2003 and the year in Fuel Cell Investing

2003 and the year in Fuel Cell Investing.

(This review is adopted by permission from David Redstone's H2FC.COM, a source of breaking news and analysis in the hydrogen and fuel cell investment sector):

The following reviews some of the major news items from 2003. It was a year that saw expected consolidations as well as unexpectedly rising equity valuations by the year's end--starting from a notably lower base at the year's start.

1/12/03 Hydrogenics acquires Greenlight Power, its strongest competitor in the fuel cell test equipment market, for US$2.25 million and 4,328,018 Hydrogenics' common shares. Strongly consolidates HYGS's position as the world leader in the test equipment market. Greenlight continues as an operating subsidiary of HYGS.

2/28/03 Stuart Energy completes acquisition of Belgium Based Vandennbore Technologies for ~CDN $9.5 million in cash and 7.3 million common shares of Stuart. The deal gets Stuart some critical technology (the ability to produce H2 with some pressure directly from an alkaline electrolyzer) and greatly extends Stuart's marketing capabilities in Europe. Vandennbore becomes Chairman of Stuart on 9/24/03.

3/30/03 Plug Power acquires H Power for $47.3 million worth of PLUG common stock. Note the ~$50M in cash HPOW had left from 'go-go' IPO days. HPOW (PEM FCs) dismantled, no longer an operating entity.

7/27/03 Avista Sells Majority Stake in Avista Labs. The former parent, Avista Corporation (NW Utility), retains 19.9 percent ownership of the new entity, AVLB Inc., which continues to do business under the name Avista Labs.

11/9/03 FuelCell Energy completes acquisition of Global Thermoelectric after outbidding Quantum. Total value of the transaction ~US$80 million. FCEL (works in high temperature FCs) diversifies itself into SOFCs, Global pays some costs of transaction and integration.

12/14/03 Proton Energy (PEM FCs) and Northern Power Systems (an alternative energy project contractor) become subsidiaries of newly formed Distributed Energy Systems Corp. (NASDAQ: DESC).

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

Winter 2004

Additional notes from Josh Landess, Director of Index Research:

1. MHTX: Trading in MHTX over 2003 became essentially moribund. The symbol is still part of the index, but we may remove it. At this point, it is nearly-zero anyway. This experience reflects real-world investing in the sense that sometimes you invest in a stock that goes bad. Then: what do you do? And, at that point, does it matter? Since the purpose of the index is not to "do well" or to try to pick "the best" stocks, but rather to reflect the present state of fuel cell investing, both good and bad, for folks committed to trying to find a way to gauge the course of the sector, the story of MHTX has made its own contribution to the Index's course. I want to add that I have met at least one person who had committed a decent amount of their portfolio to MHTX and I had also made an effort a couple of years ago to convey to their public relations firm that it would be nice if the company would cease their many-different world-beating technology claims (always a bad sign in my view.... to claim so much) and focus on doing real business in one or two areas. For all I know, the company did make an effort (I haven't followed it that closely) but for whatever reason the story seems perhaps nearly over.

2. AVA is to be removed, due to the lessening of their involvement with fuel cells, and ASRNF.OB will be added. This addition (Astris) has long been involved in developing fuel cell technology; next, they must advance in areas of its commercial expertise, manufacturing, business model, and generating steady profits. Theirs is a common story within this sector.

3. As long as I am writing this, under contemplation for years have been the potential removal of MEOH and SYNM, not because they are irrelevant to the fuel cell sector (both companies in their own ways are trying to make fuels for fuel cells) but in each case because they may not in part be consistent with the "moralistic" (for want of a better term) or “green investing” side of some folks' fuel cell investment intentions. SYNM is a petroleum-industry effort to synthesize fuels, and MEOH takes a fossil fuel (natural gas) and makes methanol (on many folks' list of potential fuel cell fuels) and other chemicals... some of which are arguably pretty nasty. They are also a force behind MTBE which had malign environmental effects on water supplies in some areas.

But the fact is both companies (particularly MEOH... which is involved in fuel cell efforts) are arguably relevant to the future course of a wider fuel-cell-economy—is itself significant. We are trying to be consistent and steady, essentially mirroring a virtual portfolio reflecting a buy-and-hold philosophy, and I do not believe we should drop these stocks because some arguments can be made against them. Opinions to the contrary may be expressed to myself or Dr. Wilder.

4. We get a lot of questions about "Where can I invest in a fuel cell mutual fund or indexed portfolio"? Clearly, the answer still is "nowhere" (although there is a somewhat related Nuveen product—that offering is not a pure H2 fuel cell play). We expect that should equities within this sector outperform—then a mutual fund company might make such a “green” fund available in the future perhaps as a volatile & higher-risk offering within a large family of funds—and we will provide updates as matters progress. Whether the market capitalization of the underlying equities grows, will be an important factor in deciding the question.

5. To answer a lot of questions in advance, there is a website that's been devoted full time for years to following this sector: thus a reader could do a lot worse than bookmarking www.h2fc.com as a top bookmark in thinking about companies or just following goings-on of the sector. There are many other excellent places on the web to obtain knowledge about this sector—technical, financial and other areas: we have listed these and are proud to be a public-service and a portal that brings all this information together. In the latest news, our new clean energy solar/hydrogen home demonstration project reflects this commitment to the public interest and bringing about a brighter future. We will post information on this exciting project, and updates on it as well.