##### 



Exhibit 99.2
  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 at
www.sedar.com www.sec.gov.
 FORWARD-LOOKING STATEMENTS AND RISK FACTORS
  OVERVIEW
    OUTLOOK
   
 2006 ANNUAL REPORT
    
    1




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SELECTED ANNUAL INFORMATION
 ($000s of U.S. dollars except per share amounts )
 Years ended December 312006
    
    
    2005
    
    
    2004Revenues
    
    $
    30,059
    
    
    $
    37,191
    
    
    $
    16,656Net loss
    
    
    (130,759
    )
    
    
    (37,374
    )
    
    
    (33,539
    )Loss per share
(basic and fully
diluted)
    
    
    (1.42
    )
    
    
    (0.41
    )
    
    
    (0.53
    )Dividends per share
    


    Nil
    
     
    Nil
    
    
    NilTotal assets
    
    
    97,173
    
    
    
    214,657
    
    
    
    117,861Current Liabilities
    
    
    30,189
    
    
    
    18,690
    
    
    
    8,172Long-term liabilities
    
    
    227
    
    
    
    460
    
    
    
    476
 OVERALL FINANCIAL PERFORMANCE
 ®
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Valuation of Intangible Assets and Goodwill
  
 2
    
    2006 ANNUAL REPORT




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Product Warranty Provision
  Stock-based Compensation
  Allowance for Doubtful Accounts
  Provision for Obsolete Inventory
  Valuation of Future Income Tax Assets
  RECENTLY ISSUED ACCOUNTING STANDARDS
  (I) CANADIAN STANDARDS
 Financial Instruments
  Comprehensive Income
  Equity
 
 2006 ANNUAL REPORT
    
    3




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(II) U.S. STANDARDS
 Inventory Costs
  Share-Based Payments
  Accounting for Uncertainty in Income Taxes
  BUSINESS ACQUISITIONS
 Stuart Energy
   
 4
    
    2006 ANNUAL REPORT




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CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Internal Control over Financial Reporting
  RESULTS OF OPERATIONS
 Revenues ®
  (000s of U.S. dollars)
    
    2006
    
    
    2005
    
    
    2004OnSite Generation
    
    $
    12,032
    
    
    $
    21,748
    
    
    $
    1,505Power Systems
    
    
    6,943
    
    
    
    3,861
    
    
    
    4,106Test Systems
    
    
    11,084
    
    
    
    11,582
    
    
    
    11,045$
    30,059
    
    
    $
    37,191
    
    
    $
    16,656
  OnSite Generation
   Power Systems
 ®
  Test Systems
  
 2006 ANNUAL REPORT
    
    5




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Cost of revenues
 OnSite Generation
   Power Systems
   Test Systems
   Selling, general and administrative expenses
  Research and product development expenses
  Amortization of property, plant and equipment
 
 6
    
    2006 ANNUAL REPORT




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Amortization of intangible assets
  Impairment of intangible assets and goodwill
   Impairment of OnSite Generation Intangible Assets and Goodwill
       
 2006 ANNUAL REPORT
    
    7




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Impairment of Test Systems Goodwill
      Integration costs
  Provincial capital tax expense
  Interest income, net
 8
    
    2006 ANNUAL REPORT




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Foreign currency gains
  Income tax expense (recovery)
   Net loss
 
    
    OnSite Generation incurred a net loss of $106.3 million for the
year ended December 31, 2006 compared to a net loss of $13.2
million in 2005. This increase is attributable to the impairment
of identifiable intangible assets and goodwill totalling $85.7
million, 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,
although not at historical levels. While we are optimistic we will
reach historical levels of deliveries in 2007, we cannot be
definitive as to when this will happen.
 
    
    Power Systems incurred a net loss of $10.1 million for the year
ended December 31, 2006 compared to a net loss of $12.1 million in
2005 primarily as a result of increased revenues and lower cost of
revenues.
 
    
    Test Systems incurred a net loss of $5.3 million for the year
ended December 31, 2006 compared to a net loss of $2.3 million in
2005. This increase is primarily attributable to a $5.1 million
impairment charge for goodwill, which was partially offset by
increased test services revenue and gross margin and decreased
SG&A and amortization expenses.
 
    
    Corporate and Other costs for the year ended December 31, 2006
were $9.1 million compared to $9.7 million in 2005. This decrease
was primarily attributable to various cost-reduction initiatives
realized, foreign exchange gains and increased interest income,
which were partially offset by increased severance and related
compensation payments, Sarbanes-Oxley Act compliance costs, and
other business strategy matters.
  
    
    OnSite Generation incurred a net loss of $13.2 million for the
year ended December 31, 2005 compared to a net loss of $2.3
million in 2004 as a result of the acquisition of Stuart Energy in
January 2005 and a corresponding increase in operating costs. Upon
completing the acquisition, we implemented a comprehensive
rationalization program to decrease our operating costs and we
anticipate maintaining these reduced cost levels. Included in this
net loss is a $1.3 million increase in the fair value of
work-in-process inventory recognized in accordance with Canadian
GAAP on the acquisition of Stuart Energy as well as charges
totalling $1.3 million relating primarily to repair or replacement
units delivered by Stuart Energy prior to the acquisition. Also
included in the net loss is $6.5 million of amortization charges
taken on intangible assets recognized on the acquisition of Stuart
Energy.
 
    
    Power Systems incurred a net loss of $12.1 million for the year
ended December 31, 2005 compared to a net loss of $7.5 million in
2004 as a result of decreased revenues attributable to completion
of the General Motors engineering services contract in 2004 and
increased research and product development expenses during the
year.
 
    
    Test Systems incurred a net loss of $2.3 million for the year
ended December 31, 2005 compared to a net loss of $13.8 million in
2004 as a result of higher revenues, decreased operating costs and
lower amortization of intangible assets.
 
    
    Corporate and Other costs for the year ended December 31, 2005
were $9.7 million compared to $9.9 million in 2004. This decrease
was primarily as a result of cost reduction initiatives during the
year offset by the appreciation of the Canadian dollar relative to
the U.S. dollar during 2005 as compared to 2004.
 2006 ANNUAL REPORT
    
    9




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SHARES OUTSTANDING
     Quarter Ended (Unaudited)($000s  except for per share amounts)Dec. 31
    
    
    Sep. 30
    
    
    Jun. 30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sep. 30
    
    
    Jun. 30
    
    
    Mar. 312006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005Revenues
    
    $
    9,547
    
    
    $
    9,000
    
    
    $
    5,376
    
    
    $
    6,136
    
    
    $
    9,057
    
    
    $
    10,537
    
    
    $
    6,293
    
    
    $
    11,304Net Loss
    
    
    (22,069
    )
    
    
    (90,732
    )
    
    
    (9,626
    )
    
    
    (8,332
    )
    
    
    (9,136
    )
    
    
    (7,517
    )
    
    
    (9,499
    )
    
    
    (11,222
    )Net Loss Per Share
(Basic & Fully Diluted)
    
    
    (0.23
    )
    
    
    (0.99
    )
    
    
    (0.11
    )
    
    
    (0.09
    )
    
    
    (0.11
    )
    
    
    (0.08
    )
    
    
    (0.10
    )
    
    
    (0.13
    )Weighted Average Common
Shares Outstanding
    
    
    91,916,466
    
    
    
    91,858,314
    
    
    
    91,781,393
    
    
    
    91,705,236
    
    
    
    91,679,966
    
    
    
    91,678,279
    
    
    
    91,675,121
    
    
    
    89,848,368
 10
    
    2006 ANNUAL REPORT




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QUARTERLY RESULTS OF OPERATIONS
     FOURTH QUARTER RESULTS
 ®
   LIQUIDITY AND CAPITAL RESOURCES
     2006 ANNUAL REPORT
    
    11




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CONTINGENT OFF-BALANCE SHEET ARRANGEMENTS
 AND CONTRACTUAL OBLIGATIONS
       12
    
    2006 ANNUAL REPORT




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Payments due in
    
    Long-
    
    
    Operating
    
    
    Capital($000s)
    
    term Debt
    
    
    Leases
    
    
    Leases
    
    
    Total2007
    
    $
    194
    
    
    $
    1,314
    
    
    $
    391,314
    
    
    $
    1,5472008
    
    
    104
    
    
    
    1,251
    
    
    
    
    
    
    
    1,3552009
    
    
    
    
    
    
    1,077
    
    
    
    
    
    
    
    1,0772010
    
    
    
    
    
    
    510
    
    
    
    
    
    
    
    5102011 and thereafter
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    26$
    298
    
    
    $
    4,178
    
    
    $
    394,178
    
    
    $
    4,515
  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 research and product development
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.
 §
    
    Unsecured non-interest bearing term loan.In 2002, we acquired
certain proprietary intellectual property related to our
vehicle-to-grid initiatives in exchange for an interest free loan.
Although the loan is non-interest bearing, we charge imputed
interest on the loan to interest expense.
 §
    
    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.
  OPERATING LEASES
  RELATED PARTY TRANSACTIONS
   RISK AND UNCERTAINTIES
   Risk Factors Related To Our Financial Condition
   2006 ANNUAL REPORT
    
    13




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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.
   We may be unable to raise additional capital to pursue our commercial-ization plans and may be
forced to discontinue product development, reduce our sales and marketing efforts or forego
attractive business opportunities.
    Our ability to grow revenues and future prospects depends to a certain extent on our relationship
with General Motors and General Motors commitment to the commercialization of fuel cell markets.
  14
    
    2006 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 revenues 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
 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.
  2006 ANNUAL REPORT
    
    15




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§
    
    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 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.
  Changes in government policies and regulations could hurt the market for our products.
     16
    
    2006 ANNUAL REPORT




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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.
      We face competition for fuel cell power products from developers and manufacturers of traditional
technologies and other alternative techno-logies.
   2006 ANNUAL REPORT
    
    17




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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.
   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 will need to recruit, train and retain key management and other qualified personnel to
successfully expand our business.
  We may not be able to successfully manage the expansion of our operations.
  18
    
    2006 ANNUAL REPORT




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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;
 §
    
    failure to effectively assimilate the acquired technology, employees or other assets of the company 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 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.
  2006 ANNUAL REPORT
    
    19




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Any failures or delays in field tests of our products could negatively affect our customer
relationships and increase our manufacturing costs.
  The components of our products may contain defects or errors that could negatively affect our
customer relationships and increase our develop-ment, 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.
     Our involvement in intellectual property litigation could negatively affect our business.
 20
    
    2006 ANNUAL REPORT




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§
    
    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 licenses to the relevant intellectual property.
  Our products use flammable fuels that are inherently dangerous sub-stances and could subject us to
product liabilities.
  Risk Factors Related to Ownership of Our Common Shares
 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
  2006 ANNUAL REPORT
    
    21




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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.
  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 share-holders, deter or delay a takeover 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, controlling persons 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.
 Our share price is volatile and we may continue to experience signi-ficant share price and volume
fluctuations.
  §
    
    performance of other companies in the fuel cell or alternative
energy business;
 22
    
    2006 ANNUAL REPORT




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§
    
    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 of March 1, 2007 there were 6,893,353 options to purchase our common shares. If these
securities are exercised, our shareholders will incur substantial dilution.
  2006 ANNUAL REPORT
    
    23