Operations Highlights

The third quarter brought new sales for FCT's solid oxide fuel cell (SOFC) systems, including the signing of a contract with BP Shipping Ltd. for a 5kW SOFC system in September. BP Shipping will use the system on board one of its liquid natural gas (LNG) tankers to demonstrate the use of SOFC systems to power auxiliary shipboard applications. The SOFC system will be fueled by the LNG "boil-off" to generate electricity more efficiently than the traditional steam boilers currently employed on board the tanker. Sales in the third quarter included a Balance of Plant (BOP) system to Siemens who will use the BOP to supply an FCT 5 kW SOFC system to one of their customers for use in a combined heat and power application with the option to buy more over the course of this year and the next. As of June this year FCT has signed contracts totaling $1.2 million for systems to be delivered by year end.

On the technology front, FCT's 5kW combined heat and power SOFC system received CSA International approval and was certified to the ANSI / CSA America FC1-2004 standard. This allows the system to be installed in residences in the US without the need for special permits, and may facilitate certification in Europe and the rest of the world. Development continued on fuel choices for FCT's 5kW SOFC. The company has started testing a 5kW SOFC system modified to run on methanol. As a fuel methanol provides many advantages for remote locations as it is easily available and can be stored indoors safely without the need for pressurized storage containers.

Product improvement continues based on feedback being received from installations. The high operating temperature is causing distortion in some components and more robust replacements are currently undergoing testing at the company's facilities. Systems in inventory will be retrofitted with these changes with the objective of ensuring maintenance free operation at customer sites.

The delivery of systems to the Hydrogen Village Project at the University of Toronto at Mississauga (UTM) originally planned for August this year did not occur in the third quarter as the annex at UTM was not complete. This, coupled with other issues, has caused a build-up of inventory on the balance sheet. The inventory of finished systems, while not desirable, has afforded management the opportunity to reprioritize the delivery schedule to accommodate immediate delivery to high value contracts.

Management continues to meet with existing and potential investors with the objective of raising additional capital to fund the business as the 5kW system transitions to a commercial product. The focus currently however remains on minimizing cash utilization without impeding the progress of the business. Several licensing and/or partnering opportunities are also being explored in parallel with these efforts.

Summary of Financial Results

Total revenue for the three months ended September 30, 2005 decreased 7% to $231,414 compared to $249,644 for the same period in 2004. Although revenue for the quarter is down from the third quarter 2004, the majority (86%) of 2005 revenues have resulted from product sales rather than from contract revenue as in prior years, consistent with FCT's business objectives. In addition, for the nine months ended September 30 2005, total revenue was $1,256,200 compared to $858,391 for the nine months ended September 30, 2004, a 46% increase. Year to date revenues total $1,256,200 and have already surpassed the year end total revenues for 2004 by 19%.

Expenses in the third quarter 2005 decreased 11% to $1,051,435 from $1,175,968 in the third quarter 2004. General and administrative expenses and sales and marketing expenses decreased by 20% and 15% respectively, while research and development costs increased 8% compared to the same period in 2004.

FCT's cash balance as of September 30, 2005 was $1,208,688 compared to $1,387,548 at the end of the second quarter 2005 partly as a result of two primary events. The first is collections of monies from customers for purchase commitments. The second was FCT's stakeholders and suppliers willingness to delay receipt of payment, and this can be observed in FCT's elevated accounts payable balance. At the end of the third quarter 2005 inventories were at $1,884,242, a year-over-year increase of 78% in inventory and an 81% increase since the end of the second quarter 2005, reflecting systems in stock that were to be a part of the Hydrogen Village delivery scheduled for August. The working capital ratio has decreased to 1.62 from 3.4 on June 30, 2005, reflecting the increase in FCT's current liabilities. We draw your attention to the fact that all systems in inventory have been pre-sold.

Net cash utilization during the quarter ended September 30, 2005 decreased dramatically to $53,691 per month from $512,561 per month in the second quarter 2005.

FCT's cash balance raises substantial doubt about the Company's ability to continue as a going concern. In order to continue operations the Company must obtain additional financing through the issue of shares and/or from loans, and management continues to pursue fundraising activity. Discussions with respect to financing are ongoing.

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.