##### 



Exhibit
99.2
  2007 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Basis of Presentation
 www.sedar.com www.sec.gov
 Forward-looking Statements and Risk Factors
  Overview
    1
    
    2007 ANNUAL REPORT




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Outlook
        2007 ANNUAL REPORT
    
    2




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Selected Annual Information
  Years ended December 312007
    
    2006
    
    2005Revenues
    
    $
    37,990
    
    
    $
    30,059
    
    
    $
    37,191Net loss
    
    
    (28,068
    )
    
    
    (130,759
    )
    
    
    (37,374
    )Loss per share (basic and fully diluted)
    
    
    (0.31
    )
    
    
    (1.42
    )
    
    
    (0.41
    )Dividends per share
    
    Nil
    
    
    Nil
    

    
    NilTotal assets
    
    
    67,940
    
    
    
    97,173
    
    
    
    214,657Current liabilities
    
    
    27,208
    
    
    
    30,189
    
    
    
    18,690Long-term liabilities
    
    
    348
    
    
    
    227
    
    
    
    460
 Overall Financial Performance
 ®
   Critical Accounting Policies and Estimates
  3
    
    2007 ANNUAL REPORT




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Valuation of Intangible Assets and Goodwill
   Product Warranty Provision
 Stock-based Compensation
 Allowance for Doubtful Accounts
 Provision for Obsolete Inventory
 Valuation of Future Income Tax Assets
 2007 ANNUAL REPORT
    
    4




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Recently Issued Accounting Standards
  (I) Canadian Standards
  (II) U.S. Standards
  New Accounting Standards
  (I) Canadian Standards
   5
    
    2007 ANNUAL REPORT




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New Accounting Pronouncements and Developments
 Convergence with International Financial Reporting Standards
   (II) U.S. Standards
   2007 ANNUAL REPORT
    
    6




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Business Acquisitions
 Stuart Energy
   Controls and Procedures
 Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
 7
    
    2007 ANNUAL REPORT




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Results of Operations
 Revenues ®
  (000s of U.S. dollars)
    
    2007
    
    
    2006
    
    
    2005OnSite Generation
    
    $
    19,608
    
    
    $
    12,032
    
    
    $
    21,748Power Systems
    
    
    6,103
    
    
    
    6,943
    
    
    
    3,861Test Systems
    
    
    12,279
    
    
    
    11,084
    
    
    
    11,582$
    37,990
    
    
    $
    30,059
    
    
    $
    37,191
  
    
    OnSite Generationrevenues for the year ended December 31, 2007 increased by $7.6
million compared to 2006 primarily as a result of the resumption of production to
historical levels. In the first quarter of 2006 we encountered production delays caused by
supply chain and component quality issues. During the second quarter of 2006, we
implemented standardized, rigorous quality testing protocols to address the supply chain
quality issues. As a result of the testing protocols, we identified other operational and
production quality issues, which we believe we have addressed through appropriate
corrective measures and resumed delivery to our customers during the fourth quarter of
2006, reaching historical levels in 2007. We anticipate increasing our revenues in the
industrial hydrogen markets and pursuing opportunities in renewable energy and
transportation markets. As at December 31, 2007, we had $15.8 million of confirmed orders,
all of which are anticipated to be delivered and recognized as revenue in 2008.OnSite Generation revenues for the year ended December 31, 2006 decreased $9.7 million
compared to 2005 as a result of the production delays initially encountered in the first
quarter of 2006.
    
    Power Systemsrevenues for the year ended December 31, 2007 decreased by $0.8 million
compared to 2006 primarily as a result of an increased effort to focus on backup power and
material handling sales as our strategy is to sell into near term commercial markets via
OEM distributors. As at December 31, 2007, we had $8.6 million of confirmed orders,
approximately 60% of which are anticipated to be delivered and recognized as revenue in
2008.Power Systems revenues for the year ended December 31, 2006 increased by $3.1 million or 80%
compared to 2005 primarily as a result of an increase in demand for our products as well as
the partial execution of our multiple unit contract for HyPM® 500 Series Fuel Cell Power
Modules for delivery to a leading military OEM.
    
    Test Systemsrevenues for the year ended December 31, 2007 increased by $1.2 million or
11% compared to 2006 due to a $1.1 million increase in test product revenues and a $0.1
million increase in test services revenues. The increase in test product revenues is
primarily a result of delivering a greater number of higher output test equipment units,
compared to 2006 and reflects timing differences in receipt of orders as compared with the
previous year. As at December 31, 2007, we had $2.1 million of confirmed orders
comprising $1.8
 2007 ANNUAL REPORT
    
    8




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million of product sales and $0.3 million of testing services, all of which are anticipated
to be delivered and recognized as revenue in the first half of 2008.Test Systems revenues for the year ended December 31, 2006 decreased by $0.5 million or 4%
compared to 2005 due to a $0.7 million increase in test services revenues offset by a $1.2
million decrease in test product revenues. We believe the decrease is reflective of an
overall stabilizing of capital expenditures for fuel cell diagnostic equipment offset by an
increase in test services for one customer.On November 7, 2007 the Board of Directors of the Corporation approved plans to wind up our
fuel cell test products design, development and manufacturing business. We conducted an
extensive evaluation of the opportunities for this business, and, after canvassing all
opportunities, concluded that an orderly windup of this low gross margin, low growth and
loss generating business, to focus resources on core business activities was the most
appropriate decision given the associated risks. We anticipate that the windup will take up
to two years to complete as we will be required to incur costs related to severance,
facility closure and warranty obligations, as described above.
 Cost of revenues
 
    
    OnSite Generationcost of revenues for the year ended December 31, 2007 increased by
$1.5 million to $19.0 million compared to 2006. Expressed as a percentage of revenues,
cost of revenues was 97% in 2007 compared to 145% in 2006. This percentage decrease can be
attributed to a higher level of revenues causing a higher level of overhead absorption,
cost efficiencies in production and the absence of a $2.4 million of warranty reserves
incurred in connection with units shipped prior to January 2005. Additionally, we are now
experiencing the benefits of improved pricing, project management and cost discipline.OnSite Generation cost of revenues for the year ended December 31, 2006 decreased by $3.7
million to $17.5 million compared to 2005. Expressed as a percentage of revenues, cost of
revenues was 145% in 2006 compared to 97% in 2005. This percentage increase can be
attributed to a lower level of revenues causing a lower level of overhead absorption, and
the $2.4 million of warranty reserves noted above.
    
    Power Systemscost of revenues for the year ended December 31, 2007 increased by $1.4
million to $5.3 million compared to 2006. Expressed as a percentage of revenues, cost of
revenues was 86% compared to 56% in 2006 primarily as a result of a lower proportion of
military and demonstration orders, which have historically generated higher margins than
commercial orders combined with the appreciation of the Canadian dollar relative to the
U.S. dollar, resulting in higher material and labour costs, a $0.5 million provision for
obsolete inventory and lower overhead absorption as a result of lower revenues.Power Systems cost of revenues for the year ended December 31, 2006 increased by $0.8
million to $3.9 million compared to 2005. Expressed as a percentage of revenues, cost of
revenues was 56% compared to 81% in 2005 primarily as a result of a higher proportion of
military and demonstration orders, which have historically generated higher margins than
commercial orders.
    
    Test Systemscost of revenues for the year ended December 31, 2007 increased by $1.4
million to $9.3 million compared to 2006. Expressed as a percentage of revenues, cost of
revenues was 76% in 2007 compared to 72% in 2006. These increases are attributed to the
appreciation of the Canadian dollar relative to the U.S. dollar, resulting in higher
material and labour costs and a reduced proportion of test services revenues compared to
2006.Test Systems cost of revenues for the year ended December 31, 2006 decreased by $1.6 million
to $7.9 million compared to 2005. Expressed as a percentage of revenues, cost of revenues
was 72% in 2006 compared to 83% in 2005 and was primarily attributable to a higher
proportion of test service revenues partially offset by competitive pricing pressures in the
test equipment market.
 9
    
    2007 ANNUAL REPORT




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Selling, general and administrative expenses
  Research and product development
 Wind up of test equipment business
 Amortization of property, plant and equipment
  Amortization of intangible assets
  Impairment of intangible assets and goodwill
 Impairment of OnSite Generation Intangible Assets and Goodwill
 2007 ANNUAL REPORT
    
    10




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11
    
    2007 ANNUAL REPORT




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Impairment of Test Systems Goodwill
    Integration costs
  Provincial capital tax expense
 Interest income
  Foreign currency gains
 Foreign currency gains
 2007 ANNUAL REPORT
    
    12




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Income tax expense
   Net
loss
 
    
    OnSite Generation incurred a net loss of $5.4 million for the year ended December 31,
2007 compared to a net loss of $14.9 million in 2006. This improvement is primarily
attributable to increased revenues and higher overhead absorption as a result of a return
to historical production levels in 2007 as well as the absence of $2.4 million in warranty
reserves relating to estimated future warranty costs for units shipped prior to the
acquisition of Stuart Energy in January 2005.
    
    Power Systems incurred a net loss of $14.3 million for the year ended December 31, 2007
compared to a net loss of $7.2 million in 2006. This increase is primarily attributable to
$3.1 million of costs associated with our business streamlining initiatives and decreased
gross margins, due to an increased percentage of sales into near term commercial markets
and lower R&D funding.
    
    Test Systems incurred a net loss of $1.5 million for the year ended December 31, 2007
compared to net income of $0.3 million in 2006. This increase in net loss is primarily
attributable to a decreased proportion of revenues from test services combined with
decreased gross margins on fuel cell test equipment product sales.
    
    Corporate and Other costs for the year ended December 31, 2007 were $6.9 million
compared to $109.0 million in 2006. This decrease is primarily attributable to the absence
of $90.8 million in impairment charges for identifiable intangible assets and goodwill as
well as various cost-reduction initiatives and foreign exchange gains, which were partially
offset by increased severance and related compensation payments.
  
    
    OnSite Generation incurred a net loss of $14.9 million for the year ended December 31,
2006 compared to a net loss of $6.4 million in 2005. This increase is attributable to
warranty reserves of $2.4 million relating to estimated future warranty costs for units
shipped prior to the acquisition of Stuart Energy in January 2005, combined with lower
revenues caused by supply chain quality issues, which resulted in lower overhead
absorption. Throughout the year we made efforts to improve quality and testing systems to
support increased production and will continue to make such efforts in 2007. We resumed
delivery to our customers in the fourth quarter of 2006 and to historical delivery levels
during 2007.
    
    Power Systems incurred a net loss of $7.2 million for the year ended December 31, 2006
compared to a net loss of $9.0 million in 2005 primarily as a result of increased revenues
and lower cost of revenues
    
    Test Systems earned net income of $0.3 million for the year ended December 31, 2006
compared to a net loss of $1.6 million in 2005. This improvement was primarily attributable
to increased test services revenue and associated gross margin and decreased selling,
general and administrative and amortization expenses.
    
    Corporate and Other costs for the year ended December 31, 2006 were $109.0 million
compared to $20.4 million in 2005. This increase was primarily attributable to $90.8
million in impairment charges for identifiable intangible assets and goodwill, increased
severance and related compensation payments, Sarbanes-Oxley Act
 13
    
    2007 ANNUAL REPORT




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compliance costs, and other business strategy matters offset by cost-reduction initiatives
realized, foreign exchange gains and increased interest income.
 
    
    Basic and diluted net loss per share was $0.31 for the year ended December 31, 2007
compared to $1.42 in 2006, a decrease of $1.11, or 78%. Basic and diluted net loss per
share was $1.42 for the year ended December 31, 2006 compared to $0.41 in 2005, an increase
of $1.01 or 246%.
 Shares Outstanding
   Selected Quarterly Financial Data (Unaudited)
 Quarter endedExpressed inthousands except
    
    Dec. 31
    
    Sept. 30
    
    June 30
    
    Mar. 31
    
    Dec. 31
    
    Sept. 30
    
    June 30
    
    Mar. 31per share amounts
    
    2007
    
    2007
    
    2007
    
    2007
    
    2006
    
    2006
    
    2006
    
    2006Revenues
    
    $
    11,051
    
    
    $
    10,624
    
    
    $
    9,465
    
    
    $
    6,850
    
    
    $
    9,547
    
    
    $
    9,000
    
    
    $
    5,376
    
    
    $
    6,136Net Loss
    
    
    (9,497
    )
    
    
    (6,478
    )
    
    
    (3,787
    )
    
    
    (8,306
    )
    
    
    (22,069
    )
    
    
    (90,732
    )
    
    
    (9,626
    )
    
    
    (8,332
    )Net Loss 
Per Share
(Basic and
 Fully
Diluted)
    
    
    (0.10
    )
    
    
    (0.07
    )
    
    
    (0.04
    )
    
    
    (0.09
    )
    
    
    (0.23
    )
    
    
    (0.99
    )
    
    
    (0.11
    )
    
    
    (0.09
    )Weighted Average
Common Shares
Outstanding
    
    
    91,765,691
    
    
    
    91,765,691
    
    
    
    91,765,691
    
    
    
    91,896,363
    
    
    
    91,916,466
    
    
    
    91,858,314
    
    
    
    91,781,393
    
    
    
    91,705,236
 Quarterly Results of Operations
    2007 ANNUAL REPORT
    
    14




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Fourth Quarter Results
    Liquidity and Capital Resources
    15
    
    2007 ANNUAL REPORT




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Contingent Off-balance Sheet Arrangements and Contractual Obligations
    2007 ANNUAL REPORT
    
    16




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Operating
    
    
    CapitalPayments due in
    
    
    Leases
    
    
    Leases
    
    
    Total($000s)2008
    
    
    $
    1,364
    
    
    $
    11
    
    
    $
    1,3752009
    
    
    
    1,161
    
    
    
    16
    
    
    
    1,1772010
    
    
    
    572
    
    
    
    
    
    
    
    5722011
    
    
    
    80
    
    
    
    
    
    
    
    802012 and thereafter
    
    
    
    38
    
    
    
    
    
    
    
    383,215
    
    
    $
    27
    
    
    $
    3,242
 Operating Leases
  Long-term Debt
  
    
    Repayable financing from a Canadian government agency. Government agencies, and in
particular agencies of the Canadian government, have provided substantial support to the
development of the fuel cell sector in the form of R&D grants, as well as repayable
financing. Although this amount is repayable based on a percentage of our gross revenues
and is therefore success-based, we anticipate that we will have gross revenues sufficient
to generate a liability for the entire amount, being 150% of the original amount received.
    
    Capital leases of office equipment.Where appropriate for reasons such as cash flow and
changes in technology, we use leases as an additional source of financing. In cases where
substantially all of the benefits and risks of ownership of the property are transferred to
us, the lease is treated as a capital lease and included in long-term debt.
  Related Party Transactions
  17
    
    2007 ANNUAL REPORT




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Risks and Uncertainties
    Risk Factors Related to Our Financial Condition
 We may be unable to raise additional capital to pursue our commercialization plans and may be
forced to discontinue product development, reduce our sales and marketing efforts or forego
attractive business opportunities.
    We have a limited operating history, and because our mix of revenues in the recent past does not
reflect our current business strategy, it may be difficult to assess our business and future
prospects.
  2007 ANNUAL REPORT
    
    18




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Because we expect to continue to incur net losses, we may not be able to implement our business
strategy, and the price of our common shares may decline.
   Our quarterly operating results are likely to fluctuate significantly and may fail to meet the
expectations of securities analysts and investors, and cause the price of our common shares to
decline.
   Our ability to grow revenue and future prospects depend to a certain extent on our relationship
with General Motors and General Motors commitment to the commercialization of fuel cell markets.
 %
  19
    
    2007 ANNUAL REPORT




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We currently depend upon a relatively limited number of customers for a majority of our revenues
and a decrease in revenue from these customers could materially adversely affect our business,
financial condition and results of operations.
  Our operating results may be subject to currency fluctuation.
   Certain external factors may affect the value of identifiable intangible assets and goodwill, which
may require us to recognize an impairment charge.
  Our insurance may not be sufficient.
  Risk Factors Related to Our Business and Industry
 We will need to recruit, train and retain key management and other qualified personnel to
successfully expand our business.
  2007 ANNUAL REPORT
    
    20




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Significant markets for fuel cell and other hydrogen energy products may never develop or may
develop more slowly than we anticipate, which would significantly harm our revenues and may cause
us to be unable to recover the losses we have incurred and expect to incur in the development of
our products.
  
    
    the emergence of more competitive technologies and products, including other
environmentally clean technologies and products that could render our products obsolete;
    
    the future cost of hydrogen and other fuels used by our fuel cell systems;
    
    the future cost of MEAs used in our fuel cell systems;
    
    the future cost of platinum, a key metal used in our fuel cell systems;
    
    the regulatory requirements of agencies, including the development of uniform codes and
standards for fuel cell products, hydrogen refueling infrastructure and other hydrogen
energy products;
    
    government support by way of legislation, tax incentives, policies or otherwise, of fuel
cell technology, hydrogen storage technology and hydrogen refueling technology;
    
    the manufacturing and supply costs for fuel cell components and systems;
    
    the perceptions of consumers regarding the safety of our products;
    
    the willingness of consumers to try new technologies;
    
    the continued development and improvement of existing power technologies; and
    
    the future cost of fuels used in existing technologies.
 Hydrogen may not be readily available on a cost-effective basis, in which case our fuel cell
products may be unable to compete with existing power sources, and our revenues and results of
operations would be materially adversely affected.
  21
    
    2007 ANNUAL REPORT




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Changes in government policies and regulations could hurt the market for our products.
     The development of uniform codes and standards for hydrogen-powered vehicles and related hydrogen
refueling infrastructure may not develop in a timely fashion, if at all.
   We currently face and will continue to face significant competition from other developers and
manufacturers of fuel cell power products, hydrogen generation systems and test and diagnostic
equipment. If we are unable to
compete successfully, we could experience a loss of market share, reduced gross margins for our
existing products and a failure to achieve acceptance of our proposed products.
  2007 ANNUAL REPORT
    
    22




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We face competition for fuel cell power products from developers and manufacturers of traditional
technologies and other alternative technologies.
   Our strategy for the sale of fuel cell power products depends upon developing partnerships with
governments and systems integrators, OEMs, suppliers and other market channel partners who will
incorporate our products into theirs.
  23
    
    2007 ANNUAL REPORT




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We are dependent upon third party suppliers for key materials and components for our products. If
these suppliers become unable or unwilling to provide us with sufficient materials and components
on a timely and cost-effective basis, we may be unable to manufacture our products cost-effectively
or at all, and our revenues and gross margins would suffer.
  We may not be able to manage successfully the expansion of our operations.
  If we do not properly manage foreign sales and operations, our business could suffer.
  We may acquire technologies or companies in the future, and these acquisitions could disrupt our
business and dilute our shareholders interests.
  
    
    diversion of managements attention from other business concerns;
 2007 ANNUAL REPORT
    
    24




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
    
    failure to effectively assimilate our acquired technology, employees or other assets
into our business;
    
    the loss of key employees from either our current business or the acquired business; and
    
    assumption of significant liabilities of the acquired company.
  We have no experience manufacturing our fuel cell products on a large scale basis, and if we do not
develop adequate manufacturing processes and capabilities to do so in a timely manner, we will be
unable to achieve our growth and profitability objectives.
  Risk Factors Related to Our Products and Technology
 We may never complete the development of commercially viable fuel cell power products and/or
commercially viable hydrogen generation systems for new hydrogen energy applications, and if we
fail to do so, we will not be able to meet our business and growth objectives.
  We must lower the cost of our fuel cell and hydrogen generation products and demonstrate their
reliability, or consumers will be unlikely to purchase our products and we will therefore not
generate sufficient revenues to achieve and sustain profitability.
  Any failures or delays in field tests of our products could negatively affect our customer
relationships and increase our manufacturing costs.
 25
    
    2007 ANNUAL REPORT




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The components of our products may contain defects or errors that could negatively affect our
customer relationships and increase our development, service and warranty costs.
  Rapid technological advances or the adoption of new codes and standards could impair our ability to
deliver our products in a timely manner and, as a result, our revenues would suffer.
  We depend upon intellectual property and our failure to protect that intellectual property could
adversely affect our future growth and success.
  
    
    any of the United States, Canadian or other patents owned by us or third party patents
licensed to us will not be invalidated, circumvented, challenged, rendered unenforceable,
or licensed to others; or
    
    any of our pending or future patent applications will be issued with the breadth of
protection that we seek, if at all.
     2007 ANNUAL REPORT
    
    26




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Our involvement in intellectual property litigation could negatively affect our business.
  
    
    pay substantial damages;
    
    cease the development, manufacture, use, sale or importation of products that infringe
upon such intellectual property rights;
    
    discontinue processes incorporating the infringing technology;
    
    expend significant resources to develop or acquire non-infringing intellectual property;
or
    
    obtain licences to the relevant intellectual property.
  Our products use flammable fuels that are inherently dangerous substances and could subject us to
product liabilities.
  Risk Factors Related to Ownership of Our Common Shares
 We are currently not meeting the continued listing requirements of NASDAQ which may cause our
common shares to be delisted and result in reduced liquidity of our common shares, impact the
trading price of our shares, and impair our ability to raise financing.
 27
    
    2007 ANNUAL REPORT




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If at any time we qualify as a passive foreign investment company under United States tax laws, our
shareholders may be subject to adverse tax consequences.
    A limited number of shareholders collectively own a significant portion of our common shares and
may act, or prevent corporate actions, to the detriment of other shareholders.
  Future sales of common shares by our principal shareholders could cause our share price to fall and
reduce the value of a shareholders investment.
  2007 ANNUAL REPORT
    
    28




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Our articles of incorporation authorize us to issue an unlimited number of common and preferred
shares, and significant issuances of common or preferred shares could dilute the share ownership of
our shareholders, deter or delay a takeover of us that our shareholders may consider beneficial or
depress the trading price of our common shares.
  U.S. investors may not be able to enforce U.S. civil liability judgments against us or our
directors and officers.
    
    
    the U.S. court where the judgment was rendered had no jurisdiction according to
applicable Canadian law;
    
    the judgment was subject to ordinary remedy (appeal, judicial review and any other
judicial proceeding which renders the judgment not final, conclusive or enforceable under
the laws of the applicable state) or was not final, conclusive or enforceable under the
laws of the applicable state;
    
    the judgment was obtained by fraud or in any manner contrary to natural justice or
rendered in contravention of fundamental principles of procedure;
    
    a dispute between the same parties based on the same subject matter has given rise to a
judgment rendered in a Canadian court or has been decided in a third country and the
judgment meets the necessary conditions for recognition in a Canadian court;
    
    the enforcement of the judgment of the U.S. court was inconsistent with public policy,
as the term is applied by the Canadian court;
    
    the judgment enforces obligations arising from foreign penal laws or laws that deal with
taxation or the taking of property by a foreign government; or
    
    there has not been compliance with applicable Canadian laws dealing with the limitation
of actions.
 29
    
    2007 ANNUAL REPORT




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Our share price is volatile and we may continue to experience significant share price and volume
fluctuations.
  
    
    performance of other companies in the fuel cell or alternative energy business;
    
    news announcements, securities analysts reports and recommendations and other
developments with respect to our industry or our competitors; or
    
    changes in general economic conditions.
 As at March 1, 2008 there were 6,932,303 options to purchase our common shares. If these securities
are exercised, our shareholders will incur substantial dilution.
  2007 ANNUAL REPORT
    
    30