LOGO HYDROGENICS CORPORATION RENEWAL ANNUAL INFORMATION FORM FOR THE YEAR ENDED DECEMBER 31, 2003 May 3, 2004  HYDROGENICS CORPORATION
RENEWAL ANNUAL INFORMATION FORM
FOR THE YEAR ENDED DECEMBER 31, 2003
TABLE OF CONTENTS

HYDROGENICS
  CORPORATION
  1Corporate History and Recent Developments
  1Strategic Relationships
  2Acquisition of Greenlight Power Technologies, Inc.
  3Completion of $62 Million Offering
  3OUR
  BUSINESS
  3Fuel Cell Test and Diagnostic Equipment
  3Fuel Cell Power Products
  3Our Strategy
  4Our Competitive Advantages
  5Products and Services
  7Fuel Cell Power Products and Services
  7Fuel Cell Test and Diagnostic Equipment and
  Testing Services
  8Sales and Marketing
  9Fuel Cell Power Products and Services
  9Fuel Cell Test and Diagnostic Equipment
  10Manufacturing
  10Customers
  10Government Sponsored Initiatives
  10Research and Development
  12Intellectual Property
  13Competition
  13Fuel Cell Test Stations
  13Power Products and Hydrogen Generation
  13Employees
  14Property, Plant and Equipment
  14Legal Proceedings
  14Industry Trends
  14RISK FACTORS
  16Risk Factors Related To Our Business
  17Risk Factors Related To The Fuel Cell Industry
  23Risk Factors Related To Ownership of Our Common Shares
  25SELECTED
  CONSOLIDATED FINANCIAL INFORMATION
  28Dividends
  29MANAGEMENTS
  DISCUSSION AND ANALYSIS
  29MARKET
  FOR SECURITIES
  29DIRECTORS
  AND OFFICERS
  29Interest of Management and Others in Material Transactions
  31Transactions with Viking Engineering &
  Tool Co.
  31Transactions with General Motors
  Corporation
  32ADDITIONAL
  INFORMATION
  32We have applied for
registration of the trademarks Hydrogenics, FCATS, FCAVS, HyTEF,
HyAL, SCREENER, POTENZ and MREF in Canada. All other trademarks or
service marks appearing in this annual information form are the trademarks or
service marks of their respective owners.
Dollar
references in this annual information form are to U.S. dollars unless otherwise
specified.


This annual information form contains forward-looking
statements about our future results, levels of activity, performance, goals or
achievements or other future events. These forward-looking statements are based
on certain assumptions and analyses made by us in light of our experience and
our perceptions of historical trends, current conditions and expected future
developments and other factors that we believe are appropriate in the
circumstances and these statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
In some cases, you can identify forward-looking statements by
our use of words such as may, will, should, could, expects, plans,
intends, anticipates, believes, estimates, predicts, seeks,
strategy, potential or continue or the negative or other variations of
these words, or other comparable words or phrases.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements or other future events. We are
under no duty to update any of our forward-looking statements after the date of
this annual information form, other than as required by law. You should not
place undue reliance on forward-looking statements. Readers are encouraged to
read the section entitled Risk Factors in this annual information form for a
discussion of the factors that could affect our future performance.
HYDROGENICS CORPORATION
In
this annual information form the Company refers to Hydrogenics Corporation
and Hydrogenics, we, us and our refer to the Company and, as applicable
its subsidiaries.  All dollar amounts
are in U.S. dollars unless otherwise indicated.
Corporate History and Recent
Developments
The
legal name of our company is Hydrogenics Corporation - Corporation
Hydrogenique. We were incorporated under the Canada Business Corporations Act
on August 1, 1988 as Traduction Militech Translation Inc. By articles of
amendment dated August 20, 1990, we changed our name to Societe Hydrogenique
Incorporee - Hydrogenics Corporation Incorporated. From 1990 to August 1995, Societe
Hydrogenique Incorporee - Hydrogenics Corporation Incorporated did not actively
carry on business. In August 1995, we commenced our fuel cell technology
development business. By articles of amendment dated January 24, 2000, we
changed our name to Hydrogenics Corporation - Corporation Hydrogenique.  Our registered and principal executive
offices are located at 5985 McLaughlin Road, Mississauga, Ontario, L5R 1B8,
Canada and our telephone number is (905) 361-3660.

We
are a developer and manufacturer of fuel cell and related new energy
technologies that produce clean electricity. Our principal business is the
development and commercialization of proton exchange membrane, or PEM, fuel
cell test and diagnostic stations, PEM fuel cell stacks and PEM fuel cell power
generation systems for portable, stationary and mobile applications. We are
also beginning to develop and manufacture hydrogen generation products to
complement our fuel cell product development initiatives, which include PEM
electrolyzer stacks, PEM electrolyzer refueling systems and the balance of
plant components for reformer-based hydrogen generation systems.
We
have five wholly-owned subsidiaries: Hydrogenics USA, Inc. (incorporated under
the laws of the State of Delaware), Hydrogenics Japan Inc. (incorporated under
the laws of the Province of Ontario), Hydrogenics GmbH and EnKat GmbH (each
incorporated under the laws of Germany) and Greenlight Power Technologies, Inc.
(Greenlight) (incorporated under the laws of Canada).
Since
our inception and through the end of 2000, our revenues were derived solely
from the commercial sale of our PEM fuel cell automated test stations and
related diagnostic equipment.  Our test
and diagnostic equipment is used to develop and optimize the performance of fuel
cell technology by simulating, monitoring and controlling the effect of power
load, temperature, pressure, humidity and potential contaminants on a fuel cell
and to measure the effect of changes in these variables on fuel cell
performance. This equipment has become a critical tool for fuel cell

technology
developers, allowing fuel cell stacks to operate as part of a fully integrated
power system.  We have sold our test
equipment to most significant fuel cell development programs in the world.

Our
expertise in the fuel cell testing business has provided the platform for the
development and growth of our power products business.  This business includes the development and
sale of fuel cell stacks, scalable fuel cell power modules, stand-alone fuel
cell systems and a variety of hydrogen generation devices. In 2001, we began to
generate revenues from the sale of fuel cell power products and system
integration services.
In
January 2003, we acquired Greenlight, our principal competitor in the fuel cell
test equipment business. The acquisition of Greenlight facilitated the creation
of two dedicated business groups - one, located in Burnaby, British Columbia,
focused solely on our test business and the other, located in Mississauga,
Ontario, focused primarily on developing our fuel cell power products business.
We
currently have two segments from which we derive revenue: test equipment and
services, and power products. For the past three years, the distribution of our
revenues by segment was as follows:
2003
  
  2002
  
  2001(in millions)Test
  
  $
  20.7
  
  $
  5.6
  
  $
  4.1Power Products
  
  
  6.0
  
  
  10.2
  
  
  3.3Total
  
  $
  26.7
  
  $
  15.8
  
  $
  7.4Strategic Relationships
To
help position our technology in markets of the future, we have formed strategic
relationships with industry leaders in specific markets.  We look to these relationships as providing
a source of funding, technology, and the potential for the future market
distribution of our products. As part of our strategy, we are continually
evaluating markets for fuel cell products and identifying potential strategic
partners whose brands, distribution channels, technical expertise and customer
knowledge can be accessed to bring fuel cell products to market.

In
October 2001, we formed a strategic alliance with General Motors Corporation
(General Motors) to accelerate the development of fuel cell technology into
global commercial markets. This alliance includes shared intellectual property
rights and joint efforts in fuel cell product development, engineering,
prototyping, testing, branding and marketing strategies. In connection with the
strategic alliance, we issued to General Motors approximately 11.4 million of
our common shares, or approximately 21% of our outstanding shares as at October
2001, and warrants to purchase approximately 2.5 million additional shares.
Each warrant is exercisable at an exercise price of $4.00 per share upon
release from escrow. The warrants expire on October 16, 2006. Our partnership
with General Motors positions us in what we anticipate will eventually become
the largest market for fuel cell applications.
In
April 2002, we entered into an agreement with Dow Corning Corporation (Dow
Corning) to jointly commercialize our Seal-in-Place technology, an
innovative method of cost-effectively sealing fuel cell stacks, electrolyzers
and membrane electrode assemblies (MEAs). We share jointly in the
intellectual property rights resulting from this agreement. Under the agreement,
the parties jointly own a U.S. patent application, together with all inventions
falling within the description of such patent application specific to
Seal-in-Place sealing and sealing materials for fuel cell and electrolyzer
assemblies conceived or made under the agreement.
In
August 2002, we launched a new development effort with Deere & Company
(John Deere) that culminated in the delivery of an innovative power module
that was used to power a John Deere commercial work vehicle. We are currently
working on additional projects with John Deere to extend our power modules to
additional John Deere applications.
- 2 -


Acquisition
of Greenlight Power Technologies, Inc.
On
January 7, 2003, we acquired Greenlight, in a transaction valued at
approximately $19 million, exclusive of expenses of approximately $1.1 million
relating to the acquisition. Assets acquired through the acquisition of
Greenlight include Greenlights manufacturing facility on leased premises in
Burnaby, British Columbia and all of its intellectual property. Under the terms
of the transaction, Greenlight shareholders received cash consideration of
approximately $2.3 million and approximately 4.2 million of our common shares,
representing approximately 8% of our then outstanding common shares. As part of
the post-closing integration, we have combined the respective fuel cell test
businesses of Hydrogenics and Greenlight and now operate this combined business
under the Greenlight brand as the test equipment and services division of
Hydrogenics, based in Burnaby, British Columbia. The consolidation of our test
businesses into an independent operating division has allowed us to be better
able to focus on the expansion of our rapidly growing fuel cell power products
business in our facility in Mississauga, Ontario, Canada.
Completion
of $62 Million Offering
On
February 3, 2004, we completed the issuance and sale of 11,000,000 common
shares at $5.75 per share for net proceeds of $59.6 million.  Subsequent to this sale, the underwriters
over-allotment option was partially exercised resulting in the sale and
issuance of an additional 373,608 common shares on February 13, 2004 for net
proceeds of $2.0 million.
OUR BUSINESS
Our
business is divided into two segments: fuel cell test and diagnostic equipment
and fuel cell power products.
Fuel
Cell Test and Diagnostic Equipment
Our
test equipment and diagnostic products currently range from basic component and
stack research products to full system and production grade test stations and
diagnostic products. In addition to selling test equipment to third parties, we
have over 40 test stations installed in our facilities that we use to provide
testing services to key customers and strategic partners and to support our own
significant research and development requirements.  Building on the experience gained in designing, manufacturing and
selling over 450 fuel cell test stations to approximately 55 customers in North
America, Asia and Europe, we have developed an extensive portfolio of test
equipment and diagnostic products.
Automotive
companies, energy companies, fuel cell developers, component suppliers and
others are currently spending significant capital on the development and
improvement of their own fuel cell programs. We believe that our test stations and
diagnostic products will become an important element to many of these programs
as broad commercial markets for fuel cells eventually develop. Currently our
fuel cell test and diagnostic business unit employs approximately 95 full-time
people in Canada, Germany and Japan. We now market all of our test equipment
under the Greenlight brand. We expect to continue to market and sell our test
stations for the foreseeable future.

Fuel
Cell Power Products
We
are developing a comprehensive portfolio of fuel cell products. We are also
beginning to develop and manufacture hydrogen generation products. We believe
that we are strongly positioned to put fuel cells into commercial products by
virtue of the breadth of our power products portfolio, which includes fuel cell
stacks, scalable fuel cell power modules, stand-alone fuel cell systems and a
variety of hydrogen generation devices.
Fuel Cell Power Modules.We have developed and recently begun selling scalable fuel cell power
modules that allow plug and play integration into our own fuel cell products
or those of original equipment manufacturers (OEMs). The low pressure
configuration of our power module architecture results in fewer moving parts,
greater system simplicity, lower cost, enhanced reliability, quieter operation
and increased versatility when compared to the high pressure systems offered by
other companies. Our goal is to apply our power module architecture across a
wide range of applications with early market appeal and, in addition, to
achieve commercialization through strategic partners that have established
market channels.
- 3 -

Fuel Cell Systems.We are also developing fuel cell system products for specific end-use
markets. Our full fuel cell systems cover a range of portable, mobile and stationary
power applications in the 500 watt to 50 kW range. The diversity of our
technology portfolio allows us to design and manufacture fuel cell systems with
integrated refueling capabilities, using either reformer or electrolyzer
technology. For instance, in conjunction with General Motors, we have developed
a 25 kW regenerative fuel cell backup power generator that is targeted at the
telecommunications market to provide reliable power at cellular tower sites. We
have also developed a 50 kW HySTAT energy station that is capable of powering
multi-dwelling complexes or small commercial buildings as well as serving as a
hydrogen refueling station for fuel cell vehicles.
We
have a proprietary line of electrolyzers that we incorporate into our
regenerative fuel cell systems. We are also developing stand-alone electrolyzer
refuelers that utilize our electrolyzer technology. In addition to these fuel
cell products, we have invested in a fuel cell vehicle-to-grid, or V2G, concept
and the development of related V2G technology. A fuel cell vehicle is
essentially a power generator on wheels that can provide clean power to
off-board users at any time when the fuel cell power module is not being used
for mobility purposes. Such off-board uses include the powering of electrical
devices such as power tools, or alternatively, interconnection to the
electrical grid to supply power to a building or even to supplement the grids
supply of power from existing centralized power stations. This V2G concept is
still in the early phase of development.

System Integration and
Engineering.Our power products business unit also
provides systems integration and engineering services to key customers and
strategic partners. System integration services entail working with our clients
to integrate their proprietary components, typically a fuel cell stack or a
natural gas fuel processor, into a fully functional fuel cell system. These
services include engineering, design, prototyping, testing, contract
manufacturing and project management.
Our
power products business unit is operated out of our Mississauga, Ontario
facility and employs 120 people.
Our Strategy
We
have implemented the following strategies to further our goal of being a leader
in the development and commercialization of fuel cell test and diagnostic
equipment and new energy technologies:

  Initially Target Premium Power Markets.We believe that the best way to ensure our participation in the mass
  commercial markets of the future is to initially focus on selling fuel cell
  products to the smaller premium power markets that exist today. Premium power
  markets such as specialty off-road mobility, military, aerospace, research,
  mission critical back-up power and funded demonstrations yield premium prices
  for workable solutions, a key factor in meeting our overriding goal of
  commercial sustainability. We believe that the premium pricing and smaller
  production runs associated with selling into these markets will provide us
  with positive margins and, more importantly, additional technical expertise
  with a minimal level of capital investment. In addition, by targeting niche
  premium power markets, we expect to build enduring customer relationships
  that will sustain our growth as fuel cells gain more widespread commercial
  acceptance.
  Deploy Capital Efficiently through Horizontal Business
  Model.We save money by leveraging the research
  and development efforts of our component suppliers and the supply,
  distribution and marketing initiatives of our OEM partners and customers. We
  concentrate our research and development initiatives on our core competencies
  and encourage our suppliers and channel distribution partners to develop and
  invest in aspects of the supply and distribution chain that are in their
  areas of expertise. For example, in the production of our power modules we
  rely on numerous suppliers to develop component parts such as MEAs, bi-polar
  plates, wiring harnesses, blowers and power conditioning components and
  thereby avoid costs associated with internally developing these components.
  We also focus on establishing and strengthening key relationships with OEMs,
  like General Motors and John Deere, that have mature sales and distribution
  networks. Our goal is to utilize these existing sales and distribution
  networks and thereby minimize the costs associated with investing in our own
  marketing, sales and distribution networks. This strategy allows us to
  efficiently deploy our capital.- 4 -


  Develop a Portfolio of Complementary Technologies and
  Provide Customers with Complete Fuel Cell Solutions.We are developing a comprehensive portfolio of technologies to
  address the mobility, stationary and portable power markets, as well as the
  hydrogen generation infrastructure that is required to support these markets.
  We believe the breadth of our portfolio of fuel cell and hydrogen generation
  technologies enables us to provide customers with complete energy solutions.
  For example, we are positioned to sell our fuel cell stack in conjunction
  with a test station or, alternatively, to sell a hydrogen refueler together
  with one of our fuel cell power products. By selling products and services
  that combine features and value streams that other fuel cell developers are
  not able to offer, we expect to realize improved pricing, revenues and gross
  margins. We expect that our portfolio of fuel cell and hydrogen technologies
  will, in the long term, yield multiple value streams for our shareholders
  and, in the short term, serve to insulate us from single point market
  failures and reduce technology risks. We also believe that our strategy of
  developing a comprehensive portfolio of technologies will position us
  favorably to participate in a larger number of government-sponsored
  initiatives that should stimulate early revenue opportunities.
  Continue to Pursue Strategic Relationships.We look to strategic partners as a source of funding and technology
  and as a potential means of market distribution capabilities and view these
  partners as critical to our long-term success. As part of our strategy, we are
  continually evaluating markets for fuel cell products and identifying
  potential strategic partners whose brands, distribution channels, technical
  expertise and customer knowledge can be accessed to bring fuel cell products
  to market. In addition, we are exploring opportunities to work with
  governments to provide them with innovative energy solutions. We work closely
  with our strategic partners to understand their goals and specific
  requirements and then rapidly develop prototypes and products to provide
  solutions to our partners needs. Our relationships with General Motors and
  John Deere illustrate how we have successfully collaborated with industry
  leaders to develop fuel cell applications for their respective markets. We
  also strive to secure key government and industry opportunities to
  demonstrate our technology in order to prove the viability of fuel cell power
  and hydrogen generation products in high visibility environments that provide
  significant feedback to our development programs.
  Conserve Cash through Fiscal Discipline.We believe it is important at this early stage of our industry to
  match our investment in headcount and research and development to the
  adoption rate and developmental pace of fuel cell technology. We believe that
  this deliberate pacing will reduce the risk of over-investment in production
  capacity prior to the emergence of a robust commercial market. The alignment
  of our resources with current market and development opportunities remains a
  fundamental discipline that we believe is critical to growing at a
  sustainable pace. Our product development efforts remain focused on near-term
  commercial applications and are funded, in order, by (i) positive gross
  profits (revenues minus the cost of revenues); (ii) government grants; (iii)
  joint development agreements; and, only to the extent necessary, by (iv)
  existing cash reserves.
  Extend Global Reach and Make Strategic Acquisitions.We will continue to direct sales, business development and service
  capabilities in global markets where there are current and future needs for
  fuel cell related technologies. By doing so, we hope to develop customers and
  suppliers in the key markets of Japan, Europe and North America. We also
  expect to continue to complement our organic growth through strategic
  acquisitions of businesses and technology. For example, the acquisition of
  EnKAT GmbH in Germany established our foothold in the European test station
  market. Likewise, the acquisition of our principal competitor in the test
  market, Greenlight, solidified our position as a leading developer and
  manufacturer of fuel cell test stations and diagnostic equipment. We have
  also acquired proprietary technology, including our license to certain
  General Motors stack technology and certain patents used in connection with
  our V2G initiatives. We will continue to expand our global operations and
  consider strategic acquisitions as opportunities arise.Our Competitive AdvantagesWe believe that the
  following competitive advantages have enabled us to be a leader in the
  design, development, manufacture and sale of fuel cell test and diagnostic
  equipment and new energy technologies:
  Premier Customer Base.We sell fuel
  cell test and diagnostic equipment to most significant fuel cell development
  programs in the world and to many of the worlds leading fuel cell component
  suppliers. Our- 5 -

customer relationships
  have helped, and we believe, will continue to help, us capitalize on the
  opportunities developing in the industry for fuel cell and hydrogen
  generation products and services. For example, we currently provide products
  and services to General Motors, John Deere, Johnson Matthey, Inc. (Johnson
  Matthey) and ChevronTexaco Corporation (ChevronTexaco). In addition, we
  continue to seek strategic relationships and significant customer
  relationships with market leaders because we believe that they will have the
  potential to provide us with access to some of the largest distribution
  channels for fuel cell technology.
  Strategic Alliance with General Motors Corporation and
  Other Key Relationships.We entered into an alliance with General
  Motors in October 2001. Our alliance with General Motors includes shared
  intellectual property rights and joint efforts in fuel cell product development,
  engineering, prototyping, testing, branding and marketing strategies. This
  alliance has given us the opportunity to participate in the development of
  fuel cell systems for automotive applications, the largest potential market
  for fuel cells, and has also helped us form key customer relationships with
  other OEMs such as John Deere and ChevronTexaco. We are currently providing
  power modules to John Deere for use in a variety of their commercial work
  vehicles and we are working with ChevronTexaco to develop a natural gas
  refueler, utilizing ChevronTexacos proprietary fuel processor.
  Fuel Cell System Expertise.Through
  the development and maturation of our fuel cell test and diagnostic business,
  we have gained an in-depth understanding of the intricacies of fuel cell
  technology. In particular, we have gained significant expertise from our fuel
  cell test and diagnostic business in the operation of fuel cell stacks and
  balance of plant and systems integration. We believe that our expertise in optimizing
  the operation of a fuel cell system gives us the platform to transform
  current fuel cell technology into workable and cost-effective real-life
  applications. We believe that this expertise will continue to provide us with
  an ability to respond rapidly to market opportunities and technological
  changes in our industry. In addition, we believe that we are among a small
  number of companies around the world that have successfully demonstrated the
  ability to integrate a variety of hydrogen generation systems together with a
  fuel cell to make complete, self-contained fuel cell energy stations. Many of
  these systems have been integrated with back-to-grid capabilities, where
  the fuel cell supplies power not only to the immediate application but also
  is capable of transferring excess power back to the local electrical grid. We
  believe that our fuel cell system expertise will continue to provide us with
  the ability to respond rapidly to market opportunities and technological
  changes in our industry.
  Modular Architecture Deployable in Multiple Markets.We believe the versatility and scalability of our multi-application
  power and electrolyzer module technology is unique among our competitors. By
  versatility, we mean that our current power modules are particularly well
  suited to address diverse markets including off-road mobility, buses,
  materials handling, back-up and stationary power, portable military
  generators, vehicular auxiliary power units and a number of other
  applications. By scalability, we mean that our power and electrolyzer modules
  can be combined in series or in parallel to provide complete solutions for
  our customers power and hydrogen requirements. By deploying our module
  architecture across a variety of applications we are able to be more cost-effective
  and efficient with our research and development activities and investments.
  Proprietary Technology.We believe
  we have proprietary technology across our product offerings. We have
  increased our patent portfolio to 16 patents on our technology in the United
  States and Canada, and we have approximately 300 patent applications pending
  in a number of countries. We also believe that our access to two proven fuel
  cell stack technologies is unique among our competitors. The development of our
  own fuel cell stack, combined with our access to certain of General Motors
  fuel cell stack technology, provides us with significant product and market
  flexibility. Our HyPM power modules have been built to accommodate either a
  Hydrogenics or a General Motors stack.
  Superior Testing Capabilities.In
  addition to our expertise in the area of fuel cell testing, we have one of
  the largest fuel cell development and testing facilities in North America,
  which provides us with an advantage over our competitors. We are able to
  quickly and efficiently conduct comprehensive product testing and thereby
  quicken the development of our technology and the evaluation of our
  suppliers technologies. This testing capability leads to rapid prototyping
  of our power and electrolyzer stack and- 6 -

module technology.
  Furthermore, the use of our own test equipment products provides valuable
  feedback to our test equipment product development process.Products and Services
Fuel
Cell Power Products and Services
We
design and manufacture fuel cells, fuel cell power modules, hydrogen generation
devices and integrated fuel cell systems, and provide system integration
services. Our fuel cell power products unit is operated from our Mississauga,
Ontario facility.
Fuel Cell Stacks. Our fuel cell stack technology is suited to a
wide range of power applications ranging from sub-kilowatt remote power to
multi-kilowatt mobile, stationary and portable applications. The power
densities of our current series offer high performance in a power range of 500
W to 25 kW. In addition to our own fuel cell stack program, we also have access
to certain of General Motors fuel cell technology for use in certain
applications. We believe our access to two proven fuel cell stack technologies provides
us with significant product and market flexibility.
Fuel Cell Power Modules.  In
the development of our proprietary power modules, we have integrated our fuel
cell stacks with balance of plant subsystems and components to create fully
integrated electrochemical generators that are suitable for integration into a
wide range of applications spanning the stationary, mobile and portable power
markets. Each power module runs on pure hydrogen and produces DC power. We
market our power modules to OEMs and systems integrators under the trade name
HyPM for incorporation into their products. Our latest design is a low
profile, low pressure 10 kW power module. We have developed a 20 kW version and
are also developing a 50 kW module. Our HyPM power modules have been designed
to accommodate either a Hydrogenics or a General Motors fuel cell stack.
Hydrogen Generation Devices.  We
have developed devices to generate hydrogen as a fuel source. We have a
proprietary line of electrolyzers which we incorporate into our regenerative
fuel cell power systems, which are marketed under the trade names of HyUPS and
HyPORT E. We have also developed our electrolyzer technology as a stand-alone
product for hydrogen generation. This stand-alone electrolyzer product is
marketed under the trade name of HyLYZER. In addition, we have developed a
hydrogen generation device using our proprietary chemical hydride technology
and have incorporated this into an integrated system, which is marketed under
the trade name of HyPORT C.

While
we have developed our own proprietary line of electrolyzers, we have chosen to
purchase reformers from third parties for integration into certain of our
stationary power products. Our HySTAT energy station, described below, contains
a reformer, or fuel processor, that is capable of supplying hydrogen fuel for
up to 50 kW of fuel cell power. Under a joint development agreement with
Johnson Matthey, we developed a fully integrated fuel processor system that
incorporates Johnson Mattheys proprietary fuel processing technology and our
integrated system controls and balance of plant subsystems. We also designed
and manufactured an integrated natural gas reformer for ChevronTexaco, which
they market under the brand name HALIAS.

Integrated Fuel Cell Systems.We have developed portable and stationary fuel cell power generation
systems, on a per order basis, as a complete power generation solution for the
end user. To date we have designed integrated fuel cell systems for use in a
range of applications:
HyPORT C
  
  HyPORT E
  
  HyUPS
  
  HySTATPower Specification
  
  Up to 500 W
  
  Up to 5 kW
  
  10-25 kW
  
  50 kWUses
  
  Portable device for use in
  remote locations (e.g. military field operations).
  
  Portable device
  particularly suited to vehicles (e.g. can be used to power on board and
  off-board electrical loads).
  
  Alternative to diesel
  generators and battery banks to provide power for critical backup
  applications (e.g.
  
  Stationary power generator
  that can provide peak shaving power generation and hydrogen refuelling- 7 -

HyPORT C
  
  HyPORT E
  
  HyUPS
  
  HySTATPower Specification
  
  Up to 500 W
  
  Up to 5 kW
  
  10-25 kW
  
  50 kWcellular towers).
  
  for vehicles. It is
  capable of producing enough electricity to meet the needs of 10-15 average
  homes.Features
  
  Produces its own hydrogen
  to meet electrical load demand by mixing chemical hydride with water.
  
  Produces its own hydrogen
  through integration with an electrolyzer which uses power from a vehicles
  alternator while the vehicle is running to generate hydrogen. The fuel cell
  can then be run using the stored hydrogen after the vehicles engine is
  turned off.
  
  Produces its own hydrogen
  fuel from water using an integrated electrolyzer module.
  
  A refueler system produces
  the hydrogen fuel for the HySTAT fuel cells and it also supplies hydrogen to
  an adjacent hydrogen dispenser for vehicle refuelling through an integrated
  natural gas reformer.System Integration and Engineering Services.We have gained substantial expertise in fuel cell operating systems
through our work on the design and assembly of fuel cell test stations. This
expertise is in demand by fuel cell developers that require a third party to
integrate their technology into an operational system and ultimately a power
product. To this end, we provide system integration services to select
customers. These services include engineering, design, prototyping, testing,
contract manufacturing and project management. The ownership of intellectual
property that arises from these relationships is determined on a case-by-case
basis.
In
December 2001, we entered into a contract to supply General Motors with
engineering support and related services at a General Motors fuel cell research
facility in Honeyoye Falls, New York. A two year contract extension was signed
on March 31, 2003. Under the terms of this contract we supply ongoing
engineering, technical, testing, design and administrative support to General
Motors fuel cell development efforts at its Honeyoye Falls development center.

We
anticipate that our engineering services contract with General Motors will end
in the third quarter of 2004. Revenues from engineering services provided to
General Motors represented 14% of our total revenue for the financial year
ended December 31, 2003. We do not expect this to have an impact on our ongoing
relationship with General Motors or other sales to General Motors.
Fuel
Cell Test and Diagnostic Equipment and Testing Services
We design and manufacture
an extensive portfolio of fuel cell test and diagnostic equipment, and offer
testing services to customers requiring third party testing programs.  Our test equipment business unit is operated
by our wholly-owned subsidiary, Greenlight, from its facility in Burnaby,
British Columbia.
Fuel Cell Test Equipment.In order to perform testing and diagnostic functions, our test stations
provide the necessary balance of plant components and subsystems to simulate,
monitor and control key parameters of a fuel cell such as power load,
temperature, pressure, humidity and potential contaminants. Our test stations
measure the effect of these variables on fuel cell performance and provide
real-time data to our customers development programs.
Our
current product line includes test stations for fuel cell stacks, components,
fuel reformers, electrolyzers and fuel cell systems. Our commercially available
test stations are used in testing stationary, portable and mobile fuel cell
applications in the PEM, molten carbonate and solid oxide chemistries. The test
stations are built with proprietary
- 8 -

software
and advanced safety features, which permit unattended automated operation. The
software controls, alters and monitors:

  gas flow rates  higher
  gas flow rates result in higher power output;
  pressure  increasing
  pressure achieves higher power output;
  individual cells  the
  testing and monitoring of individual cells within a stack to validate each
  cell and quickly locate problems in stack performance;
  temperature  a
  temperature that is too high threatens to evaporate water in the fuel cell,
  creating dry or sub-optimal operating conditions; and
  humidity  fuel cells
  operate best when they are humidified or moist; however, over- or
  under-humidification can impair performance; humidification testing helps to
  identify the optimal operating humidity and therefore optimizes the fuel
  cells performance.We market our automated test
stations under the trade name FCATS. Our FCATS product line covers fuel cell
stack testing from 2 kW to 120 kW, which we believe covers the power range for
most PEM fuel cell stacks currently in development. We also manufacture a
smaller, more economical FCATS Screener model, which is an industrial-grade
test station with a variety of features for testing single fuel cells. In
addition, we provide custom design and manufacturing of test stations to meet
specific customer needs. FCATS test stations are designed to keep pace with
current manufacturing requirements as fuel cell commercialization progresses
from the research and development stage to prototype production and potentially
to mass production.
Diagnostic Equipment.Our diagnostic modules measure the electrical performance of fuel cells
and fuel cell stacks using automated, real-time non-invasive techniques. They
are divided into two functional categories: measurement and monitoring of a
fuel cells internal resistance (electrical efficiency) and measurement and
monitoring of a fuel cells DC voltage. Our first diagnostics product was
marketed under the trade name IMPACT. This module can be sold as a stand-alone
unit or integrated as an option in our test stations. The IMPACT module
utilizes an AC impedance measurement technique to determine the electrical
efficiency of a fuel cell stack, which allows developers to characterize the
internal components of fuel cells and to optimize a fuel cell stack for
rigorous practical applications. We also offer a diagnostics module marketed
under the trade name FCVM. This module measures DC voltages in real time to
identify the performance of individual fuel cells within a fuel cell stack. The
FCVM module can also be integrated as an option in our test stations as well as
our fuel cell power modules. Further diagnostic devices are in product
development stages.

Testing Services.We offer a full range of testing services as a cost-effective solution
for customers who wish to initiate a test program through an outside supplier.
Through our testing services, we are able to offer our customers rapid
implementation, improved productivity, lowered financial risk and independent
test validation.

Sales and Marketing

Fuel
Cell Power Products and Services

Our
sales and marketing efforts for our fuel cell power products are currently
focused on the premium power market, consisting primarily of customers in the
research, military, aerospace and backup power segments, that we view as the
likely early adopters of fuel cell power products. We believe that these market
segments are more likely to be early adopters based on the benefits that fuel
cell power technology offers notwithstanding the high cost of fuel cells
relative to conventional means of generating power. In addition, the customers
in this market generally possess a high degree of technical sophistication
allowing us to develop a close collaborative relationship to tailor our
products to their specific requirements and applications.

- 9 -


Fuel
Cell Test and Diagnostic Equipment
We
currently sell our test stations to automotive companies, fuel cell developers,
component suppliers and government agencies. Our marketing efforts are global
in scope and we have current plans to establish sales and service offices in
strategic locations around the world. In addition to distributorship
arrangements in Japan and Korea, we have established an Asia-Pacific regional
office in Tokyo with a manager and five service and after-sales personnel. We
have established our presence in Europe through our office in Germany that was
acquired in the EnKat acquisition. Our sales force is primarily organized by
region for our test station line of products, and by product line for our fuel
cell system products. Our direct sales force for fuel cell test and diagnostic
equipment currently consists of 16 employees based in Canada, Germany and
Japan. We plan to expand our sales staff to cover our growing markets.
Manufacturing
We
assemble and test our fuel cell testing products at the facilities of our
wholly-owned subsidiary, Greenlight, in Burnaby, British Columbia. We assemble
and test our fuel cell power products at our headquarters in Mississauga,
Ontario. Most of our fuel cell power products are currently in a
pre-commercialization phase and are therefore manufactured in very limited
quantities. On occasion, we outsource some of the manufacturing that we require
to local manufacturers who produce prototype components to our specifications.
We also outsource the production of components such as steel frames and
enclosures used in the production of certain of our power products to third
party manufacturers. We believe that this practice allows us to manage our
capital costs and to focus on our core business. We are dependent upon third
party suppliers for certain key materials and components for our products. We
believe that we have sufficient sources and supply of our key materials and key
components, and to date, the pricing of our key materials and components has
been stable.
Customers
The
following is a list of customers that each have accounted for at least $100,000
in revenues since 2000:

3M Company
  Hyundai Motor CompanyAdam Opel AG
  IMRA America, Inc.AeroVironment Inc.
  Industrial Technology
  Research Institute (Taiwan)Asia Pacific Fuel Cell
  Technologies, Ltd.
  UTC Fuel CellsBallard Power Systems Inc.
  Johnson Matthey plcChevronTexaco Corporation
  Morganite Special Carbons
  Ltd.Dalian Institute of
  Applied Technology
  Plug Power Inc.Deere & Company
  PSA
  Peugeot CitroënDelphi Automotive Systems
  Inc.
  QuestAir
  Technologies, Inc.Department of National
  Defence (Canada)
  Radian Inc.DuPont
  Canada Inc.
  Sartorius AGE. I.
  du Pont de Nemours and Company
  United Technologies
  CorporationEngelhard Corporation
  U.S. Army Tank-automotive
  and Armaments CommandEuropean Community
  Toyota Tsusho CorporationEuropean Fuel Cell Group
  Ltd.
  Volvo GroupGas Technologies Institute
  Zentrum für
  Sonnenenergie-und Wasserstoff-ForschungGeneral Hydrogen
  CorporationGeneral Motors CorporationGovernment of CanadaHigh Technology
  Development CorporationGovernment Sponsored Initiatives
We believe that government and
industry demonstration initiatives provide premier opportunities to showcase
the capabilities of our power product portfolio. Technology demonstrations
often result in the identification of potential customers and strategic partners,
give rise to important technical learning and/or educate future stakeholders.
Typically, when we enter into agreements with either the Canadian or U.S.
government, that government receives

- 10 -

the right to be paid royalties and also receives a non-exclusive
license on any intellectual property created during the term of the project or
agreement which allows it to use or to sublicense the resulting intellectual
property rights. Certain of these agreements allow the applicable government
additional rights to the resulting intellectual property if it believes that we
are not exploiting the technology in the manner agreed.
Currently we
  are participating in the following government grants and development
  programs:Purolator.On
  February 9, 2004, we entered into an agreement with Purolator Courier Ltd., a
  major Canadian courier company owned by Canada Post, a Canadian crown
  corporation. The agreement requires us to develop and deploy a fuel cell
  hybrid delivery van using our proprietary PEM fuel cell power module
  technology, as well as the development and installation of an on-site
  hydrogen refueling system based on our proprietary PEM electrolyzer
  technology. The Canadian Transportation Fuel Cell Alliance (CTFCA),
  administered by Natural Resources Canada, NRCan, is partially funding the
  project in support of Purolators ongoing Greening the Fleet program. This
  project aims to demonstrate the viability of using fuel cell hybrid
  technology in a fleet application where urban pollution is a driver to the
  adoption of clean transportation technologies. The deployment of the project
  will be based out of a Purolator facility in the Toronto area.IdaTech. 
  On October 22, 2003, we entered into to an agreement with IdaTech LLC,
  the fuel cell subsidiary of IDACORP, Inc. to develop a 50 kW fuel cell system
  that can serve as an independent energy source for large facilities such as
  hotels, hospitals and office buildings. This project is partially funded by
  the United States Department of Energy. The fully integrated PEM fuel cell
  system will combine IdaTechs patented multi-fuel fuel processing technology
  with a Hydrogenics fuel cell power module and will deliver both electricity
  and thermal energy to building systems. Potential applications include multi-family
  dwellings, prison systems, hospital/medical care facilities and defense
  market applications.SDTC. 
  On October 21, 2003, we were approved by Sustainable Development
  Technology Canada (SDTC) to lead a consortium of technology and end-user
  partners to develop, demonstrate and pre-commercialize fuel cell-powered
  forklifts. The project aims to demonstrate a number of value propositions for
  this potentially early-adopting market. The consortium members include Deere
  & Company, FedEx Canada, General Motors of Canada, NACCO Materials
  Handling Group and the City of Toronto. SDTC is an independent agency that
  administers Canadian Government funding for climate change solutions. The
  contractual terms of these arrangements are pending final negotiations.City of Toronto.  On April 15, 2003, the Toronto City Council approved a
  three-year project in which the citys Energy Efficiency Office and Fleet
  Services Division, in partnership with us and Exhibition Place, will
  demonstrate, in three phases, the ability of fuel cell technology to provide
  mobile and stationary power without harmful emissions. In phase one, our 50
  kW HySTAT energy station demonstrated peak shaving by supplying power to
  the Exhibition grounds during periods of high electricity consumption when
  power is more expensive to buy. During phase one, we also operated a fuel
  cell-powered John Deere commercial work vehicle to demonstrate how fuel cell
  technology can deliver quiet, zero emissions power to vehicles. This vehicle
  was developed in conjunction with John Deeres ePower Technology group using
  our HyPM power modules. During phase one, the HySTAT unit was also used to
  refuel the John Deere commercial work vehicle. In phase two, we will
  demonstrate our electrolyzer technology with a renewable energy source to
  make hydrogen for vehicle refueling. 
  The final phase will demonstrate a fuel cell powered transit bus,
  together with our V2G technology. The three phases of demonstration will
  allow the public to learn about hydrogen and fuel cells as the energy of the
  future in a hands-on setting.Government of Canada.  In the fourth quarter of 2002, we entered
  into a contribution agreement with the Government of Canada, pursuant to
  which the Government of Canada, through the Efficiency and Alternative Energy
  Program and NRCan, will support the integration of our power module
  technology into a next-generation fuel cell-powered transit bus. In the
  current phase of the project, the Government of Canada will contribute Cdn.
  $2.0 million towards the project which is scheduled for completion in March
  2004. The balance of the Cdn. $5.75 million project, comprised of material
  costs and labor and other in-kind contributions, will be contributed by us
  and other project partners. We expect a second phase of the project, with
  additional funding, to commence immediately upon completion of phase one. We
  expect that the project will be completed by March 2005.- 11 -

NRCan. 
  On January 10, 2001, we entered into a two-year contribution agreement
  with NRCan and the Climate Change Action Fund relating to the development of
  a stationary fuel cell system capable of generating power for use in
  multi-dwelling clusters and small commercial buildings. The agreement was
  subsequently amended on April 11, 2001. The agreement has resulted in the
  development of our HySTAT system, a 50 kW stationary power generator complete
  with an integrated natural gas reformer and hydrogen storage. The total cost
  of the project has been approximately Cdn $6.0 million, of which the Government
  of Canada has contributed Cdn. $2.0 million: Cdn. $1.6 million from the
  Technology Early Action Measures, or TEAM, a component of the Climate Change
  Action Fund, and Cdn. $400,000 from NRCan. We have contributed the balance of
  the cost, which is comprised of material costs, labor and other in-kind
  contributions. The HySTAT was demonstrated in August 2003 at the Canadian
  National Exhibition as part of our three-year initiative with the City of
  Toronto and Exhibition Place. We expect to continue to make improvements to
  the HySTAT in our efforts to develop a commercial product line based on this
  technology.Research and Development
Our research and development activities are conducted internally at our
facilities in Mississauga, Ontario and Burnaby, British Columbia by a research
and development staff consisting of approximately 50 full time employees. We
direct our research and development initiatives towards development of
integrated fuel cell systems rather than to the individual components and
materials that comprise a fuel cell system. We actively encourage and assist
our suppliers to develop materials and individual components of a fuel cell
system. For example, in the production of our power modules, we rely on
numerous suppliers to develop component parts such as MEAs, bi-polar plates,
wiring harnesses, blowers and power conditioning components and thereby avoid
the costs associated with internally developing these components. We believe
this strategy allows us to efficiently deploy our capital by leveraging the
research and development efforts of our component suppliers.
As a result of this strategy, one of our key research and development
initiatives is the development of a line of fuel cell power modules across a
power range of 500 watts to 50 kW which we believe will provide a modular and
scalable building block for future power products, as well as for OEM
customers. Since 2001, our power module development team has developed four
distinct generations of fully integrated plug and play HyPM power modules,
ranging in size from 10 to 25 kW.

Our most recent development efforts resulted in our HyPM 10 which was
released in November 2003. Although now in production, we expect ongoing
development of our HyPM power module technology. HyPM power modules have been
designed to be adaptable to a wide variety of commercial applications without
major modifications. The primary focus of our research and development efforts
on power modules is on cost reduction, system simplification, durability,
controls and manufacturability.
Hydrogen generation is also a focus of our research and development
program. We have been developing our PEM electrolyzer technology for several
years. In 2003, we initiated the development of stand-alone PEM electrolyzer
modules that we market and sell under the name HyLYZER. We also incorporate our
electrolyzer technology in our proprietary regenerative systems. In addition,
we are integrating reformer technology into our products but our strategy is to
work with reformer suppliers rather than develop the technology ourselves.
We also dedicate research and development resources to the development
of standalone PEM fuel cell power generating systems, initially targeting
premium power applications for which fuel cell power provides a solution to
specific power requirements. Examples of these systems include our HyPORT-E
regenerative Auxiliary Power Unit (APU), which is comprised of a fuel cell
power module, a PEM electrolyzer module and a metal hydride hydrogen storage
module. This product was developed under contract with the U.S. military and
was subsequently unveiled in a General Motors hybrid-diesel truck in January
2003. Our development team is currently working on a more compact second
generation HyPORT-E unit. In August 2003, we demonstrated a 50 kW HySTAT
stationary power generator complete with an integrated natural gas reformer and
refueler. This product was developed over the past three years with funding
support from NRCan. We have not yet begun to manufacture commercial fuel cell systems
in significant quantities.
The development of fuel cell diagnostics tools is also a key focus of
our research and development program. These diagnostics tools have direct
applications to both our fuel cell test system business, as available options
for our test

- 12 -

station customers, and to our power product development program as
imbedded windows into the performance of fuel cells that are integrated into
a functional system.
Our core stack technology continues to be research and development intensive
with emphasis on the testing of new materials, manufacturing techniques and
cost reduction.
Intellectual Property
We believe that an active policy of protecting intellectual property is
an important component of our strategy of becoming a leader in the
commercialization of fuel cell and hydrogen related products and technologies.
We rely on a combination of patent, copyright, trademark, trade secret and
contract laws, as well as international treaties, to protect our proprietary
rights to our intellectual property which includes technical know-how, designs,
special materials, manufacturing techniques, test equipment and procedures for
fuel cells, fuel cell components and fuel cell systems. Most of our products
have been delivered to customers pursuant to confidentiality agreements, which
restrict the recipient from reverse engineering such products.
We typically retain sole ownership of the intellectual property we
develop on our own. However, our strategic alliance with General Motors and
contractual relationships with some other companies provide for shared
intellectual property rights in certain situations. As part of the agreement
with General Motors, we have a non-exclusive, royalty-free license to use
certain of General Motors proprietary fuel cell stack intellectual property in
certain applications and markets. We have these rights in perpetuity, including
subsequent improvements to the licensed technology. Our agreement with Dow
Corning to jointly commercialize our Seal-in-Place technology provides for
certain shared intellectual property rights. Under the agreement, we and Dow
Corning jointly own a U.S. patent application, together with all inventions
falling within the description of such patent application specific to
Seal-in-Place sealing and sealing materials, for fuel cell and electrolyzer
assemblies conceived or made under the agreement. In addition, our joint
development agreement with Johnson Matthey provides for certain shared
intellectual property rights. Under the agreement, we and Johnson Matthey have
granted each other a non-exclusive, irrevocable, global, royalty-free license
to the patents and technology owned by the inventing party and also the right
to sublicense such patents and technology in order to further the parties work
on the balance of plant system for Johnson Mattheys fuel processor reactors.
Additionally, all inventions conceived in the course of work performed under
the agreement and made jointly by both parties will be owned jointly by both
parties. When the agreement is terminated, the licenses continue to the extent
needed to allow the parties to use the jointly owned patents and technology
invented under the agreement.
We have been granted 16 patents on our technology in the United States
and Canada. We currently have approximately 300patent applications pending
worldwide representing over 105 separate inventions.

Competition
We expect to compete against current conventional technologies, other
fuel cell developers and other alternative power sources in all of our targeted
markets. In the fuel cell industry, we expect to compete in the fuel cell
products, hydrogen generation and fuel cell automated test station markets.
Fuel
Cell Test Stations
In the fuel cell automated test station market, we compete primarily on
the basis of product features, performance, reliability, price and access to
service. A number of companies currently manufacture fuel cell automated test
stations. These companies include Emprise Corporation, Chino Corp.,
ElectroChem, Inc., Lynntech, Inc. and Teledyne Energy Systems, Inc. In addition
to the companies which currently manufacture test stations, most large fuel
cell developers and original equipment manufacturers have some degree of
internal test station development.
Power
Products and Hydrogen Generation
In the commercial production of fuel cell systems and subsystems and
the provision of systems integration services, we expect to compete with
companies who currently have fuel cell and fuel cell system development
programs. We expect to compete on the basis of product flexibility,
performance, product reliability and price. Companies involved
- 13 -

in fuel cell development programs include Ballard Power Systems Inc.,
United Technologies Corporation, Analytic Power Corporation, DeNora spa, Honda
Motor Co. Ltd., Plug Power Inc., Toshiba Corporation, Toyota Motor Corporation,
Giner, Inc., Quantum Technologies Inc. and Distributed Energy Systems Inc.
Companies with programs for fuel cells other than PEM fuel cells include Fuel
Cell Energy Inc., Fuji Electric Co., Ltd., Hitachi, Ltd. and United
Technologies Corporation. Certain of our competitors have announced corporate
alliances with major vehicle manufacturers such as Daimler-Chrysler, Honda and
Ford.
In addition, the following companies are involved in hydrogen
generation: Praxair, Inc., Air Liquide Group, Linde AG, BOC Group, Air Products
and Chemicals, Inc., Stuart Energy Systems Corporation, Distributed Energy
Systems Inc. and a number of large multinational oil and gas companies.

Employees
We have approximately 250 full-time employees. Approximately 100 of our
employees are professional staff, including engineers, scientists, and other
professionals. We believe that our ability to attract and retain qualified
personnel is critical to our success and the achievement of our business plan.
None of our employees are represented by a collective bargaining agreement. We
believe that our relations with our employees are good.
Property, Plant and Equipment
Our executive offices are located in Mississauga, Ontario, Canada. Our
main activities at this facility are the manufacture, research and development
of our fuel cell power products. On January 7, 2003, we acquired all of the
issued and outstanding common shares of Greenlight and the lease on Greenlights
54,000 square foot headquarters and testing services facility in Burnaby,
British Columbia. We use this facility to develop and manufacture our test and
diagnostic products.
In July 2000, we opened a sales office in Japan. This office coordinates
our sales, service and marketing efforts in the Asia-Pacific region.
We currently lease manufacturing, research and development and general
office facilities in the locations set forth below:
Location
  
  Principal Use
  
  Square Footage
  
  Lease Expiry DateMississauga,
  Ontario
  
  Corporate
  offices, manufacturing, research and development and testing services
  
  96,000
  
  August 31,
  2005Burnaby,
  British Columbia
  
  Corporate
  offices and testing services
  
  54,000
  
  December 31,
  2004Gelsenkirchen,
  Germany
  
  Sales and
  marketing, manufacturing
  
  6,000
  
  November 30,
  2005Tokyo, Japan
  
  Sales and
  marketing offices
  
  1,000
  
  May 27, 2005We believe that our facilities are presently adequate for our
operations and that we will be able to maintain suitable space needed on
commercially reasonable terms.
Legal Proceedings

We are not currently party to any material proceedings.

Industry Trends
The search for sustainable energy sources and alternative low or zero
emission energy technologies has grown in importance in recent years. Our
business is premised on the belief that fuel cell technology, utilizing
hydrogen as a fuel, offers a number of benefits:
- 14 -


  Improved Energy Efficiency.Fuel cells
  produce power more efficiently than conventional power systems, such as the
  internal combustion engine. According to industry sources, fuel cells are
  expected to have at least twice the energy conversion efficiencies of a
  conventional internal combustion engine.
  Abundant and Locally Accessible Hydrogen
  Supply.Hydrogen
  is the most abundant element on the earth and can be extracted from water or
  fossil fuels. Subject to perfecting cost-efficient methods of hydrogen
  extraction, the potential supply is almost limitless. By contrast, the supply
  of fossil fuels is considered finite. Additionally, hydrogen can be generated
  from water through electrolysis, or from natural gas through reformation,
  making it a synthetic fuel accessible to most geographic locations, unlike
  oil, which is found only in certain geographic locations and must be
  transported from production regions to end users.
  Lower Emissions.PEM fuel cells discharge zero or
  extremely low quantities of greenhouse gases into the atmosphere. Certain
  other technologies, such as internal combustion engines or high temperature
  fuel cells, are incapable of these low emissions levels.
  Noise Reduction.  Fuel cell systems have few moving parts
  and the electrochemical conversion process is soundless. As a result, a fuel
  cell power generator or appliance is significantly quieter than an internal
  combustion engine.
  Distributed Generation.  Fuel cells can generate electricity and
  heat locally, offering an advantage over centralized generation. A
  multiplicity of decentralized generators operating in parallel offer enhanced
  reliability and security compared to a centralized generator, which is more
  vulnerable to single point failure.Fuel cell industry participants and a number of governments are
currently focusing on a wide range of applications for fuel cells that span the
transportation, stationary power and portable power markets. As fuel cell
technology evolves and related costs decrease through economies of scale and
material science advancements, we believe that a significant market may develop
for fuel cell powered products to meet the expanding global need for energy.
In 2001, PricewaterhouseCoopers LLP was retained by Fuel Cells Canada
to undertake an independent study of the economic rationale and direction for
continued participation by Canadian governments in the fuel cell industry. The
study sought to stimulate discussion about the future of the Canadian fuel cell
industry, what it would take for Canadian companies to remain competitive and
how government and industry can work together. The resulting June 2002 report
by Fuel Cells Canada and PricewaterhouseCoopers LLP entitled Fuel Cells  The
Opportunity for Canada projected that global demand for fuel cells could reach
$46 billion in 2011. The report further projected that if an annual growth rate
of 50% is maintained to 2021, the market could exceed $2.6 trillion worldwide.
We believe this information is useful in assessing our market opportunities.
However, PricewaterhouseCoopers LLP did not undertake an independent evaluation
of the fuel cell market. The fuel cell industry is rapidly evolving and
information can quickly become outdated, and we cannot guarantee future
results, levels of activity, performance or achievements or other future
events.

We believe that recent events related to energy security have served to
illustrate the growing significance and the rising need for the commercial
advancement of the fuel cell industry. In his 2003 State of the Union speech,
President Bush articulated a goal of energy independence for the United States.
To assist in advancing that goal, the U.S. Department of Energy stated that the
United States government committed to spend more than $1 billion for the first
five years of a long-term energy technology and infrastructure development
program, including hydrogen powered automobiles. We believe governmental
support of fuel cell and hydrogen fuel initiatives is increasing in other
countries as well. The Japanese government provided over $175 million in
support of fuel cell research and development and commercialization in 2002 and
has announced that it expects its annual expenditure to exceed $240 million per
year in future years, starting in 2003. The European Commission has also
announced a plan to spend $2.1 billion from 2003 to 2006 on renewable energy 
mostly on hydrogen fuel technologies and fuel cells. Canada has increased
funding for hydrogen fuel and fuel cell initiatives, with recent announcements
of expenditures totaling approximately $135 million over five years.
In addition to these stated commitments by individual countries,
totaling $7 billion over the next five years, U.S. Energy Secretary, Spencer
Abraham, convened an international meeting of 15 energy ministers in Washington
on

- 15 -

November 20, 2003 to establish the International Partnership for a
Hydrogen Economy, or IPHE. The IPHE is the first attempt at establishing a
concerted international approach to the revision of energy policies within the
most energy-dependent economies.
In parallel to the announcement of this meeting, in September 2003, the
Chicago Climate Exchange (CCX) began trading greenhouse gas emissions,
providing an unprecedented opportunity for international voluntary
participation in a global Climate Change Program that will be supplemental and
complementary to the Kyoto Accord. Companies and governments will now be able
to buy emissions credits from parties implementing energy technology, such as
fuel cells, with low greenhouse gas emissions, thus engaging market forces in
favor of sustainable energy sources. Similar trading initiatives have been
announced in other parts of the world, notably Japan and in Europe, signaling
an important trend that could fundamentally affect clean energy technologies
and our sector.
We believe that the recent funding announcements, governmental policies
and legislation will continue to act as drivers for the emerging hydrogen
economy in general, and for fuel cells in particular. The ability of fuel cells
to penetrate commercial markets will also be driven by the following factors:
increased demand for reliable, high-quality, secure energy sources and power;
deregulation in the electricity market; international emissions trading; the
desire for decreased dependence on foreign oil resources; operational benefits
of fuel cells over more traditional sources of power; concerns regarding the
environmental impact of current energy sources; and the increasing costs of
extracting and transporting fossil fuels.
Nevertheless, significant technical and logistical hurdles still impede
the broad commercial application of fuel cell technology. For example:

  current fuel
  cell technology does not yet have the proven reliability and durability of
  many existing alternative technologies in our target markets;
  the high raw
  material and manufacturing costs currently associated with fuel cell
  production currently make it too expensive for many commercial applications
  in our target markets;
  the
  integration of fuel cell systems into existing appliances and infrastructure
  may be difficult;
  hydrogen, in
  a form that can be used by fuel cells, due to the lack of a hydrogen fuel
  cell infrastructure, is not as readily accessible as fuels such as gasoline
  and methanol; and
  the costs of
  hydrocarbon fuels, such as natural gas, and electricity, which are used today
  to produce hydrogen for fuel cells, are rising, which may impede the growth
  of hydrogen-powered fuel cells as a cost-efficient alternative means of
  producing energy.Although hydrogen is not yet a fuel that is readily available to
consumers in the marketplace, it has been produced for many years in
significant quantities for industrial purposes using existing reliable
technologies. Hydrogen can be produced using electrolysis, which uses electricity
to break apart water into hydrogen and oxygen. Hydrogen can also be produced
from hydrocarbon fuels such as natural gas, methanol, ethanol, coal or gasoline
through a process known as reformation. While the use of fossil fuels to
produce hydrogen does not result in zero emissions, reformation coupled with
fuel cell technology is able to exploit the existing fuel infrastructure and
still offers significant environmental improvements over traditional internal
combustion engine systems.
RISK FACTORS

An
investment in our common shares involves risk. Investors should carefully
consider the risks described below and the other information contained in, and
incorporated into, this annual information form, including Managements
Discussion and Analysis and our financial statements for the year ended
December 31, 2003.  The risks described
below are not the only ones we face. 
Additional risks and uncertainties, including those that we do not know
about now or that we currently deem immaterial, may also adversely affect our
business.

- 16 -


Risk Factors Related To Our
Business
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.
We commenced operations of our fuel cell business in 1995, and since
that time, we have been engaged principally in the manufacture and sale of fuel
cell test and diagnostic equipment, the provision of related engineering and
testing services, and research and development relating to fuel cell systems
and subsystems. For the year ended December 31, 2003, we derived $20.7 million,
or 77% of our revenues, from sales of fuel cell test and diagnostic equipment;
$3.7 million, or 14%, from the provision of engineering services to General
Motors; and $2.3 million, or 9%, from sales or lease of fuel cell power
products. For the year ended December 31, 2002, we derived $5.6 million, or
35%, from sales of fuel cell test and diagnostic equipment, $5.8 million, or
37% of our revenues, from the provision of engineering services to General
Motors, and $4.5 million, or 28%, from sales or leases of fuel cell power
products and related services. Our current business strategy is to use the
experience we have gained in the fuel cell test and diagnostic equipment
business to develop, manufacture and sell fuel cell power products in larger
quantities. Because we have made limited sales of fuel cell power products to
date, our historical operating data may be of limited value in evaluating our
future prospects.
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.

We have not generated any positive net income since the initial public
offering of our shares in November 2000. Our current business strategy is to
use the experience we have gained in the fuel cell test and diagnostic
equipment business to manufacture and sell fuel cell power products in larger
quantities. In so doing, we will continue to incur significant expenditures for
general administrative activities, including sales and marketing and research
and development activities. As a result of these increased costs, we will need
to generate significantly higher revenues and positive gross margins to achieve
and sustain profitability. We incurred a net loss of $22.1 million for the year
ended December 31, 2003 and a net loss of $20.6 million for the year ended
December 31, 2002. Our accumulated deficit as of December 31, 2003 was $47.4
million and as of December 31, 2002 was $25.3 million. We will continue to
incur losses beyond 2003 and we may never achieve profitability. Accordingly,
our ability to operate our business and implement our business strategy may be
harmed and the value of our common shares may decline.

We may never complete the development of
commercially viable fuel cell power products, and if we fail to do so, we will
not be able to meet our business and growth objectives.
We have made commercial sales of fuel cell test and diagnostic
equipment, generally on a purchase order basis, since our inception, and have
only been engaged in the development of fuel cells, fuel cell power modules,
integrated fuel cell systems and hydrogen generation devices for a short period
of time. Because our business and industry are still in the developmental
stage, we do not know when or whether we will successfully complete research
and development of commercially viable fuel cell power products. We will face
unforeseen challenges, expenses and difficulties as a developing company
seeking to design, develop and manufacture new products in each of our proposed
markets. Our future success depends upon our ability to develop and sell fuel
cell products. We will be unable to meet our business and growth objectives if
we do not complete the development of commercially viable fuel cell products.
We must lower the cost of our fuel cell
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.

Fuel cells currently cost more than many established competing
technologies, such as internal combustion engines and batteries. The price of
fuel cell products is dependent largely upon material and manufacturing costs.
We cannot guarantee that we will be able to lower these costs to the level
where we will be able to produce a competitive product or that any product we
produce using lower cost materials and manufacturing processes will not suffer
from lower performance, reliability and longevity. If we are unable to produce
fuel cell products that are competitive with other technologies in terms of
price, performance, reliability and longevity, consumers will be unlikely to
buy our fuel cell products. Accordingly, we would not be able to generate
sufficient revenues with positive gross margins to

- 17 -

achieve and sustain profitability.
Our revenue and future prospects depend to a
great extent on our relationship with General Motors Corporation and General
Motors Corporations commitment to the commercialization of fuel cell markets.
Our largest shareholder and historically our largest customer by
revenue is General Motors, which owns approximately 17.6% of our outstanding
common shares. General Motors accounted for 33% of our revenues for the year
ended December 31, 2003, 61% for the year ended December 31, 2002 and 33% for
the year ended December 31, 2001. Revenue from General Motors in 2004 may
decline due to the expected termination of our engineering services contract in
the third quarter of 2004. Our business and results of operations would be
materially hurt if General Motors were to change or terminate its relationship
with us. There is no guarantee that the interests of Hydrogenics will continue
to be aligned with the interests of General Motors and that our relationship
with General Motors will continue in its current form. Furthermore, any change
in General Motors strategy with respect to fuel cells, whether as a result of
market, economic or competitive pressures, could also harm our business by
reducing or eliminating a substantial portion of our revenue. Such a change in
strategy could include, for example, any decision by General Motors to:

  alter its
  commitment to fuel cell technology in favor of other competing technologies;
  delay its
  introduction of fuel cell products and vehicles; or
  increase the
  internal development of fuel cell products or purchase them from another
  supplier.In addition, where intellectual property is developed pursuant to our
use of technology licensed from General Motors, we have committed to provide
certain exclusive or non-exclusive licenses in favor of General Motors and in
some cases, the intellectual property is jointly owned. As a result of such
licenses, we may be limited or precluded, as the case may be, in the
exploitation of such intellectual property rights.
We currently depend upon a limited number of
customers for a majority of our revenues and a decrease in revenue from these
customers could materially reduce our revenues and earnings.
To date, a small number of customers have accounted for a majority of
our revenues and we expect they will continue to do so for the foreseeable
future. Our three largest customers, including General Motors, as discussed
above, accounted for 51% of our revenues for the year ended December 31, 2003,
75% for the year ended December 31, 2002 and 70% for the year ended December
31, 2001. The identities of some of our three largest customers have changed
from year to year. If we lose any of these customers and do not attract
additional customers, we may not generate sufficient revenues to offset this
loss of revenues and our financial results will be materially adversely affected.
Furthermore, our arrangements with these customers are generally non-exclusive,
have no volume commitments and are often done on a purchase-order basis. We
cannot be certain that customers that have accounted for significant revenue in
past periods will continue to purchase our products and generate revenue.
Accordingly, our revenue and results of operations may vary from period to
period. We are also subject to credit risk associated with the concentration of
our accounts receivable from these significant customers. If one or more of our
significant customers were to cease doing business with us, significantly
reduce or delay its purchases from us, or fail to pay us on a timely basis, our
business, financial condition and results of operations could be materially
adversely affected.
Our strategy for the sale of fuel cell power
products depends upon developing strategic partnerships with systems
integrators, OEMs, governments, suppliers and other market channel partners who
will incorporate our products into theirs.

Other than with respect to a limited number of specific markets, our
strategy is to develop and manufacture products and systems for sale to
governments and systems integrators, OEMs, suppliers and other market channel
partners that have mature sales and distribution networks for their products.
The success of our business depends on our ability to develop relationships
with other parties who will integrate our fuel cell products into their
products and on our ability to find partners who are willing to assume some of
the developmental and research costs and risk associated with fuel cell
technology. Our ability to sell our products to the OEM markets depends to a
significant extent upon our strategic partners worldwide sales and distribution
network and service capabilities. In addition, our

- 18 -

agreements with General Motors require that we provide for shared
intellectual property rights in certain situations, and there can be no
assurance that any future strategic relationships that we enter into will not
require us to share some of our intellectual property. Any change in the fuel
cell or alternative fuel strategies of one of our strategic partners could have
a material adverse effect on our business and future prospects. We can offer no
guarantee that systems integrators, OEMs, governments, suppliers and other
market channel partners will manufacture appropriate products or, if they do
manufacture such products, that they will choose to use our products as
components. The end products into which our fuel cell technology will be
incorporated will be complex appliances comprising many components and any
problems encountered by such third parties in designing, manufacturing or
marketing their products, whether or not related to the incorporation of our
fuel cell products, could delay sales of our products and adversely affect our
financial results.
We currently face and will continue to face
significant competition from other developers and manufacturers of fuel cell
test and diagnostic equipment and other fuel cell power products. If we are
unable to compete successfully, we could experience a loss of market share and
reduced gross margins for our existing products and a failure to achieve
acceptance of our proposed products.
We compete with a number of companies that manufacture fuel cell test
and diagnostic equipment. In addition, most large fuel cell developers and OEMs
have some degree of internal test station development. We also sell fuel cell
test and diagnostic equipment to companies that compete with our efforts to
develop and manufacture fuel cell power products. Because fuel cell test and
diagnostic equipment essentially acts as the balance of plant component, which
regulates the type and level of power transferred from the fuel cell or the
fuel cell stack, our customers for fuel cell test and diagnostic equipment may
develop their own internal test stations.

In the commercial production of fuel cell systems and subsystems, we
compete with a number of companies that currently have fuel cell and fuel cell
system development programs. We expect that several of these competitors will
be able to deliver competing products to market before we do. To the extent
that any one of our competitors does so, it could limit our ability to gain market
share or market acceptance for our products, which could harm our revenues and
impair our ability to expand our business. While our strategy is the
development of fuel cell and hydrogen generation technologies for sale to
systems integrators, governments, OEMs and market channel partners, many of our
competitors are developing products specifically for use in particular markets.
These competitors may be more successful in penetrating these specific markets
than we are. In addition, an increase in the popularity of fuel cell power in
particular market channels may cause certain of our customers to develop and
produce some or all of the fuel cell and hydrogen generation technologies that
we are developing.
New developments in technology may negatively affect the development or
sale of some or all of our products or make our products or proposed products
uncompetitive or obsolete. Many of our competitors or potential competitors
have substantially greater resources than us and may be better able to market,
promote and advertise their products. To the extent that they already have name
recognition, their products may enjoy greater initial market acceptance among
our potential customers. These competitors may also be better able to adapt
quickly to customers changing demands and to changes in technology.
We face competition for fuel cell power
products from developers and manufacturers of traditional power technologies
and other alternative power technologies.

Given that PEM fuel cells have the potential to replace existing power
sources, competition in our target markets will also come from current power
technologies, from improvements to current power technologies and from new
alternative power technologies, including other types of fuel cells. Each of
our target markets is currently served by existing manufacturers with existing
customers and suppliers. These manufacturers use proven and widely accepted
technologies such as internal combustion engines and turbines, as well as coal,
oil and nuclear powered generators. Additionally, there are competitors working
on developing technologies including other types of fuel cells and other
alternative power technologies, advanced batteries and hybrid battery/internal
combustion engines, which may compete for our target customers. Demand for fuel
cell test and diagnostic equipment is dependent on continued efforts to
commercialize hydrogen-based fuel cell power technologies. If we are unable to
compete successfully, we could experience a loss of market share and reduced
gross margins for our existing products and a failure to achieve acceptance of
our proposed products.

- 19 -

We have no experience manufacturing fuel cell
products on a large scale basis, and if we do not develop adequate
manufacturing processes and capabilities, we will be unable to achieve our
growth and profitability objectives.
We have manufactured only a limited number of fuel cell power products
for prototypes and initial sales, and we have no experience manufacturing fuel
cell power products on a large scale. In order to produce fuel cell power
products at affordable prices we will have to manufacture a large volume of
fuel cell products. We do not know whether or when we will be able to develop
efficient, low-cost manufacturing capabilities and processes that will enable
us to meet the quality, price, engineering, design and production standards or
production volumes required to successfully mass market our fuel cell products.
Even if we are successful in developing our manufacturing capabilities and
processes, we do not know whether we will do so in time to meet our product
commercialization schedule or to satisfy the requirements of our customers and
the market. Our failure to develop these manufacturing processes and
capabilities in a timely manner could prevent us from achieving our growth and
profitability objectives.
Our products may not meet performance
expectations in field tests, which could negatively affect our customer
relationships and increase our manufacturing costs.

We regularly field test our products and we plan to continue to conduct
additional field tests in the future. Any failures or delays in our field tests
could harm our competitive position and impair our ability to sell our
products. Our field tests may encounter problems and delays for a number of
reasons, including the failure of our technology, the failure of the technology
of others, the failure to combine these technologies properly, operator error
and the failure to maintain and service the test prototypes properly. Many of
these potential problems and delays are beyond our control. In addition, field
test programs, by their nature, may involve delays in product roll-out and
modifications to product design, as well as third party involvement. Any
problem or perceived problem with our field tests, whether originating from our
technology, from our design, or from third parties, could hurt our reputation
and the reputation of our products and limit our sales. Such failures with our
field tests may negatively affect our relationships with customers, require us
to extend field testing longer than anticipated before undertaking commercial
sales, and require us to develop further our technology to account for more
failures than anticipated prior to the field tests.

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 rely upon third party suppliers to provide materials and components
for our fuel cell products. A suppliers failure to provide materials or
components in a timely manner, or to provide materials and components that meet
our quality, quantity or cost requirements, or our inability to obtain
substitute sources for these materials and components in a timely manner or on
terms acceptable to us, may harm our ability to manufacture our fuel cell
products. To the extent that we are unable to develop and patent our own
technology and manufacturing processes, and to the extent that the processes
which our suppliers use to manufacture the materials and components are
proprietary, we may be unable to obtain comparable materials or components from
alternative suppliers, and that could adversely affect our ability to produce
commercially viable fuel cell products.
The components of our fuel cell products may
contain defects or errors that could negatively affect our customer
relationships and increase our manufacturing and warranty costs.

Our fuel cell products are complex and must meet the stringent
technical requirements of our customers. The software and other components used
in our fuel cell products may contain undetected errors or defects, especially
when first introduced, which could result in the failure of our fuel cell
products to perform, damage to our reputation, delayed or lost revenue, product
returns, diverted development resources and increased development, service and
warranty costs.

- 20 -

We may not be able to manage successfully the
expansion of our operations.
The pace of our expansion in facilities, staff and operations has
placed significant demands on our managerial, technical, financial and other
resources. We will be required to make significant investments in our
engineering and logistics systems and our financial and management information
systems, as well as retaining, motivating and effectively managing our
employees. Our management skills and systems currently in place may not enable
us to implement our strategy or to attract and retain skilled management,
engineering and production personnel. Our failure to manage our growth
effectively or to implement our strategy in a timely manner may significantly
harm our ability to achieve profitability.
Our quarterly operating results are likely to
fluctuate significantly and may fail to meet the expectations of securities
analysts and investors, which may cause our share price to decline.
Our quarterly revenues and operating results have varied significantly
in the past and are likely to vary in the future. These quarterly fluctuations
in our operating performance result from the length of time between our first
contact with a customer and the recognition of revenue from sales to that
customer. Our products are highly-engineered and expensive to produce and many
are still in development stages; therefore, the length of time between
approaching a customer and delivering our products to that customer can span
quarterly periods. The length and variability of the sales cycles for our
products make it difficult to forecast accurately the timing and amount of
specific sales and corresponding revenue recognition. The delay or failure to
complete one or more large sales transactions could significantly reduce our
revenues for a particular quarter and we may expend substantial funds and
management effort during our sales cycle with no assurance that we will
successfully sell our products. As a result, our operating results may continue
to fluctuate significantly from quarter to quarter and our share price may
decline and quarter to quarter comparisons of our revenues and operating
results may not be meaningful.
We will need to recruit, train and retain key
management and other qualified personnel to successfully expand our business.

Our future success will depend in large part upon our ability to
recruit and retain experienced research and development, engineering,
manufacturing, operating, sales and marketing, customer service and management
personnel. If we do not attract and retain such personnel, we may not be able
to expand our business. Competition for qualified personnel in our industry is
intense. In the past we have experienced difficulty in recruiting qualified
personnel and we expect to experience continued difficulties in personnel
recruiting. We compete in a new market and there are a limited number of people
with the appropriate combination of skills needed to provide the services that
our customers require. We expect competition for qualified personnel to remain
intense, and we may not succeed in attracting or retaining appropriate
personnel. In addition, new employees generally require substantial training,
which requires significant resources and management attention. Even if we
invest significant resources to recruit, train and retain qualified personnel,
we may not be successful in our efforts.

Our success also depends upon the continuing contribution of our key management,
research, product development, engineering, marketing and manufacturing
personnel, many of whom would be difficult to replace.
We depend upon intellectual property and our
failure to protect that intellectual property could adversely affect our future
growth and success.
Failure to protect our existing intellectual property rights may reduce
our ability to prevent others from using our technology. We rely on a
combination of patent, trade secret, trademark and copyright laws to protect
our intellectual property. Some of our intellectual property is currently not
covered by any patent or patent application. Our patent protection is subject
to complex factual and legal issues that may give rise to uncertainty as to the
validity, scope and enforceability of a particular patent. Accordingly, we
cannot be assured that:

  any of the
  U.S., Canadian or other patents owned by us or third party patents that are
  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 sought by us, if issued at all.- 21 -

In addition, effective patent, trademark, copyright and trade secret
protection may be unavailable, limited, not applied for or unenforceable in
foreign countries. Furthermore, although we typically retain sole ownership of
the intellectual property we develop, our strategic alliance with General
Motors provides for shared intellectual property rights in certain situations.
We have also entered into agreements with both Dow Corning and Johnson Matthey
that involve shared intellectual property rights. Any development made under
these agreements will be available for future commercial use by all parties to
the agreement.

We also seek to protect our proprietary intellectual property through
contracts, including, when possible, confidentiality agreements and inventors
rights agreements with our customers and employees. We cannot be assured that
the parties that enter into such agreements with us will not breach them, that
we will have adequate remedies for any breach or that such persons or
institutions will not assert rights to intellectual property arising out of
these relationships. If necessary or desirable, we may seek licenses under the
patents or other intellectual property rights of others. However, we can give
no assurances that we will obtain such licenses or that the terms of any
offered licenses will be acceptable to us. The failure to obtain a license from
a third party for intellectual property we use in the future could cause us to
incur substantial liabilities and to suspend the manufacture, shipment of
products or our use of processes which exploit such intellectual property.
Where intellectual property is developed pursuant to our use of
technology licensed from General Motors, we have committed to provide certain
exclusive or non-exclusive licenses in favor of General Motors, and in some
cases, the intellectual property is jointly owned. As a result of such
licenses, we may be limited or precluded, as the case may be, in the
exploitation of such intellectual property rights.
Our involvement in intellectual property
litigation could negatively affect our business.
Our future success and competitive position depend in part upon our
ability to obtain or maintain the proprietary intellectual property used in our
principal products. Our ability to establish and maintain such a competitive
position may be achieved in part by prosecuting claims against others who we
believe are infringing our rights and by defending claims brought by others who
believe that we are infringing their rights. Our involvement in intellectual
property litigation could result in significant expense to us, adversely affect
the sales of any products involved or the use or licensing of related
intellectual property and divert the efforts of our technical and management
personnel from their principal responsibilities, whether or not such litigation
is resolved in our favor. If we are found to infringe the intellectual property
rights of others, we may, among other things, be required to:

  pay
  substantial damages;
  cease the
  development, manufacture, use, sale or importation of products that infringe
  upon the intellectual property rights of others;
  discontinue
  processes incorporating infringing technology;
  expend
  significant resources to develop or acquire non-infringing intellectual
  property; or
  obtain
  licenses to the intellectual property which we are found to be infringing.We cannot offer any assurance that we will prevail in any intellectual
property litigation or, if we were not to prevail in such litigation, that
licenses to the intellectual property that we are found to be infringing would
be available on commercially reasonable terms, if at all. The costs of
intellectual property litigation as well as the damages, licensing fees or
royalties that we might be required to pay could have a material adverse effect
on our business and financial results.
We may acquire technologies or companies in
the future, and these acquisitions could disrupt our business and dilute our
shareholders interests in us.

In January 2003, we completed the acquisition of Greenlight. We cannot
assure you that we will be able to successfully complete the integration of
Greenlight into our operations or that the cost savings or synergies we

- 22 -

anticipate will be fully realized. Our failure to effectively integrate
Greenlight into our operations or achieve cost savings and synergies could have
a material adverse effect on our business and financial condition.
We may acquire additional technologies or other companies in the
future. Entering into an acquisition entails many risks, any of which could
materially harm our business, including:

  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
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 may not have sufficient capital to fund our operations, and we may
not be able to raise additional capital or may not be able to do so on
acceptable terms. Either of these outcomes could adversely affect our ability
to respond to competitive pressures upon us or prevent us from conducting all
or a portion of our planned operations. Based on our current business plan, we
believe we have sufficient  cash on hand
to meet our working capital and capital expenditure needs for the next 36
months. After that time, we may need to raise additional funds through
financing which may not be available on acceptable terms, if at all.
Alternatively, we may need to raise additional funds sooner if our estimates of
revenues, costs and capital expenditures change or are inaccurate. We may also
require additional capital to acquire or invest in complementary businesses or
products or obtain the right to use complementary technologies.

The development and commercialization of our products could be delayed
or discontinued if we are unable to fund our research and product development
activities or the development of our manufacturing capabilities. In addition,
we may be forced to reduce our sales and marketing efforts or forego attractive
business opportunities. If we issue additional equity securities in order to
raise funds, the ownership percentage in our company of each of our existing
shareholders will be reduced.
Risk Factors Related To The
Fuel Cell Industry
Significant markets for fuel cell products
may never develop or may take longer to develop than we anticipate, which would
adversely affect our revenue growth.
Significant markets may never develop for fuel cell products or they
may develop more slowly than we anticipate. If significant markets fail to
develop or develop more slowly than we anticipate, we may be unable to recover
the losses we have incurred, and expect to continue to incur, in the
development of our products, and we may never achieve profitability. Any delay
in, or failure of, the development of significant markets for fuel cell
products would significantly harm our revenues and could cause our business to
fail. Fuel cell products represent an emerging market, and we do not know
whether end-users will want to use them. The development of a significant
market for fuel cell products may be affected by many factors, some of which
are out of our control, including:

  the
  emergence of newer, 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;- 23 -


  the
  regulatory requirements of agencies, including the development of uniform
  codes and standards for fuel cell products;
  government support
  of fuel cell 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
maynot be readily
available on a cost-effective basis.
If our customers are not able to obtain hydrogen on a cost-effective
basis, we may be unable to compete with existing power sources, and our
revenues and results of operations would be materially adversely affected. Our
fuel cell products require oxygen and hydrogen to operate. While ambient air typically
can supply the necessary oxygen, our fuel cells rely on hydrogen being derived
from water or from fuels such as natural gas, propane, methanol and other
petroleum products. We are currently developing devices called electrolyzers
that use electricity to separate water into its constituent parts of hydrogen
and oxygen. In addition, third parties are developing systems to extract, or
reform, hydrogen from fossil fuels. Significant growth in the use of
hydrogen-powered devices, particularly in the mobile market, may require the
development of an infrastructure to deliver the hydrogen. There is no guarantee
that such an infrastructure will be developed on a timely basis or at all. Even
if hydrogen is available for our products, if its price is such that
electricity or power produced by our systems would cost more than electricity
provided through other means, we will be unable to compete successfully.

Our products use flammable fuels that are
inherently dangerous substances and could subject us to product liabilities.
Our results of operations could be materially harmed by accidents
involving either our products or those of other fuel cell manufacturers, either
because we face claims for damages or because demand for fuel cells and fuel
cell products could suffer and our sales could decline. Our products use
hydrogen which is typically generated from gaseous and liquid fuels, such as
propane, natural gas or methanol in a process known as reforming. While our
fuel cell products do not use these fuels in a combustion process, natural gas,
propane and other hydrocarbons are flammable fuels that could leak and then
combust if ignited by another source. In addition, certain of our OEM partners
and customers may experience significant product liability claims. As a
supplier of products and systems to these OEMs, we face an inherent business
risk of exposure to product liability claims in the event that our products, or
the equipment into which our products are incorporated, malfunction and result
in personal injury or death. We may be named in product liability claims even
if there is no evidence that our systems or components caused the accidents.
Product liability claims could result in significant losses as a result of
expenses incurred in defending claims or the award of damages. Since our
products have not yet gained widespread market acceptance, any accidents
involving our systems, those of other fuel cell products or those used to
produce hydrogen could materially impede acceptance of our products. In addition,
although our management believes that our liability coverage is currently
adequate to cover these risks, we may be held responsible for damages beyond
the scope of our insurance coverage.
Changes in government policies and
regulations could hurt the market for our products.

The fuel cell industry is in its development phase and is not currently
subject to industry-specific government regulations in Canada or the United
States relating to matters such as design, storage, transportation and
installation of fuel cell systems. However, given that the production of
electrical energy has typically been an area of significant government
regulation, we expect that we will encounter industry-specific government
regulations in the future in

- 24 -

the jurisdictions and markets in which we operate. For example,
regulatory approvals or permits may be required for the design, installation
and operation of stationary fuel cell systems under federal, state and
provincial regulations governing electric utilities, and mobile fuel cell
systems under federal, state and provincial emissions regulations affecting
automobile manufacturers. To the extent that there are delays in gaining
regulatory approval, our development and growth may be constrained.
Furthermore, the inability of our potential customers to obtain a permit, or
the inconvenience often associated with the permit process, could harm demand
for fuel cell products and, therefore, harm our business.
Our business will suffer if environmental policies change and no longer
encourage the development and growth of clean power technologies. The interest
by automobile manufacturers in fuel cell technology has been driven in part by
environmental laws and regulations in California and, to a lesser extent, in
New York, Massachusetts and Maine. There can be no guarantee that these laws
and regulations will not change. Changes in these laws and regulations could
result in automobile manufacturers abandoning their interest in fuel cell
powered vehicles. In addition, if current laws and regulations in these states
are not kept in force or if further environmental laws and regulations are not
adopted in these jurisdictions as well as in other jurisdictions, demand for
vehicular fuel cells may be limited.
The market for stationary and portable energy-related products is
influenced by federal, state and provincial governmental regulations and
policies concerning the electric utility industry. Changes in regulatory
standards or public policy could deter further investment in the research and
development of alternative energy sources, including fuel cells and fuel cell
products, and could result in a significant reduction in the potential market
demand for our products. We cannot predict how changing government regulation
and policies regarding the electric utility industry will affect the market for
stationary and portable fuel cell systems.
Although the development of alternative energy sources, and in
particular fuel cells, has been identified as a significant priority by many
governments, we cannot be assured that governments will not change their
priorities or that any such change would not materially affect our revenues and
business. If governments change their laws and regulations such that the
development of alternative energy sources is no longer required or encouraged,
the demand for alternative energy sources such as our fuel cell products may be
significantly reduced or delayed and our sales would decline.

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.
We would be a passive foreign investment company if 75% or more of our
gross income in any year is considered passive income for United States tax
purposes. For this purpose, passive income generally includes interest,
dividends, some types of rents and royalties, and gains from the sale of assets
that produce these types of income. In addition, we would be classified as a
passive foreign investment company if the average percentage of our assets
during any year that produced passive income, or that were held to produce
passive income, is at least 50%.
Based upon our current and projected income and the market value of the
common shares, we do not expect to be a passive foreign investment company for
United States federal income tax purposes for the taxable year ending December
31, 2003. However, since the determination of whether we are a passive foreign
investment company is based upon the composition of our income and assets from
time to time, and since the market value of our common shares is likely to
fluctuate, there can be no assurance that we will not be considered a passive
foreign investment company for any fiscal year. If we are classified as a
passive foreign investment company, this characterization could result in
adverse U.S. tax consequences to our shareholders resident in the United
States, including having gain recognized on the sale of our common shares be
treated as ordinary income, that is not eligible for the lower tax rate
applicable to certain dividends and having potential punitive interest charges
apply to such sales proceeds.
United States shareholders should consult their own United States tax
advisors with respect to the United States tax consequences of holding our
common shares and annually determine whether we are a passive foreign
investment company.

- 25 -

A limited number of shareholders collectively
own a majority of our common shares and may act, or prevent corporate actions,
to the detriment of other shareholders.
Our principal shareholders, excluding General Motors, currently own
approximately 25.9% of our outstanding common shares. General Motors currently
owns approximately 17.6% of our outstanding common shares. In addition, General
Motors currently owns warrants to acquire 2,470,436 of our common shares.
Accordingly, these shareholders may, if they act together, exercise significant
influence over all matters requiring shareholder approval, including the
election of a majority of our directors and the determination of significant
corporate actions. This concentration could also have the effect of delaying or
preventing a change in control that could be otherwise beneficial to our 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.
If our principal shareholders sell substantial amounts of our common
shares in the public market, the market price of our common shares could fall.
The perception among investors that these sales may occur could also produce
this effect. Share price declines may be exaggerated if the low trading volume
of our common shares that we have experienced to date continues. These factors
could also make it more difficult for us to raise additional funds through
future offerings of our common shares or other securities.
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.
Our articles of incorporation permit us to issue an unlimited number of
common and preferred shares. If we were to issue a significant number of common
shares, it would reduce the relative voting power of previously outstanding
shares. Such future issuances could be at prices less than our shareholders
paid for their common shares. If we were to issue a significant number of
common or preferred shares, these issuances could also deter or delay an
attempted acquisition of us that a shareholder may consider beneficial,
particularly in the event that we issue preferred shares with special voting or
dividend rights. While the rules of the Nasdaq National Market and the Toronto
Stock Exchange may require us to obtain shareholder approval of significant
issuances, we would not be subject to these requirements if we ceased,
voluntarily or otherwise, to be listed on the Nasdaq National Market and the
Toronto Stock Exchange. Significant issuances of our common or preferred
shares, or the perception that such issuances may occur, could cause the
trading price of our common shares to drop.

U.S. investors may not be able to enforce
U.S. civil liability judgments against us or our directors, controlling persons
and officers.
We are organized under the laws of Canada. A majority of our directors,
controlling persons and officers are residents of Canada and all or a
substantial portion of their assets and substantially all of our assets are
located outside of the United States. As a result, it may be difficult for U.S.
holders of our common shares to effect service of process on these persons
within the United States or to realize in the United States upon judgments
rendered against them. In addition, a shareholder should not assume that the
courts of Canada (i) would enforce judgments of U.S. courts obtained in actions
against us or such persons predicated upon the civil liability provisions of
the U.S. federal securities laws or other laws of the United States, or (ii)
would enforce, in original actions, claims against us or such persons
predicated upon the U.S. federal securities laws.
However, a Canadian court would generally enforce, in an original
action, civil liability predicated on U.S. securities laws provided that those
laws that govern the shareholders claim according to applicable Canadian law,
are proven by expert evidence, are not contrary to public policy as the term is
applied by a Canadian court or are not foreign penal laws or laws that deal
with taxation or the taking of property by a foreign government and provided
that the action is in compliance with Canadian procedural laws and applicable
Canadian legislation regarding the limitation of actions.
Also, a judgment obtained in a U.S. court would generally be recognized
by a Canadian court except where, for

- 26 -

example:

  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 law dealing with the limitation
  of actions.Our share price is volatile and may continue
to experience significant price and volume fluctuations.
Since our common shares were initially offered to the public at a price
of $12 per share in November 2000, the last reported sale price of our common
shares on the Toronto Stock Exchange has varied from Cdn. $18.65 per share on
October 27, 2000 to Cdn. $2.65 per share on September 19, 2001 and the last
reported sale price of our common shares on the Nasdaq National Market has
varied from $12.25 per share on October 27, 2000 to $1.87 per share on
September 19, 2001. In recent years, stock markets have experienced significant
price and volume fluctuations, especially in the technology sector. Our common
shares may continue to experience volatility for reasons unrelated to our own
operating performance, including:


  performance
  of other companies in the fuel cell or alternative power businesses;
  news
  announcements, securities analysts reports and recommendations and other
  developments with respect to our industry or our competitors; and
  changes in
  general economic conditions.If
the Canadian dollar weakens against the U.S. dollar, we may experience foreign
exchange losses.
Our monetary assets and liabilities denominated in a currency other
than the U.S. dollar will give rise to a foreign currency gain or loss
reflected in earnings. To the extent that the Canadian dollar weakens against
the U.S. dollar, we may incur net foreign exchange losses. Such losses would be
included in our financial results and, consequently, may have an adverse effect
on our share price. In addition, sales to our customers have traditionally been
denominated primarily in U.S. dollars while certain of our expenses are
denominated primarily in Canadian dollars. If the value of the Canadian dollar
strengthens against the U.S. dollar, the profit margin on our products will be
reduced. We currently do not hedge our currency exposure through financial
instruments. However we do carry a portion of our short-term investments in
Canadian dollars. In addition, a portion of our revenue is denominated in
euros, and we are therefore subject to the risk of exchange rate fluctuations
between those currencies and the U.S. dollar.
- 27 -


You would likely receive much less then the
amount you paid for your shares if we liquidate our assets and distribute the
proceeds.
The current market price of our common shares significantly exceeds the
net tangible book value per share of our common shares. As a result, investors
would likely receive much less than the amount paid for their shares if we
liquidate our assets and distribute the proceeds.
As of the date of this annual information
form there were 3,235,057 options to purchase our common shares and warrants to
purchase up to 2,470,436 common shares outstanding. If these securities are
exercised, our shareholders will incur substantial dilution.
A significant element in our plan to attract and retain qualified
personnel is the issuance to such persons of options to purchase our common
shares. As of April 14, 2004, we have issued and outstanding3,235,057
options to purchase our common shares at an average price of Cdn. $4.11 per
common share. In addition, in October 2001, we issued General Motors warrants
to acquire 2,470,436 of our common shares at a price of $4.00 per common share.
Accordingly, to the extent that we are required to issue significant numbers of
options to our employees, and such options are exercised or, to the extent
General Motors exercises its warrants, you could experience significant
dilution.
SELECTED CONSOLIDATED FINANCIAL
INFORMATION
Years
  ended December 31,2003
  
  2002
  
  2001(in thousands of dollars, except share and per share data)Consolidated Statements of Operations Data:Canadian GAAP:Revenues
  
  $
  26,660
  
  $
  15,840
  
  $
  7,418Cost of
  revenues
  
  
  18,042
  
  
  10,703
  
  
  4,941Gross profit
  
  
  8,618
  
  
  5,137
  
  
  2,477Loss from
  operations
  
  
  (27,888
  )
  
  (21,783
  )
  
  (8,438
  )Net loss for
  the year
  
  $
  (22,091
  )
  $
  (20,611
  )
  $
  (2,816
  )Basic and
  diluted net loss per share
  
  $
  (0.42
  )
  $
  (0.43
  )
  $
  (0.07
  )Shares used
  in calculating basic and diluted net loss per share
  
  
  52,993,167
  
  
  48,437,813
  
  
  38,217,593U.S. GAAP:Net loss for
  the year
  
  $
  (22,244
  )
  $
  (21,054
  )
  $
  (4,284
  )Basic and
  diluted net loss per share
  
  $
  (0.42
  )
  $
  (0.43
  )
  $
  (0.11
  )As at
  December 312003
  
  2002(in
  thousands)Consolidated Balance Sheet Data:Canadian and U.S. GAAPCash and
  short-term investments
  
  $
  46,708
  
  $
  60,051Working
  capital
  
  
  53,831
  
  
  66,387Total assets
  
  
  91,438
  
  
  90,677Total
  long-term financial liabilities
  
  
  619
  
  
  425Total
  shareholders equity
  
  
  80,968
  
  
  85,432- 28 -

Dividends

We have never declared or paid any cash dividends on our common shares.
We currently intend to retain any future earnings to fund the development and
growth of our business and we do not anticipate paying any cash dividends in
the foreseeable future.

MANAGEMENTS DISCUSSION AND
ANALYSIS
Reference is made to our 2003 Managements Discussion and Analysis
which is incorporated herein by reference.
MARKET FOR SECURITIES
Our common shares are listed on the Toronto Stock Exchange (under the
symbol HYG) and on the Nasdaq National Market (under the symbol HYGS).
The registrar and transfer agent for our common shares in Canada is
CIBC Mellon Trust Company at its principal offices in Toronto, Ontario, and the
co-transfer agent and co-registrar for our common shares in the United States
is Chase Mellon Shareholders Services L.L.C. at its offices in New York, New
York.
DIRECTORS AND OFFICERS
The following table sets forth information with respect to our
executive officers and directors as of the date of this annual information
form:
Name
  
  Position with Hydrogenics
  
  Common Shares
  BeneficiallyOwned Or Controlled (1)Pierre
  Rivard
  
  President,
  Chief Executive Officer and Director
  
  5,343,809Norman M.
  Seagram(2)(3)(4)
  
  Chairman of
  the Board of Directors
  
  16,200Boyd J.
  Taylor
  
  Vice
  President, Business Development, Sales and Marketing and Director
  
  5,702,500Joseph
  Cargnelli
  
  Chief
  Technology Officer and Director
  
  5,702,500Gary Brandt
  
  Chief
  Financial Officer
  
  45,000Dr. Ravi B.
  Gopal
  
  Vice
  President, Systems and Applications Engineering
  
  15,000Don J.
  Morrison(2)
  
  Director
  
  500Donald J.
  Lowry(2)(3)
  
  Director
  
  nilWesley
  Twiss(2)(4)
  
  Director
  
  20,000Frank Colvin
  
  Director
  
  2,000Charley
  Pappas
  
  Vice
  President, Infrastructure Applications
  
  nilJames
  Sardo(3)(4)
  
  Director
  
  10,000Jonathan
  Lundy
  
  Vice
  President, General Counsel and Corporate Secretary
  
  3,400(1) The information as to common shares beneficially owned or
controlled has been furnished by the respective officers and directors. As of
the date of this annual information form, our directors and senior officers, as
a group, beneficially own, or exercise control or direction over,16,860,909
of our common shares, being 26.1% of our outstanding common shares.
(2) Member of the Audit Committee.
(3) Member of the Nomination and Corporate Governance Committee.
(4) Member of the Human Resources and Compensation Committee.
Pierre Rivard is one
of our founders and has served as our President and a director since the
inception of our fuel cell related business in August 1995. Mr. Rivard has
served as our Chief Executive Officer since July 2000. From June 1994 to July
1995, Mr. Rivard served as a research engineer at the University of Toronto
with the Department of Mechanical Engineering. Mr. Rivard currently serves as
Chairman of Fuel Cells Canada, director of the Canadian Hydrogen Association
and Chair of the Core Committee of the Canadian Fuel Cell Alliance. Mr. Rivard
earned a
- 29 -

Masters degree in Mechanical Engineering from the University of
Toronto, a Masters degree in Business Administration from the University of
Western Ontario, and a Bachelors degree in Mechanical Engineering from the
Royal Military College of Canada. Mr. Rivard resides in Toronto, Ontario.
Norman M. Seagram
was elected Chairman of our board of directors in July 2000. Mr. Seagram was
President of Sportsco International LP from February 2001 to March 2003. From
September 1996 to May 1997, Mr. Seagram was President and Chief Executive
Officer of Molson Inc., a company that he had previously served for 24 years in
a variety of senior management positions. From October 1992 to August 1996, Mr.
Seagram was Chairman and Chief Executive Officer of Air Liquide Canada, Inc., a
producer of industrial gases. Mr. Seagram is a trustee of Trinity College
School and serves on the International Advisory Council of INSEAD, France, and
on the advisory board of the Faculty of Applied Science and Engineering,
University of Toronto. Mr. Seagram resides in Toronto, Ontario.
Boyd J. Taylor is
one of our founders and has served as a director since January 1996. Mr. Taylor
served as our Secretary from January 1996 until July 1999 and was appointed as
our Vice President, Sales and Marketing in July 2000. His title was changed to
Vice President, Business Development, Sales and Marketing in April 2003. From
January 1993 to September 1995, Mr. Taylor was Manager of Sales and Marketing
of Aquatic Telemetry Systems at Lotek Engineering Inc., a manufacturer of
terrestrial and aquatic telemetry systems. Mr. Taylor earned a Bachelors
degree in Electrical Engineering from Memorial University. Mr. Taylor resides
in Oakville, Ontario.

Joseph Cargnelli is
one of our founders and has served as a director since January 1996. Mr.
Cargnelli served as our Treasurer from January 1996 until July 2000. Mr.
Cargnelli was appointed as our Vice President Technology in July 2000. His
title was changed to Chief Technology Officer in April 2003. Mr. Cargnelli
earned both a Masters of Applied Science degree in Mechanical Engineering and a
Bachelor of Applied Science degree in Mechanical Engineering from the
University of Toronto. From April 1992 to April 1993, Mr. Cargnelli served as a
Research Engineer with the Laboratory of Advanced Concepts in Energy Conversion
Inc., a laboratory engaged in the research, development and demonstration of
alkaline fuel cells and hydrogen storage methods. Mr. Cargnelli resides in
Toronto, Ontario.

Gary Brandt joined
us in October 2001 as our Chief Financial Officer. From 2000 to 2001, Mr.
Brandt was Chief Financial Officer with @Link Networks, Inc. From 1996 to 2000,
Mr. Brandt was Vice President, Investor Relations with WorldCom Inc., and from
1994 to 1996 was Vice President, Investor Relations with MFS Communications
Company, Inc., which was acquired by WorldCom Inc. in 1996. From 1985 to 1994,
Mr. Brandt held various senior finance positions with Northern Telecom. Mr.
Brandt earned a Bachelor of Commerce degree from Queens University and a
Masters degree in Business Administration from York University. Mr. Brandt
resides in Toronto, Ontario.

Dr. Ravi B. Gopal
joined us in May 1998 and was appointed Vice President of Engineering,
Electronics and Controls in June 1999. His title was changed to Vice President
Systems and Applications Engineering in November 2001. Dr. Gopal was employed
by the University of Quebec, Trois-Rivieres as a Post-Doctoral Fellow from
October 1991 to May 1994, a Research Associate from June 1994 to May 1998 and
as a member of the teaching faculty from January to May 1998. Dr. Gopal
received his Ph.D. from the Indian Institute of Science. Dr. Gopal resides in
Oakville, Ontario.

Don J. Morrison
joined our board of directors in September 2000. Don Morrison is Senior Portfolio
Manager at Ontario Municipal Employees Retirement System (OMERS). Mr. Morrison
has previously served as Senior Vice President, Investments, at Working
Ventures Canadian Fund Inc. and as Principal in the Financial Advisory Services
Group of PricewaterhouseCoopers LLP. Mr. Morrison is a Chartered Accountant.
Mr. Morrison was originally appointed to our board by Working Ventures in
accordance with the terms of our Amended and Restated Unanimous Shareholders
Agreement, which expired upon completion of our initial public offering. Mr.
Morrison resides in Toronto, Ontario.

Donald J. Lowry
joined our board of directors in July 2000. Since February 1998, Mr. Lowry has
been President and Chief Executive Officer of EPCOR Utilities Inc., an
essential services utility. From May 1997 to January 1998, Mr. Lowry served as
Chairman of Alta Telecom Inc., a telecommunications company. From March 1993 to
May 1997, Mr. Lowry served as President and Chief Operating Officer of Telus
Communications Inc., a

- 30 -


telecommunications company. Mr. Lowry is a member of the Institute of
Corporate Directors. Mr. Lowry resides in Edmonton, Alberta.
James Sardo joined
our board of directors in May 2003. He currently is a director of Royal Group
Technologies Limited and UE Waterheater Operating Trust as well as a trustee of
Custom Direct Income Fund. Mr. Sardo was President, Canadian operations, of
Moore Corporation Limited, from 1999 to 2001 and President and Chief Executive
Officer of SMK Speedy International, from 1997 to 1999. Prior to 1997, Mr.
Sardo held the Chief Executive Officer positions at SNE, Inc. and Amre Inc. in
the United States and the position of Chairman and Chief Executive Officer of
Firestone Canada Inc. Mr. Sardo is a member of the Institute of Corporate
Directors. Mr. Sardo resides in Mississauga, Ontario.
Charley Pappas
joined us in April 2000 as our Director of Engineering Operations and was
appointed Vice President of Operations in September 2000. His title was changed
to Vice President, Infrastructure Applications in April 2003. From October 1992
to April 2000, Mr. Pappas was employed with The Electrolyzer Corporation
Limited, a manufacturer of hydrogen generators, where he served as Senior
Design Engineer from 1992 to 1994, and Vice-President of Engineering from 1994
to 1999. From 1991 to 1992, Mr. Pappas was President and Project Manager with
Phalanx Engineering Inc., an engineering consultant to the industrial gas
business. From 1981 to 1991, Mr. Pappas was employed by Union Carbide Canada
Limited in a number of positions. Mr. Pappas is a Member of the Professional
Engineers of Ontario and resides in Scarborough, Ontario.
Wesley Twiss joined
our board of directors in February 2003. Mr. Twiss has over 35 years of energy
industry experience, including 13 years as the senior financial officer of two
major Canadian companies. Mr. Twiss was the Executive Vice President and Chief
Financial Officer for PanCanadian Energy Corporation from October 2000 until
April 2002 and was Executive Vice President and Chief Financial Officer of
Petro-Canada from 1998 through 2000. Mr. Twiss is a director of Canadian Oil
Sands Limited and KeySpan Canada Management Limited and a trustee of Enbridge
Commercial Trust. Mr. Twiss is a member of the Institute of Corporate
Directors. Mr. Twiss resides in Calgary, Alberta.

Frank Colvin joined
our board of directors in November 2001. In February 2003, Mr. Colvin retired
as Vice President of Fuel Cell Activities, General Motors. Prior to holding
that position, Mr. Colvin held numerous senior positions at General Motors,
including, most recently, Vice President of Engineering, General Motors Europe.
Mr. Colvin was selected to join our board of directors by General Motors in
connection with our strategic alliance with General Motors. Mr. Colvin resides
in Saint Clair Shores, Michigan.

Jonathan Lundy
joined us in October 2000 as our Vice President Corporate Affairs and Corporate
Secretary. His title was changed to Vice President, General Counsel and
Corporate Secretary in April 2003. From August 1998 to October 2000 Mr. Lundy
was employed at Osler, Hoskin & Harcourt LLP where he practiced corporate
and securities law. From May 1996 to August 1998 Mr. Lundy was employed with
Heenan Blaikie where he practiced corporate law. Mr. Lundy earned a Bachelor of
Laws degree and a Bachelor of Arts degree from the University of Western
Ontario. Mr. Lundy is a member of the Law Society of Upper Canada. Mr. Lundy
resides in Oakville, Ontario.

Each director is elected annually to serve for terms of up to three
years or until his successor is elected or appointed.  Officers are appointed by our board of directors and hold office
until their successors are appointed, subject to resignation, retirement or
removal by our board of directors.

Interest of Management and Others
in Material Transactions
Transactions
with Viking Engineering & Tool Co.

We subcontract some manufacturing in the normal course of our
operations to Viking Engineering & Tool Co., a company owned by the father
and uncle of Joseph Cargnelli, one of our directors and a principal
shareholder. For the fiscal year ended December 31, 2003, we paid this company
approximately $2.1 million. We believe that the rates this company has charged
us for its services are comparable to rates we could have obtained from an
unrelated third party.

- 31 -

Transactions
with General Motors Corporation
In October 2001, we formed a strategic alliance with General Motors to
accelerate the development of fuel cell technology into global commercial
markets. In connection with the strategic alliance, we issued to General Motors
approximately 11.4 million of our common shares, or approximately 21% of our
outstanding shares at October 2001, and warrants to purchase approximately 2.5
million additional shares. The warrants were placed in escrow upon closing of
the transaction and are released at a rate of 61,761 warrants per month over 40
months. Each warrant is exercisable at an exercise price of $4.00 per share
upon release from escrow. The warrants expire on October 16, 2006. The shares
issued, and issuable upon the exercise of the warrants, are subject to certain
restrictions on transfer. In addition, we have granted General Motors certain
registration rights in connection with its shares and the shares issuable upon
the exercise of the warrants. We have agreed that one director nominated by
General Motors shall be included in the slate of directors that are presented
to shareholders for approval at our general meeting.
In connection with the strategic alliance, General Motors granted us a
non-exclusive, royalty-free license to use certain of General Motors
proprietary fuel cell stack intellectual property in certain applications and
modules. The use or incorporation of General Motors fuel stack intellectual
property outside these defined areas requires the consent of General Motors. We
granted to General Motors, its affiliates and any third parties with whom
General Motors has a technical or business relationship related to fuel cells a
perpetual, royalty-free, non-exclusive license to use all of the intellectual
property we develop that (i) uses General Motors proprietary fuel cell stack
intellectual property and/or (ii) is funded by General Motors. Intellectual
property that is not funded by General Motors, but which uses General Motors
fuel cell stack technology is licensed to General Motors non-exclusively.
Intellectual property that has been developed through funding by General
Motors, whether owned solely by us or jointly by us and General Motors, is
licensed to General Motors on an exclusive basis for mobile applications and on
a non- exclusive basis for all other applications. In the event that we wish to
liquidate or discontinue activity in the fuel cell business, or otherwise wish
to transfer any of the intellectual property associated with General Motors
proprietary fuel cell stack intellectual property developed using funds from
General Motors, we are required to offer it first to General Motors. We also
agreed to provide General Motors with certain services, access to technology
and testing resources in connection with its fuel cell development program and
we agreed that all products, material hardware and resources purchased from us
by General Motors will be at our most favorable commercial prices.
For so long as General Motors holds at least 10% of our outstanding
shares, in the event that any of our founders, Pierre Rivard, Boyd Taylor or
Joseph Cargnelli, wish to transfer (i) all or substantially all of their shares
to any person, or (ii) any of their shares to a person actively competing with
General Motors in the automotive or fuel cell industry, they must first offer
the shares to General Motors. In addition, in the event that we issue
additional equity securities or securities convertible into equity securities
for cash consideration, we have granted General Motors the right to participate
in such offering on a pro rata basis based on the fully-diluted number of
common shares that it holds. General Motors pre-emptive right is subject to
certain limited exceptions, including the issuance of shares in connection with
acquisitions. Other than as described above, prior to October 16, 2005, General
Motors is prohibited from acquiring any additional equity securities.

ADDITIONAL INFORMATION
We will provide to any person or company upon request to the Corporate
Secretary of Hydrogenics at 5985 McLaughlin Road, Mississauga, Ontario, L5R
1B8:
(a)
  when the
  securities of our company are in the course of a distribution pursuant to a
  short form prospectus or a preliminary short form prospectus;(i)
  a copy of
  our latest annual information form, together with a copy of any document, or
  the pertinent pages of any document, incorporated by reference in the latest
  annual information form;(ii)
  a copy of
  our comparative consolidated financial statements of our company for our most
  recently completed financial year for which financial statements have been
  filed, together with the accompanying report of the auditor and a copy of the
  most recent interim consolidated financial statements of our company that
  have been filed, if any, for any period after the end of our companys most
  recently completed financial year;- 32 -

(iii)
  a copy of
  our information circular in respect of our most recent annual meeting of
  shareholders that involved the election of directors; and(iv)
  a copy of
  any other documents incorporated by reference into a preliminary short form
  prospectus or short form prospectus and are not required to be provided under
  clauses (i), (ii), and (iii) above; or(b)
  at any other
  time, one copy of any documents referred to in paragraphs (a)(i), (ii) and
  (iii), provided that we may require the payment of a reasonable charge if the
  request is made by a person or company who is not a security holder of our
  company.Additional
information concerning remuneration and indebtedness of directors and officers,
principal holders of our securities, options to purchase securities and
interests of insiders in material transactions is contained in our information
circular in respect of our most recent annual meeting of shareholders that
involved the election of directors. 
Additional financial information is contained in our audited comparative
consolidated financial statements for our most recently completed fiscal year.
- 33 -