periods ended September 30, 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 in the second quarter of fiscal 2003 decreased by $3.7 million or 72% to $1.5 million as compared to the same quarter for fiscal 2002. For the six-month period ended September 30, 2002, total revenue decreased $6.0 million or 70% to $2.5 million as compared to the same period in the previous fiscal year.
Revenue from product sales and service in the second quarter of fiscal 2003 was $0.4 million compared to $1.6 million in the second quarter of fiscal 2002. For the six-month period ended September 30, 2002, revenue from product sales and service was $1.1 million compared to $2.8 million in the same period during the previous fiscal year. This decrease is primarily attributable to a downturn in key industrial target markets that began during the last fiscal year and has continued into the current fiscal year. We believe this downturn has adversely impacted market demand for our large industrial products. Our industrial products have a long sales lead-time with a cycle that exceeds six months. This leads to variations in product revenue from quarter to quarter.
Revenue from research and product development funding in the second quarter of fiscal 2003 was $0.3 million compared to $0.6 million in the second quarter of fiscal 2002. For the six- month period ended September 30, 2002, revenue from research and product development funding was $0.5 million compared to $1.2 million in the same period during the previous fiscal year. These decreases are the result of a combination of the completion of several government funding agreements during the latter half of fiscal 2002, as well as the fact a significant portion of the current research and product development effort is directed toward commercial product development and as such does not necessarily qualify for reimbursement under our current research and product development funding agreements.
The investment and other income component of total revenue decreased to $0.9 million in the second quarter of fiscal 2003 from $3.0 million in the second quarter of fiscal 2002. For the six-month period ended September 30, 2002 investment and other income was $0.9 million compared to $4.6 million in the same period during the previous fiscal year. These results primarily reflect lower average balances of cash and short-term investments as well as lower interest rates for these investments. For the three-month period ended September 30, 2001,we experienced significant positive changes in market values of the short-term investment instruments that were held as interest rates fell in Canada during that period. For the three-month period ended September 30, 2002, a combination of stable interest rates and lower cash balances provided lower investment returns on the short-term investments that were held as compared to the same period in fiscal 2002. For the six-month period ended September 30, 2002, a combination of lower cash balances and a decline in the market value of the short-term investments that were held due to the impact of an increase in interest rates that occurred in April 2002 has led to lower investment and other income as compared to the same period in fiscal 2002.
Cost of product sales and service
Cost of product sales and service in the second quarter of fiscal 2003 was $1.2 million compared to $1.9 million in the second quarter of fiscal 2002. For the six-month period ended September 30, 2002, cost of product sales and service was $1.8 million compared to $3.3 million in the six-month period ended September 30, 2001. These decreases are primarily attributable to decreased product sales and service revenue noted above. Further, the Company has made a charge to cost of product sales and service in anticipation of a loss on a contract that is in progress. This charge is required as a result of unanticipated increases in manufacturing costs to meet our new quality objectives under the retrofit program. The cost of product sales and service also reflects the overhead charges related to the expansion of manufacturing facilities made to meet the anticipated increase in volume associated with our Letter of Intent with Cheung Kong Infrastructure Holdings Ltd. for hydrogen back-up power systems.
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 quarter of fiscal 2003, we made significant progress in the manufacture of replacement components covered under this program. However, in doing so, we have determined that as a result of unanticipated increases in manufacturing costs required to meet our new quality objectives, an additional charge of $1.5 million has been taken in order to complete the program.
Research and product development
The investment in research and product development was $4.2 million in the second quarter ended September 30, 2002 compared to $4.5 in the second quarter ended September 30, 2001. For the six-month period ended September 30, 2002, the investment in research and product development was $7.7 million compared to $8.3 million in the six-month period ended September 30, 2001. These decreases are primarily the result of a more focused approach to the Company"s research and product development efforts in accordance with anticipated market requirements.
General and administrative
General and administrative expenditures for the second quarter of fiscal 2003 were $2.7 million compared to $2.0 million in the second quarter of fiscal 2002. For the six-month period ended September 30, 2002, general and administrative expenditures were $5.7 million compared to $3.5 million during the six-month period ended September 30, 2001. These increases are primarily attributable to increased personnel costs as compared with the three and six- month periods ended September 30, 2001. The increase in personnel costs is associated with strengthening our management team as well as expanding our manufacturing and operational capabilities.
Amortization
The charge for amortization for the second quarter of fiscal 2003 was $0.7 million compared to $0.3 million during the second quarter of fiscal 2002. For the six-month period ended September 30, 2002, the charge for amortization was $1.2 million compared to $0.5 million during the six-month period ended September 30, 2001. These increases reflect additional amortization taken on investments made in equipment and facility improvements associated with the expansion of our manufacturing, research and product development and testing capabilities in Ontario.
Net Loss
The net loss for the second quarter of fiscal 2003 was $8.8 million, an increase of $5.3 million as compared with the second quarter of fiscal 2002. For the six-month period ended September 30, 2002, the net loss was $15.3 million, an increase of $8.0 million as compared with the six-month period ended September 30, 2001. These increases are primarily the result of changes in revenue, retrofit costs and general and administrative costs noted above.
CASH FLOWS
Cash and cash equivalents and short-term investment balances were $99.3 million, down 10% from $110.2 million at June 30, 2002 and down 18% from $121.6 million at March 31, 2002. This is compared to cash and cash equivalents and short-term investments on hand at September 30, 2001 of $133.7 million down 3% from $138.0 million at June 30, 2001 and down 8% from $145.4 million at March 31, 2001.
The current quarter and year to date increase in net cash outflows from operations of $3.8 million and $7.6 million are primarily the result of decreased revenues, higher general and administrative expenditures and the current quarter retrofit charge as noted in our analysis of our Results of Operations.
Outflows of cash and cash equivalents from investing activities excluding movement in short-term investments were $4.2 million for the quarter ended September 30, 2002 and $6.3 million for the six-month period then ended. This compares to net expenditures of $1.4 million for the quarter ended September 30, 2001 and $3.2 million for the six-month period then ended. The current quarter and year to date increase in net cash flows from investing activities is primarily attributable to funds invested in leasehold improvements and equipment required to continue to develop our operations, research, product development and testing capabilities. These expenditures were not being incurred during the three and six- month periods ended September 30, 2001.
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, 2002.
Accounts receivable
Accounts receivable at September 30, 2002 decreased to $3.2 million from $3.9 million at March 31, 2002. This decrease is primarily the result of decreased government funding and product sales and service during the six- month period ended September 30, 2002.
Inventories
As compared to March 31, 2002, inventories have increased to $4.7 million from $2.0 million at March 31, 2002. This is primarily attributable to an increase in raw materials and component parts on hand of $1.6 million required to complete delivery in October of two significant projects covered under our retrofit program as well as an increase of $1.1 million in work in progress as the Company progressed on several additional projects during the six-month period ended September 30, 2002.
Capital assets
Capital assets at September 30, 2002 increased to $10.0 million compared to $4.9 million at March 31, 2002. This increase is primarily attributable to planned capital expenditures for equipment and facility improvements associated with the expansion of our manufacturing, research and product development and testing capabilities in Ontario.
Accounts payable and accrued liabilities
As compared to March 31, 2002, accounts payable and accrued liabilities have decreased by $1.3 million to $10.7 million at September 30, 2002. This decrease is primarily attributable to cash expenditures for previously accrued costs pertaining to our retrofit program, severance arrangements and short- term consulting contracts completed in fiscal 2002, offset by an additional charge of $1.5 million for our retrofit program.
Customer deposits
As compared to March 31, 2002, customer deposits have increased by $1.3 million to $1.8 million at September 30, 2002. This increase is attributable to an increase in the number of customer orders in progress as compared with March 31, 2002.
OUTLOOK
Throughout the first half of fiscal 2003, we have focused our resources on progressing further on the expansion of our manufacturing capabilities, the implementation of our Company-wide computer information system and the delivery of product covered under our retrofit program. Aggregate expenditures incurred to date during fiscal 2003 for these projects were approximately $7.0 million. We anticipate that expenditures related to these three items will be substantially completed by the end of the 2003 fiscal year. In the second half of fiscal 2003, we plan to focus on the completion of the above projects as well as the delivery of the Beta unit of the hydrogen back-up power system in Hong Kong as part of our letter of intent with Cheung Kong Infrastructure Holdings Ltd.
STUART ENERGY SYSTEMS CORPORATION
Consolidated Balance Sheet

September 30, 2002 and March 31, 2002
(in thousands of dollars)
September 30, March 31,
2002 2002

(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 169 $ 165
Short-term investments 99,094 121,480
Accounts receivable 3,177 3,873
Income taxes receivable 157 102
Inventories 4,659 2,015
Prepaid expenses 299 344
Current portion of notes receivable 50 50
----------- -----------
107,605 128,029

Notes receivable 527 577
Capital assets 10,023 4,867
Intangible assets 2,061 1,907
Other 1,184 1,317

----------- -----------
$ 121,400 $ 136,697
----------- -----------
----------- -----------

Liabilities and Shareholders" Equity
Current liabilities:
Accounts payable and accrued liabilities $ 10,679 $ 11,940
Customer deposits 1,752 483
----------- -----------
12,431 12,423

Shareholders" equity:
Share capital (note 3) 178,659 178,658
Deficit (69,690) (54,384)
----------- -----------
108,969 124,274

----------- -----------
$ 121,400 $ 136,697
----------- -----------

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



STUART ENERGY SYSTEMS CORPORATION
Consolidated Statement of Operations

Three Months and Six Months ended September 30, 2002 and 2001
(in thousands of dollars except loss per share)
Unaudited Three Months Ended Six Months Ended
September 30 September 30
2002 2001 2002 2001
-------------------------------------------------------------------------

Revenue:
Product sales and service $ 357 $ 1,633 $ 1,053 $ 2,759
Research and product
development funding 261 587 549 1,166
Investment and other
income 862 3,004 918 4,589
----------------------- -----------------------
1,480 5,224 2,520 8,514

Cost of revenue and
expenses:
Cost of product sales
and service 1,172 1,904 1,844 3,335
Retrofit costs 1,500 - 1,500 -
Research and product
development 4,209 4,543 7,651 8,308
General and
administrative 2,738 1,989 5,652 3,481
Amortization 696 276 1,152 505
----------------------- -----------------------
10,315 8,712 17,799 15,629

Loss before income taxes (8,835) (3,488) (15,279) (7,115)
----------------------- -----------------------
----------------------- -----------------------

Income taxes
Current - - 27 20
Future - 93 - 186
----------------------- -----------------------
- 93 27 206

Net loss $ (8,835) $ (3,581) $ (15,306) $ (7,321)
----------------------- -----------------------
----------------------- -----------------------

Basic and diluted net
loss per share $ (0.42) $ (0.17) $ (0.74) $ (0.36)
----------------------- -----------------------
----------------------- -----------------------
Weighted average number
of common shares
outstanding 20,800,088 20,464,434 20,784,404 20,403,412
----------------------- -----------------------



STUART ENERGY SYSTEMS CORPORATION
Consolidated Statement of Retained Earnings (Deficit)

Three Months and Six Months ended September 30, 2002 and 2001
(in thousands of dollars)
Unaudited Three Months Ended Six Months Ended
September 30 September 30
2002 2001 2002 2001
-------------------------------------------------------------------------

Deficit, beginning of
the period $ (60,855) $ (29,161) $ (54,384) $ (25,421)
----------------------- -----------------------
----------------------- -----------------------

Net loss (8,835) (3,581) (15,306) (7,321)

----------------------- -----------------------

Deficit, end of period $ (69,690) $ (32,742) $ (69,690) $ (32,742)
----------------------- -----------------------
----------------------- -----------------------



STUART ENERGY SYSTEMS CORPORATION
Consolidated Statement of Cash Flows


Three Months and Six Months ended September 30, 2002 and 2001
(in thousands of dollars)
Unaudited Three Months Ended Six Months Ended
September 30 September 30
2002 2001 2002 2001
-------------------------------------------------------------------------

Deficit, beginning of
the period $ (60,855) $ (29,161) $ (54,384) $ (25,421)

Cash provided by
(used in):

Operations
Loss for the period $ (8,835) $ (3,581) $ (15,306) $ (7,321)
Items not involving
cash:
Amortization of
capital assets 569 185 897 318
Amortization of
intangible assets 61 57 122 119
Amortization of
deferred product
development costs 16 34 34 68
Amortization of
deferred charge 50 - 99 -
Future income taxes - 93 - 186
Change in non-cash
operating working
capital 1,358 277 (1,950) (1,843)
----------------------- -----------------------
(6,781) (2,935) (16,104) (8,473)

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

Investing:
Decrease in short term
investments 10,125 3,394 22,386 9,895
Proceeds from collection
of note receivable - - 50 -
Funds advanced under
note receivable - (150) - (150)
Purchase of capital
assets (4,138) (1,184) (6,053) (2,958)
Patents (66) (51) (276) (75)
----------------------- -----------------------
5,921 2,009 16,107 6,712

----------------------- -----------------------
Increase (decrease) in
cash and cash
equivalents (859) (926) 4 (1,760)

Cash and cash equivalents,
beginning of the period 1,028 1,250 165 2,084
----------------------- -----------------------

Cash and cash equivalents,
end of the period $ 169 $ 324 $ 169 $ 324
----------------------- -----------------------
----------------------- -----------------------



STUART ENERGY SYSTEMS CORPORATION
Notes to the Consolidated Financial Statements

Three and six months ended September 30, 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 six months ended September 30, 2001, there would be no effect on
net loss.

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 September 30, 2002, there were 20,808,607 (March 31, 2002-
20,740,847) shares outstanding.

Stock Option Plan:

Stock option transactions during the six-month periods ended
September 30th 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 173,000 4.50 972,500 6.98
Exercised (67,760) 0.01 (104,120) 0.01
Cancelled (119,117) 5.15 (40,540) 5.52
----------- -----------

Outstanding, end of
period 2,894,603 $5.45 2,715,800 $5.27

----------- -----------
Options exercisable,
end of period 1,308,219 $4.88 953,460 $4.83

----------- -----------

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 September 30, 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 second quarter of fiscal 2003, 100,000 options
with a weighted average fair value of $2.90 were granted to employees
and valued using the following weighted average assumptions;

September 30, 2002
---------------------------------------------------------------------
Risk free interest rate (%) 4.89%
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 six months
ended September 30, 2002 would be as follows:

(in thousands) Three months Six months
ended ended
---------------------------------------------------------------------
$ 169 $ 324
Loss attributable to common shareholders
- as reported $ 8,835 $ 15,306
Stock-based compensation expense 83 134
Loss attributable to common shareholders
- pro forma $ 8,918 $ 15,440
Loss per share - as reported $ 0.42 $ 0.74
Loss per share - pro forma 0.43 0.74
---------------------------------------------------------------------

Weighted average number of shares
outstanding 20,800,088 20,784,404
---------------------------------------------------------------------


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 Six Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
India $ 1 $ 1,146 $ 402 $ 1,146
Turkey 11 5 17 786
United States 191 175 313 264
Other 154 307 321 563
----------------------- -----------------------
$ 357 $ 1,633 $ 1,053 $ 2,759
----------------------- -----------------------
----------------------- -----------------------

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 Six Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
Canada $ 50 $ 382 $ 271 $ 755
United States 211 205 278 411
----------------------- -----------------------
$ 261 $ 587 $ 549 $ 1,166
----------------------- -----------------------
----------------------- -----------------------

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.

For further information
Stuart Energy Media and Public Relations, Wanda Cutler, (905) 282-7769
Madelaine Duke, (604) 742-4258
Stuart Energy Investor Relations, Robert McGillivray, (905) 282-7727
Nach oben scrollen
ECOreporter Journalistenpreise
Anmelden
x