In January 2005, the 5kW Solid Oxide Fuel Cell (SOFC) system that FCT is installing at commercial demonstration sites throughout 2005 successfully passed all tests at FCT's facilities. This system features important improvements over the systems installed at customer sites in 2003.

FCT shipped four systems in the first quarter 2005. In March, FCT installed the first residential fuel cell system at the Canadian Centre for Housing Technology (CCHT) in Ottawa as part of a joint project with Natural Resources Canada.

The second system was shipped to the Federal University Itajuba in Brazil. This, the first such system tested in South America, is expected to lead to further opportunities on that continent.

National Research Council's Institute for Fuel Cell Innovation (NRC-IFCI) in Vancouver received the third system. This system will provide electricity to power a ground source heat pump providing climate control to the new NRC- IFCI building. The co-generated waste heat will be utilized for building services. Initially, the system will operate on natural gas and NRC-IFCI will also run the system on methanol.

The fourth shipment was a Balance of Plant (BOP) system delivered to Siemens Westinghouse Power Corporation (SWPC) to test their new High Power Density (HPD) cells, which when incorporated into FCT's systems will allow for significant cost reduction.

On January 12, 2005, FCT announced the signing of a Memorandum of Understanding (MOU) regarding the design, development and manufacture of a 2-3kW SOFC system with TOTO Ltd., Kitakyusyu-City, Japan. Under the terms of the MOU, FCT anticipates that it will design and build a small SOFC system for residential markets using tubular cell stacks supplied by TOTO. Japanese and European markets in particular are expected to require a small system to complement FCT's existing 5kW product utilizing SWPC tubular cell stacks.

Subsequent Events

On April 12, 2005 FCT announced that it engaged Fraser Mackenzie Limited, CIBC World Markets Inc. and Sprott Securities Inc. as agents, on a "best efforts basis" in connection with a proposed private placement of units. Each Unit is expected to be comprised of one Common Share and one-half of one Common Share Purchase Warrant. Each Warrant is expected to have a term of two years. The price and number of Units will be determined at a later date. The proposed financing transaction is subject to regulatory approval.

The net proceeds of the proposed offering will be primarily used to fund commercialization of FCT's 5kW systems. This includes ongoing product improvements, increased production volumes and cost reduction. The proceeds will also be used to further strengthen the sales and production groups, adding staff as required by sales and delivery schedules. Part of the proceeds (approximately 20%) may be used to enhance FCT's product portfolio as opportunities present themselves.

Summary of Financial Results

Total revenue increased 145% year over year for the first quarter 2005 to $619,179 compared to $253,108 for the same period in 2004. The majority of the revenue ($538,201) was from the shipment of systems. Income from research contracts amounted to $50,977. FCT's earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter 2005 was negative $948,859 compared to an EBITDA of negative $976,240 for the first quarter 2004.

Cash and cash equivalents continued as FCT's single largest balance sheet item, with a balance of $2,941,320 as of March 31, 2005, compared to $6,544,235 at the end of the first quarter 2004.

Expenses in the first quarter 2005 totaled $1,023,307 compared to $1,267,875 in the first quarter 2004, a 19% decrease in expenses. This decrease is primarily due to a 48% decrease in research and development spending of $308,157. Capital expenditures totaled $64,386 during the quarter ended March 31, 2005, and net cash utilization increased 19% to $368,742 per month from $311,231 per month in the first quarter 2004. Over the course of the year FCT management continues to envisage a cash utilization rate in the range of $250-300,000 per month.

About FCT

Over the past decade, FCT has designed and built custom fuel cell power systems. Fuel cell systems are the future of power generation because of their environmental benefits and high efficiency. FCT's SOFC systems are designed to operate on a variety of readily available fuels and provide a highly efficient, environmentally friendly method to produce on-site electricity and heat that can be used in a variety of remote, commercial, industrial and residential applications. FCT is now delivering to customers around the world.