<PAGE>

         AS FILED WITH THE SECURITIES EXCHANGE COMMISSION ON JUNE 16, 2003

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------

                                    FORM 20-F

        [ ]     REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G)
                OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

        [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR

        [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                             -----------------------

                            HYDROGENICS CORPORATION -
                            CORPORATION HYDROGENIQUE
             (Exact name of Registrant as specified in its charter)

                                     CANADA
                 (Jurisdiction of incorporation or organization)

                              5985 MCLAUGHLIN ROAD
                          MISSISSAUGA, ONTARIO L5R 1B8
                                     CANADA
           ----------------------------------------------------------
                    (Address of principal executive offices)

       Securities registered or to be registered pursuant to Section 12(b)
                               of the Act: None.

       Securities registered or to be registered pursuant to Section 12(g)
                                  of the Act:

                           COMMON SHARES, NO PAR VALUE

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                of the Act: None.

  Indicate the number of outstanding shares of each of the issuer's classes of
  capital or common stock as of the close of the period covered by the annual
                                    report:

                     48,796,121 COMMON SHARES, NO PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such

<PAGE>

shorter period that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

                                 Yes [X]  No [ ]

    Indicate by check mark which financial statement item the registrant has
                               elected to follow.

                             Item 17 [ ]  Item 18 [X]

<PAGE>

                           FORWARD-LOOKING STATEMENTS

         Securities laws encourage companies to disclose forward-looking
information so that investors can better understand the company's future
prospects and make informed investment decisions.

         A statement we make is forward looking when it uses what we know today
to make a statement about the future. Statements in this annual report about our
future results, levels of activity, performance, goals or achievements or other
future events constitute forward-looking statements. 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. These factors include, among others, those listed
under "Risk Factors" or described elsewhere in this annual report. In some
cases, one 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 and do not intend to update any of our forward-looking
statements after the date of this annual report, other than as required by law.
One should not place undue reliance on forward-looking statements.

         It is important to know that:

         -        forward-looking statements describe our expectations on the
                  day they are made;

         -        our actual results could be materially different from what we
                  expect if known or unknown risks affect our business, or if
                  our estimates or assumptions turn out to be inaccurate. As a
                  result, we cannot guarantee that any forward-looking statement
                  will materialize; and

         -        forward-looking statements do not take into account the effect
                  that transactions or non-recurring items announced or
                  occurring after the statements are made may have on our
                  business. For example, they do not include the effect of sales
                  of assets, mergers, acquisitions or other business
                  combinations or transactions, nor do they include the effect
                  of asset write-downs.

                                 EXCHANGE RATES

         On May 15, 2003, the noon buying rate in New York City for cable
transfers in Canadian dollars was Cdn.$1.00 equals U.S.$0.7269. The following
table sets forth, for each period presented, the high and low exchange rates,
the average of the exchange rates on the last day of each month during the
period indicated, and the exchange rates at the end of the period indicated for
one Canadian dollar expressed in U.S. dollars, based on the inverse of the noon
buying rate

<PAGE>

for cable transfers payable in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York.

<TABLE>
<CAPTION>
                                         YEAR ENDED DECEMBER 31,
                       ---------------------------------------------------------
                         2002      2001      2000      1999      1998      1997
                       -------   -------   -------   -------   -------   -------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>
End of period.......   $0.6329   $0.6279   $0.6669   $0.6925   $0.6504   $0.6999
Average for period..   $0.6368   $0.6444   $0.6725   $0.6745   $0.6714   $0.7197
High for period.....   $0.6612   $0.6697   $0.6969   $0.6925   $0.7105   $0.7487
Low for period......   $0.6209   $0.6241   $0.6410   $0.6535   $0.6341   $0.6945
</TABLE>

         Unless stated otherwise, all references to "$" or "U.S.$" in this
annual report refer to United States dollars and all references to "Cdn.$" refer
to Canadian dollars.

                 PRESENTATION OF FINANCIAL AND OTHER INFORMATION

         Unless we indicate otherwise, financial information in this annual
report has been prepared in accordance with Canadian generally accepted
accounting principles, or GAAP. Canadian GAAP differs in some significant
respects from U.S. GAAP and thus our consolidated financial statements may not
be comparable to the financial statements of U.S. companies. The principal
differences as they apply to us are summarized in note 22 of our financial
statements for the year ended December 31, 2002 included elsewhere in this
annual report.

         As at and for all periods prior to December 31, 2001, our functional
currency was the Canadian dollar. Effective December 31, 1999, we adopted the
U.S. dollar as our reporting currency and the financial information included in
this annual report for 1999 and prior years has been presented in U.S. dollars
in accordance with a translation of convenience method using the exchange rate
at December 31, 1999, as set forth in note 2 of our financial statements for the
year ended December 31, 2001. For periods subsequent to December 31, 1999,
Canadian dollar amounts have been translated into U.S. dollars using the current
rate method, as set forth in note 2 of our financial statements for the year
ended December 31, 2001.

                                      -4-

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                      <C>
PART I.................................................................................................    6

   ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS....................................    6
   ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE..................................................    6
   ITEM 3.    KEY INFORMATION..........................................................................    6
   ITEM 4.    INFORMATION ON THE COMPANY...............................................................   23
   ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS.............................................   45
   ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...............................................   64
   ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS........................................   75
   ITEM 8.    FINANCIAL INFORMATION....................................................................   76
   ITEM 9.    THE OFFER AND LISTING....................................................................   77
   ITEM 10.   ADDITIONAL INFORMATION...................................................................   79
   ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............................   93
   ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...................................   94

PART II................................................................................................   94

   ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..........................................   94
   ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.............   94
   ITEM 15.   CONTROLS AND PROCEDURES..................................................................   95

PART III...............................................................................................   96

   ITEM 16.   [Reserved]...............................................................................   96
   ITEM 17.   FINANCIAL STATEMENTS.....................................................................   96
   ITEM 18.   FINANCIAL STATEMENTS.....................................................................   96
   ITEM 19.   EXHIBITS.................................................................................   96
</TABLE>

<PAGE>

                                     PART I

ITEM 1.           IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

                           Not applicable.

ITEM 2.           OFFER STATISTICS AND EXPECTED TIMETABLE.

                           Not Applicable.

ITEM 3.           KEY INFORMATION.

                  A.       SELECTED FINANCIAL DATA.

         Our consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles. In our case, these principles
conform in all material respects with U.S. generally accepted accounting
principles except as disclosed in note 22 to our consolidated financial
statements for the years ended December 31, 2001 and 2002. The following
selected financial data should be read in conjunction with " Item 5. Operating
and Financial Review and Prospects" and our consolidated financial statements
and notes appearing elsewhere in this annual report. The statements of
operations data for the years ended December 31, 2000, 2001 and 2002, and the
balance sheet data as of December 31, 2001 and 2002 are derived from our audited
consolidated financial statements, which are included elsewhere in this annual
report. The statement of operations data for the years ended December 31, 1998
and 1999 and the balance sheet data as of December 31, 1998 and 1999 are derived
from our audited financial statements and are not included in this annual
report.

<PAGE>

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                           ----------------------------------------------------------------------------
                               1998            1999            2000            2001            2002
                           ------------    ------------    ------------    ------------    ------------
                                        (in thousands, except share and per share amounts)
<S>                        <C>             <C>             <C>             <C>             <C>
STATEMENTS OF
  OPERATIONS DATA:
CANADIAN GAAP:
Revenues ...............   $        665    $      2,674    $      8,883    $      7,418    $     15,840
Cost of revenues .......            415           2,105           6,485           4,941          10,703
                           ------------    ------------    ------------    ------------    ------------
Gross profit ...........            250             569           2,398           2,477           5,137
Operating expenses:
Selling, general and
  administrative .......             89             534           2,069           4,403           6,658
Research and
  development, net .....             45             136             650           2,337           3,761
Depreciation of
  property, plant and
  equipment ............              3              44             224             716           1,278
Amortization of
  acquired intellectual
  property .............             --              --              --           3,459          15,223
                           ------------    ------------    ------------    ------------    ------------
Total operating
  Expenses .............            137             714           2,934          10,915          26,920
Income (loss) from
  operations ...........            113            (145)           (545)         (8,438)        (21,783)
Other income
  (expenses) ...........             (2)            (64)         (1,019)          5,778           1,426
Income (loss) before
  income taxes .........            111            (209)         (1,564)         (2,660)        (20,357)
Income tax expense
  (recovery) ...........             12              (1)            172             156             254
                           ------------    ------------    ------------    ------------    ------------
Net income (loss) ......             99            (208)         (1,736)         (2,816)        (20,611)
Basic and fully diluted
  earnings (loss) per
  share ................   $       0.01    $      (0.01)   $      (0.08)   $      (0.07)   $      (0.43)
Shares used in
  computing basic and
  fully diluted earnings
  (loss) per share .....     19,687,500      19,687,500      22,341,370      38,217,593      48,437,813
                           ============    ============    ============    ============    ============
U.S. GAAP:
Revenues ...............            647           2,598           8,883           7,418          15,840
Net income (loss) ......             96            (165)         (4,843)         (4,284)        (21,054)
                           ============    ============    ============    ============    ============
</TABLE>

<PAGE>

<TABLE>
<S>                        <C>             <C>             <C>             <C>             <C>
Basic and fully diluted
  earnings (loss) per
  share ................   $       0.00    $      (0.01)   $      (0.22)   $      (0.11)   $      (0.43)
                           ============    ============    ============    ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                               AS OF DECEMBER 31,
                             ----------------------------------------------------
                               1998       1999       2000       2001       2002
                             --------   --------   --------   --------   --------
                                                (in thousands)
<S>                          <C>        <C>        <C>        <C>        <C>
CANADIAN GAAP BALANCE
  SHEET DATA:
Cash .....................   $    819   $    453   $  1,844   $  1,639   $    994
Working capital ..........      1,123        700     78,796     72,397     66,387
Total assets .............      1,249      1,964     82,992    107,633     90,677
Total shareholders' equity        247         38     80,260    105,821     85,432
U.S. GAAP:
Total assets .............      1,176      1,964     82,992    107,633     90,677
Total shareholders' equity
  (deficit) ..............        115        (66)    80,260    105,821     85,432
</TABLE>

                  B.       CAPITALIZATION AND INDEBTEDNESS.

                           Not applicable.

                  C.       REASONS FOR THE OFFER AND USE OF PROCEEDS.

                           Not applicable.

                  D.       RISK FACTORS.

         There is a high degree of risk associated with our company and
business. If any of the following risks occur, our business, operating results
and financial condition could be materially adversely affected and the trading
price of our common shares could decline.

                      RISK FACTORS RELATED TO OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY, SO 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 have been engaged principally in research and development relating to
fuel cell systems and

                                      -8-

<PAGE>

subsystems and the manufacture and sale of fuel cell testing equipment.
Accordingly, there is only a limited basis upon which to evaluate our business,
performance to date and prospects. Part of our long-term strategy is to sell
fuel cell systems and subsystems primarily into the transportation, stationary
and portable power markets. We have not yet begun to manufacture commercial fuel
cell products for any of these markets in significant quantities. Therefore, our
historical results of operations should not be relied upon as indications of
future performance.

OUR FUEL CELL BUSINESS IS AT THE DEVELOPMENT STAGE AND OUR FUTURE SUCCESS
DEPENDS ON OUR ABILITY TO DESIGN, DEVELOP AND MANUFACTURE NEW PRODUCTS, WHICH IS
UNCERTAIN.

         We have only been engaged in our fuel cell business for a short period
of time and our business and industry are still in the developmental stage. We
will face challenges, expenses and difficulties as a developing company seeking
to design, develop and manufacture new products in each of our proposed markets.

BECAUSE WE EXPECT TO CONTINUE TO INCUR NET LOSSES, WE MAY NOT BE ABLE TO
IMPLEMENT OUR BUSINESS STRATEGY AND THE PRICE OF OUR COMMON SHARES MAY DECLINE.

         Our current business strategy is to significantly expand our
development and manufacture of proton exchange membrane, or PEM, fuel cell
products and to market these products in the transportation, stationary and
portable power markets. In so doing, we will incur significant expenditures for
research and development, expansion of our manufacturing capabilities, general
administrative activities and sales and marketing activities. As a result of
these increased costs, we will need to generate significantly higher revenues
with positive gross margins to achieve and sustain profitability. We incurred
loss of $20.6 million for the year 2002 and as of December 31, 2002, we had an
accumulated deficit of $85.4 million. We may continue to incur losses beyond
2002 and we may never achieve profitability. Accordingly, our ability to operate
our business and implement our business strategy may be hampered and the value
of our common shares may decline.

WE MAY NEVER COMPLETE THE DEVELOPMENT OF COMMERCIALLY VIABLE FUEL CELL PRODUCTS
AND IF WE FAIL TO DO SO, WE WILL NOT BE ABLE TO MEET OUR BUSINESS AND GROWTH
OBJECTIVES.

         We do not know when or whether we will successfully complete research
and development of commercially viable fuel cell products for any of our target
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.

                                      -9-

<PAGE>

         Fuel cells currently cost significantly 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 a reduction in performance, reliability and longevity. If we are
unable to produce fuel cell products that are comparable to competing
technologies in terms of price, 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 achieve and sustain
profitability.

WE CURRENTLY DEPEND UPON A LIMITED NUMBER OF CUSTOMERS FOR A SIGNIFICANT
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 has accounted for a significant
majority of our revenues and we expect they will continue to do so for the
foreseeable future. For the year ended December 31, 2002, three customers
accounted for approximately 75% of our revenues. For the year ended December 31,
2001, our three largest customers accounted for approximately 70% of our
revenues. 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. Our
largest shareholder and historically our largest customer by revenue is General
Motors. 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. Any change in our relationship
with General Motors could have a material adverse affect on our business and
future prospects.

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 or prevent us from conducting all or a portion
of our planned operations. We expect that cash on hand will be sufficient to
meet our working capital and capital expenditure needs for the next 24 - 36
months. After that, we may need to raise additional funds through financing
which may not be available on acceptable terms, if at all. We may also require
additional capital to acquire or invest in complementary businesses or products
or obtain the right to use complementary technologies.

                                      -10-

<PAGE>

         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.

WE CURRENTLY FACE AND WILL CONTINUE TO FACE SIGNIFICANT COMPETITION, AND 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.

         Our products currently face and will continue to face significant
competition. 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. Other companies, many of which have
substantially greater resources than our company, are currently engaged in the
development of products and technologies that are similar to, or may be
competitive with, our products and technologies. They also 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. We also expect that several of these
competitors will be able to deliver competing products to the market before we
will. 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. These
competitors may also be better able than we to adapt quickly to customers'
changing demands and to changes in technology.

A NUMBER OF CORPORATIONS, NATIONAL LABORATORIES AND UNIVERSITIES IN THE UNITED
STATES, CANADA, EUROPE, JAPAN AND ELSEWHERE POSSESS FUEL CELL TECHNOLOGY AND ARE
ACTIVELY ENGAGED IN THE DEVELOPMENT AND MANUFACTURE OF FUEL CELLS AND FUEL CELL
PRODUCTS. EACH OF THESE COMPETITORS HAS THE POTENTIAL TO CAPTURE MARKET SHARE IN
VARIOUS MARKETS.

         As the fuel cell has the potential to replace existing power sources,
competition for our products will 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. We also face competition in the
market for our fuel cell test stations. In addition to a number of companies
that currently manufacture fuel cell test stations, most large fuel cell
developers and original equipment

                                      -11-

<PAGE>

manufacturers have some degree of internal test station development. Any of
these companies may compete with us for customers.

         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 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.

         To date, we have focused largely on research and development and have
only begun manufacturing fuel cell products. We have no experience manufacturing
fuel cell products on a large scale basis. In order to produce fuel cell
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 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, will involve delays and modifications, 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 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

                                      -12-

<PAGE>

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, would 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
viable fuel cell products or could raise our cost of producing fuel cell
products to a level where it would no longer be profitable to produce such
products.

WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE THE EXPANSION OF OUR OPERATIONS.

         The pace of our expansion in facilities, staff and operations places
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. There can be no
assurance that our management skills and systems currently in place will enable
us to implement our strategy or enable us 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.

WE COULD BE LIABLE FOR ENVIRONMENTAL COSTS AND DAMAGES RESULTING FROM OUR
RESEARCH, DEVELOPMENT AND FUTURE MANUFACTURING OPERATIONS, AND THESE COSTS AND
DAMAGES WOULD REDUCE OUR NET INCOME.

         Our business is subject to numerous U.S. and Canadian laws, regulations
and policies relating to the protection of the environment. These requirements,
and enforcement of these requirements, may become more stringent in the future.
We cannot be assured that we have been, or will be at all times, in compliance
with these requirements, and we may be required to make significant
unanticipated capital and operating expenditures in connection with these
requirements. Non-compliance could subject us to material liabilities, such as
government fines and penalties, revocation of operating permits, third party
lawsuits or the suspension of operations. Our business, which includes the use
and storage of hazardous substances, exposes us to the risk of harmful
substances escaping into the environment, which may result in personal injury or
loss of life, damage to or contamination of the environment, and natural
resource damages. In addition, our current insurance policies may not adequately
reimburse us for costs

                                      -13-

<PAGE>

incurred in settling environmental liabilities, and in some instances, we may
not be reimbursed at all.

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.

         We expect our revenues and operating results to vary significantly from
quarter to quarter. 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. As a
result, quarter to quarter comparisons of our revenues and operating results may
not be meaningful. In addition, due to our early stage of development, we cannot
predict our future revenues or results of operations accurately.

WE MAY ACQUIRE TECHNOLOGIES OR COMPANIES IN THE FUTURE AND THESE ACQUISITIONS
COULD DISRUPT OUR BUSINESS AND DILUTE OUR SHAREHOLDERS' INTERESTS IN US.

         We may acquire technologies or 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 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 is intense in our
industry. In the past we have experienced difficulty in recruiting qualified
personnel that meet our standards, and we expect to experience continued
difficulties in

                                      -14-

<PAGE>

recruiting similar personnel. We are 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 demand. We expect competition for qualified
personnel to remain intense, and we may not succeed in attracting or retaining
sufficient 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.

         In addition, 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. Accordingly, to the extent that we are required to issue
significant numbers of options to our employees, and such options are exercised,
our shareholders could experience substantial dilution.

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.

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 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

                                      -15-

<PAGE>

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.

OUR POTENTIAL 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 valuable technical and
management personnel from their principal responsibilities, whether or not such
litigation is resolved in our favor. In January, 2002, Lynntech Inc. commenced a
legal action against us, alleging patent infringement. Although we believe the
claim to be unfounded and without merit, there is no certainty the litigation
will be resolved in our favor. If we are found to infringe the intellectual
property rights of Lynntech, or others in such litigation, we may, among other
things, be required to:

         -        pay substantial damages;

         -        cease the development, manufacture, use, sale or importation
                  of products that infringe upon other patented intellectual
                  property;

         -        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 be assured that we would be successful in such development or
acquisition or that such licenses would be available upon reasonable terms. Any
such development, acquisition or license could require the expenditure of
substantial time and other resources and could have a material adverse effect on
our business and financial results.

                                      -16-

<PAGE>

THE COMPONENTS OF OUR FUEL CELL PRODUCTS MAY CONTAIN DEFECTS OR ERRORS WHICH
COULD NEGATIVELY AFFECT OUR CUSTOMER RELATIONSHIPS AND INCREASE OUR
MANUFACTURING 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. Furthermore, these components may contain errors or
defects after delivery to customers has begun, which could result in the failure
of our fuel cell products to perform, damage to our reputation, delayed or lost
revenue, diverted development resources and increased development, service and
warranty costs.

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 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 expect 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;

         -        the future cost of hydrogen and other fuels used by our fuel
                  cell systems;

         -        the future cost of membrane electrode assemblies used in our
                  fuel cell systems;

         -        the future cost of platinum, a key component of our fuel cell
                  systems;

         -        regulatory requirements;

         -        manufacturing and supply costs for fuel cell components and
                  systems;

         -        consumer perceptions of the safety of our products;

         -        consumer reluctance to try a new product; and

         -        the continued development and improvement of existing power
                  technologies.

                                      -17-

<PAGE>

THE FUELS ON WHICH OUR FUEL CELL PRODUCTS RELY MAY NOT BE READILY AVAILABLE ON A
COST-EFFECTIVE BASIS.

         If our customers are not able to obtain the fuels they will need to run
our products on a cost-effective basis, we may be unable to compete with
traditional 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. Even if
hydrogen is available to us, if its price is such that electricity 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 WHICH ARE INHERENTLY DANGEROUS SUBSTANCES AND
COULD SUBJECT US TO PRODUCT LIABILITIES.

         Our results of operations could be materially harmed by any accidents
involving either our products or those of other fuel cell manufacturers, either
because we could face claims for damages or because demand for fuel cells and
fuel cell products could suffer and our sales could decline. Our fuel cell
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. Since our products have not yet
gained widespread market acceptance, any accidents involving our systems or
those of other fuel cell products could materially impede acceptance of our
products. In addition, although our management believes that our liability
coverage is 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 the jurisdictions and markets in which we operate.
For example, regulatory approvals or permits may be required for the design,
installation and possibly 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

                                      -18-

<PAGE>

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 principal target markets for our fuel cell products are the
transportation, stationary and portable markets, and our business will suffer if
environmental policies change and no longer encourage the development and growth
of these markets. The interest by automobile manufacturers in fuel cell
technology has been driven in part by environmental laws and regulations mainly
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 and state 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 the deregulation and restructuring of the 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 OUR SHAREHOLDERS

THE TAX LIABILITY FOR OUR SHAREHOLDERS MAY INCREASE IF WE ARE TREATED AS A
PASSIVE FOREIGN INVESTMENT COMPANY, AND UNITED STATES HOLDERS OF OUR COMMON
SHARES WILL BE RESPONSIBLE FOR DETERMINING WHETHER WE ARE A PASSIVE FOREIGN
INVESTMENT COMPANY.

         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 could 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

                                      -19-

<PAGE>

that produce these types of income. In addition, we could 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%. If we are classified as a passive foreign
investment company, this characterization could result in adverse U.S. tax
consequences to our shareholders, including having gain recognized on the sale
of our common shares be treated as ordinary income, as opposed to capital gain
income, and having potential punitive interest charges apply to such sales
proceeds. U.S. shareholders should consult their own U.S. tax advisors with
respect to the U.S. tax consequences of holding our common shares.

         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. 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 a shareholder is a United States holder (as defined below) and
we are a passive foreign investment company at the time that such shareholder
owns common shares, such shareholder will be subject to special U.S. federal
income tax rules that may have negative consequences and will require annual
reporting. United States holders will be responsible for determining whether we
are a passive foreign investment company each year for purposes of applying the
passive foreign investment company act rules.

A LIMITED NUMBER OF SHAREHOLDERS COLLECTIVELY CONTINUE TO 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 Corporation, own
more than 34% of our outstanding common shares. In addition, General Motors
Corporation owns approximately 21% of our outstanding 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.

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 common shares. If we were to issue a significant number of

                                      -20-

<PAGE>

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 Stock 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 Stock 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 THEIR CIVIL LIABILITIES 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, as well as some of the experts named in this
annual report, 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, liabilities against us or such persons predicated upon the U.S. federal
securities laws or other laws of the United States.

         However, U.S. laws would generally be enforced by a Canadian court
provided that those laws are not contrary to Canadian public policy, are not
foreign penal laws or laws that deal with taxation or the taking of property by
a foreign government and provided that they are in compliance with 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, for example:

         -        where 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 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;

                                      -21-

<PAGE>

         -        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 outcome of the judgment of the U.S. court was inconsistent
                  with Canadian public policy;

         -        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.

FUTURE SALES OF COMMON SHARES BY OUR EXISTING SHAREHOLDERS COULD CAUSE OUR SHARE
PRICE TO FALL AND REDUCE THE VALUE OF A SHAREHOLDER'S INVESTMENT.

         If our 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 will 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 SHARE PRICE HAS DECLINED SINCE OUR INITIAL PUBLIC OFFERING AND IT MAY
CONTINUE TO DECLINE.

         In recent years, and especially in the last year, the stock markets
have experienced significant price and volume fluctuations, especially in the
technology sector. Our common shares may also experience that 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.

                                      -22-

<PAGE>

IF THE CANADIAN DOLLAR WEAKENS AGAINST THE U.S. DOLLAR, WE MAY EXPERIENCE
FOREIGN EXCHANGE LOSSES.

         Effective January 1, 2002, we adopted the U.S. dollar as the functional
currency and 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. We currently hold approximately 50% of our short-term investments
in Canadian dollars. To the extent that the Canadian dollar is weakened against
the U.S. dollar, we may incur net foreign exchange losses. Such losses would
affect our financial results and, consequently, our share price. In addition, a
portion of our revenue is denominated in Euros and the Canadian dollar and we
are therefore subject to the risk of exchange rate fluctuations between those
currencies and the U.S. dollar.

ITEM 4.           INFORMATION ON THE COMPANY.

                  A.       HISTORY AND DEVELOPMENT OF THE COMPANY.

         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.

         The following are our significant transactions and events that have
occurred since January 1, 2002:

         -        On April 16, 2002, we entered into an agreement to acquire
                  EnKat GmbH for a purchase price of approximately $645,000,
                  which was paid in cash on May 1, 2002. The principals of EnKat
                  have been retained to lead Hydrogenics' efforts in Europe.
                  EnKat provides process engineering services relating to the
                  integration of testing environments for fuel cells and their
                  components. We intend to rely on EnKat to establish operations
                  in Europe and to bolster our technological expertise in fuel
                  processing.

         -        The General Motors-Hydrogenics alliance demonstrated a number
                  of breakthroughs in 2002. We unveiled a fuel cell vehicle in
                  China in February 2002. We successfully deployed a unique
                  regenerative backup power generator in California. Finally, we
                  demonstrated a regenerative vehicular auxiliary power unit on
                  a hybrid-diesel truck.

                                      -23-

<PAGE>

         -        General Motors engaged us to provide significant engineering
                  services at its fuel cell development center in upstate New
                  York and to test General Motors fuel cell stacks at our
                  Mississauga, Ontario facility.

         -        John Deere's ePower group engaged us to develop a fuel cell
                  power module for integration into a John Deere fuel-cell
                  powered commercial work vehicle.

         -        We developed a strategic partnership with Dow Corning to
                  jointly develop and commercialize an innovative, lower cost
                  manufacturing process for sealing fuel cell stacks,
                  electrolyzers and membrane electrode assemblies.

         -        We delivered and demonstrated our first regenerative fuel cell
                  power products. We demonstrated our 25kW backup power
                  generator at a cell tower in California last summer, and later
                  in the year, we delivered our 5 kW auxiliary power product to
                  the U.S. military and subsequently unveiled it in a
                  militarized General Motors vehicle.

         -        We built and continued durability testing on our third
                  generation power module, known as LP(2), for low pressure, low
                  profile. We initiated the design and development of the LP(2)
                  module in the second quarter of 2002, following the release of
                  our second generation power module in April 2002. In December
                  2002, we delivered a HyPM-LP(2) power module to John Deere
                  which they have since integrated into a demonstrator
                  commercial work vehicle.

         -        We continued to make excellent progress in developing our
                  portable generator technology for expanded applications.
                  Currently we are adapting our HyPort product line for
                  Uninterruptible Power System (UPS) and Auxiliary Power Unit
                  (APU) installations, both of which are appealing to the
                  military market.

         -        In November 2002, we entered into a Cdn.$2.0 million
                  contribution agreement with Natural Resources Canada, NRCan,
                  and the Efficiency and Alternative Energy Program to integrate
                  our fuel cell power module technology into a fuel cell-powered
                  transit bus. The total project cost is Cdn.$5.75 million.
                  NRCan is contributing Cdn.$2.0 million. We, and other project
                  partners, are contributing Cdn.$3.75 million, which is
                  comprised of material costs, labor and in-kind contributions.

         -        On January 7, 2003, we acquired all of the issued and
                  outstanding common shares of Greenlight Power Technologies,
                  Inc. Greenlight, based in a 54,000 square foot headquarters
                  and testing services facility in Burnaby, British Columbia, is
                  a supplier of testing and diagnostic equipment to fuel cell
                  stack manufacturers,

                                      -24-

<PAGE>

                  component manufacturers, system integrators and research
                  organizations. Greenlight provides a full suite of test
                  equipment for fuel cell stack, stack component, reformer and
                  system testing for companies focused on portable, stationary,
                  and transportation fuel cell applications. The purchase price
                  was $19.0 million, exclusive of expenses of $1.0 million
                  relating to the acquisition. Consideration consisted of cash
                  of $2.3 million and the issuance of 4,164,093 of our common
                  shares with an aggregate value of $16.8 million at the
                  acquisition date and representing approximately 8% of our
                  outstanding common shares. Prior to our acquisition of
                  Greenlight, our test business and our power products business
                  were both operated out of our Mississauga, Ontario facility.
                  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 on developing our
                  emerging power products business.

         Our principal executive offices are located at 5985 McLaughlin Road,
Mississauga, Ontario, Canada L5R 1B8, and our telephone number is (905)
361-3660. Our agent for service of process in the United States is CT
Corporation System, located at 111 Eighth Avenue, New York, New York 10011.

         Capital expenditures for the year ended December 31, 2002 were $1.5
million, compared with $3.1 million and $1.5 million for the years ended
December 31, 2001 and 2000, respectively. This increase is attributable to
equipment and facility expenditures related to outfitting our facilities and our
expanded research and development efforts.

         We expect capital expenditure plans for 2003 and subsequent years to
result in further investment in capital assets as we continue our manufacturing
and development initiatives. Our current budget for 2003 includes a capital
budget of approximately $3.2 million to purchase and manufacture testing and
other equipment, primarily for our research and development programs but also in
support of ongoing operational needs. Our capital requirements will be affected
by many factors, including the success of our current product offerings, the
ability to enhance our current products and our ability to develop and introduce
new products that keep pace with technological developments in the marketplace.
As at December 31, 2002 we had cash of $1.0 million and short term investments
of $59.1 million.

         There have been no public takeover offers by third parties in respect
of the Company's shares or by the Company in respect of other companies' shares.

                                      -25-

<PAGE>

                  B.       BUSINESS OVERVIEW.

OUR COMMERCIAL BUSINESS

         We are a leading developer and manufacturer of proton exchange membrane
(PEM) fuel cell automated test stations, fuel cell power products and a provider
of engineering and other services. Our principal business is the
commercialization of PEM fuel cells and PEM fuel cell systems for use in
research and development, portable, stationary, transportation and other power
applications.

         Currently, our key customers are primarily automotive companies,
original equipment manufacturers, fuel cell and fuel cell component developers,
and government agencies.

         Our power products are currently designed for premium power
applications. These power products comprise fully integrated fuel cell power
appliances and generators, as well as proprietary scalable fuel cell power
modules for integration into original equipment manufacturer, or OEM, equipment.
Our stand-alone power generators include portable and auxiliary power generators
in the 500 watt to 20kW range. The initial target market for these products is
the early adopting military market. In addition, we have developed a
regenerative fuel cell backup power generator, which currently can generate
25kW, initially targeting the telecommunications market to provide reliable
power at cell tower sites. Also, we are developing a 50kW stationary power
generator with natural gas reformer for powering multi-dwelling complexes or
commercial buildings.

         Our test stations are used to aid in the design, development and
manufacture of PEM fuel cell systems. A PEM fuel cell system is a power
generator that produces electricity through an electrochemical reaction of
hydrogen and oxygen with the principal by-products being heat and water. A PEM
fuel cell system is comprised of three major sets of components: a hydrogen fuel
processor and/or hydrogen storage device; a fuel cell or stack of fuel cells;
and power conditioning equipment, which regulates the type and level of power
transferred from the fuel cell. In the case of a regenerative fuel cell system
there is a fourth component, which is a hydrogen generation device, typically an
electrolyzer. The collective components and subsystems of a fuel cell system,
outside of the fuel cell stack, are known in our industry as the "balance of
plant" of a fuel cell system. In order to perform testing and diagnostic
functions, our test stations provide balance of plant components and subsystems
that simulate, monitor and control key parameters of a fuel cell such as power
load, temperature, pressure, humidification and potential contaminants. This
data enables our customers to measure the effect of these variables on fuel cell
performance. We are currently selling our test stations to automotive companies,
fuel cell developers, component suppliers and government agencies. Through the
development of our proprietary test stations, we have gained significant
expertise in the development and operation of PEM fuel cell stacks and the
balance of plant subsystems and components of a fuel cell system.

                                      -26-

<PAGE>

         We also provide systems integration and engineering services with
select clients and partners. System integration services entail working with
these clients to integrate their proprietary components, typically a fuel cell
stack, into a functional fuel cell system. These services include engineering
design, prototyping, testing, contract manufacturing, and project management.

         On October 16, 2001, we formed a strategic alliance with General Motors
Corporation, or GM, to accelerate the development of fuel cell technology into
global commercial markets. The alliance includes shared intellectual property
rights and joint efforts in fuel cell product development, engineering,
prototyping, testing, branding, and marketing strategies. As part of the
agreement, GM received 11.4 million of our common shares, or approximately 21%
of our outstanding shares. We also issued GM warrants to acquire an additional
2.5 million common shares, bringing GM's stake to approximately 24% of
outstanding equity, assuming exercise of its warrants. GM also appointed a
representative and one observer to our board of directors in conjunction with
the alliance, resulting in the expansion of our board at that time, from seven
directors to eight.

OUR PRODUCTS

         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. We expect to continue to market and sell our test stations for the
foreseeable future. However, in 2001 we began to generate revenues from our
commercial power products and system integration services. 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 determined
by the location of our customers was as follows:

<TABLE>
                  2002     2001     2000
                 ------   ------   ------
                      (in thousands)
<S>              <C>      <C>      <C>
United States    12,715   $3,080   $5,098
Japan               703    2,081      ---
United Kingdom    1,108      600    3,442
Rest of World     1,314    1,657      343
                 ------   ------   ------
Total            15,840    7,418    8,883
                                   ======
</TABLE>

         Our business is not subject to any seasonal fluctuations.

                                      -27-

<PAGE>

         We are dependent upon third party suppliers for certain key materials
and components for our 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 could harm our ability to manufacture
our fuel cell products. Currently we believe that we have ample sources and
supply of our key materials and key components. To date, the pricing of our key
materials and components has been stable.

OUR PRODUCTS IN DEVELOPMENT

         In addition to our fuel cell test stations, we are developing PEM fuel
cell power generating systems, initially targeting premium power applications
for which fuel cell power provides a solution to specific power requirements. In
2002, we redesigned our second-generation pressurized, HyPM power module,
resulting in a new low-profile, low-pressure power module with improved
performance, durability, reliability and modularity. The substantially fewer
components and subassemblies result in significant cost reductions. In 2002, we
also introduced the HyPORT-E regenerative Auxiliary Power Unit (APU). This
product was developed under contract with the U.S. military and was subsequently
unveiled in a General Motors military vehicle. We are currently working on a
more compact second generation APU unit. In addition, we are developing
regenerative fuel cell systems that can both generate electricity and produce
hydrogen fuel from water and store it for later use in powering the fuel cell.
We have not begun to manufacture commercial fuel cell systems in significant
quantities.

MARKET OPPORTUNITIES FOR OUR FUEL CELL PRODUCTS

         We believe that a number of trends are focusing attention on the use of
PEM fuel cells as an attractive alternative method of power generation. As a
result, automotive companies, fuel cell developers, component suppliers and
others are currently spending significant amounts of capital developing their
own fuel cell programs. We believe that test stations, such as our FCATS and
FCAVS products, and our proprietary balance of plant components and subsystems,
will be important elements of many of these programs in both the development
stages and the manufacturing process as broad commercial markets for fuel cells
develop.

         Trends that will influence the penetration of PEM fuel cells into broad
commercial markets include:

         -        Increasing demand for continuous and reliable power;

         -        Increasing desire for energy security and less dependence on
                  foreign oil;

         -        Deregulation in the energy industry;

                                      -28-

<PAGE>

         -        Operational efficiencies and other advantages of fuel cells
                  over traditional power technologies;

         -        Environmental concerns regarding conventional power
                  technologies; and

         -        Rising and volatile energy costs causing consumers to seek
                  alternative means of producing energy.

         Although we are encouraged by these trends, there remain numerous
technical and logistical disadvantages that represent obstacles to the broad
commercial application of fuel cell technology. For example:

         -        current fuel cell technology does not have the proven
                  dependability that many of the existing alternative
                  technologies have in our target markets;

         -        the high manufacturing costs currently associated with fuel
                  cell production make many commercial applications in our
                  target markets prohibitively expensive;

         -        appropriate integration of current fuel cell systems into
                  existing conventional technology may be difficult;

         -        fuels such as hydrogen are not as readily available as fuels
                  such as gasoline and methanol used in some of the alternative
                  technologies in our target markets; and

         -        the costs of hydrocarbon fuels currently used to produce
                  hydrogen for fuel cells are rising, which may impede the
                  growth of hydrocarbon-powered fuel cells as a cost-efficient
                  alternative means of producing energy.

OUR COMMERCIAL PRODUCTS AND SERVICES

         Our products and services are described in more detail on the following
pages. References in the tables and elsewhere in this annual report to "amps"
and "watts" are to the applicable measurement units for electric current and
power, respectively, established under the International System of Units, which
is the modern metric system of measurement. One thousand watts of power is
referred to as a "kilo-watt" or "kW" as abbreviated. The references to these
units of measurement in the tables below are to the electrical limits that a
particular test station can test. For example, one of our 100kW FCATS would be
able to test a fuel cell stack that can generate up to 100kW of electric power
and our FCATS-LAA, which is designed to test a single fuel cell, can test single
fuel cells that generate no more than 2000 amps of electric current.

         In connection with our test stations, the testing requirements of our
customers are dictated by the power requirements of the applications for which
they are developing fuel

                                      -29-

<PAGE>

cells and fuel cells stacks. Our customers typically first test single fuel
cells. Testing of a single fuel cell typically measures the current, in amps,
generated by the fuel cell. A customer may begin to develop fuel cells with low
currents of up to 300 amps and then move to the development of fuel cells with
higher currents of up to 2000 amps. Single fuel cells are not capable of
generating sufficient power to power an electrical application, such as
automobiles or houses, so they are combined with other fuel cells to make up a
fuel cell stack. Testing of a fuel cell stack typically measures the power, or
kW level, generated by the stack. Generally, fuel cell stacks consisting of fuel
cells with high electric current levels, such as 2000 amps, generate more
electric power than stacks consisting of the same number of fuel cells but with
lower electric current levels, such as 300 amps. A greater number of fuel cells
in a fuel cell stack typically produces a fuel cell stack that can generate a
greater amount of electric power. The amount of power produced by a fuel cell
stack determines the commercial markets for its use. For example, a 4kW fuel
cell stack could produce enough electricity to power a small house, whereas a
100kW fuel cell stack could produce enough electricity to power an automobile.

POWER PRODUCTS

         The following table sets forth our power products and describes their
respective applications, target markets and development status:

<TABLE>
<CAPTION>
PRODUCT                  APPLICATION                  TARGET MARKET              STATUS
<S>           <C>                                   <C>                     <C>
HyUPS         Delivers 25kW power output for        Stationary              Pre-commercial
              backup power, with regenerative                               production
              capabilities

HyPM          Power modules for integration into    Transportation,         Commercial production
              a power appliance or propulsion       Stationary, Portable
              system

HyPORT        Delivers 2.5 to 5kW power output      Portable                Pre-commercial
              fueled by hydrogen stored in metal                            production
              hydride canisters

HyPORT C      Delivers 500W power output fueled     Portable                Pre-commercial
              by hydrogen generated by integrated                           production
              chemical hydride system

HyPORT E      Delivers auxiliary power              Transportation          Pre-commercial
              applications up to 5 kW using an                              production
              integrated electrolyzer to generate
              hydrogen from water using power
              from a vehicle's
</TABLE>

                                      -30-

<PAGE>

<TABLE>
<CAPTION>
PRODUCT                  APPLICATION                 TARGET MARKET              STATUS
<S>           <C>                                   <C>                     <C>
              alternator
H2X           Electrolyzer uses PEM                 Stationary,             Pre-commercial
Electrolyzer  electrolysis as a fundamental         Transportation          production
              component of our
              regenerative fuel cell power
              systems
</TABLE>

         POWER PRODUCTS

         A stationary power product, marketed under the name HyUPS and
co-developed by us with GM provides backup power for telecommunications and
other critical backup power markets. HyUPS is intended to provide a solution to
problems associated with diesel gensets and battery banks that are currently
providing backup power for telecommunications towers. The prototype unit is
capable of delivering 25kW power output and has regenerative capabilities. In
the HyUPS, a PEM electrolyzer recharges a hydrogen supply after grid power has
been re-established, providing a low-maintenance self-fueling system. In the
current prototype system, hydrogen is stored in an integrated high pressure
cylinder. Longer power duration capabilities are achievable by adding storage
modules. The HyUPS product is ready for commercial production in limited
quantities.

         Our HyPM power modules are a fundamental building block of our
commercial power products under development. Each HyPM power module includes a
fuel cell stack with a full balance of plant system. The HyPM is designed so
that it only requires a hydrogen fuel supply in order to deliver fully usable
conditioned power to a power application. We have designed these modules to be
modular and scalable to a large number of power applications and power ranges.
In 2002, we manufactured 15 power nodules for a variety of customers and testing
requirements. Our third generation HyPM-LP(2) power module, demonstrates
superior performance with corresponding reductions in parts count, material
costs and size. Although the HyPM product is in commercial production, we
continue to develop it further.

         HyPORT represents our fundamental portable power technology. HyPORT is
a fully integrated fuel cell system complete with hydrogen storage, designed to
be a portable system that is capable of being reconfigured for auxiliary power
applications. HyPORT is intended to provide a solution to problems associated
with diesel gensets and battery banks that are currently providing temporary
power for locations where grid access is not available. HyPORT was initially
developed to meet the needs of the military market for tactically quiet
generators and onboard power generation for military vehicles.

                                      -31-

<PAGE>

         HyPORT C is a 500W portable fuel cell power product that is equipped
with a proprietary integrated chemical hydride hydrogen generator. It was
developed with financial assistance from the Canadian military for the primary
purpose of recharging batteries in the field. The chemical hydride subsystem
generates hydrogen by combining sodium borohydride with water in the presence of
a catalyst. This system is capable of load-following, which means that it
generates hydrogen on demand to meet the requirements of an electrical load so
that a hydrogen storage vessel or medium is not required.

         HyPORT E is a regenerative fuel cell system that is designed for
auxiliary power applications up to 5 kW. It is particularly well-suited for
vehicular non-propulsion applications. The integrated electrolyzer generates
hydrogen from water using power from the vehicle's alternator while the engine
is running. After the engine is turned off the fuel cell power module uses the
stored hydrogen to power on-board and off-board electrical loads.

         H2X Electrolyzer has been developed by us using proprietary technology
in hydrogen generation using PEM electrolysis. We are demonstrating this
technology as a fundamental component of Hydrogenics' regenerative fuel cell
power systems, for example in our HyPORT E auxiliary power unit, as well as for
stand-alone hydrogen generation.

FUEL CELL AUTOMATED TEST STATIONS AND MODULES

         The following table sets forth our fuel cell automated test stations
and describes their respective applications, target markets and development
status:

<TABLE>
<CAPTION>
PRODUCT                       APPLICATION                   TARGET MARKET                 STATUS
<S>               <C>                                   <C>                         <C>
FCATS             Automated control and monitoring of   Research & development,     4kW, 12kW, 24kW and
H / Hx Series     fuel cell stacks ranging from 2kW     production                  120 k Wsystems in
                  to 120kW                                                          commercial production

FCATS             Automated control & monitoring of a   Research & development      Commercial production
L Series          large active area single cell (up
                  to 1000cm squared) with current up
                  to 2000 amps

FCATS             Automated control and monitoring of   Research & development      Commercial production
S Series          single cell with total current
                  output of 300 amps

FCAVS             Automated performance verification    Fuel cell manufacturers     Commercial production
Residential       and incubation for quality
                  assurance of
</TABLE>

                                 -32-

<PAGE>

<TABLE>
<CAPTION>
PRODUCT                       APPLICATION                     TARGET MARKET                STATUS
<S>               <C>                                   <C>                         <C>
                  manufactured fuel cell stacks for
                  residential fuel cell systems of
                  12kW and under

FCAVS             Automated performance                 Transportation, Stationary  Commercial production
                  verification and incubation for
                  quality assurance of manufactured
                  fuel cell stack for 2kW to 100kW

IMPACT            Standalone diagnostics module for     Research & development      Commercial production
                  measurement of the electrical
                  efficiency of a fuel cell
</TABLE>

FUEL CELL AUTOMATED TEST STATIONS

         Our fuel cell automated test stations represent complete turnkey units
that evaluate fuel cell design and performance by simulating, monitoring and
controlling key parameters such as power load, temperature, pressure,
humidification and potential contaminants in the system. Our test stations are
built with proprietary 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.

         FCATS. Our fuel cell automated test stations, marketed under the trade
name FCATS, are industrial-grade test stations capable of operating multi-cell,
large surface area stacks. Our FCATS product line consists of four models that
cover fuel cell stack testing from 2kW to 120kW, which we believe covers the
power range for most PEM fuel cell stacks currently in

                                      -33-

<PAGE>

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 cells. In addition, we provide custom design and fabrication 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 eventually to mass production.

         Our existing and potential customers for FCATS are primarily automotive
manufacturers and suppliers of fuel cell components. These customers use our
FCATS products to simulate, monitor, and control the effect of power load,
temperature, pressure, humidification and potential contaminants on a fuel cell
and to measure the effect of changes in these variables on fuel cell
performance. The data obtained through our test stations is used by our
customers to aid in the design, development, and manufacture of PEM fuel cell
systems.

         FCATS units are manufactured to order. We are continuing to improve the
FCATS product line based on customer feedback and on new requirements identified
in the market. In 2003, we plan to continue to expand our line of FCATS products
in response to existing and new customer requirements. We believe that
continuing to improve product design, manufacturing processes and supplier
relationships will enable us to simplify the production process.

         FCAVS. We have developed a fuel cell automated verification station
based on our FCATS platform which we market under the trade name FCAVS. We
believe that FCAVS will meet the demand for a single-point testing station
required to verify fuel cell power generators for inspection as a part of the
manufacturing process. We launched our FCAVS series in the first quarter of
2000.

         IMPACT. The IMPACT subsystem is designed to measure the electrical
efficiency of a fuel cell non-intrusively, in real-time and under dynamic
conditions. We believe that this feature represents an improvement over previous
techniques and equipment.

SYSTEM INTEGRATION AND ENGINEERING SERVICES

         We have gained substantial expertise in fuel cell operating systems
from the design and assembly of fuel cell test stations. This expertise is in
demand by fuel cell developers who 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 clients and partners.
These services include engineering, design, prototyping, testing, contract
manufacturing, and project management. The ownership of intellectual property
that arises from these relationships is handled on a case by case basis.

         On December 3, 2001, we signed a contract to supply GM with engineering
support and related services at a GM fuel cell research facility in Honeoye
Falls, New York. A two year

                                      -34-

<PAGE>

contract extension was signed on March 31, 2003. Under the terms of this
contract we will supply ongoing engineering, technical, testing, design and
administrative support to GM's fuel cell development efforts at its Honeoye
Falls development center.

OUR PRODUCTS IN DEVELOPMENT

         The following tables set forth our products in development and
describes their respective applications, target markets and development status:

         BALANCE OF PLANT COMPONENTS AND SUBSYSTEMS

<TABLE>
<CAPTION>
       PRODUCT                     APPLICATION                   TARGET MARKET                  STATUS
<S>                    <C>                                   <C>                         <C>
Controls (hardware &   Control and operation of PEM fuel     Transportation,             Commercial development
software)              cell systems for use in modules and   Stationary, Portable
                       balance of plant subsystems

Cathode subsystem      Humidification of fuel cell system    Transportation,             Commercial development
                       or power module                       Stationary, Portable

Seal-in-Place          In situ sealing of fuel cell and      Fuel cell manufacturers     Commercial development
                       components
</TABLE>

Balance of Plant Components and Subsystems

         The components and subsystems of our test stations evaluate fuel cell
design and optimize performance by simulating, monitoring and controlling key
parameters such as power load, temperature, pressure, humidification and
potential contaminants in the system. These components and subsystems also
provide balance of plant to a fuel cell system. We are currently applying our
balance of plant expertise and operational experience to develop fuel cell
systems. We believe that our balance of plant components and subsystems will
have broad market applications in all of our target markets, as they are
integrated into the control and operation of fuel cell systems.

         During 2002, we continued to develop our proprietary cathode subsystem.
This is a balance-of-plant humidification system that we deploy in our FCATS
products and in the development of fuel cell power modules. This humidification
process is critical to the efficient operation of a fuel cell stack.

         During 2001, we entered into a collaborative agreement with Johnson
Matthey, Inc. to develop a fully integrated fuel processor system. Fuel
processing is a critical component in building a hydrogen infrastructure. The
fuel processor is expected to incorporate Johnson

                                      -35-

<PAGE>

Matthey's proprietary fuel processing technology and our integrated system
controls and subsystems.

         In 2002, we entered into a collaborative agreement with Dow Corning to
jointly develop and commercialize an innovative, low cost manufacturing process
for sealing fuel cell stacks, electrolyzers and membrane electrode assemblies.

FUEL CELL SYSTEMS FOR PREMIUM POWER APPLICATIONS

         Our commercialization strategy for portable, stationary and
transportation markets is primarily focused on premium power applications.
Premium power refers to applications with critical power requirements that are
not adequately met by conventional technologies. For reasons generally related
to off-grid access, reliability, air contamination and noise levels, these
applications have an immediate need to find an alternative power delivery
system. We believe that the inherent features of fuel cells make this technology
a viable solution for such applications, and in the case of certain premium
markets, the current high $/kW cost of this solution is justifiable. For such
applications we have demonstrated the ability to develop operational fuel cell
systems to the exacting criteria that users demand. By using a premium power
market strategy, we believe that we are better able to manage risks by working
with technically sophisticated users, such as the military, in order to develop
products to well-defined specifications and to smaller controlled volumes and
capital expenditures.

         HyUPS. Our first premium power stationary product is marketed under the
tradename HyUPS. This critical backup power product is initially targeted at
telecommunications markets. The prototype unit is capable of delivering 25kW
power output and regenerates its hydrogen fuel supply using an integrated
electrolyzer after power is restored to the grid. We field-tested this product
in the third quarter of 2002. Although the HyUPS product is in the prototype
stage we believe there is a wide-ranging market for backup power systems in this
power range.

         HyPORT. We have developed, with support from Natural Resources Canada
and the Canadian Department of National Defense, a 2kW portable fuel cell system
that powers a device for detecting chemical and biological agents. This
technology is marketed under the name of HyPORT. We demonstrated our first
prototype unit in the second half of 2000. We believe that products using this
technology will have a broad range of commercial and military applications, such
as powering of remote sensors, communication equipment, micro-cogeneration,
micro-climate conditioning, robots, automated vehicles, navigation, personal
electronics, weapon subsystems, silent watch and disseminated hydrogen
production. Although the HyPORT product is in commercial production, we continue
to develop it further.

         On February 26, 2002, we successfully fulfilled our contract with
Canada's Department of National Defense, or DND, with on-time delivery and
demonstration of a prototype portable fuel cell power generator under the
trademark HyPORT C. In addition to demonstrating

                                      -36-

<PAGE>

HyPORT C to the DND, the power generator was concurrently demonstrated to the US
Army Tank-automotive and Armaments Command unit in response to the interest
expressed by this operations group. HyPORT C is capable of delivering 500W of
power and is fueled by hydrogen generated by our proprietary chemical hydride
system. We plan to test the system in the field for recharging batteries and
directly powering electronic instrumentation.

         HyPM. Our HyPM power modules are a fundamental building block of our
commercial power products under development. Each HyPM power module includes a
fuel cell stack with a full balance of plant system. The HyPM is designed so
that it only requires a hydrogen fuel supply in order to deliver fully usable
conditioned power to a power application. Although the HyPM product is in
commercial production, we continue to develop it further.

FUEL CELL SYSTEMS FOR BROAD COMMERCIAL MARKETS

         We are developing integrated fuel cell systems for broad commercial
markets. We are currently expanding the kilowatt range of our proprietary
pre-commercial fuel cell systems such that they can be used in stationary
products, particularly to address power quality demands such as backup power in
telecommunications applications.

         On January 10, 2001, we entered into a $2.0 million contribution
agreement with Natural Resources Canada 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. This agreement was subsequently amended on April 11, 2001. The total
project cost is $6.0 million over two years. The Government of Canada is
contributing $2.0 million: $1.6 million from the Technology Early Action
Measures, or TEAM, a component of the Climate Change Action Fund, and $400,000
from NRCan. We are contributing $4.0 million to the project, which is comprised
of material costs, labor and other in-kind contributions. This system, known as
the Fuel Cell Energy Tap, or FCET, is expected to generate electricity by using
PEM fuel cell technology, to be fueled by natural gas. We expect that each
generator will be capable of providing 50kW of electrical power, as well as
space and water heating.

         During 2002, we continued bench testing of our HyPM power modules in
order to prepare them for integration into fuel cell power products. HyPM power
modules have been designed to be adaptable to a wide variety of commercial
applications without major modifications. Each HyPM power module incorporates a
fuel cell stack, controller, and fuel and water management systems. We
anticipate that the markets for the HyPM product will span transportation,
stationary and portable markets. In 2002, we focused our development efforts on
HyPM modules capable of generating 10kW and 20 kW of power. During 2002, we also
made progress in the development or out 50kW stationary power generator,
referred to as HySTAT, which is designed to be integrated with a natural gas
reformer.

                                      -37-

<PAGE>

         In 2002, along with our strategic alliance partner, GM, we continued to
accelerate the development of fuel cell technology into global commercial
markets. This alliance encompasses a number of activities, including shared
intellectual property rights and joint efforts in fuel cell product development,
engineering, prototyping, testing, co-branding and marketing strategies.

         SYSTEMS FOR HYDROGEN GENERATION

         Electrolyzer Systems. We are developing PEM electrolyzer technology
both for direct refueling applications as well as a component of an integrated
regenerative fuel cell system. A regenerative system can both generate
electricity and produce hydrogen fuel from water and store it for later use.
When electricity from an external power source is available, the regenerative
system applies electricity to water to produce both oxygen and hydrogen to be
stored until required. Subsequently, the stored hydrogen is consumed by the
regenerative fuel cell system to generate electricity.

         Our regenerative fuel cell systems, such as the HyUPS backup power
generator, are designed to enable our customers to invest in a single system
that can be applied to both refueling and electricity generation. We believe
that the single system characteristic has significant economic benefits in
markets where electricity costs can vary widely and where electricity can be
generated from renewable sources such as solar and wind energy. Where
electricity can be generated from renewable sources, a regenerative fuel cell
system creates a sustainable energy solution. We are currently developing
electrolyzer systems capable of supplying hydrogen for up to 50kW fuel cell
power. We believe that our regenerative systems have the potential to achieve
higher kilowatt hours per kilogram than advanced battery systems.

         Reformer Systems. We are involved in system integration of a fuel
processor, or reformer, system with a fuel cell system for stationary
applications. The current reformer system is capable of supplying hydrogen fuel
for up to 50kW of fuel cell power.

         On April 18, 2001, we entered into a joint development agreement with
Johnson Matthey, Inc., to develop a fully integrated fuel processor system. The
fuel processor incorporates Johnson Matthey's proprietary fuel processing
technology and our integrated system controls and balance-of-plant subsystems.

RESEARCH AND DEVELOPMENT

         We are targeting our research and development efforts to integrate fuel
cells into systems that present power solutions for early viable markets while
enhancing the performance and durability of fuel cell systems. We are developing
a line of fuel cell power modules, or electrochemical engines, across a
strategic power range to provide a modular and scalable building block for
future power products, as well as OEM partners. Developmental research in
specific methods of hydrogen generation and regenerative fuel cell systems is
also a focus of our

                                      -38-

<PAGE>

research and development program. We also undertake system integration projects
with selected customers for developing prototype and pre-commercial products.

SALES & MARKETING

         Our sales and marketing efforts are first focused on the needs of
premium power markets where the inherent features and benefits of the technology
allow a viable value proposition today in spite of the current high cost of fuel
cells. The customers in these markets are, in general, technically
sophisticated, therefore allowing for good working relationships to make the
technology work for their specific applications.

         Our first commercial product was our FCATS fuel cell test station.
FCATS are marketed and sold by our direct sales and marketing staff to advanced
fuel cell developers such as automotive companies, fuel cell component
developers and research institutions. 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. The Company's sales force is
primarily organized by region for our test station line of products, and by
product line for our fuel cell system products. We currently plan to expand our
sales staff to cover our growing markets.

         Our sales and marketing strategies for our three principal markets are
as follows:

         Transportation Market. Prior to 2001, our sales efforts focused solely
on supplying fuel cell test stations to automotive manufacturers and OEMs.
Delivered fuel cell test stations range from 2kW to 120kW, and include most
aspects of the balance of plant required to control and operate a full range of
fuel cell stacks. Since 2001, we have been developing fuel cell propulsion
systems for early-adopting power applications in this market, such as off-road
vehicles and forklift trucks.

         In 2002, along with our strategic alliance partner, GM, we have
continued to accelerate the development of fuel cell technology into global
commercial markets. The alliance includes shared intellectual property rights
and joint efforts in fuel cell product development, engineering, prototyping,
testing, branding, and marketing strategies. We believe that this alliance will
greatly enhance our efforts in the transportation market.

         In December 2002, we delivered a HyPM-LP2 power module to John Deere
for integration into a demonstrator commercial utility vehicle.

         On July 23, 2001, we signed an exclusive agency agreement with Hankook
BEP Co. Ltd., a Korean distributor of automotive testing systems, to market and
sell our FCATS products in the Korean market.

                                      -39-

<PAGE>

         On August 22, 2001, we signed an exclusive distribution agreement with
Toyota Tsusho Corporation to market and sell our FCATS products in the Japanese
market.

         Over the longer term, we hope to build sales in the automotive fuel
cell market. We intend to seek opportunities to manufacture fuel cell systems
and subsystems for direct sale to or for distribution through OEMs, to license
designs to automotive manufacturers and to participate in the retooling of
machinery for the production of vehicles which use fuel cell technology.

         Stationary Market. We intend to focus our sales and marketing efforts
in the stationary power market on the sale of our industrial-grade test stations
and fuel cell power modules and systems that can be applied directly to the
stationary power market. We believe that as we improve the efficiencies of our
systems and production costs decrease, an increase in the demand for clean, high
quality uninterruptible electric power will lead to broader market opportunities
for our products.

         Our first targeted stationary market is the critical backup power
market, in particular the telecommunications market. We have developed our first
stationary power product, the HyUPS, for this premium market and conducted field
tests in 2002 at a cell tower site in southern California.

         We also intend to develop strategic partnerships in the distributed
power generation market to distribute our stationary power products. Targeted
strategic distribution partners include electric and gas utilities, energy
merchants, propane companies, independent heating, ventilation and
air-conditioning dealers and contractors, as well as energy service providers
and distributors of reciprocating engines and microturbines.

         Portable Market. We expect that our primary near-term customer for
portable fuel cell systems, in which we include auxiliary power units, will come
from the military market. However, we believe that there is an expanding market
for portable power generation for applications such as scientific and
environmental monitoring, remote and extreme weather power generation, control
instrumentation at remote sites, and other specialty applications. Portable
power generators also can fulfill back-up power requirements, especially as high
power demands on the power grid cause an increase in random electrical
black-outs and brown-outs. We believe that fuel cell systems can be marketed by
highlighting the significant advantages such systems enjoy over existing
technologies for these applications. Our intention is to establish non-exclusive
supplier relationships with large volume major retailers and with existing OEMs
who wish to expand into a fuel cell line. In either case, our current intentions
are to supply fuel cell power modules to these customers to be built into an end
product. As we develop portable fuel cell systems and as our manufacturing costs
decline, our long-term objectives are to form non-exclusive strategic
relationships or joint ventures with leading industry partners.

                                      -40-

<PAGE>

INTELLECTUAL PROPERTY

         We believe that an active policy of protecting intellectual property is
an important component of our strategy of becoming a technology leader in PEM
fuel cell test stations and systems and subsystems. We have recently initiated a
comprehensive program to review our inventions in order to protect our key
intellectual property through a variety of methods.

         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. We have recently
initiated a comprehensive invention disclosure program under which our employees
prepare and submit invention reports for review and evaluation. Most of our
products have been delivered to customers pursuant to confidentiality
agreements, which restrict the recipient from reverse engineering such products.

         We have been granted five patents on our technology in the United
States and Canada. In 2002, 53 new patent applications were filed in Canada and
the United States. We currently have in excess of 158 patent applications
pending worldwide representing over 60 separate inventions.

TECHNOLOGY DEVELOPMENT FUNDING ARRANGEMENTS

         We typically retain sole ownership of the intellectual property we
develop. However, our strategic alliance with GM provides for shared
intellectual property rights. As part of this agreement, we have a global,
royalty-free license to certain GM fuel cell technology and related intellectual
property for use in certain applications and markets. We have these rights in
perpetuity, including subsequent improvements to the licensed technology.

         In addition, we have agreed to pay royalties to some of our funding
partners as follows:

         Natural Resources Canada and Canadian Department of National Defense.
Since 1996, we have entered into a number of agreements with Natural Resources
Canada, or NRCan, under which NRCan has provided us with varying levels of
funding to aid in the development of prototype power generators and PEM fuel
cell systems. Under each agreement, NRCan receives a royalty equal to 2% of all
revenue we receive for the licensing and sale of the intellectual property
related to the particular project. These royalty rights expire upon the earlier
of NRCan recouping the amount of the funding given to us or, in most cases, 15
years and in one case, 10 years. The aggregate funding amount to be recouped by
NRCan is approximately $641,000. We retain all intellectual property rights in
the projects, provided that we pursue the commercialization of the intellectual
property, subject to a non-exclusive royalty-free licenses granted to NRCan in
perpetuity to use or sublicense the intellectual property rights, should we

                                      -41-
<PAGE>

decide not to commercialize the technology. One of these agreements was amended
in early 2000 to add the Canadian Department of National Defense as a
contributor of funds.

         National Research Council Canada. In 1998, we entered into an agreement
with the National Research Council Canada, or the NRC, under which the NRC
agreed to contribute up to approximately $27,000 toward the development of an
advanced modular client/server fuel cell automated test station mainframe and
satellite. The NRC has no right to receive royalties under the agreement. In
1999, we entered into another agreement with the NRC pursuant to which the NRC
agreed to contribute up to approximately $329,000 toward the development of fuel
cell automated test stations for residential fuel cells. Under this agreement,
from April 1, 2005 to January 1, 2008, the NRC has the right to receive a
quarterly royalty of 1.3% of our gross revenue, up to a total of approximately
$493,500. If the NRC's contribution to the project is not recouped by 2008, we
will be obligated to pay royalties until the earlier of full repayment or April
1, 2015

         Universite du Quebec a Trois-Rivieres. In 1996, we entered into an
agreement with the Universite du Quebec a Trois-Rivieres, or UQTR, pursuant to
which we contributed approximately $21,000 to UQTR to aid in the development of
the HyTEF system. Under this agreement, UQTR has a right to receive a royalty of
4% of the total sales generated by the technology developed under that project
until September 2006. We retain rights to all intellectual property developed in
connection with the project. Amounts payable to UQTR are not capped under this
agreement.

         The Government of Canada. In the first quarter of 2001, we entered into
a contribution agreement with the Government of Canada, pursuant to which the
Government of Canada, through the Climate Change Action Fund and NRCan, agreed
to contribute up to Cdn.$2.0 million to be used in the development of a 50kW
fuel cell power generator fueled by natural gas. The total project cost is
Cdn.$6.0 million over two years. The Technology Early Action Measures component
of the Climate Change Action Fund is contributing Cdn.$1.6 million to the
project and NRCan is contributing Cdn.$400,000. We are contributing Cdn.$4.0
million to the project, which is comprised of material costs, labor and other
in-kind contributions. Under this agreement, NRCan receives a royalty equal to
4% of all revenue we receive for the licensing and sale of the intellectual
property related to this project. This royalty right expires upon the earlier of
NRCan recouping the amount of the funding given to us or 10 years. We retain all
intellectual property rights in this project, provided that we pursue the
commercialization of the intellectual property, subject to a non-exclusive
royalty-free license granted to Canada in perpetuity to use or sublicense the
intellectual property rights, should we decide not to commercialize the
technology.

         The 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

                                      -42-
<PAGE>

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 to be completed by March, 2005. Under this
agreement, we will pay NRCan 2% of all revenue received for the licensing and
sale of the intellectual property related to this project. This royalty right
expires upon the earlier of NRCan recouping the amount of the funding given to
us or 10 years. We retain intellectual property rights in this project, provided
that we pursue the commercialization of the intellectual property, subject to a
non-exclusive royalty-free license granted to Canada in perpetuity to use or
sublicense the intellectual property rights, should we decide not to
commercialize the technology.

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 both the fuel cell
system and the fuel cell automated test station areas.

         Fuel Cell Automated Test Stations. In the fuel cell automated test
station area, 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
Greenlight Technologies, which we acquired in January of 2003, Emprise
Corporation, 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.

         Fuel Cell Systems & Systems Integration Services. 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. Companies involved in fuel
cell development programs include Ballard Power Systems Inc., United
Technologies Corporation, Analytic Power Corporation, DeNora spa, Energy
Partners, Inc., Honda Motor Co. Ltd., Idatech, LLC, Plug Power Inc., Toshiba
Corporation, the Toyota Motor Corporation, Giner, Inc., Quantum Technologies
Inc. and Proton Energy Systems Inc. Companies with programs for fuel cells other
than PEM fuel cells include Fuel Cell Energy Inc., Fuji Electric Co., Ltd.,
Global Thermoelectric Inc., Hitachi, Ltd. and United Technologies Corporation.

         A number of corporations, national laboratories and universities in the
United States, Canada, Europe, Japan and elsewhere also possess fuel cell
technology. Several of our

                                      -43-
<PAGE>

competitors have financial, technological and personnel resources far greater
than ours and represent significant competition.

GOVERNMENT REGULATION

         Currently, the only regulations we encounter are the regulations that
are common to all businesses, such as employment legislation, implied warranty
laws, and environmental, health and safety standards. The principal
environmental legislation regulating our operations is the Ontario Environmental
Protection Act. We maintain a policy of operating our business in compliance
with all government regulations.

         It is likely that we will encounter industry-specific government
regulations in the future in many of the jurisdictions in which we operate. It
may become the case that regulatory approvals will be required for the design,
installation and possibly operation of stationary and mobile fuel cell systems.
To the extent that there are delays in gaining regulatory approval, our
development and growth may be constrained. We intend to comply with any
industry-specific regulations governments put in place.

LEGAL PROCEEDINGS

         In January, 2002, Lynntech Inc. commenced a legal action against us in
federal court (Southern District, Texas), alleging patent infringement. We
believe we have meritorious defenses to the claims in this suit and we intend to
contest the lawsuit vigorously. However, there can be no assurance that we will
be successful, and an adverse resolution of the lawsuit could have a material
adverse effect on our financial position and results of operations. We are not
presently able to reasonably estimate potential losses, if any, related to the
lawsuit. In addition, the costs to us of defending this or any other litigation
or proceeding, even if resolved in our favor, could be substantial.

         A.       ORGANIZATIONAL STRUCTURE.

         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, EnKat GmbH and
Hydrogenics GmbH, each incorporated under the laws of Germany, and, Greenlight
Power Technologies, Inc. incorporated under the laws of Canada.

         B.       PROPERTY, PLANT AND EQUIPMENT.

         We manufacture our products at our registered and head office at 5985
McLaughlin Road, Mississauga, Ontario, Canada L5R 1B8. This facility is
approximately 96,000 square feet.

                                      -44-
<PAGE>

We moved to this facility in October 2000, and our lease for this facility
expires in August 2005. Our main activities at this facility involve the
manufacture of our test station products and research and development of our
fuel cell products. On January 7, 2003, we acquired all of the issued and
outstanding common shares of Greenlight Power Technologies and Greenlight's
54,000 square foot headquarters and testing services facility in Burnaby,
British Columbia. The lease for this facility expires in December 2004.

         On occasion, we outsource some of the manufacturing that we require to
local operators who produce prototype components to our specifications. We also
outsource to third party manufacturers the production of components, for
example, steel frames and enclosures used in FCATS production. We believe that
this practice allows us to manage our capital costs and to focus on our core
business.

         In July 2000, we opened a sales office in Japan. This office
coordinates our sales, service and marketing efforts in the Asia-Pacific region.

         In December 2000, we leased a 9,600 square foot facility in Rush, New
York. The lease for this facility expires in December 2003.

ITEM 5.           OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

         The following sets out management's discussion and analysis of our
financial position and results of operations for the years ended December 31,
2002, 2001 and 2000. All financial information is reported in U.S. dollars. Our
consolidated financial statements are prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP). Canadian GAAP differs
in some respects from U.S. GAAP and these measurement differences have been
disclosed in note 22 of our consolidated financial statements.

OVERVIEW

         We are a leading developer and manufacturer of proton exchange membrane
(PEM) fuel cell automated test stations, fuel cell power products and a provider
of engineering and other services. Our principal business is the
commercialization of PEM fuel cells and PEM fuel cell systems for use in
research and development, portable, stationary, transportation and other power
applications. We have demonstrated expertise in PEM fuel cell test and
optimization equipment, which represent the first phase of commercialization of
PEM fuel cell systems. We have over 350 test stations installed across more than
50 customer sites capable of generating well over 1,000 kW of power.

         Our commercial series of fuel cell advanced testing systems, FCATS, are
designed for the control and testing of fuel cells. This equipment has become a
critical enabling tool for many

                                      -45-
<PAGE>

of the world's leading fuel cell technology developers, allowing stacks to
operate as part of a sophisticated, fully integrated fuel cell power system. The
versatile and extensive operating parameters of the FCATS product line enable
customers to test and optimize stacks and other fuel cell components or systems
in a rigorous and verifiable manner.

         The FCATS product line extends from a screener, capable of testing up
to 2 kW, to full stack testing machines, capable of operating at up to 120 kW of
power. In addition to growing power requirements for test equipment, we have
differentiated our product line by offering:

         -        Advanced safety features;

         -        Rapid transient response capability;

         -        Accurate, dynamic control of humidification;

         -        Real-time reformate blending and control;

         -        Sophisticated unattended operation; and

         -        High precision instrumentation for reliability and
                  repeatability.

         Prior to our acquisition of Greenlight Power Technologies Inc. in
January 2003, our test business and our power products business were both
operated out of our Mississauga facility. The acquisition of Greenlight has
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 on developing our emerging power
products business.

         We made significant progress in 2002 on the development of our power
products business. Our commercialization strategy continues to focus on premium
power markets. Premium power markets are attractive for a number of reasons, not
the least of which is the fact that they are populated with early adopters of
technology. Early adopters such as those in R&D, military, aerospace and backup
power markets, possess the technical sophistication to work with new
technologies. As such, they are integral to our efforts to develop new and
viable power solutions. In addition, these markets yield premium prices for
workable solutions, a key factor in meeting our overriding goal of commercial
sustainability.

         Lower production volumes associated with supplying these markets is
another important attribute. We expect that higher selling prices, combined with
smaller production runs, will provide us with positive margins and, more
importantly, learning cycles on a reduced level of capital investment. Given
that fuel cell technology will continue to undergo significant change for some
time, the alignment of our investment in R&D and manufacturing capacity, to the
cost and adoption rate of the technology, is critical to our objective of
commercial sustainability.

                                      -46-
<PAGE>

In addition, by targeting niche premium power markets, we expect to build
enduring customer relationships that will sustain our growth as fuel cells gain
traction in commercial markets. Successfully addressing premium power markets
should provide the cash flow and, most importantly, the necessary experience for
us to succeed in the higher volume commercial and consumer markets of the
future.

         In 2003 we will continue to balance financial sustainability with
growing product and market opportunities. Our commitment to meeting milestones
is well established and all goals for 2002 were met or exceeded. For 2003, we
would like to:

         -        Become the first publicly traded fuel cell company to achieve
                  breakeven operating cash flow;

         -        Partner with industry leaders to access funding, further
                  develop technology and create new market opportunities;

         -        Drive cost reductions in parts, materials and labor;

         -        Deliver prototypes for field testing in multiple premium power
                  markets;

         -        Develop modular architecture to accommodate a wider array of
                  applications and power ranges;

         -        Launch a next generation test and diagnostic product line; and

         -        Expand our customer base in all regions for fuel cell test and
                  power products.

         While the past is never a guarantee for the future, we believe that our
track record at this early stage of the evolution of the fuel cell industry
bodes well for continued success in 2003.

Basis of presentation and accounting policies

         Our accounting policies are detailed in note 2 of our consolidated
financial statements, with critical accounting policies highlighted below.

REVENUE RECOGNITION

         Revenues related to the sale of fuel cell test stations, power modules
and fuel cell system components are recorded when goods are delivered, title
passes to the customer, consideration is fixed and determinable, and collection
is reasonably assured.

         Revenues relating to system integration, engineering and testing
services are recorded as services are rendered.

                                      -47-
<PAGE>

         Revenues from sale-type lease arrangements are recognized when all the
following criteria are met; evidence of an agreement exists; goods are
delivered; consideration is fixed or determinable, and collection is reasonably
assured.

         Revenues from long-term contracts are determined under the
percentage-of-completion method, whereby revenues are recognized on a pro rata
basis in relation to contract costs incurred.

FOREIGN CURRENCY TRANSLATION

As a result of increased U.S. dollar denominated transactions, effective January
1, 2002 the U.S. dollar was adopted as our functional currency. This change was
applied prospectively. Monetary assets and liabilities are translated at the
rate of exchange at the end of the year. Non-monetary assets are translated at
historical rates of exchange. Revenues and expenses denominated in currencies
other than the U.S. dollar are translated into U.S. dollars at the rate of
exchange on the date of the transaction, except for depreciation and
amortization which are translated at historical rates. Translation gains and
losses primarily arise from the translation of monetary assets and liabilities
and are reflected in the results of operations.

STOCK-BASED COMPENSATION

         Effective January 1, 2002, we adopted the new Canadian standard for
reporting stock-based compensation. This standard applies to all awards granted
on or after January 1, 2002 and requires the fair value based method of
accounting for direct awards of stock to employees and equity instruments
granted to non-employees. For stock options granted to employees, this standard
allows either the recognition of compensation expense based on the estimated
fair value at the date of grant or, alternatively, note disclosure of pro-forma
net earnings and earnings per share data as if the stock-based compensation had
been recognized.

         We have opted for note disclosure of the pro-forma net earnings and
earnings per share.

USE OF ESTIMATES

         The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates made by management
include allowances for potentially uncollectible accounts receivable, warranty
provisions, useful life estimates for acquired intellectual property and other
long-lived assets, valuation allowances for future income

                                      -48-
<PAGE>

tax assets, stock option volatility, expected life of stock options and
provisions for costs to complete contracts in progress.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

REVENUES

         Revenues were $15.8 million for the year ended December 31, 2002
compared with $7.4 million for 2001. The year-over-year annual increase was
driven by all revenue categories with test revenues up 36 percent, power
products up 55 percent and engineering services up 1,325 percent, as compared
with 2001 annual revenues.

<TABLE>
<CAPTION>
(millions of U.S. dollars)               2002         2001
<S>                                      <C>          <C>
Test                                      5.6          4.1
Power Products                            4.5          2.9
Engineering Services                      5.7          0.4
Total                                    15.8          7.4
</TABLE>

         Test revenues include revenues related to the manufacturing and sale of
test equipment, upgrades to test equipment and in-house testing of customer
supplied components. FCATS equipment orders improved considerably in 2002
following the launch of our new models, resulting in record backlog of confirmed
orders for test equipment sales entering into 2003.

         Testing services emerged as a significant contributor to 2002 test
revenues and is the primary reason for the year-over-year growth in test
revenues. Testing services are anticipated to be a growth area for test revenues
going forward. We have 25 test stations available for third party testing
contracts or internal research and development activity. We anticipate adding to
the number of test stations available for third party testing in support of the
growing demand for these services.

         Power products revenues include revenues related to system integration,
fuel cell stacks, power modules and auxiliary power modules. Power products
revenues increased to $4.5 million during 2002 compared with $2.9 million in
2001. Increased unit sales of fuel cell prototypes were the primary contributor
to the growth in revenue. Capitalizing on the success of our research and
development activity and our growing relationships with leading fuel cell
programs around the world, power products have come to represent a new and
growing area of our business.

         Engineering service revenues are derived from an engineering services
contract with General Motors, pursuant to which we provide technician and
support services at a General Motors facility. This service contract commenced
in late 2001 and was not a significant part of

                                      -49-
<PAGE>

revenues during 2001. These services peaked in 2002, and while we will continue
to have engineering services revenue during 2003, we anticipate an approximate
30 percent decline in revenues from this contract.

Geographic breakdown:

         North American revenues have experienced the most significant growth,
due primarily to the growth in engineering services revenues. The 40 percent
growth in European revenues was, in part, a result of the acquisition of EnKAT
GmbH (EnKAT) in May 2002. The decline in Asian revenues is timing related as
production for confirmed orders was delayed until late 2002 and will be shipped
in 2003.

<TABLE>
<CAPTION>
                                       2002          % OF          2001         % OF
                                       $            REVENUES       $          REVENUES
<S>                                   <C>           <C>           <C>         <C>
N.A. - Test and Power Products         7,177           46         3,181          736%
N.A. - Engineering Services            5,758           36           378            5
Europe                                 1,930           12         1,400          198%
Asia                                     975            6         2,459        590.6%
                                      ------        --------      -----       ------
                                      15,840          100         7,418          100%
</TABLE>

         The majority of our revenues continue to be concentrated with three
customers. Our three largest customers contributed 75 percent, 70 percent and 80
percent of total revenues for the years 2002, 2001 and 2000, respectively.
Excluding our engineering services contract with General Motors, our three
largest customers contributed 60 percent of total revenues for 2002. Consistent
with prior years, the composition of our three largest customers has changed in
each of the years. For 2002, two of our top three customers are new and the
revenues from these new customers were derived from power products.

         Revenues from General Motors for 2002 were $9.9 million, or 63 percent
of total revenues, compared with $3.2 million, or 43 percent of total revenues,
for 2001 with the vast majority of the increased revenues coming from the
relatively low-margin engineering services.

         Based on preliminary information, we expect consolidated revenues to
approximately double in 2003. The acquisition of Greenlight in January 2003 will
contribute to the increase as will expanded marketing and service efforts in
Asia and Europe.

COST OF REVENUES

         Cost of revenues was $10.7 million for 2002 compared with $4.9 million
for 2001. Cost of revenues consists primarily of materials and direct labour,
relating to engineering, design and build. The costs of providing engineering
services, although heavily oriented towards research

                                      -50-
<PAGE>

and development activities, are matched with corresponding revenues and are
included in cost of revenues. The year-over-year increase of 118 percent is
directly related to the increases in revenues described above.

         We expect to realize certain cost of sales synergies as a result of the
integration of Greenlight with Hydrogenics.

GROSS PROFITS

         Gross profits were $5.1 million, or 32 percent of revenues for the year
ended December 31, 2002 compared with $2.5 million, or 33 percent of revenues
for 2001. Gross margins, of 39 percent from test and power products combined,
drove this stronger than anticipated performance. Engineering services, although
contributing positively to gross profits, somewhat offset these strong gross
margins, causing the overall gross margins to come in at 32 percent.

         For 2003, we expect gross profits, as expressed in absolute dollars, to
increase due primarily to an anticipated increase in revenues. Gross margins, as
a percent of revenues, may decline somewhat as we expect engineering services
gross profits to decline due to both a reduction in contracted revenues as well
as a decline in corresponding gross margins.

         Increased gross profits due to revenue growth and consistent gross
margins are important to the achievement of breakeven operating cash flow, as
measured by earnings before interest, taxes, depreciation and amortization,
EBITDA. These positive gross profits combined with grants received for research
and development projects are used to fund our market and product development
activities.

SELLING, GENERAL AND ADMINISTRATION

         Selling, general and administration expenses (SG&A) were $6.7 million
for the year ended December 31, 2002 compared with $4.4 million for 2001. SG&A
consists primarily of wages and salaries relating to our sales, marketing and
corporate staff, professional fees, travel, insurance and facilities costs. We
are expecting SG&A to grow at a slower pace than the anticipated increase in
gross profits as we gain economies of scale and improve productivity. The 51
percent increase in SG&A in 2002 compares favorably with a 113 percent increase
in revenues and 107 percent increase in gross profit. The year-over-year
increase in SG&A is attributable primarily to four factors:

         -        Increased wages and salaries relating to our sales, marketing
                  and corporate staff. Average SG&A headcount grew,
                  year-over-year from 25 to 40 people, with Germany and Japan
                  contributing 75 percent of the growth;

         -        Increased insurance costs. Insurance rates are up 30 percent
                  year-over-year;

                                      -51-
<PAGE>

         -        Expansion of our German operations after the EnKAT acquisition
                  from four to ten employees; and

         -        Increased legal fees associated with our defence of a patent
                  infringement claim against us.

         We expect SG&A to increase in 2003, due in part to the acquisition of
Greenlight in January 2003, as well as, our increasing efforts to develop market
opportunities for power products. Certain SG&A synergies are expected to be
realized as a result of the integration of Greenlight with Hydrogenics.

RESEARCH AND DEVELOPMENT

         Research and development (R&D) expenses were $4.2 million for the year
ended December 31, 2002, compared with$3.5 million for the year ended December
31, 2001. R&D expenses consist of materials, labor costs and benefits, legal
fees for the protection of intellectual property and overhead attributable to
research and development activity.

         Alignment of resources with market and product development
opportunities remains a critical element in growing Hydrogenics at a sustainable
pace. Our R&D efforts remain focused on viable commercial applications and
continue to be funded by:

         -        Positive gross profits;

         -        Government research grants;

         -        Joint development agreements; and

         -        Existing cash reserves, where necessary.

         The new "LP2" power module was a substantial component of our increased
R&D activity during 2002.

RESEARCH AND DEVELOPMENT GRANTS

         R&D grants were $0.5 million for 2002, compared with $1.2 million for
2001. We are actively pursuing additional government funding opportunities and
have secured substantial new R&D grants including a recently announced bus
project with Natural Resources Canada.

         We expect that these R&D grants, combined with an anticipated increase
in gross profits, will help drive us to operating cash flow breakeven in 2003.
Government agencies are

                                      -52-
<PAGE>

increasingly expected to play a key role in support of the necessary technology
and product demonstrations required to bring fuel cells to commercialization.

         R&D grants, which include government funding and monies received under
joint development agreements, are disclosed as a reduction of expense in the
Consolidated Statements of Operations and are not included in revenues.

DEPRECIATION OF PROPERTY PLANT AND EQUIPMENT

         Depreciation expense was $1.3 million for the year ended December 31,
2002, compared with $0.7 million for the year ended December 31, 2001. The
majority of the increase is a result of additional test equipment purchased and
manufactured during the year and the full year's depreciation of test equipment
acquired and manufactured in 2001.

         Depreciation is expected to increase in 2003 with full year charges on
equipment added during 2002, the acquisition of Greenlight and the expected
addition of more equipment during 2003.

AMORTIZATION OF INTANGIBLE ASSETS

         Amortization of intangible assets was $15.2 million for the year ended
December 31, 2002, compared with $3.5 million for the year ended December 31,
2001. The majority of the increase is attributable to the amortization of
intangible assets that we purchased from General Motors in October 2001.
Pursuant to that transaction we purchased a perpetual royalty free intellectual
property license to use certain fuel cell stack technology, in exchange for
common shares and share purchase warrants in Hydrogenics. The value of acquired
intellectual property and the corresponding expected life of this asset were
estimated by management with verification from an independent valuator.

         On May 1, 2002, we acquired all the issued and outstanding shares of
EnKAT based in Gelsenkirchen, Germany. EnKAT designs and manufactures test
systems for fuel cells, reformers and electrochemical engines and is our only
European subsidiary. Part of the purchase included management services contracts
for five years with each of the two principals of the acquired company. The fair
value of these contracts on the date of acquisition was $0.6 million, which is
being amortized on a declining basis at an annual rate of 50 percent.

         On January 7, 2003, we acquired all the issued and outstanding shares
of Greenlight, based in Burnaby, British Columbia, Canada. Greenlight designs
and manufactures test systems and will be our principle operating subsidiary for
test equipment and test services.

                                      -53-
<PAGE>

         Assuming no additional intangible asset purchases or value impairment,
and factoring in the intangibles related to the Greenlight acquisition, the
projected amortization charge for the next five years will be:

<TABLE>
<CAPTION>
                                         $(000's)
<C>                                      <C>
2003                                     13,746
2004                                      9,327
2005                                      5,632
2006                                        970
2007                                        485
</TABLE>

         We will continue to highlight the non-cash impact on earnings of these
amortization charges while they continue to have material impact on financial
results. In 2002, this non-cash impact was $15.2 million, or $0.32 per share,
compared with $3.5 million, or $0.8 per share, in 2001.

         For 2003, the non-cash impact of the amortization of intangibles is
expected to be $13.7 million, or $0.28 per share.

PROVINCIAL CAPITAL TAX

         Provincial capital tax expense was $0.2 million for the year ended
December 31, 2002, compared with $0.1 million for the year ended December 31,
2001. The increase results from holding a higher proportion of net assets at
year end in a form which is subject to tax.

INTEREST AND BANK CHARGES

         Interest income, net of bank charges and interest expense, was $1.1
million for the year ending December 31, 2002, compared with $2.9 million for
2001. The decrease in interest income is a direct result of lower rates of
investment interest returns combined with lower cash balances.

         Our investments are held exclusively in short-term high quality
corporate or government backed notes.

FOREIGN EXCHANGE

         A net foreign exchange gain of $0.5 million was reflected in results of
operations for the year ended December 31, 2002 compared with a net foreign
exchange gain of $3.0 million for the year ended December 31, 2001. The 2002
foreign exchange gain was primarily attributable to

                                      -54-
<PAGE>

holding Canadian denominated short-term investments at a time when the Canadian
dollar strengthened against the U.S. dollar.

         Effective January 1, 2002 we adopted the U.S. dollar as our functional
currency. As a result, monetary assets and liabilities denominated in a currency
other than the U.S. dollar give rise to a foreign currency gain or loss
reflected in earnings. Prior to this date, the Canadian dollar was our
functional currency. The 2001 foreign exchange gain was primarily attributable
to holding U.S. denominated short-term investments in the context of a weakening
Canadian Dollar.

         We currently hold approximately 54 percent of our short-term
investments in Canadian dollars. Over time, we anticipate that the majority of
our cash and short-term investments will be held in U.S. dollars, thereby
minimizing our exposure to foreign currency translation gains and losses.

INCOME TAXES

         Income tax expense was $0.3 million for the year ended December 31,
2002, compared with $0.2 million for the year ended December 31, 2001. The
expense is attributable to the federal large corporations tax, which is based on
our taxable capital. Similar to the Provincial capital tax, changes in this
expense are partially dependent on the eligibility of certain short-term
investments being deducted from net assets to arrive at our tax base.

         There was no tax on income for the years ended December 31, 2002 and
2001 due to tax losses of the Company. Due to historical losses, we have
provided a valuation allowance against the full amount of tax loss carry
forwards of $12.2 million.

NET LOSS FOR THE YEAR

         The net loss was $20.6 million for the year ending December 31, 2002
compared with $2.8 million for the year ended December 31, 2001. Excluding the
non-cash amortization of intangibles of $15.2 million in 2002 and $3.5 million
in 2001, the net loss would have been $5.4 million for 2002 compared with a net
income of $0.6 million for 2001. The non-cash amortization of intangibles has
been highlighted because of its significant impact on operating results without
a corresponding impact on cash flow.

         The year-over-year reduction in earnings of $17.8 million is primarily
attributable to:

<TABLE>
<S>                                                                    <C>
Gross margin                                                            $ 2.7 million
Non-cash amortization intangible assets                                ($11.8 million)
Other income and expenses -- including foreign exchange and interest   ($ 4.4 million)
Other operating expenses                                               ($ 4.2 million)
Other                                                                  ($ 0.1 million)
                                                                        -------------
Total                                                                  ($17.8 million)
</TABLE>

                                      -55-
<PAGE>

         Loss per share was $0.43 for the year ended December 31, 2002 compared
with $0.07 for the year ended December 31, 2001. Excluding the non-cash
amortization of intangibles of $0.32 per share in 2002 and $0.09 per share in
2001, basic and fully diluted loss per share was $0.11 for the year ended
December 31, 2002 compared with basic and fully diluted earnings per share of
$0.02 for the year ended December 31, 2001.

SHARES OUTSTANDING

         For the year ended December 31, 2002, the weighted average number of
shares used in calculating the loss per share was 48.4 million shares. The
number of common shares outstanding at December 31, 2002 was 48.8 million
shares. For the year ended December 31, 2001, the weighted average number of
shares used in calculating the loss per share was 38.2 million shares. The
number of common shares outstanding at December 31, 2001 was 47.9 million.

         Options granted under our stock option plan and share purchase warrants
outstanding have not been included in the calculation of the loss per share as
the effect would be anti-dilutive.

         Stock options outstanding were 2.6 million as at December 31, 2002 of
which 1.6 million were exercisable. There were 2.5 million share purchase
warrants outstanding, of which 864 thousand were exercisable. Consistent with
Canadian and U.S. GAAP, information on stock options has been disclosed in notes
10 and 21 of our consolidated financial statements.

         Over the past year our three founders have elected to engage in some
personal financial diversification by selling a relatively small percentage of
their direct holdings in Hydrogenics. These sales are from personal direct
shareholdings and do not result from the exercise of stock options. Therefore,
as they sell, there is no corresponding dilution but rather, increased liquidity
in our public float. These selling programs are in full compliance with
applicable securities legislation and have been disclosed on a quarterly basis.
In selling these shares, the founders have entered into irrevocable contracts to
sell shares over an extended period of time and as such they have no opportunity
to "time the market".

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

REVENUES

         Revenues were $7.4 million for the year ended December 31, 2001
compared with $8.9 million for 2000. The reduction in revenues was attributable
to a decline in units of test

                                      -56-
<PAGE>

equipment sold. We believe test equipment sales were curtailed or deferred
because of weak economic and capital markets in 2001. The reduction in revenue
due to test equipment deferrals was somewhat mitigated by sales of power
products and other growing streams of revenue.

         In addition to test equipment sales, our revenue mix broadened during
the year to include power modules, systems integration and fuel cell related
engineering services. Test equipment accounted for approximately 55 percent of
revenues in 2001, compared with nearly all revenues being derived from test
equipment in 2000.

         Geographically, there was a significant expansion of our business in
Asia, particularly in Japan. Asia accounted for 33 percent of total revenues,
compared with 3 percent of total revenues in 2000; North America and Europe
combined, accounted for 67 percent in 2001 compared with 97 percent in 2000.

<TABLE>
<CAPTION>
                                      2002            % OF        2001          % OF
                                       $            REVENUES      $           REVENUES
<S>                                   <C>           <C>           <C>         <C>
North America                         3,559            48%        5,133         57.8%
Asia                                  2,459          33.1%          308            3
Europe                                1,400            19%        3,442         38.7%
                                      ------        --------      -----       --------
                                      7,418           100%        8,883        100.0%
</TABLE>

         Although our customer base expanded in 2001, the majority of our
revenues were still concentrated with our three top customers. For 2001, 2000
and 1999 our three largest customers contributed 70 percent, 78 percent, and 80
percent, respectively, although the specific customers within this group have
changed during this period.

GROSS MARGIN

         Cost of revenues were $4.9 million for the year ended December 31, 2001
compared with $6.5 million for the year ended December 31, 2000.
Correspondingly, gross margins were $2.5 million, or 33 percent of revenues, for
the year ended December 31, 2001 compared with $2.4 million or 27 percent for
2000.

         Changes in gross margin percentages were attributable to the product
mix and degree of customization on specific projects. Individual projects, due
to their relatively large size, can have a significant impact on the overall
gross margins. During the fourth quarter of 2000 there were a number of low
margin contracts that impacted the overall gross margins.

         Cost of revenues comprises materials, direct labor costs and benefits,
and indirect labor costs and benefits relating to engineering and design and
overhead.

                                      -57-
<PAGE>

Selling, General and Administration

         SG&A was $4.4 million for the year ended December 31, 2001, compared
with $2.1 million for 2000.

         The significant increase in SG&A in 2001 was a result of:

         -        full year operation in the Mississauga, Ontario, head office
                  and Rush, New York, facilities with the associated costs;

         -        increased sales and marketing in Asia and support for our
                  marketing efforts in broader geographic areas;

         -        full year costs for administrative and support staff hired in
                  late 2000; and

         -        full year costs associated with being a public company
                  including insurance, investor relations and fulfilling strong
                  corporate governance requirements.

RESEARCH AND DEVELOPMENT

         R&D expenses were $3.5 million for the year ended December 31, 2001,
compared with $0.8 million for the year ended December 31, 2000.

         Material costs related to specific development projects, combined with
an approximate tripling of research and development staff were the primary
contributors to the increase in R&D expenses in 2001.

         R&D efforts were funded by internal cash reserves as well as government
research grants and joint development agreements. The external funding
arrangements were not included in revenues but recorded as a reduction to our
R&D expenses.

         For financial statement presentation purposes, we reclassified
depreciation expense on R&D equipment from R&D expense to depreciation expense.
This resulted in a reduction in the R&D expense of $0.4 million for 2001 and
$0.1 million for 2000.

DEPRECIATION OF PROPERTY PLANT AND EQUIPMENT

         Depreciation expense was $0.7 million for the year ended December 31,
2001, compared with $0.2 million for the year ended December 31, 2000. The
majority of the increase was a result of test equipment used in research and
development programs.

                                      -58-
<PAGE>
 Amortization of Intangible Assets

         In October 2001 we purchased from General Motors, in exchange for
common shares and share purchase warrant in Hydrogenics, a perpetual
royalty-free intellectual property license to use certain fuel cell stack
technology. As a result of this transaction, General Motors became a related
company holding a 24 percent of our common shares. The value of the intangible
assets and the corresponding expected life of the asset were estimated by
management with verification from an independent valuator. The intangible assets
are being amortized on a declining basis of 50 percent per year which reflects
the rapid change in technology during the initial years. The declining balance
method of amortization was considered to best reflect the pattern in which the
economic benefits of the intangible assets will be consumed by the Company.

ACCRUED DIVIDEND AND AMORTIZATION OF DISCOUNT ON PREFERRED SHARES

         Concurrent with our initial public offering in November 2000 all issued
and outstanding preferred shares were converted to common shares. Under Canadian
GAAP issued and outstanding preferred shares were treated, in part, as debt.

PROVINCIAL CAPITAL TAX

         Provincial capital tax expense was $0.1 million for the year ended
December 31, 2001, compared with $0.3 million for the year ended December 31,
2000. The decrease is a result of investment allowances, which in part are based
on the maturity terms of short-term investments. The increase in provincial
capital tax from 1999 is directly attributable to our initial public offering on
November 1, 2000. Due to timing of the initial public offering the
above-mentioned investment allowances were not available for the year ended
December 31, 2000.

INTEREST AND BANK CHARGES

         Interest income, net of bank charges and interest expense, was $2.9
million for the year ending December 31, 2001, compared with $0.8 million for
2000. The increase resulted from holding short-term investments throughout 2001
compared with two months in 2000.

FOREIGN EXCHANGE

         Net foreign exchange gain was $3.0 million for the year ended December
31, 2001 compared with a net foreign exchange loss $1.3 million for the year
ended December 31, 2000. This foreign exchange gain was primarily attributable
to holding U.S. denominated short-term investments as the Canadian dollar
weakened against the U.S. dollar. The foreign exchange loss in 2000 was
attributable to a strengthening of the Canadian dollar during the last quarter
of the year.

         As at December 31, 2001 we held approximately 65 percent of our
short-term investments in Canadian dollars.

                                      -59-
<PAGE>

INCOME TAXES

         Income tax expense was $0.2 million for the year ended December 31,
2001, compared with $0.2 million for the year ended December 31, 2000. The
expense was attributable to the federal large corporations tax, which is based
on our taxable capital. During 2001 certain short-term investments were eligible
to be deducted from net assets to arrive at an adjusted net asset base.

         There was no tax on income for the years ended December 31, 2001, and
2000 because of tax losses of the Company. Due to historical losses, we have
provided a revaluation allowance against the full amount of tax loss carry
forwards of $6.5 million.

NET LOSS FOR THE YEAR

         The net loss was $2.8 million for the year ending December 31, 2001
compared with $1.7 million for the year ended December 31, 2000. Excluding the
non-cash amortization of $3.5 million for intangible assets, net income would
have been $0.6 million for 2001. The non cash amortization of intangible assets
has been highlighted because of its individually significant impact on operating
results without a corresponding impact on the cash flow.

         Loss per share was $0.07 for the year ended December 31, 2001 compared
with $0.08 for the year ended December 31, 2000. Excluding the non-cash
amortization of $0.09 per share for amortization of intangible assets basic and
fully diluted earnings per share was $0.02.

         The weighted average number of shares used in calculating the loss per
share increased to 38.2 million shares as a result of the full year effect of
our public offering in November 2000. Pursuant to the General Motors
transaction, we issued an additional 11.4 million shares on October 16, 2001.
The number of common shares outstanding at December 31, 2000 was 47.9 million
shares.

         Options granted under the Company's stock option plan and share
purchase warrants outstanding were not included in the calculation of the loss
per share as the effect would be anti-dilutive. At year end there were 3.1
million stock options outstanding, of which 2.0 million were exercisable and 2.5
million share purchase warrants outstanding, of which 0.1 million were
exercisable.

QUARTERLY RESULTS OF OPERATIONS

         The following tables show the unaudited consolidated statements of
operations for the past eight quarters ending December 31, 2002. The information
has been obtained from our quarterly unaudited financial statements which have
been prepared in accordance with Canadian

                                      -60-
<PAGE>

GAAP and, in the opinion of management, have been prepared using accounting
policies consistent with the audited financial statements and include all
adjustments necessary for the fair presentation of the results of the interim
periods. We expect our operating results to vary significantly from quarter to
quarter and they should not be relied upon to predict future performance.

2002 Quarter ended (UNAUDITED)

<TABLE>
<CAPTION>
                                           MARCH 31        JUNE 30         SEPTEMBER 30     DECEMBER 31       TOTAL YEAR
                                                                                                              $
<S>                                        <C>             <C>             <C>              <C>               <C>
REVENUES                                     2,140          3,471              4,411            5,818           15,840
COST OF REVENUES                             1,551          2,413              2,924            3,815           10,703
                                           -------         ------             ------           ------          -------
                                               589          1,058              1,487            2,003            5,137
                                           -------         ------             ------           ------          -------
OPERATING EXPENSES
Selling, general and administrative          1,155          1,481              1,788            2,234            6,658
Research and development                       873          1,057              1,428              877            4,235
Research and development grants               (254)             -               (114)            (106)            (474)
Depreciation of property plant and
equipment                                      296            328                348              306            1,278
Amortization of intangibles                  3,719          3,828              3,833            3,843           15,223
                                           -------         ------             ------           ------          -------
                                             5,789          6,694              7,283            7,154           26,920
                                           -------         ------             ------           ------          -------
LOSS FROM OPERATIONS                        (5,200)        (5,636)            (5,796)          (5,151)         (21,783)
                                           -------         ------             ------           ------          -------

OTHER INCOME (EXPENSES)
Provincial capital tax                         (35)           (35)               (35)             (85)            (190)
Interest and bank charges                      309            254                286              272            1,121
Foreign exchange gains (losses)                (77)         1,994             (1,398)             (24)             495
                                           -------         ------             ------           ------          -------
                                               197          2,213             (1,147)             163            1,426
                                           -------         ------             ------           ------          -------
LOSS FROM OPERATIONS                        (5,003)        (3,423)            (6,943)          (4,988)         (20,357)
CURRENT INCOME TAX EXPENSE                      37             37                 37              143              254
NET LOSS FOR THE PERIOD                     (5,040)        (3,460)            (6,980)          (5,131)         (20,611)
                                           =======         ======             ======           ======          =======
LOSS PER SHARE
Basic and diluted                            (0.10)         (0.07)             (0.14)           (0.11)           (0.43)
</TABLE>

                                      -61-
<PAGE>

2001 Quarter ended (UNAUDITED)

<TABLE>
<CAPTION>
                                           MARCH 31        JUNE 30         SEPTEMBER 30     DECEMBER 31       TOTAL YEAR
                                                                                                              $
<S>                                        <C>             <C>             <C>              <C>               <C>
REVENUES                                      656           1,108             2,450             3,204           7,418
COST OF REVENUES                              443             734             1,663             2,101           4,941
                                           ------          ------            ------            ------          ------
                                              213             374               787             1,103           2,477
                                           ------          ------            ------            ------          ------

OPERATING EXPENSES
Selling, general and administrative           818           1,175             1,269             1,141           4,403
Research and development                      563             751             1,185             1,019           3,518
Research and development grants              (328)           (225)             (391)             (237)         (1,181)
Depreciation of property plant and
equipment                                     119             143               234               220             716
Amortization of acquired
intellectual property                           -               -                 -             3,459           3,459
                                           ------          ------            ------            ------          ------
                                            1,172           1,844             2,297             5,602          10,915
                                           ------          ------            ------            ------          ------
LOSS FROM OPERATIONS                        (959)          (1,470)           (1,510)           (4,499)         (8,438)
                                           ------          ------            ------            ------          ------

OTHER INCOME (EXPENSE)
Provincial capital tax                        (64)            (63)               18               (14)           (123)
Interest and bank charges                     989             779               619               540           2,927
Foreign exchange gains (losses)             2,989          (1,473)            1,216               242           2,974
                                           ------          ------            ------            ------          ------
                                            3,914            (757)            1,853               768           5,778
                                           ------          ------            ------            ------          ------
INCOME (LOSS) BEFORE INCOME TAXES           2,955          (2,227)              343            (3,731)         (2,660)
                                           ------          ------            ------            ------          ------
INCOME TAX EXPENSE                             43              43                26                44             156
                                           ------          ------            ------            ------          ------
NET INCOME (LOSS) FOR THE PERIOD            2,912          (2,270)              317            (3,775)         (2,816)

EARNINGS (LOSS) PER SHARE
Basic                                        0.08           (0.06)             0.01             (0.08)          (0.07)
Diluted                                      0.07            0.06)             0.01             (0.08)          (0.07)
</TABLE>

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2002, we held cash and short-term investments of $60.0
million, compared with $65.8 million at December 31, 2001. At December 31, 2002,
we held cash of $1.0 million and short-term investments of $59.0 million,
compared with $1.6 million in cash and $64.2 million in short-term investments
at December 31, 2001.

         The balance of cash and short-term investments has decreased by $5.8
million between December 31, 2001 and December 31, 2002. The majority of such
cash has been used for funding operations. To the extent that our cash flow from
operations is insufficient to fund ongoing operations and capital expenditures,
we will draw on our cash and short-term investment balances.

         Cash used in operations for the year ended December 31, 2002 was $3.9
million, compared with $5.7 million used in the year ended December 31, 2001.
Non-cash working capital decreased during the year by $0.4 million despite the
doubling of revenues.

         -        Accounts receivable increased $1.3 million at December 31,
                  2002 to $5.7 million from $4.4 million at December 31, 2001 as
                  a result of a 82 percent increase in revenues during the
                  fourth quarter of 2002 compared with the fourth quarter of
                  2001;

         -        Inventories increased $1.8 million at December 31, 2002 to
                  $4.8 million from $3.0 million at December 31, 2001 primarily
                  as a result of the significant increase in confirmed orders at
                  December 31, 2002. Raw material inventories, many of which
                  have long lead times, have increased to $2.2 million at
                  December 31, 2002 from $2.0 million at December 31, 2001.
                  Work-in-progress increased to $2.2 million at December 31,
                  2002 from $0.5 million at December 31, 2001. Finished goods
                  inventory remained consistent at $0.5 million; and

         -        Trade payables increased to $2.2 million at December 31, 2002
                  compared with $1.1 million at December 31, 2001.

         We have an operating line of credit available of up to $0.6 million
bearing interest at prime plus 0.5 percent. We utilize this facility for
overdraft protection and, when necessary, letters of guarantee or letters of
credit. The facility is collateralized by a general security agreement over all
assets of the Company.

INVESTING ACTIVITIES

         Property, plant and equipment purchases for the year ended December 31,
2002 were $1.5 million, compared with $3.1 million for the year ended December
31, 2001 and $1.5 million

                                      -63-
<PAGE>

for the year ended December 31, 2000. The majority of the increase in 2001 is
attributable to the expansion of our testing facilities for internal and
customer directed R&D programs. Capital expenditure plans for 2003 and
subsequent years will result in further increases in property, plant and
equipment as we continue our manufacturing and development initiatives.

FINANCING ACTIVITIES

         During 2002, 877,675 shares were issued for $0.2 million under our
stock option plan compared with 994,000 shares issued for $128,000 during 2001.

ITEM 6.           DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

                  A.       DIRECTORS AND SENIOR MANAGEMENT.

         The following table sets forth information with respect to our
executive officers and directors as of the date of this annual report:

<TABLE>
<CAPTION>
             Name                       Age                        Position
<S>                                     <C>      <C>
Pierre Rivard.......................    47       President, Chief Executive Officer and Director
Norman M. Seagram...................    68       Chairman of the Board of Directors
Boyd J. Taylor......................    43       Vice President, Business Development, Sales and Marketing and Director
Joseph Cargnelli....................    33       Chief Technology Officer and Director
Gary Brandt.........................    44       Chief Financial Officer
Dr. Ravi B. Gopal...................    42       Vice President Systems and Applications Engineering
Don J. Morrison.....................    42       Director
Donald J. Lowry.....................    51       Director
Wesley Twiss........................    57       Director
Mr. Frank Colvin....................    60       Director
Charley Pappas......................    45       Vice President, Infrastructure Applications
James Sardo.........................    59       Director
Jim Collins.........................    40       Vice President Finance and Administration
Jonathan Lundy......................    39       Vice President General Counsel and Corporate Secretary
</TABLE>

         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

                                      -64-
<PAGE>

research engineer at the University of Toronto with the Department of Mechanical
Engineering. Mr. Rivard earned a 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 February 2003. Prior to joining Sportsco, Mr. Seagram was President and
Chief Executive Officer of Molson Inc., a brewery and entertainment company from
September 1996 to May 1997. 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 currently Vice-Chairman of Tennis Canada and
serves as a director on the boards of VitalAire Company, the AR Plus Group, the
Toronto Symphony Orchestra, Trinity College School and the Canadian Foundation
of International Management. Mr. Seagram also serves on the International
Advisory Council of INSEAD, France, and on the advisory boards of Exclamation
International Inc., the Business Fund for Canadian Studies in the United States,
and 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.
From 1996 to 2000, Mr. Brandt was Vice President, Investor Relations with
WorldCom, and from 1994 to 1996 was Vice President, Investor Relations with MFS
Communications, which was acquired by WorldCom in

                                      -65-
<PAGE>

1996. From 1985 to 1994, Mr. Brandt held various senior finance positions with
Northern Telecom. 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 telecommunications company. Mr. Lowry
resides in Edmonton, Alberta.

         JAMES SARDO is a business consultant and since 2001, a director of GDI
Global Data Inc. 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 2001. 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 Electrolyser
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.

                                      -66-
<PAGE>

From 1981 to 1991, Mr. Pappas was employed by Union Carbide Canada Limited in a
number of positions. Mr. Pappas resides in Scarborough, Ontario, and is a Member
of the Professional Engineers of 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 Chief
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 PetroCanada from 1998 through 2000. Mr. Twiss is a director
of the Canadian Oil Sands Trust and KeySpan Facilities Income Fund. 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 Corporation. 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 resides in St. Clair
Shores, Michigan. Mr. Colvin was selected to join our board of directors by GM
in connection with our strategic alliance with GM. In connection with this
alliance, GM also appointed Dave Wetter, who is Staff Engineer, GM Fuel Cell
Development Center, as a non-voting observer to our board of directors.

         JIM COLLINS joined us in May 2000 as Controller. He was appointed
Director of Finance and Administration in January 2001 and then as Vice
President Finance and Administration in June 2001. From 1992 to 2000 Mr. Collins
was the controller of privately held growth companies where he built and
maintained information and reporting systems and gained operational experience.
Prior to 1992 he was employed by Price Waterhouse in Australia and Canada. Mr.
Collins earned his Bachelor of Commerce at the University of British Columbia,
received his Chartered Accountant designation in 1989 and is a member of the
Institute of Chartered Accountants in British Columbia and Ontario. Mr. Collins
resides in Oakville, Ontario.

         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 September 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 Upper Canada Law
Society. Mr. Lundy resides in Oakville, Ontario.

                                      -67-
<PAGE>

                  B        COMPENSATION.

COMPENSATION OF OFFICERS

         For the year ended December 31, 2002, our aggregate cash compensation
payments to our executive officers and directors for services rendered in these
capacities was approximately $1,062,000.

         The following table provides a summary of compensation earned by our
executive officers in 2002

<TABLE>
<CAPTION>
                                                                                   Long Term Compensation Awards(1)
                                                                                             Securities
                                                                          Other Annual         Under        All Other
Annual Compensation                            Salary       Bonus        Compensation(2)      Options     Compensation(3)
Name and Principal Position          Year      (U.S.$)     (U.S.$)           (U.S.$)            (#)           (U.S.$)
<S>                                  <C>       <C>         <C>           <C>                 <C>          <C>
Pierre Rivard, President and         2002      136,804     47,900               0                  0              0
Chief Executive Officer

Boyd Taylor, Vice President,         2002       92,236     19,160               0                  0              0
Business Development, Sales and
Marketing

Joseph Cargnelli, Chief              2002       92,222     19,160               0                  0              0
Technology Officer

Gary, Brandt, Chief Financial        2002      127,944     31,933               0                  0          6,542
Officer

Jonathan Lundy, Vice President,      2002      108,257     19,160               0             70,000              0
General Counsel and Corporate
Secretary

Dr. Ravi Gopal. Vice President,      2002       92,958     12,773               0                  0              0
Engineering, Electronics and
Control

Charley Pappas, Vice President,      2002       77,763     12,773               0             15,000              0
Infrastructure Applications

Jim Collins, Vice President,         2002       72,311     12,773               0             15,000              0
Finance and administration
</TABLE>

(1)      The Company has not granted any Restricted Shares or Restricted Share
Units, Stock Appreciation Rights or Long-Term Incentive Plan Payouts.

(2)      Benefits do not exceed the lesser of $50,000 and 10% of the total
annual salary and bonuses for any of the named executive officers.

                                      -68-
<PAGE>

(3)      The Company does not provide pension, retirement or any other similar
benefit and therefore has not set aside or accrued any amounts in respect of
such benefits.

EMPLOYMENT AGREEMENTS

         On April 16, 2001 we entered into employment agreements with the
following executive officers: Pierre Rivard, Boyd Taylor, Ravi Gopal and Joseph
Cargnelli. Each agreement is for an initial term of two years ending April 17,
2003, with automatic one year extensions thereafter unless otherwise terminated
pursuant to the terms of such agreement. These agreements also provide for
payments of varying amounts not exceeding twenty-four (24) months' salary in
lieu of notice if the executive officer is terminated without cause from his
position at any time during the term of the agreement. Upon termination
resulting from a change of control of the Company, each executive officer will
be entitled to receive an amount equal to twenty-four (24) month's salary.

COMPENSATION OF DIRECTORS

         Each of our non-employee directors is paid an annual fee of $10,000 for
his services as a director. Non-employee directors who serve as committee chairs
are paid an additional annual fee of $1,000. Our chairman is paid an annual fee
of $12,000 for his services, and an attendance fee of $1,200 for each board
meeting attended. In addition, non-employee directors receive an attendance fee
of $900 for each board and committee meeting attended. Each committee chair
receives an additional attendance fee of $300 for each committee meeting
attended. Attendance fees are paid to a maximum per diem of $1,800 for the
Chairman and $1,350 for non-employee directors.

         Our non-employee directors are also reimbursed for their reasonable
out-of-pocket disbursements incurred on the business of the Company and are also
eligible to receive stock options in accordance with the recommendations of the
Management Development and Compensation Committee.

                  A.       BOARD PRACTICES.

COMPOSITION OF THE BOARD OF DIRECTORS

         Our board of directors currently consists of nine members, six of whom
are non-management directors. Our articles provide that we may have between
three and nine directors on our board. Each director is elected for terms of up
to three years, to hold office until the end of their respective term or until
their successor is duly elected or appointed, or until the director's earlier
death, resignation or removal.

                                      -69-
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

         Our board of directors has a Management Development and Compensation
Committee, an Audit Committee and a Nomination and Corporate Governance
Committee.

         Management Development and Compensation Committee. The Management
Development and Compensation Committee reviews and makes recommendations to our
board concerning the terms of the compensation packages provided to our
employees, including our executive officers, the terms of any bonus or other
awards provided to our employees, including our executive officers, and makes
recommendations to our board regarding new executive officer appointees. Our
Management Development and Compensation Committee also administers our current
stock option arrangements. The members of our Management Development and
Compensation Committee are James Sardo, Norman Seagram and Wesley Twiss.

         Audit Committee. The Audit Committee oversees the retention,
performance and compensation of our independent auditors, and oversees and
establishes procedures concerning our systems of internal accounting control.
The members of our Audit Committee are Wesley Twiss, Norman Seagram, Donald
Lowry and Don Morrison. We intend to modify the composition of our Audit
Committee from time to time to ensure compliance with the rules promulgated by
the Securities and Exchange Commission, The Nasdaq Stock Market, Inc. and The
Toronto Stock Exchange.

         Nomination and Corporate Governance Committee. The Nomination and
Corporate Governance Committee evaluates and assesses the effectiveness of our
board, our individual directors and our board committees, establishes procedures
for identifying new nominees to the board, recruits and recommends new nominees
to the board and develops and monitors our approach to corporate governance
issues. The members of our Nomination and Corporate Governance Committee are
Donald Lowry, Norman Seagram and James Sardo.

                  B.       EMPLOYEES.

         At December 31, 2002, we employed 235 persons, up from 171 as at
December 31, 2001, all of whom are full-time employees. Approximately 91 of our
employees are professional staff, including engineers, scientists, and other
professionals. Our employees are not represented by a labor union. We believe
that our relationship with our employees is good.

         The following is a geographic breakdown of our employees as of December
31, 2002:

<TABLE>
<S>                                 <C>
Canada                              136
U.S.A.                               82
Germany                              13
Japan                                 4
                                    ---
         Total                      235
</TABLE>

                                      -70-

<PAGE>

         C.       SHARE OWNERSHIP.

         The following table sets forth certain information concerning the share
ownership of our directors and executive officers as of May 15, 2003:

<TABLE>
<CAPTION>
                                             Number of
                            Number of      common shares          Range of                                   Percentage of
                             common         which may be      exercise price of            Range of          common shares
                             shares       acquired under           options           Expiration dates of      beneficially
    Name                     owned        our option plan          (Cdn $)                  options              owned
<S>                         <C>           <C>                 <C>                    <C>                     <C>
Norman Seagram                 16,200          34,900           4.70 - 8.70             August 2010 -             0.1%
                                                                                        June 2012
Don Lowry                       1,000          29,200           4.70 - 8.70             August 2010 -               0%
                                                                                        June 2012
Don Morrison                      500          16,000           4.70 - 8.70             January 2011 -              0%
                                                                                        June 2012
Wesley Twiss                   15,000               0               N/A                 N/A                         0%
V. James Sardo                      0               0               N/A                 N/A                         -
Frank Colvin                    2,000               0               N/A                 N/A                         0%
Pierre Rivard               6,135,500               0               N/A                 N/A                      11.6%
Boyd Taylor                 6,048,500               0               N/A                 N/A                      11.4%
Joseph Cargnelli            6,038,500               0               N/A                 N/A                      11.4%
Gary Brandt                    45,000         300,000                  3.85             October 2011              0.3%
Jonathan Lundy                                261,000           3.40- 11.43             October 2010 -            0.2%
                                                                                        June 2012
Dr. Ravi Gopal                 15,000         622,500           0.05 - 0.29             January 2010              1.2%
Charley Pappas                  2,900          52,640           4.64 - 8.70             April 2010 -                0%
                                                                                        June 2012
Jim Collins                       500          55,100           4.70 - 8.70             June 2010 -                 0%
                                                                                        June 2012
</TABLE>

         We granted options under our stock option plan to our senior executive
officers during the year ended December 31, 2002 as follows:

<TABLE>
<CAPTION>
                                                                                       Fair Value
                        Securities        % of Total                                 Of Securities
                          Under         Options Granted                            Underlying Options
                         Options          to Employees         Exercise or           On the Date Of
                         Granted          In Financial          Base price                Grant            Expiration
     Name                  (#)                Year           (Cdn.$/Security)       (Cdn.$/Security)          Date
<S>                     <C>             <C>                  <C>                   <C>                    <C>
Pierre Rivard               Nil                 0%                 N/A                    N/A                  N/A
Gary Brandt                 Nil                 0%                 N/A                    N/A                  N/A
Boyd Taylor                 Nil                 0%                 N/A                    N/A                  N/A
Joseph Cargnelli            Nil                 0%                 N/A                    N/A                  N/A
Jonathan Lundy            70,000             17.6%                $4.70                  $4.70            June 27, 2012
</TABLE>

                                      -71-

<PAGE>

<TABLE>
<S>                       <C>                 <C>                 <C>                    <C>              <C>
Dr. Ravi Gopal              Nil                 0%                 N/A                    N/A                  N/A
Charley Pappas            15,000              3.8%                $4.70                  $4.70            June 27, 2012
Jim Collins               15,000              3.8%                $4.70                  $4.70            June 27, 2012
</TABLE>

OPTIONS EXERCISED IN FISCAL YEAR 2002

         The following table details information with respect to all options of
the Company exercised by our executive officers during the fiscal year ended
December 31, 2001, and all options held by our executive officers and
outstanding on December 31, 2002:

<TABLE>
<CAPTION>
                                                                                             Value of
                                                                                           Unexercised
                                                                 UnExercised               In-the-money
                                                                   Options                   Options
                         Securities         Aggregate             At FY-End                 At FY-End
                        Acquired on           Value                  (#)                     (Cdn.$)
                          Exercise          Realized             Exercisable/              Exercisable/
    Name                    (#)              (Cdn.$)             Unexercisable            Unexercisable
<S>                     <C>                 <C>                <C>                      <C>
Pierre Rivard               N/A                N/A                    N/A                      N/A
Gary Brandt                 Nil                Nil             108,333 / 191,667        189,583 / 335,417
Boyd Taylor                 N/A                N/A                    N/A                      N/A
Joseph Cargnelli            N/A                N/A                    N/A                      N/A
Jonathan Lundy             12,000              94,230           82,375 / 185,625         56,100 / 200,500
Dr. Ravi Gopal            150,000           1,682,144                707,500 / 0            3,828,857 / 0
Charley Pappas             17,360             124,074            14,250 / 38,390           6,461 / 23,923
Jim Collins                 5,000              31,300            20,807 / 34,293          10,062 / 21,438
</TABLE>

DIRECTOR, EMPLOYEE AND CONSULTANT STOCK OPTIONS

         As of May 15, 2003, our executive officers, directors, employees and
consultants held options to purchase an aggregate of 2,525,352 of our common
shares. Our executive officers held options to acquire 1,383,240 of these common
shares, exercisable at prices ranging from Cdn.$0.05 to Cdn.$11.43, expiring
January 24, 2010 through June 27, 2012. Our directors who are not executive
officers held options to acquire 210,600 common shares, exercisable at prices
ranging from Cdn.$0.29 to Cdn.$8.70, expiring between January 24, 2010 through
June 27, 2012. Our employees, excluding our executive officers and directors,
held options to acquire 931,512 common shares, exercisable at prices ranging
from Cdn.$0.05 to Cdn.$18.12 expiring at dates ranging from January 24, 2010 to
November 14, 2012.

         In 2002, the options granted to officers, directors and various
employees have been at the exercise prices indicated below:

                                      -72-

<PAGE>

         -        on April 29, 2002 we granted 7,500 options at an exercise
                  price of Cdn$9.94 to employees (other than officer and
                  directors).

         -        on May 1, 2002 we granted 50,000 options at an exercise price
                  of Cdn$9.70 to employees (other than officer and directors).

         -        on May 27, 2002 we granted 5,000 options at an exercise price
                  of Cdn$9.75 to employees (other than officer and directors).

         -        on June 27, 2002 we granted (i) Norman Seagram, Chairman of
                  our board of directors, 10,000 options with an exercise price
                  of Cdn$4.70 per share; (ii) Donald Lowry, non-executive
                  director, 9,000 options with an exercise price of $4.70; (iii)
                  Dr. Robert Lee, non-executive director, 6,000 options with an
                  exercise price of $4.70; (iv) Jonathan Lundy, Vice President
                  General Counsel and Corporate Secretary, 70,000 options at an
                  exercise price of Cdn$4.70; (v) Charley Pappas, Vice
                  President, Infrastructure Applications, 15,000 options at and
                  exercise price of Cdn$4.70, (vi) Jim Collins, Vice President
                  Finance and Administration, 15,000 options at an exercise
                  price of Cdn$4.70; and (vii) various other employees an
                  aggregate of 145,700 options at an exercise price of Cdn$4.70.

         -        on June 29, 2002 we granted 50,000 options at an exercise
                  price of Cdn$12.00 to outside consultants in exchange for
                  intellectual property development.

         -        on July 2, 2002, we granted 2,500 options at an exercise price
                  of Cdn$5.30 to employees (other than officer and directors).

         -        on November 14, 20021, we granted 7,200 options at an exercise
                  price of Cdn$5.90 to employees (other than officer and
                  directors).

STOCK OPTIONS

         Since 1999, we have granted options to purchase our common shares to
various employees, officers, directors and consultants. We formalized these
grants in January 2000 by entering into stock option agreements with these
individuals. These agreements generally provide that the options have a maximum
term of ten years and vest over four years. In the event that an optionee's
employment is terminated, the vested portion of any grant will remain
exercisable for a period of 60 days after the date of termination. In the event
of the death or incapacity of the optionee, the vested portion of any grant will
remain exercisable for a period of 120 days following the date of death or
incapacity. Unvested options expire upon the termination, death or incapacity of
the optionee. If a change of control of our company occurs, the company through
our board of directors has the power to amend the terms of each option to

                                      -73-

<PAGE>

allow for the exercise of the unvested portion of each option prior to the
completion of the change of control.

STOCK OPTION PLAN

         Our board approved a stock option plan, which was implemented on
November 1, 2000 by our Management Development and Compensation Committee, and
subsequently amended by shareholders on May 30, 2003. This plan grants to our
board of directors or a committee of our board the discretion to grant options
to purchase common shares to our employees, directors and consultants. The plan
provides that options will have a maximum term of ten years, unless a shorter
term is specified by our board, and will have an exercise price per share of not
less than the fair market value of our common shares on the day immediately
prior to the date of grant. Unless otherwise specified in the particular
optionee's option agreement, options granted under the plan will vest over a
period of four years with one quarter of the particular option grant vesting
each year. Options granted under the plan may not be transferred or assigned by
the optionee and upon any such transfer or assignment or attempted transfer or
assignment, such options will terminate and be of no further force and effect.
The total number of options approved for issuance under the new plan and all
other established or proposed share compensation arrangements is 8,141,000.

         If an optionee's employment or term as a director or consultant with us
is terminated without cause or the optionee voluntarily resigns, any vested
options then held by the optionee may be exercised by the optionee for a period
of 90 days from the applicable date of termination or resignation provided that
the option does not expire prior to the end of the 90 day period. If an
optionee's employment or term as a director or consultant with us is terminated
for cause, all options then held by the optionee, whether vested or unvested,
immediately expire and are cancelled on the applicable termination date. If an
optionee that is an employee, director or consultant dies or becomes disabled or
an optionee that is an employee or director retires, any vested options then
held by the optionee may be exercised for a period of 180 days from the
applicable date of death, disablement or retirement, provided that the option
does not expire prior to the end of the 180 day period.

         If there is an amalgamation, combination, merger or other
reorganization involving our company, the plan will allow the board to replace
or modify any issued option in order to preserve proportionately the rights and
obligations of all optionees. The board may also permit the vesting and exercise
of any outstanding unvested option not otherwise exercisable upon the occurrence
of events, for example, a change of control involving our company.

         In addition, no one person will be permitted to receive more than 5% of
the common shares reserved for issuance pursuant to options granted under the
plan.

                                      -74-

<PAGE>

ITEM 7.           MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

                  A.       MAJOR SHAREHOLDERS.

         The following table provides information regarding the beneficial
ownership of our common shares as of May 15, 2003, as to each person or entity
who beneficially owns more than 5% of our outstanding common shares. None of
these shareholders has different voting rights than any of the Company's other
shareholders.

         Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Except as otherwise indicated, the persons named in
the table have sole voting and investment power with respect to all common
shares held by them. The number of common shares outstanding used in calculating
the percentage for each listed person includes the common shares underlying
options or warrants held by such person that are exercisable within 60 days of
May 15, 2003, but excludes common shares underlying options or warrants held by
any other person. Common shares placed in a trust with an irrevocable order to
sell, in accordance with a plan pursuant to Rule 10b5-1 under the Securities
Exchange Act of 1934, are also excluded from the calculations of beneficial
ownership. Percentage ownership is calculated by reference to the 53,056,354
common shares deemed outstanding as of May 15, 2003. All of our shareholders
hold common shares.

<TABLE>
<CAPTION>
                                        Common Shares
                                     Beneficially owned
                                 --------------------------
 Beneficial Owner                  Number           Percent
-----------------------------------------------------------
<S>                              <C>                <C>
General Motors
Corporation (1)(2)               12,475,704          23.0%
Pierre Rivard (3)                 6,135,500          11.6%
Boyd Taylor (3)                   6,048,500          11.5%
Joseph Cargnelli (3)              6,038,500          11.5%
</TABLE>

-----------------
(1)      Frank Colvin, one of our directors, and Dave Wetter, a non-voting
observer to our board of directors, were appointed to our board as nominees of
General Motors Corporation, in accordance with the terms of the Corporate
Alliance Agreement that we entered into with General Motors Corporation on
October 16, 2001. General Motors Corporation is the world's largest vehicle
manufacturer. The address of General Motors Corporation is 300 Renaissance
Center, Detroit, Michigan 48265.

                                      -75-

<PAGE>

(2)      General Motors Corporation acquired all of its shares of the Company
pursuant to the Corporate Alliance Agreement and the Share Subscription
Agreement, each dated October 16, 2001. The issuance of these shares to General
Motors decreased the beneficially ownership of all of our other shareholders.

(3)      The address of all of the senior executive officers listed in this
table is Hydrogenics Corporation, 5985 McLaughlin Road, Mississauga, Ontario,
Canada L5R 1B8.

                  B.       RELATED PARTY TRANSACTIONS

         We subcontract some manufacturing in the normal course of our
operations to 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, 2002, this company billed us approximately $1.0 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.

         On October 16, 2001, we formed a strategic alliance with General Motors
to accelerate the development of fuel cell technology into global commercial
markets. The alliance includes shared intellectual property rights and joint
efforts in fuel cell product development, engineering, prototyping, testing,
branding, and marketing strategies. As part of the agreement, GM received 11.4
million of our common shares, or approximately 21% of our outstanding shares. We
also issued GM warrants to acquire an additional 2.5 million common shares. GM
also appointed a representative to our board of directors in conjunction with
the alliance, resulting in the expansion of our board from seven directors to
eight.

                  C.       INTERESTS OF EXPERTS AND COUNSEL.

                  Not applicable.

ITEM 8.           FINANCIAL INFORMATION.

                  A.       CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
                           INFORMATION.

         Please see the Financial Statements listed in Item 18 for audited
consolidated financial statements prepared in accordance with this Item.

                  B.       SIGNIFICANT CHANGES.

                                      -76-

<PAGE>

         There have been no significant changes since the date of the financial
statements included in this annual report.

ITEM 9.           THE OFFER AND LISTING.

                  A.       OFFER AND LISTING DETAILS.

PRICE HISTORY OF COMMON SHARES.

         Our common shares are quoted on the Nasdaq National Market under the
symbol "HYGS" and are listed on The Toronto Stock Exchange under the symbol
"HYG." The following tables set forth, for the periods indicated, high and low
sale prices of our common shares as reported on the Nasdaq National Market and
The Toronto Stock Exchange, respectively:

                             NASDAQ NATIONAL MARKET

<TABLE>
<CAPTION>
                                                   Highest Reported Price         Lowest Reported Price
<S>                                                <C>                            <C>
Annual Market Prices
   Fiscal Year Ended December 31, 2002                    $ 10.32                        $ 2.77
   Fiscal Year Ended December 31, 2001                       8.09                          1.70
Quarterly Market Prices
   First Year Ended December 31, 2002
     First Quarter.............................             10.32                          5.91
     Second Quarter............................              8.04                          2.95
     Third Quarter.............................              4.65                          2.77
     Fourth Quarter............................              5.35                          3.10
Fiscal Year Ended December 31, 2001
     First Quarter.............................              8.09                          3.25
     Second Quarter............................              7.30                          3.51
     Third Quarter.............................              4.85                          1.70
     Fourth Quarter............................              7.94                          2.07
Monthly Market Prices
     April 2003................................              4.47                          3.96
     March 2003................................              4.60                          3.76
     February 2003.............................              5.18                          4.12
     January 2002..............................              5.31                          3.56
     December 2002.............................              5.35                          3.50
     November 2002.............................              5.14                          3.68
</TABLE>

                                      -77-

<PAGE>

                           THE TORONTO STOCK EXCHANGE

<TABLE>
<CAPTION>
                                                   Highest Reported Price       Lowest Reported Price
<S>                                                <C>                          <C>
Annual Market Prices
   Fiscal Year Ended December 31, 2002                 Cdn. $  16.53                 Cdn. $ 4.32
   Fiscal Year Ended December 31, 2001                         12.50                        2.65
Quarterly Market Prices
   First Year Ended December 31, 2002
     First Quarter.............................                16.53                        9.06
     Second Quarter............................                12.60                        4.55
     Third Quarter.............................                 7.25                        4.32
     Fourth Quarter............................                 8.00                        5.00
Fiscal Year Ended December 31, 2001
     First Quarter.............................                12.25                        5.05
     Second Quarter............................                11.00                        5.50
     Third Quarter.............................                 7.35                        2.65
     Fourth Quarter............................                12.50                        3.30
Monthly Market Prices
     April 2003................................                 6.55                        5.73
     March 2003................................                 6.73                        5.55
     February 2003.............................                 7.64                        6.31
     January 2002..............................                 7.66                        5.60
     December 2002.............................                 8.00                        5.55
     November 2002.............................                 8.00                        5.66
</TABLE>

                  B.       PLAN OF DISTRIBUTION.

                           Not applicable.

                  C.       MARKETS.

         As noted above, the Company's common shares are quoted on the Nasdaq
National Market and are listed on the Toronto Stock Exchange

                  D.       SELLING SHAREHOLDERS.

                           Not applicable.

                  E.       DILUTION.

                                      -78-

<PAGE>

                           Not applicable.

                  F.       EXPENSES OF THE ISSUE.

                           Not applicable.

ITEM 10.          ADDITIONAL INFORMATION.

                  A.       SHARE CAPITAL.

                           Not applicable.

                  B.       MEMORANDUM AND ARTICLES OF ASSOCIATION.

                           BY-LAWS AND ARTICLES OF INCORPORATION

         The Company's Restated Articles of Incorporation, which we refer to as
our articles of incorporation, are filed with Industry Canada, pursuant to the
Canada Business Corporations Act, which we refer to as the CBCA. Our articles of
incorporation do not have a stated purpose.

         Our authorized capital consists of an unlimited number of common shares
with no par value and an unlimited number of preferred shares with no par value
issuable in series, of which 48,796,121 common shares and no preferred shares
were issued and outstanding as of December 31, 2002.

                                    DIRECTORS

         Pursuant to applicable Canadian law, our directors, in exercising their
powers and discharging their duties must act honestly and in good faith with a
view to the best interests of the Company. They must also exercise the care,
diligence and skill that a reasonably prudent person would exercise in
comparable circumstances.

         Pursuant to the provisions of the CBCA, a director who is party to a
material contract or transaction with the Company or who has a material interest
in any person who is party to a material contract or transaction with the
Company must disclose to the Company the nature and extent of such interest in
writing or request to have such interest noted in the minutes of meetings of the
directors. Furthermore, a director who has a material interest in a matter
before the board must refrain from voting on the matter unless the contract: is
with one of our affiliates; is an arrangement for money lent to or obligations
undertaken by the director for the benefit of the Company or one of our
affiliates; relates to the director's remuneration as a director or officer of

                                      -79-

<PAGE>

the Company; or, relates to our indemnity or insurance for our officers and
directors. Absent appropriate quorum, directors are precluded from voting on any
matters concerning remuneration.

         Pursuant to the CBCA a majority of our directors must be resident
Canadians. The CBCA also requires that we have not less than three directors, at
least two of whom are not officers, directors or employees of the Company. We
currently have nine directors, eight of whom are resident Canadians. Our
articles of incorporation and our by-laws do not impose any other director
qualification requirements.

                                  COMMON SHARES

         Each common share carries one vote on all matters to be voted on by our
shareholders. Holders of common shares are entitled to receive dividends as and
when declared by our board of directors and to share ratably in our remaining
assets available for distribution, after payment of liabilities, upon our
liquidation, dissolution or winding up. Our common shares do not carry
pre-emptive rights or rights of conversion into any other securities. All
outstanding common shares are fully paid and non-assessable. There are no
limitations on the rights of non-resident or foreign owners of our common shares
to hold or vote their shares.

                                PREFERRED SHARES

         Our board of directors has the authority, without further action by the
shareholders, to issue an unlimited number of preferred shares in one or more
series and in the event that preferred shares are issued, the board also has the
authority to fix the designations, powers, preferences, privileges and relative,
participating, optional or special rights of any preferred shares including any
qualifications, limitations or restrictions. Special rights which may be granted
to a series of preferred shares may include dividend rights, conversion rights,
voting rights, terms of redemption and liquidation preferences, any or all of
which may be superior to the rights of the common shares. Preferred share
issuances could decrease the market price of the common shares and may adversely
affect the voting and other rights of the holders of common shares. The issuance
of preferred shares could also have the effect of delaying or preventing a
change in control of our company.

                ACTION NECESSARY TO CHANGE RIGHTS OF SHAREHOLDERS

         Under the CBCA, amendments to our articles of incorporation will
generally require approval by special resolution. A special resolution is a
resolution passed by a majority of not less than two-thirds of the votes cast by
the shareholders who voted in person or by proxy in respect of that resolution
at the annual or special meeting called for such purpose. If the amendment is of
a nature affecting a particular class or series of our shares in a manner
requiring a separate class or series vote, that class or series is entitled to
vote on the amendment whether or

                                      -80-

<PAGE>

not it otherwise carries the right to vote. Under the CBCA, our directors may
make, amend or repeal any by-law that regulates our business or affairs. Where
our directors make, amend or repeal a by-law, they are required to submit the
by-law, amendment or repeal to the shareholders at the next meeting of
shareholders, and the shareholders may, by an ordinary resolution, which is a
resolution passed by a simple majority of the votes cast by shareholders who
voted in respect of the resolution, confirm, reject or amend the by-law,
amendment or repeal.

                            MEETINGS OF SHAREHOLDERS

         Our board is required to call an annual meeting of the shareholders no
later than 15 months after the holding of the last preceding annual meeting. Our
board may also call a special meeting of the shareholders at any time. The only
persons entitled to attend a meeting of our shareholders are our directors, our
auditors and those persons entitled to vote at such meeting and any other
persons who, although not entitled to vote at the meeting, are entitled to
attend such meeting pursuant the provisions of the CBCA. Under our by-laws, a
quorum of shareholders is present at a meeting, irrespective of the number of
persons actually present at the meeting, if the holders of a majority of the
shares entitled to vote at the meeting are present in person or represented by
proxy.

                     LIMITATIONS ON RIGHT TO OWN SECURITIES

         There are no limitations in our articles of incorporation or by-laws or
under Canadian federal or provincial laws, on the right of non-residents of
Canada or foreign owners to hold or vote our common shares, except for
transactions involving or being deemed to involve an acquisition of control,
which requires compliance with the Investment Canada Act.

                                CHANGE IN CONTROL

         Our articles of incorporation and by-laws do not contain any provisions
that would have the effect of delaying, deferring or preventing a change in
control of the Company.

         Under the CBCA, certain extraordinary corporate actions, such as
amalgamations, continuances, sales, leases or exchanges of all or substantially
all of the property of a corporation other than in the ordinary course of
business, and other extraordinary corporate actions such as liquidations or
dissolutions are also required to be passed by special resolution. In certain
cases, a special resolution to approve an extraordinary corporate action is also
required to be approved separately by the holders of a class or series of
shares.

                                      -81-

<PAGE>

                             DISCLOSURE OF OWNERSHIP

         Our by-laws do not impose an ownership threshold, above which
shareholder ownership must be disclosed and any obligation to make such
disclosure would be the subject of applicable securities laws.

                  C.       MATERIAL CONTRACTS.

         Contribution agreement, dated January 10, 2001, between Canada
(National Resources Canada) and the Company, including an amendment dated April
11, 2001. In the first quarter of 2001, we entered into a contribution agreement
with the Government of Canada, pursuant to which the Government of Canada,
through the Climate Change Action Fund and NRCan, agreed to contribute up to
Cdn.$2 million to be used in the development of a 50kW fuel cell power generator
fueled by natural gas. The total project cost is Cdn.$6,000,000 over two years.
The Technology Early Action Measures (TEAM) component of the Climate Change
Action Fund is contributing $1.6 million to the project and NRCan is
contributing Cdn.$400,000. We are contributing Cdn.$4,000,000 to the project.
Under this agreement, NRCan receives a royalty equal to 4% of all revenue we
receive for the licensing and sale of the intellectual property related to this
project. This royalty right expires upon the earlier of NRCan recouping the
amount of the funding given to us or 10 years. We retain all intellectual
property rights in this project, provided that we pursue the commercialization
of the intellectual property, subject to a non-exclusive royalty-free license
granted to Canada in perpetuity to use or sublicense the intellectual property
rights, should we decide not to commercialize the technology.

         Employment agreements, dated April 20, 2001, between the Company and
each of Pierre Rivard, Boyd Taylor, Joseph Cargnelli and Ravi Gopal. Each
agreement provides for an initial term of two years ending April 20, 2003, with
automatic one year extensions thereafter unless otherwise terminated pursuant to
the terms of such agreement. These agreements also provide for payments of
varying amounts not exceeding 24 month's salary in lieu of notice if the
executive officer is terminated without cause from his position at any time
during the term of the agreement. Upon termination resulting from a change of
our control, each executive officer will be entitled to receive an amount equal
to 24 month's salary. In addition, upon termination resulting from a change of
control, all unvested options shall become immediately exercisable for a period
of ninety days from the date of termination.

         Joint Development Agreement dated April 18, 2001 between the Company
and Johnson Matthey, Inc. Pursuant to this agreement we are developing a fully
integrated natural gas fuel processor system with Johnson Matthey, Inc. The fuel
processor is expected to incorporate Johnson Matthey's proprietary fuel
processing technology and our integrated system controls and balance-of-plant
subsystems.

                                      -82-

<PAGE>

         Sales Agency Agreement dated July 23, 2001, between the Company and
Hankook BEP Co. Ltd. Pursuant to this agreement, Hankook BEP, a Korean
distributor of automotive testing systems, will market and sell our FCATS
products in the Korean market.

         Distribution Agreement dated August 22, 2001, between the Company and
Toyota Tsusho Corporation. Pursuant to this exclusive agreement Toyota Tsusho
Corporation will market and sell our FCATS products in the Japanese market.

         Corporate Alliance Agreement, Master Intellectual Property Agreement,
Governance Agreement, Share Subscription Agreement, Escrow Agreement and
Registration Rights Agreement, each dated October 16, 2001, between the Company
and General Motors Corporation. On October 16, 2001, we formed a strategic
alliance with General Motors Corporation (GM) to accelerate the development of
fuel cell technology into global commercial markets. The alliance includes
shared intellectual property rights and joint efforts in fuel cell product
development, engineering, prototyping, testing, branding, and marketing
strategies. As part of the agreement, GM received 11.3 million of our common
shares, or approximately 24% of our outstanding shares. We also issued GM
warrants to acquire an additional 2.4 million common shares, bringing GM's stake
to 28% of outstanding equity. GM also appointed a representative to our board of
directors in conjunction with the alliance, resulting in the expansion of our
board from seven directors to eight.

         Share Purchase Agreement dated April 16, 2002 among the Company, Dr.
Bernd Pitschak, Dr. Karl Klug and Creavis GmbH. Pursuant to this agreement we
acquired all of the issued and outstanding shares of EnKat GmbH, a company
located in Gelsenkirchen, Germany, for a total of approximately $550,000. EnKat
provides process engineering services relating to the integration of testing
environments for fuel cells and their components. We will rely on EnKat to
establish operations in Europe and to bolster our technological expertise in
fuel processing.

         Contribution agreement, dated November 2002, between Canada (NRCan) and
the Company. 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. $2M towards the project which is
scheduled for completion in March, 2004. The balance of the Cdn. $5.75M 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. Under
this agreement, we will pay NRCan 2% of all revenue received for the licensing
and sale of the intellectual property related to this project. This royalty
right expires upon the earlier of NRCan recouping the amount of the funding
given to us or 10 years. We

                                      -83-

<PAGE>

retain intellectual property rights in this project, provided that we pursue the
commercialization of the intellectual property, subject to a non-exclusive
royalty-free license granted to Canada in perpetuity to use or sublicense the
intellectual property rights, should we decide not to commercialize the
technology.

         Share Purchase Agreement dated January 7, 2003 among the Company,
Greenlight Power Technologies, Inc., Ventures West 7 Limited Partnership,
Ventures West 7 U.S. Limited Partnership, Horton Trading Co., Roger Harper,
Jacek Piotrowski, Gary Sedun, David Chapman, James Dean, Sedun Family Trust and
Piotrowski Family Trust. Pursuant to this agreement we acquired all of the
issued and outstanding shares of Greenlight, a company located in Burnaby,
British Columbia. The purchase price was $19,044,000, exclusive of expenses of
$1,062,000 relating to the acquisition. Consideration consisted of cash of
$2,282,000 and the issuance of 4,164,093 of our common shares with an aggregate
value of $16,762,000 at the acquisition date and representing approximately 8%
of our outstanding common shares. Greenlight is a supplier of testing and
diagnostic equipment to fuel cell stack manufacturers, component manufacturers,
system integrators and research organizations. Prior to our acquisition of
Greenlight, our test business and our power products business were both operated
out of our Mississauga facility. 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 on developing our emerging power products
business.

                  D.       EXCHANGE CONTROLS.

         There is no law, government decree or regulation in Canada restricting
the export or import of capital or affecting the remittance of dividends,
interest or other payments to a nonresident holder of common shares, other than
withholding tax requirements.

                  E.       TAXATION.

         Because Canadian and United States tax consequences may differ from one
holder to the next, the discussion set out below does not purport to describe
all of the tax considerations that may be relevant to a shareholder and such
shareholder's particular situation. Accordingly, a shareholder is advised to
consult a tax advisor as to the United States and Canadian federal, provincial,
state and other tax consequences of owning our common shares. The statements of
United States and Canadian tax law set out below are based upon the laws and
interpretations in force as of the date of this annual report, and are subject
to changes occurring after that date.

                   CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

         In this summary, a "U.S. holder" means a person who, for the purposes
of the Canada-United States Income Tax Convention (1980), is a resident of the
United States and not of Canada and who, for the purposes of the Income Tax Act
(Canada):

                                      -84-

<PAGE>

         -        deals at arm's length with us;

         -        is the beneficial owner of our common shares;

         -        holds our common shares as capital property;

         -        does not use or hold and is not deemed to use or hold our
                  common shares in the course of carrying on a business in
                  Canada; and

         -        is not an insurer for whom our common shares constitute
                  designated insurance property.

         Our common shares will be capital property to a U.S. holder unless they
are held in the course of carrying on a business or in an adventure in the
nature of trade. This summary does not apply to a U.S. holder that is a
"financial institution" for purposes of the rules contained in the Income Tax
Act (Canada). There are no Canadian federal estate taxes applicable to the
purchase or ownership of our common shares. Under the Income Tax Act (Canada),
on death, a U.S. holder would be deemed to dispose of all of his or her assets,
including our common shares.

         This summary is based on the current provisions of the Income Tax Act
(Canada) and the regulations in force under the Income Tax Act (Canada) on the
date of this annual report, the Convention, current published administrative and
assessing practices of the Canada Customs and Revenue Agency, all specific
proposals to amend the Income Tax Act (Canada) and the regulations publicly
announced by the Minister of Finance (Canada) prior to the date of this annual
report and all judicial decisions currently in effect.

         This summary is not exhaustive and, except for the proposed amendments
to the Income Tax Act, does not take into account or anticipate prospective or
retrospective changes in the law or the administrative or assessing practices of
the Canada Customs and Revenue Agency, whether these changes are effected by
judicial, governmental or legislative action or interpretation. This summary
does not take into account tax legislation or considerations of any province or
territory of Canada. None of the tax consequences described herein depend or
rely upon any of the proposed amendments to the Income Tax Act passing into law.
Because Canadian tax consequences may differ from one holder to the next, this
summary does not purport to describe all of the tax considerations that may be
relevant to a shareholder and his particular situation. In unusual cases, the
Canadian tax treatment to a U.S. holder may differ from the treatment described
herein. A shareholder is advised to consult a tax advisor.

DIVIDENDS

         Dividends paid, credited or deemed to have been paid or credited on our
common shares are subject to non-refundable Canadian withholding tax under the
Income Tax Act at the rate of

                                      -85-

<PAGE>

25%, although this rate may be reduced by the provisions of an applicable income
tax treaty. Subject to the exceptions noted immediately below, under the
Convention, U.S. holders who beneficially own the dividends will be subject to a
15% withholding tax on the gross amount of such dividends. In the case of a U.S.
holder that is a corporation which beneficially owns at least 10% of our voting
shares, the applicable rate of withholding tax on dividends will be reduced to
5%. In the case of dividends paid, credited or deemed to be credited to a U.S.
holder that is a tax exempt organization as described in Article XXI of the
Convention, generally no withholding tax will be payable.

DISPOSITIONS

         Under the Income Tax Act, assuming that a shareholder is a U.S. holder
and provided that our common shares are listed on a prescribed stock exchange,
which includes the Toronto Stock Exchange and the Nasdaq National Market, the
shareholder will be exempt from Canadian tax on a capital gain realized on an
actual or deemed disposition of the common shares unless such shareholder,
persons with whom such shareholder did not deal at arm's length or such
shareholder together with such persons owned 25% or more of our issued shares of
any class at any time during the five-year period before the actual or deemed
disposition. For this purpose, it is the position of the Canada Customs and
Revenue Agency that a holder of an interest in or option to acquire our shares
will be considered to hold the shares to which such interest or option relates.

                 UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

         The following discussion summarizes the material United States federal
income tax considerations arising from the acquisition, ownership and
disposition of our common shares by a United States holder. A United States
holder is:

         -        an individual citizen or resident of the United States;

         -        a corporation created or organized in or under the laws of the
                  United States or any of its political subdivisions;

         -        an estate, the income of which is subject to United States
                  federal income taxation regardless of its source; or

         -        a trust, if its administration is subject to the primary
                  supervision of a United States court and it has one or more
                  United States persons with authority to control all of such
                  trust's substantial decisions.

         The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended, or Code, on treasury regulations
promulgated thereunder and on

                                      -86-

<PAGE>

existing administrative rulings and court decisions in effect as of the date of
this annual report, any of which may be repealed, revoked or modified, perhaps
with retroactive effect, so as to result in federal income tax consequences
different from those discussed below. The following discussion describes the
general application of the U.S. federal income tax laws. The discussion does not
purport to describe all of the tax considerations that may be relevant to any
particular shareholder in light of such shareholder's circumstances.

         This discussion deals only with United States holders who hold their
common shares as a capital asset and does not address tax considerations
applicable to United States holders that may be subject to special tax rules,
such as:

         -        dealers or traders in securities or currencies;

         -        financial institutions or other United States holders that
                  treat income in respect of our common shares as financial
                  services income;

         -        life insurance companies;

         -        tax-exempt entities;

         -        United States holders that hold our common shares as a part of
                  a straddle or conversion transaction or other arrangement
                  involving more than one position or that hedge against
                  currency risks in respect of our common shares;

         -        United States holders that own, or are deemed for United
                  States tax purposes to own, 10% or more of the total combined
                  voting power of all classes of our voting shares;

         -        shareholders subject to the alternative minimum tax provisions
                  of the Code;

         -        partnerships or persons who hold our common shares in a
                  partnership or other pass-through entity;

         -        United States holders that have a principal place of business
                  or "tax home" outside the United States; or

         -        United States holders whose "functional currency" is not the
                  United States dollar.

EACH UNITED STATES HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR TO DETERMINE
THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES ASSOCIATED
WITH THE ACQUISITION, OWNERSHIP AND

                                      -87-

<PAGE>

DISPOSITION OF OUR COMMON SHARES, IN LIGHT OF SUCH HOLDER'S PARTICULAR FACTS AND
CIRCUMSTANCES.

DISTRIBUTIONS

         Distributions that we make with respect to our common shares, other
than distributions in liquidation and distributions in redemption of shares that
are treated as exchanges, will be taxed to United States holders as ordinary
dividend income to the extent that the distributions do not exceed our current
and accumulated earnings and profits, as determined for United States federal
income tax purposes. The amount treated as a dividend will include any Canadian
withholding tax deducted from the distribution. Distributions, if any, in excess
of our current and accumulated earnings and profits, as determined for United
State federal income tax purposes, will constitute a nontaxable return of
capital to a United States holder and will be applied against and reduce the
United States holder's tax basis in our common shares. To the extent that these
distributions exceed the tax basis of the United States holder in our common
shares, the excess will be treated as capital gain.

         In the case of distributions in Canadian dollars, the amount of the
distributions will equal the United States dollar value of the Canadian dollars
distributed, determined by reference to the spot currency exchange rate on the
date of receipt of the distribution by the United States holder, and the United
States holder will realize a foreign currency gain or loss only to the extent
that gain or loss arises as a result of foreign currency fluctuations from the
date the distribution is received (or deemed received) to the date such
distribution is converted into United States dollars. Any foreign currency gain
or loss will be treated as ordinary income or loss, which generally will be
United States source income or loss.

         Dividends that we pay will not be eligible for the dividends-received
deduction allowed to United States corporations under Section 243 of the Code.

SALE OR OTHER DISPOSITION

         Upon a sale or other disposition of our common shares, a United States
holder will recognize gain or loss in an amount equal to the difference between
the amount realized on the sale or disposition and the United States holder's
adjusted tax basis in the common shares (determined in U.S. dollars) sold or
disposed of. Subject to special rules that apply in the event we were to be
classified as a passive foreign investment company, any gain or loss recognized
will be capital gain or loss (the deductibility of which is limited) and will be
long-term capital gain or loss if the United States holder has held our common
shares for more than one year on the date of the sale of disposition. Special
rules may apply in the case of a sale of common shares to the Company.

                                      -88-

<PAGE>

FOREIGN TAX CREDIT

         In computing its United States federal income tax liability, a United
States holder may elect for each taxable year to claim a deduction or, subject
to the limitations with respect to foreign tax credits, a credit for foreign
income taxes paid or accrued by it, including any non-United States taxes
withheld from distributions, if any, that we pay on our common shares. For
foreign tax credit purposes, under Section 904(g) of the Code, in the event that
at least 50 percent of our shares (determined by vote or value) is owned,
directly, indirectly or by attribution, by United States persons, and subject to
the limitations described below, a portion of the dividends that we pay in each
taxable year will be treated as United States-source income, depending upon the
ratio for that taxable year of our United States-source earnings and profits to
our total earnings and profits. The remaining portion of our dividends will be
treated as foreign-source income and will be treated as passive income, subject
to the separate foreign tax credit limitation for passive income. The
application of Section 904(g) is subject to two limitations. First, if in any
taxable year we have earnings and profits, and less than 10 percent of those
earnings and profits are from United States sources, then dividends that we pay
from our earnings and profits for that year will be treated entirely as
foreign-source income. Second, because dividends that we pay are treated
entirely as foreign-source income under the Convention, a United States holder
that qualifies for the benefits of the Convention may elect to have the portion
of those dividends that would be treated as United States-source income under
Section 904(g) instead treated as foreign-source income that is subject to a
separate foreign tax credit limitation.

         If we were to be a passive foreign investment company (see "-- Passive
Foreign Investment Companies" below), special rules would apply to the
calculation of foreign tax credits. The rules relating to the determination of
the amount of foreign income taxes which may be claimed as foreign tax credits
are complex and United States holders should consult their tax advisors to
determine whether and to what extent a credit would be available.

PASSIVE FOREIGN INVESTMENT COMPANIES

         In general, a foreign corporation will be classified as a PFIC in any
taxable year in which either (i) 75% or more of its gross income is passive
income or (ii) 50% or more of the average value of its assets are held for the
production of, or produce, passive income. Passive income for these purposes
includes items such as dividends, interest, royalties, rents and gains from
commodities and securities transactions.

         If a corporation is a passive foreign investment company, a United
States holder must determine under which of three alternative taxing regimes it
wishes to be taxed:

         -        The "QEF" regime applies if the United States holder elects to
                  treat the PFIC as a "qualified electing fund" ("QEF") for the
                  first taxable year in which the United States holder owns
                  common shares of the foreign corporation or in which the

                                      -89-

<PAGE>

                  foreign corporation is a PFIC, whichever is later, and if the
                  foreign corporation complies with certain reporting
                  requirements. If the QEF regime applies, then each year that
                  the foreign corporation is a PFIC such United States holder
                  will include in its gross income a proportionate share of the
                  PFIC's ordinary earnings (which is taxed as ordinary income)
                  and net capital gain (which is taxed as long-term capital
                  gain), subject to a separate election to defer payment of
                  taxes, which deferral is subject to an interest charge. These
                  amounts would be included in income by an electing United
                  States holder for its taxable year in which the PFIC's taxable
                  year ends, whether or not such amounts are actually
                  distributed to the United States holder. A United States
                  holder's basis in the shares of the PFIC for which a QEF
                  election has been made would be increased to reflect the
                  amount of any taxed but undistributed income. Generally, a QEF
                  election allows an electing United States holder to treat any
                  gain realized on the disposition of his shares in the PFIC as
                  capital gain.

         Once made, the QEF election applies to all subsequent taxable years of
the United States holder in which it holds common shares of the foreign
corporation and for which the foreign corporation is a PFIC and can be revoked
only with the consent of the Internal Revenue Service. A shareholder makes a QEF
election by attaching a completed Internal Revenue Service Form 8621, including
the PFIC annual information statement, to a timely filed United States federal
income tax return. Even if a QEF election is not made, a U.S. person who is a
shareholder in a PFIC must file a completed Internal Revenue Service Form 8621
every year.

         If a QEF election is not made for the first taxable year in which the
United States holder holds common shares in a foreign corporation and the
foreign corporation is a PFIC, then special rules would apply.

         -        A second regime, the "mark-to-market" regime, may be elected
                  if the PFIC stock is publicly traded. Pursuant to this regime,
                  an electing United States holder's shares in the PFIC are
                  marked-to-market each year and the United States holder
                  recognizes as ordinary income or loss an amount equal to the
                  difference as of the close of the taxable year between the
                  fair market value of the PFIC stock and the United States
                  holder's adjusted tax basis in the PFIC stock. Losses are
                  allowed only to the extent of net mark-to-market gain
                  previously included by the United States holder under the
                  election for prior taxable years. An electing United States
                  holder's adjusted basis in the PFIC stock is increased by
                  income recognized under the mark-to-market election and
                  decreased by the deductions allowed under the election.

         Under the mark-to-market election, gain on the sale of PFIC stock is
treated as ordinary income, and loss on the sale of PFIC stock, to the extent
the amount of loss does not exceed the net mark-to-market gain previously
included, is treated as ordinary loss. The mark-to-market

                                      -90-

<PAGE>

election applies to the tax year for which the election is made and all later
tax years, unless the common shares cease to be marketable or the Internal
Revenue Service consents to the revocation of the election.

         If the mark-to-market election is not made for the first taxable year
in which the United States holder holds common shares in a foreign corporation
and the foreign corporation is a PFIC, then special rules would apply.

         -        A United States holder making neither the QEF election nor the
                  mark-to-market election is subject to the "excess
                  distribution" regime. Under this regime, "excess
                  distributions" are subject to special tax rules. An excess
                  distribution is either (1) a distribution with respect to
                  stock that is greater than 125% of the average distributions
                  received by the United States holder from the PFIC over the
                  shorter of either the preceding three years or such United
                  States holder's holding period for the PFIC's common shares,
                  or (2) 100% of the gain from the disposition of shares in the
                  PFIC.

         Excess distributions must be allocated ratably to each day that a
United States holder has held its shares in the PFIC. A United States holder
must include amounts allocated to the current taxable year in its gross income
as ordinary income for that year. All amounts allocated to prior years of the
U.S. Holder would be taxed at the highest tax rate for each such prior year
applicable to ordinary income. The U.S. Holder also would be liable for interest
on the deferred tax liability for each such prior year calculated as if such
liability had been due with respect to each such prior year. A U.S. Holder that
is an individual is not allowed a deduction

         for interest on the deferred tax liability. The portions of gains and
distributions that are not characterized as "excess distributions" are subject
to tax in the current year under the normal tax rules of the Code.

         A U.S. person who inherits shares in a foreign corporation that was a
PFIC in the hands of the decedent (who did not make either of the elections
described above), is denied the otherwise available step-up in the tax basis of
such shares to fair market value at the date of death. The U.S. person steps
into the shoes of the decedent and will be subject to the rules described above.

         The Company's management does not believe that the Company was a PFIC
for the taxable year ended December 31, 2002; however, there can be no assurance
that the Internal Revenue Service will not take a contrary position. The
Company's status in future years will depend on its assets and activities in
those years and the Company cannot assure you that it will not be considered a
passive foreign investment company for any taxable year. If the Company is a
PFIC for any taxable year in which you are a shareholder, you will be treated as
continuing to own an interest in a PFIC in subsequent tax years, unless you make
the QEF election or the

                                      -91-

<PAGE>

mark-to-market election. The Company will notify United States holders in the
event it concludes that it will be treated as a PFIC for any taxable year to
enable United States holders to consider whether or not to elect to treat the
Company as a "qualified electing fund" for U.S. federal income tax purposes, to
elect to "mark to market" their common shares or to become subject to the
"excess distribution" regime.

UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
APPLICATION OF THE PFIC RULES, INCLUDING ELIGIBILITY FOR AND THE MANNER AND
ADVISABILITY OF MAKING, THE QEF ELECTION OR THE MARK-TO-MARKET ELECTION.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

         United States holders generally are subject to information reporting
requirements with respect to dividends paid in the United States on our common
shares. Under the Code, a United States holder may be subject, under certain
circumstances, to backup withholding at a rate up to 30% with respect to
dividends paid on our common shares unless the holder provides proof of an
applicable exemption or correct taxpayer identification number and otherwise
complies with applicable requirements of the backup withholding rules. A holder
of common shares who does not provide a correct taxpayer identification number
may be subject to penalties imposed by the Internal Revenue Service. Amounts
withheld under the backup withholding rules are not an additional tax and may be
refunded or credited against the holder's federal income tax liability, provided
the required information is furnished to the Internal Revenue Service.

                  F.       DIVIDENDS AND PAYING AGENTS.

                           Not applicable.

                  G.       STATEMENT BY EXPERTS.

                           Not applicable.

                  H.       DOCUMENTS ON DISPLAY.

         We have filed this annual report with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. Statements
made in this annual report as to the contents of any contract, agreement or
other document referred to herein are not necessarily complete. With respect to
each such contract, agreement or other document filed as an exhibit to this
annual report, reference is made to the exhibit for a more complete description
of the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.

         We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and file reports and other information with
the Securities and Exchange

                                      -92-

<PAGE>

Commission and with the securities regulators in each of the provinces of Canada
under applicable provincial securities legislation. Reports and other
information which we file with the Securities and Exchange Commission, including
this annual report, may be inspected and copied at the public reference
facilities of the Securities and Exchange Commission at 450 Fifth Street N.W.,
Room 1024, Washington D.C. 20549.

         Copies of this material can also be obtained by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Additionally, copies of this
material may also be obtained from the Securities and Exchange Commission's
Internet site at http://www.sec.gov. The Commission's telephone number is
1-800-SEC-0330. Documents filed in Canada are available at the website of the
Canadian System for Election and Document Analysis and Retrieval (SEDAR) at
http://www.sedar.com.

ITEM 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         INTEREST RATE RISK. The primary objective of our investment activities
is to preserve principal while at the same time maximizing the income we receive
from our investments without significantly increasing risk. Some of the
securities in which we invest may have market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. We
currently maintain an investment portfolio primarily of Canadian government
backed short-term notes. The average duration of all of our investments in 2002
was less than one year. Due to the short-term nature of these investments, we
believe that we have no material exposure to interest rate risk arising from our
investments. Therefore, no quantitative tabular disclosure is required.

         FOREIGN CURRENCY RATE FLUCTUATIONS. We are exposed to foreign currency
exchange risk related to our transactions, assets and liabilities denominated in
currencies other than the U.S. dollar. Specifically, we held US$59.1 million in
short-term investments, of which about 46% was denominated in U.S. dollars, with
the balance held in Canadian dollar deposits. Assuming no change in the relative
currency weighting of short-term investments, every 1% change in the value of
the Canadian dollar relative to that of the U.S. dollar will result in a foreign
currency gain or loss of approximately $320,000. This excludes the impact of
exchange rate changes on other balance sheet items or on ongoing operational
cash flows.

         Effective January 1, 2002, we changed our functional currency from the
Canadian dollar to the U.S. dollar.

                                      -93-

<PAGE>

ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

                  Not applicable.

                                    PART II

ITEM 13.          DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

         There have not been any material defaults on payments of indebtedness,
there are no payments of dividends in arrears, and there have not been any other
material delinquencies.

ITEM 14.          MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
                  USE OF PROCEEDS.

         There are no material modifications to the rights of security holders
that are required to be disclosed.

         The effective date of the registration statement for which the
information is being disclosed is October 26, 2000 (File No. 333-42682) (the
"Registration Statement"). The following table sets forth, with respect to the
common shares registered, the amount of securities registered, the aggregate
offering price of amount registered, the amount sold and the aggregate offering
price of the amount sold, for the account of our company:

<TABLE>
<S>                                                       <C>
Number of common shares registered....................      7,000,000

Aggregate offering price of shares registered.........    $84,000,000

Number of common shares sold..........................      7,000,000

Aggregate offering price of shares sold...............    $84,000,000
</TABLE>

         The following table sets forth the expenses incurred by us in
connection with our initial public offering during the period commencing the
effective date of the Registration Statement and ending December 31, 2002. None
of these expenses were paid directly or indirectly to directors, officers,
persons owning 10% or more of any class of equity securities of our company or
to our affiliates:

                                              Direct or Indirect Payment To
             Purpose                          Persons Other Than Affiliated
                                              Persons

                                      -94-

<PAGE>

<TABLE>
<S>                                         <C>
Underwriting discounts and
commissions..............................   $5,880,000
Other expenses...........................   $1,608,606
Total expenses...........................   $7,488,606
</TABLE>

         The net public offering proceeds to us, after deducting the total
expenses (set forth in the table above), were $76,511,394.

         The following table sets forth the amount of net public offering
proceeds used by us for the purposes listed below. None of such payments were
paid directly or indirectly to directors, officers, persons owning 10% or more
of any class of our equity securities or to our affiliates:

<TABLE>
<S>                                          <C>
                                             Direct Or Indirect Payments
                                             To Persons Other Than
Purpose                                      Affiliated Persons
Acquisition of other companies and
business(es)...............................  $645,000
Construction of plants, building and
facilities.................................  N/A
Purchase and installation of machinery and
equipment..................................  $5,126,000
Purchase of real estate....................  N/A
Repayment of indebtedness..................  $150,000
Working capital............................  $11,533,394
                                             $59,057,000 in short-term
Temporary investments......................  government backed notes
Other purposes.............................  N/A
</TABLE>

ITEM 15.          CONTROLS AND PROCEDURES

         We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our periodic filings with
the SEC is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control

                                      -95-

<PAGE>

objectives. Furthermore, management necessarily was required to use its judgment
in evaluating the cost to benefit relationship of possible disclosure controls
and procedures.

Within 90 days prior to the date of this report, we performed an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures. The evaluation was performed with the participation of senior
management of each business segment and key corporate functions, and under the
supervision of the CEO and CFO. Based on the evaluation, our management,
including the CEO and CFO, concluded that our disclosure controls and procedures
were effective. There have been no significant changes in our internal controls
or in other factors that could significantly affect internal controls after the
date we completed the evaluation.

                                    PART III

ITEM 16.          [RESERVED]

ITEM 17.          FINANCIAL STATEMENTS.

                  Not applicable.

ITEM 18.          FINANCIAL STATEMENTS.

         Please see the accompanying financial statements attached to this
annual report commencing on page F-1.


                               -96-

<PAGE>
ITEM 19.          EXHIBITS.


<TABLE>
<CAPTION>
EXHIBIT NUMBER                          NAME OF DOCUMENT
<S>               <C>
      1.1         Articles of the Company. (1)

      1.2         By-laws of the Company. (2)

      2.1         Form of share certificate. (3)

      4.1         Stock Option Plan. (4)

      4.2         Form of Stock Option Agreement. (5)

      4.3         Lease, dated May 19, 1999, by and between the Company and Atlantis
                  Real Estate Corporation. (6)

      4.4         Employment letter agreement between Dr. Ravi Gopal and the Company, dated March 16,
                  1998. (7)

      4.5         Offer to Lease dated June 1, 2000 by and between the Company and Orlando
                  Corporation. (8)

      4.6         Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated October 17, 1996, between Canada and the Company. (9)

      4.7         Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated July 3, 1997, between Canada and the Company. (10)

      4.8         Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated June 9, 1998, between Canada and the Company. (11)

      4.9         Efficiency and Alternative Energy Program Amendment to the Contribution Agreement
                  between Canada and the Company, dated March 13, 2000. (12)

      4.10        Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated June 9, 1999, between Canada and the Company. (13)

      4.11        Natural Resources Canada Efficiency and Alternative Energy Program Amendment No. 1
                  to the Contribution Agreement between Canada and the Company, dated February 1,
                  2000. (14)

      4.12        Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated May 25, 2000, between Canada and the Company. (15)

      4.13        Industrial Research Assistance Program Contribution Agreement, dated November 24,
                  1998, between National Research Council Canada and the Company. (16)

      4.14        Industrial Research Assistance Program Contribution Agreement, dated December 1,
                  1999, between National Research Council Canada and the Company. (17)

      4.15        Research Agreement for a Cooperative Project, dated November 19, 1996, between
                  Universite du Quebec a Trois-Rivieres and the Company. (18)

      4.16        Lease, dated June 23, 2000, by and between Orlando Corporation and the Company. (19)

      4.17        Employment Agreement between Pierre Rivard and the Company, dated
</TABLE>

                                      -97-

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                       NAME OF DOCUMENT
<S>               <C>
                  April 20, 2001. (20)

      4.18        Employment Agreement between Boyd Taylor and the Company, dated April 20, 2001. (21)

      4.19        Employment Agreement between Ravi Gopal and the Company, dated April 20, 2001. (22)

      4.20        Employment Agreement between Joseph Cargnelli and the Company, dated April 20, 2001. (23)

      4.21        Agreement of Lease, dated as of December 15, 2000, between Crown/Chadwick Realty
                  Corp. and the Company (24)

      4.22        Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement between Canada and the Company, dated January 10, 2001. (25)

      4.23        Natural Resources Canada Efficiency and Alternative Energy Program Amendment No. 1
                  to the Contribution Agreement, dated April 11, 2001. (26)

      4.24        Joint Development Agreement between the Company and Johnson Matthey, Inc, dated
                  April 18, 2001. (27)

      4.25        Sales Agency Agreement between the Company and Hankook BEP Co. Ltd., dated July 23, 2001. (28)

      4.26        Distribution Agreement between the Company and Toyota Tsusho Corporation, dated August 22, 2001. (29)

      4.27        Corporate Alliance Agreement between General Motors Corporation and the Company,
                  dated October 16, 2001. (30)

      4.28        Master Intellectual Property Agreement between General Motors Corporation and the
                  Company, dated October 16, 2001. (31)

      4.29        Governance Agreement between General Motors Corporation and the Company, dated
                  October 16, 2001. (32)

      4.30        Share Subscription Agreement between General Motors Corporation and the Company,
                  dated October 16, 2001. (33)

      4.31        Escrow Agreement between General Motors Corporation and the Company, dated October
                  16, 2001. (34)

      4.32        Registration Rights Agreement between General Motors Corporation and the Company,
                  dated October 16, 2001. (35)

      4.33        Share Purchase Agreement among the Company, Dr. Bernd Pitschak, Dr. Karl Klug and
                  Creavis GmbH, dated April 16, 2002. (36)

      4.34        Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement between Canada and the Company,
</TABLE>

                                      -98-

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER                          NAME OF DOCUMENT
<S>               <C>
                  dated September 13, 2002. *

      4.35        Share Purchase Agreement dated January 7, 2003 among the Company, Greenlight Power
                  Technologies, Inc., Ventures West 7 Limited Partnership, Ventures West 7 U.S.
                  Limited Partnership, Horton Trading Co., Roger Harper, Jacek Piotrowski, Gary Sedun,
                  David Chapman, James Dean, Sedun Family Trust and Piotrowski Family Trust. *

       8.0        List of Subsidiaries of the Registrant. *

      10.1        Certification of Chief Executive Officer of the Registrant pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002. *+

      10.2        Certification of Chief Financial Officer of the Registrant pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002.*+
</TABLE>

* Filed herewith.

+ This document is being furnished in accordance with SEC Release Nos.
33-8212 and 34-47551.

(1) Incorporated by reference from Exhibit 3.1 to Amendment No. 4 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on October 13, 2000.

(2) Incorporated by reference from Exhibit 3.2 to Amendment No. 4 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on October 13, 2000.

(3) Incorporated by reference from Exhibit 4.1 to Amendment No. 5 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on October 23, 2000.

(4) Incorporated by reference from Exhibit 10.3 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(5) Incorporated by reference from Exhibit 10.4 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(6) Incorporated by reference from Exhibit 10.5 to the Company's Registration
Statement on Form F-1, File No. 333-42682, filed with the Securities and
Exchange Commission on July 31, 2000.

                                      -99-

<PAGE>

(7) Incorporated by reference from Exhibit 10.7 to the Company's Registration
Statement on Form F-1, File No. 333-42682, filed with the Securities and
Exchange Commission on July 31, 2000.

(8) Incorporated by reference from Exhibit 10.8 to the Company's Registration
Statement on Form F-1, File No. 333-42682, filed with the Securities and
Exchange Commission on July 31, 2000.

(9) Incorporated by reference from Exhibit 10.9 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(10) Incorporated by reference from Exhibit 10.10 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(11) Incorporated by reference from Exhibit 10.11 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(12) Incorporated by reference from Exhibit 10.12 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(13) Incorporated by reference from Exhibit 10.13 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(14) Incorporated by reference from Exhibit 10.14 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(15) Incorporated by reference from Exhibit 10.15 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(16) Incorporated by reference from Exhibit 10.16 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

                                     -100-

<PAGE>

(17) Incorporated by reference from Exhibit 10.17 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(18) Incorporated by reference from Exhibit 10.18 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(19) Incorporated by reference from Exhibit 10.19 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(20) Incorporated by reference from Exhibit 4.18 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(21) Incorporated by reference from Exhibit 4.19 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(22) Incorporated by reference from Exhibit 4.20 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(23) Incorporated by reference from Exhibit 4.21 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(24) Incorporated by reference from Exhibit 4.22 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(25) Incorporated by reference from Exhibit 4.23 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(26) Incorporated by reference from Exhibit 4.24 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(27) Incorporated by reference from Exhibit 4.24 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(28) Incorporated by reference from Exhibit 4.25 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(29) Incorporated by reference from Exhibit 4.26 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(30) Incorporated by reference from Exhibit 4.27 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(31) Incorporated by reference from Exhibit 4.28 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(32) Incorporated by reference from Exhibit 2 to the Schedule 13D of General
Motors Corporation, filed with the Securities and Exchange Commission on October
25, 2001.

(33) Incorporated by reference from Exhibit 1 to the Schedule 13D of General
Motors Corporation, filed with the Securities and Exchange Commission on October
25, 2001.

(34) Incorporated by reference from Exhibit 4 to the Schedule 13D of General
Motors Corporation, filed with the Securities and Exchange Commission on October
25, 2001.

                                     -101-

<PAGE>

(35) Incorporated by reference from Exhibit 3 to the Schedule 13D of General
Motors Corporation, filed with the Securities and Exchange Commission on October
25, 2001.

(36) Incorporated by reference from Exhibit 4.33 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.


                                     -102-

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

HYDROGENICS CORPORATION

By:

/s/ PIERRE RIVARD
-----------------------------------------
Name:  Pierre Rivard
Title: President, Chief Executive Officer
       and Director

By:

/s/ GARY BRANDT
-----------------------------------------
Name:  Gary Brandt
Title: Chief Financial Officer

Date: June 16, 2003

                                     -103-

<PAGE>

                                 CERTIFICATIONS

I, Pierre Rivard, certify that:

1.       I have reviewed this annual report on Form 20-F of Hydrogenics
         Corporation;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         designed such disclosure controls and procedures to ensure that
                  material information relating to the registrant, including its
                  consolidated subsidiaries, is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;

         evaluated the effectiveness of the registrant's disclosure controls and
                  procedures as of a date within 90 days prior to the filing
                  date of this annual report (the "Evaluation Date"); and

         presented in this annual report our conclusions about the effectiveness
                  of the disclosure controls and procedures based on our
                  evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         all significant deficiencies in the design or operation of internal
                  controls which could adversely affect the registrant's ability
                  to record, process, summarize and report financial data and
                  have identified for the registrant's auditors any material
                  weaknesses in internal controls; and

                                     -104-

<PAGE>

         any fraud, whether or not material, that involves management or other
                  employees who have a significant role in the registrant's
                  internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date: June 16, 2003

By:

/s/ PIERRE RIVARD
------------------------------------------
Name:  Pierre Rivard
Title: President, Chief Executive Officer
       and Director

                                     -105-

<PAGE>

                                 CERTIFICATIONS

I, Gary Brandt, certify that:

1.       I have reviewed this annual report on Form 20-F of Hydrogenics;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         designed such disclosure controls and procedures to ensure that
                  material information relating to the registrant, including its
                  consolidated subsidiaries, is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;

         evaluated the effectiveness of the registrant's disclosure controls and
                  procedures as of a date within 90 days prior to the filing
                  date of this annual report (the "Evaluation Date"); and

         presented in this annual report our conclusions about the effectiveness
                  of the disclosure controls and procedures based on our
                  evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         all significant deficiencies in the design or operation of internal
                  controls which could adversely affect the registrant's ability
                  to record, process, summarize and report financial data and
                  have identified for the registrant's auditors any material
                  weaknesses in internal controls; and

         any fraud, whether or not material, that involves management or other
                  employees who have a significant role in the registrant's
                  internal controls; and

                                     -106-

<PAGE>

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date: June 16, 2003

By:

/s/ GARY BRANDT
------------------------------
Name:  Gary Brandt
Title: Chief Financial Officer

                                     -107-

<PAGE>

                             HYDROGENICS CORPORATION

                          INDEX TO FINANCIAL STATEMENTS

AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2002 AND 2001

<TABLE>
<S>                                                                            <C>
Auditors Report.............................................................   F-2

Consolidated Balance Sheets as at December 31, 2002 and 2001................   F-3

Consolidated Statements of Operations and Retained Earnings (Deficit) for
the years ended December 31, 2002, 2001 and 2000............................   F-4

Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001 and 2000.........................................................   F-5

Notes to Consolidated Financial Statements..................................   F-6

Schedule II - Valuation and Qualifying Accounts.............................   F-28
</TABLE>

<PAGE>

HYDROGENICS CORPORATION
AUDITORS' REPORT

TO THE SHAREHOLDERS OF HYDROGENICS CORPORATION

We have audited the consolidated balance sheets of Hydrogenics Corporation as at
December 31, 2002 and 2001 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three-year period ended
December 31, 2002. These financial statements and the financial statement
schedule appearing on page F-28 of this Form 20-F are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Canada and the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles.

In addition, in our opinion, the financial statement schedule referred to above
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

CHARTERED ACCOUNTANTS
February 5, 2003, except as to Note 20 which is as of April 28, 2003
Toronto, Canada

F-2

<PAGE>

HYDROGENICS CORPORATION
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2002 AND 2001
(thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                              2002        2001
<S>                                                          <C>         <C>
ASSETS

CURRENT ASSETS
Cash                                                             994       1,639
Short-term investments                                        59,057      64,170
Accounts receivable (notes 3 and 13)                           5,664       4,353
Grants receivable                                                396         741
Inventories (note 4)                                           4,780       2,969
Prepaid expenses                                                 316         129
                                                             -------     -------
                                                              71,207      74,001

DEPOSITS                                                         103         102
PROPERTY, PLANT AND EQUIPMENT (note 5)                         3,855       3,780
INTANGIBLE ASSETS (note 6)                                    15,512      29,750
                                                             -------     -------
                                                              90,677     107,633
                                                             =======     =======

LIABILITIES

CURRENT LIABILITIES
Accounts payable and accrued liabilities (notes 7 and 13)      4,105       1,542
Unearned revenue                                                 571          51
Income taxes payable                                             144          11
                                                             -------     -------
                                                               4,820       1,604

LOANS PAYABLE (note 8)                                           425         208
                                                             -------     -------
                                                               5,245       1,812
                                                             -------     -------

SHAREHOLDERS' EQUITY

Share capital and other equity (note 9)                      114,526     114,748
Deficit                                                      (25,270)     (4,659)
Foreign currency translation adjustment                       (4,046)     (4,046)
                                                             -------     -------
                                                              85,432     105,821
                                                             -------     -------
                                                              90,677     107,633
                                                             =======     =======
</TABLE>

COMMITMENTS AND CONTINGENCIES (note 11)

The accompanying notes form an integral part of these financial statements

F-3

<PAGE>

HYDROGENICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(thousands of U.S. dollars, except for share and per share amounts)

<TABLE>
<CAPTION>
                                                                  2002           2001           2000
<S>                                                            <C>            <C>            <C>
REVENUES                                                           15,840          7,418          8,883

COST OF REVENUES                                                   10,703          4,941          6,485
                                                               ----------     ----------     ----------

                                                                    5,137          2,477          2,398
                                                               ----------     ----------     ----------

OPERATING EXPENSES
Selling, general and administrative                                 6,658          4,403          2,069
Research and development                                            4,235          3,518            790
Research and development grants                                      (474)        (1,181)          (140)
Depreciation of property, plant and equipment                       1,278            716            224
Amortization of intangible assets                                  15,223          3,459              -
                                                               ----------     ----------     ----------

                                                                   26,920         10,915          2,943
                                                               ----------     ----------     ----------

LOSS FROM OPERATIONS                                              (21,783)        (8,438)          (545)
                                                               ----------     ----------     ----------

OTHER INCOME (EXPENSES)
Accrued dividends and amortization of discount on preferred
shares                                                                  -              -           (262)
Provincial capital tax                                               (190)          (123)          (260)
Interest                                                            1,121          2,927            832
Foreign currency gains (losses)                                       495          2,974         (1,329)
                                                               ----------     ----------     ----------

                                                                    1,426          5,778         (1,019)
                                                               ----------     ----------     ----------

LOSS BEFORE INCOME TAXES                                          (20,357)        (2,660)        (1,564)

CURRENT INCOME TAX EXPENSE  (note 12)                                 254            156            172
                                                               ----------     ----------     ----------

NET LOSS FOR THE YEAR                                             (20,611)        (2,816)        (1,736)

DEFICIT - BEGINNING OF YEAR                                        (4,659)        (1,843)          (107)
                                                               ----------     ----------     ----------

DEFICIT - END OF YEAR                                             (25,270)        (4,659)        (1,843)
                                                               ==========     ==========     ==========

NET LOSS PER SHARE (note 16)
Basic and diluted                                                   (0.43)         (0.07)         (0.08)
Shares used in calculating basic and diluted net
loss per share                                                 48,437,813     38,217,593     22,341,370
</TABLE>

The accompanying notes form an integral part of these financial statements

F-4

<PAGE>

HYDROGENICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                     2002       2001       2000
<S>                                                <C>         <C>       <C>
CASH PROVIDED BY (USED IN)

OPERATING ACTIVITIES
Net loss for the year                              (20,611)    (2,816)    (1,736)
Items not affecting cash
 Depreciation of property, plant and equipment       1,278        716        224
 Amortization of intangible assets                  15,223      3,459          -
 Amortization of discount on preferred shares            -          -         85
 Unrealized foreign exchange (gains) losses           (271)    (1,606)     1,329
 Imputed interest on loan payable                       47         19          7
 Stock-based consulting expense                         29          -          -
Net change in non-cash working capital                 378     (5,444)    (1,189)
                                                   -------     ------    -------

                                                    (3,927)    (5,672)    (1,280)
                                                   -------     ------    -------

INVESTING ACTIVITIES
Decrease (increase) in short-term investments        5,414      8,782    (75,756)
Purchase of property, plant and equipment           (1,541)    (3,138)    (1,492)
Acquisition of a business - net of cash acquired      (633)         -          -
                                                   -------     ------    -------

                                                     3,240      5,644    (77,248)
                                                   -------     ------    -------

FINANCING ACTIVITIES
(Decrease) increase in loan payable                   (150)        97         92
Common shares issued - net of issuance costs           193       (149)    76,186
Preferred shares issued - net of issuance costs          -          -      3,623
                                                   -------     ------    -------

                                                        43        (52)    79,901
                                                   -------     ------    -------

INCREASE (DECREASE) IN CASH DURING THE YEAR           (644)       (80)     1,373

EFFECT OF EXCHANGE RATE CHANGES ON CASH                 (1)      (125)        18

CASH - BEGINNING OF YEAR                             1,639      1,844        453
                                                   -------     ------    -------

CASH - END OF YEAR                                     994      1,639      1,844
                                                   =======     ======    =======

SUPPLEMENTAL DISCLOSURE
Interest paid                                            7          9          7
Income taxes paid                                       43        317          -
</TABLE>

The accompanying notes form an integral part of these financial statements

F-5

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

1    DESCRIPTION OF BUSINESS

         Hydrogenics Corporation (the "Company") designs, develops, manufactures
         and sells proton-exchange membrane, or PEM, fuel cell automated test
         stations, fuel cell power products and provides engineering and other
         services. The Company is based in Canada, and its principal customers
         include automotive companies, fuel cell developers and component
         suppliers primarily located in the United States, Europe and Asia.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION

         These consolidated financial statements have been prepared in
         accordance with Canadian generally accepted accounting principles
         (Canadian GAAP), which, in the case of the Company, conform in all
         material respects with accounting principles generally accepted in the
         Unites States, except as outlined in Note 22.

         PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
         Company and its wholly owned subsidiaries. All intercompany
         transactions and balances have been eliminated on consolidation.

         REVENUE RECOGNITION

         Revenues from the sale of fuel cell test stations and fuel cell power
         product components are recognized when there is persuasive evidence of
         an arrangement, goods have been delivered, title has passed to the
         customer, the fee is fixed and determinable, and collection is
         reasonably assured.

         Equipment leases that transfer substantially all of the benefits and
         risks of ownership to customers are classified as sales-type leases as
         a result of meeting the criteria established by Canadian Institute of
         Chartered Accountants (CICA) Handbook Section 3065, "Leases". Revenue
         associated with sales-type leases is recognized when all of the
         following criteria are met: persuasive evidence of an agreement exists;
         delivery to the customer has taken place, the price is fixed or
         determinable; and collection is reasonably assured.

         Revenues relating to engineering and testing services are recorded as
         services are rendered.

         Revenues from long-term contracts are determined under the
         percentage-of-completion method whereby revenues are recognized on a
         pro rata basis in relation to contract costs incurred. Costs and
         estimated profit on contracts in progress in excess of amounts billed
         are reflected as unbilled revenue. Cash received in advance of revenue
         being recognized on contracts is classified as unearned revenue.

         PRODUCT WARRANTIES

         The Company typically provides a warranty for parts and/or labor for up
         to one year or certain operating specifications such as hours of
         operation. Future warranty costs provisions are based on management's
         best estimates of such costs, taking into account the specific
         arrangements of each transaction and past history.

F-6

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

         GRANTS AND INVESTMENT TAX CREDITS

         Grants to fund various research activities are received from government
         and other institutions. These grants are recorded as either a
         liability, or a credit to expenses in the statement of operations, when
         earned, based on the terms and conditions of the agreements under which
         the assistance is provided to the Company. A liability is recorded when
         repayment of the obligation is considered probable. Research and
         development arrangements that obligate the Company to repay the funds
         regardless of the outcome or commercialization of the research and
         development are recognized as liabilities.

         Investment tax credits related to qualifying research and development
         expenditures are recorded as either a credit to expenses in the
         statement of operations or a reduction of the cost of applicable
         property, plant and equipment or depending on the nature of the
         expenditures which gave rise to the credits. Investment tax credits are
         recognized in the period in which the credits are earned and
         realization is reasonably assured.

         SHORT-TERM INVESTMENTS

         Short-term investments consist of interest bearing securities with
         original terms to maturity of less than one year, and are carried at
         the lower of amortized cost and market. The Company has the intention
         and the ability to hold these securities to maturity.

         INVENTORIES

         Raw materials are valued at the lower of cost, determined on a first-in
         first-out basis, and market. Market for raw materials is defined as
         replacement cost. Finished goods and work-in-progress are recorded at
         the lower of cost and net realizable value.

         LONG-LIVED ASSETS

               PROPERTY, PLANT AND EQUIPMENT

               Property, plant and equipment are carried at cost less
               accumulated depreciation. Property, plant and equipment are
               depreciated from the date of acquisition or, in respect of
               internally constructed test equipment, from the time an asset is
               substantially completed and ready for use. The cost of internally
               constructed assets includes materials, labour and directly
               attributable overhead costs.

               Depreciation is computed using the declining balance method as
               follows:

                        Computer hardware and software           30% per annum
                        Office furniture and equipment           20% per annum
                        Test equipment                           30% per annum
                        Automobiles                              30% per annum

               Leasehold improvements are amortized on a straight line basis
               over the term of the lease.

F-7

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

               INTANGIBLE ASSETS

               Intangible assets are carried at cost less accumulated
               amortization. Amortization is calculated on a declining balance
               basis at a rate of 50 percent per annum, which reflects the
               estimated useful life of the assets.

               Effective January 1, 2002, the Company adopted the new CICA
               Handbook Section 3062 "Goodwill and Other Intangible Assets".
               Under this new standard, goodwill and intangible assets with
               indefinite lives are no longer amortized but are subject to
               annual fair value impairment tests. The Company's intangible
               assets consist of acquired intellectual property and management
               services contracts, which are considered to have finite useful
               lives and amortized. Accordingly, the adoption of this
               accounting standard had no impact on the financial statements of
               the Company.

         The Company evaluates long-lived assets for impairment whenever events
         or changes in circumstances indicate that the carrying amount of such
         assets may not be recoverable. Recoverability of assets held and used
         is measured by comparison of the carrying amount to future net
         undiscounted cash flows expected to be generated by the asset. Any
         excess of the carrying value over the net recoverable amount is charged
         to the statement of operations.

         DEPOSITS

         Amounts paid as security deposits, which are due for repayment more
         than one year in the future, are recorded as deposits.

         RESEARCH AND DEVELOPMENT COSTS

         Research and development costs incurred by the Company are expensed as
         incurred. Costs incurred in applying for patents and licenses are
         expensed as incurred. Product development costs are expensed as
         incurred until the product or process is clearly defined and the
         associated costs can be identified, technical feasibility is reached,
         there is intention to produce or market the product, the future market
         is clearly defined, and adequate resources exist, or are expected to be
         available to complete the project. To date no product development costs
         have been capitalized.

         FOREIGN CURRENCY TRANSLATION

         The reporting currency of the Company is the U.S. dollar. Effective
         January 1, 2002 the functional currency of the Company is also the U.S.
         dollar. Monetary assets and liabilities denominated in currencies other
         than the U.S. dollar are translated at the rate of exchange in effect
         at the end of the year. Non-monetary assets are translated at historic
         rates of exchange. Revenues and expense items denominated in currencies
         other than the U.S. dollar are translated into U.S. dollars at the
         average rate of exchange for the year, except for depreciation and
         amortization which are translated at historic rates. Resultant gains
         and losses are included in the results of operations.

         The operations of the Company's German subsidiary are considered
         integrated, and accordingly, its accounts are translated into U.S.
         dollars using the temporal method. Under this method, monetary assets
         and liabilities are translated using the year-end exchange rate, and
         non-monetary items are translated using historic rates of exchange.
         Revenues and expenses of this subsidiary are translated at the average
         exchange rate for the year, except for depreciation and amortization,
         which are translated at historic rates of exchange. Resultant gains and
         losses are included in the results of operations.

F-8

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

         Prior to January 1, 2002 the functional currency of the Company was the
         Canadian dollar and amounts were translated into the U.S. reporting
         currency using the current rate method. Using the current rate method,
         assets and liabilities were translated at the year-end exchange rate,
         and revenues and expenses were translated at the average exchange rate
         for the year. Gains or losses from translation into the reporting
         currency were included in the cumulative translation adjustment account
         in shareholders' equity.

         STOCK-BASED COMPENSATION

         Effective January 1, 2002, the Company adopted the new Canadian
         standard for reporting stock based compensation, CICA Handbook section
         3870 "Stock Based Compensation and Other Stock Based Payments". Under
         this standard, stock-based payments to non-employees and direct awards
         of stock to employees and non-employees are accounted for using a fair
         value method of accounting. For grants of stock options to employees,
         this standard allows either the recognition of a compensation expense,
         based on the estimated fair value at the date of grant, or
         alternatively, the disclosure of pro forma net earnings and earnings
         per share data in the notes to the financial statements, as if the fair
         value of the stock based compensation had been recognized in earnings.
         The Company has opted for the disclosure of the pro-forma net earnings
         and earnings per share in the notes to the financial statements as if
         the fair value of the stock based compensation had been recognized in
         earnings.

         INCOME TAXES

         Income taxes are recorded using the liability method. Future income tax
         amounts arise due to temporary differences between the accounting and
         income tax bases of the Company's assets and liabilities. Future income
         tax assets and liabilities are measured using substantively enacted tax
         rates in effect for the year in which those temporary differences are
         expected to be recovered or settled. The effect on future income tax
         assets and liabilities of a change in tax rates is recognized in the
         period that includes the date of substantive enactment. Future tax
         assets are recognized to the extent that realization of such benefits
         is considered to be more likely than not.

         USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements, and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates. Significant estimates made by the Company include
         allowances for potentially uncollectible accounts receivable, warranty
         provisions, valuation allowances for future income tax assets, useful
         lives of intangible assets, stock option volatility, expected life of
         stock options and provisions for costs to complete contracts in
         progress.

F-9

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

         CHANGE IN ACCOUNTING POLICY FOR CASH AND CASH EQUIVALENTS

         Prior to fiscal December 31, 2001, investments with terms to maturity
         of three months or less from the date of acquisition, were considered
         to be cash equivalents. The Company's short-term deposits are generally
         held for investment purposes rather than for operating requirements.
         Accordingly, in 2001, the Company changed its definition of cash and
         cash equivalents to exclude all investments from cash equivalents. This
         change in accounting policy which was applied retroactively had the
         following impact:

<TABLE>
<S>                                                                  <C>
Increase in cash provided by investing activities for 2001           $72,325
Increase in cash used in investing activities for 2000               $75,756
Decrease in cash and cash equivalents as at December 31, 2001        $ 3,926
Decrease in cash and cash equivalents as at December 31, 2000        $75,592
</TABLE>

         The Company's consolidated statements of cash flows for 2000 were
         revised to reflect the impact of this change, and to disclose the
         change in cash, defined as cash on deposit, for each year. This change
         in accounting policy had no effect on reported earnings and deficit for
         2000.

         EARNINGS (LOSS) PER SHARE

         Basic earnings (loss) per share is calculated based on the weighted
         average number of common shares outstanding for the year. Diluted
         earnings (loss) per share is calculated using the daily weighted
         average number of common shares that would have been outstanding during
         the year had all potential common shares been issued at the beginning
         of the year, or when the underlying options or warrants were granted,
         if later. The treasury stock method is used to determine the
         incremental number of shares that would have been outstanding had the
         Company used proceeds from the exercise of options and warrants to
         acquire common shares.

         COMPARATIVE BALANCES

         Certain comparative balances for 2001 and 2000 have been reclassified
         to conform to the presentation adopted by the Company in 2002.

3.   ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                              2002      2001
<S>                                          <C>       <C>
Trade accounts receivable                    5,153     3,817
Less: Allowance for doubtful accounts          (40)     (122)
Goods and services tax                         278       310
Refundable investment tax credits              273       273
Other                                            -        75
                                             -----     -----
                                             5,664     4,353
                                             -----     -----
</TABLE>

F-10

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

4.   INVENTORIES

<TABLE>
<CAPTION>
                                              2002            2001
<S>                                          <C>             <C>
Raw materials                                2,163           1,962
Work-in-progress                             2,156             466
Finished goods                                 461             541
                                             -----           -----
                                             4,780           2,969
                                             -----           -----
</TABLE>

5.   PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                           2002        2001
<S>                                       <C>         <C>
Cost
     Test equipment                       3,606       3,096
     Furniture and equipment              1,074         746
     Computer hardware and software         993         583
     Leasehold improvements                 321         263
     Automobiles                             39          15
                                          -----       -----
                                          6,033       4,703
                                          -----       -----

Accumulated depreciation
    Test equipment                        1,350         557
    Furniture and equipment                 309         140
    Computer hardware and software          339         157
    Leasehold improvements                  157          64
    Automobiles                              23           5
                                          -----       -----
                                          2,178         923
                                          -----       -----

Net book value
    Test equipment                        2,256       2,539
    Furniture and equipment                 765         606
    Computer hardware and software          654         426
    Leasehold improvements                  164         199
    Automobiles                              16          10
                                          -----       -----
                                          3,855       3,780
                                          -----       -----
</TABLE>

         Test equipment under construction, as at December 31, 2002, not yet
         subject to depreciation amounted to $229 (2001 - $147).

F-11

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

6.   INTANGIBLE ASSETS

         On October 16, 2001, the Company issued 11,364,006 common shares and
         2,470,436 common share purchase warrants with an aggregate value of
         $33,658 (net of issuance costs of $277) in exchange for perpetual
         royalty free intellectual property rights for certain fuel cell stack
         technology. The terms of the warrants are described in Note 9.

         As a result of the acquisition of EnKAT GmbH on May 1, 2002, the
         Company acquired management services contracts for five years from each
         of the two principals of EnKAT. The details of the acquisition are
         described in Note 19.

         During 2002 the Company acquired certain intellectual property valued
         at $420 in exchange for an unsecured non-interest bearing term loan.
         The terms of the loan are described in Note 8.As at December 31 the
         carrying value of amortized intangible assets is as follows:

<TABLE>
<CAPTION>
                                           2002         2001
<S>                                      <C>           <C>
Cost
     Intellectual property                33,629       33,209
     Management services contracts           565            -
                                         -------       ------
                                          34,194       33,209
                                         -------       ------
Accumulated amortization
     Intellectual property               (18,492)      (3,459)
     Management services contracts          (190)           -
                                         -------       ------
                                         (18,682)      (3,459)
                                         -------       ------

Net book value
     Intellectual property                15,138       29,750
     Management services contracts           374            -
                                         -------       ------
                                          15,512       29,750
                                         -------       ------
</TABLE>

7.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                            2002         2001
                                             $            $
<S>                                        <C>          <C>
Trade accounts payable                     1,723        1,048
Supplier accruals                            695           57
Current portion of loans payable             101            -
Provincial capital tax                       194            -
Accrued payroll costs                        501          265
Warranty accrual                             373          172
Accrued legal and audit costs                299            -
Other                                        219            -
                                           -----        -----
                                           4,105        1,542
                                           -----        -----
</TABLE>

F-12

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

     Information regarding the changes in the Company's aggregate product
     warranty liabilities was as follows for the year ended December 31, 2002:
<TABLE>
<CAPTION>
                                                         $
<S>                                                    <C>
Balance, December 31, 2001                              172
Accruals for warranties issued during the year          327
Settlements made during the year                       (126)
                                                       ----
Balance, December 31, 2002                              373
                                                       ----
</TABLE>

8.   LOANS PAYABLE

     From time to time the Company receives repayable grant financing from a
     government agency for research and development activities. At December 31,
     2002 the outstanding amount of such repayable financing, net of imputed
     interest, was $183 (2001 - $164). This amount is unsecured and denominated
     in Canadian dollars, and repayable over a four-year period commencing April
     1, 2005. The amount repayable in each quarter is 1.3% of the Company's
     gross revenues for the preceding quarter. Based on the maximum amount
     repayable being 150 percent of the principal, the Company has charged to
     expense imputed interest of $20 in 2002 (2001 - $19; 2000 - $7) at an
     effective rate of 10% per annum.

     During 2002 the Company acquired certain intellectual property in exchange
     for an unsecured non-interest bearing term loan of $420 denominated in U.S.
     dollars. The loan is repayable over four years. At December 31, 2002 the
     outstanding amount of the loan, net of imputed interest, was $297. The
     Company has charged to expense imputed interest of $27 in 2002 at an
     effective rate of 10% per annum.

     The present value of future loan repayments is as follows:

<TABLE>
<CAPTION>
                                  $
<S>                              <C>
2003                             125
2004                             100
2005                             375
2006                              25
                                 ---
                                 625
Less: imputed interest            99
                                 ---
                                 526
Less: current portion            101
                                 ---
                                 425
                                 ===
</TABLE>

F-13

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

9.       SHARE CAPITAL AND OTHER EQUITY

         Changes in shareholders' equity for 2000, 2001 and 2002 are as follows:

<TABLE>
<CAPTION>
                              Common shares                                                       Foreign
                          --------------------                            Expensed                Currency        Total
                                                   Preferred               stock                 Translation   Shareholders'
                            Number     Amount       Shares     Warrants   options    Deficit      Adjustment       Equity
----------------------------------------------------------------------------------------------------------------------------
                                          $            $           $          $         $             $              $
<S>                       <C>         <C>          <C>         <C>        <C>        <C>         <C>           <C>
BALANCE AT DECEMBER
31, 1999                  19,687,500        21         124           -          -        (107)           -       $     38

Issuance of Series B
preferred shares                   -         -         442           -          -           -            -            442

Issuance of common
shares                     7,000,000    76,167           -           -          -           -            -         76,167

Conversion of Series A
preferred shares           5,250,000       967        (124)          -          -           -            -            843

Conversion of Series B
preferred shares           3,573,500     3,562        (442)          -          -           -            -          3,120

Issuance of common
shares on exercise of
options                       49,000        23           -           -          -           -            -             23

Net loss                           -         -           -           -          -      (1,736)           -         (1,736)

Foreign currency
translation
adjustment                         -         -           -           -          -           -        1,363          1,363

BALANCE AT DECEMBER
31, 2000                  35,560,000    80,740           -           -          -      (1,843)       1,363         80,260
Issuance of common
shares and warrants for
perpetual royalty-free
intellectual property
rights                    11,364,006    28,936           -       4,722          -           -            -         33,658

Issuance of common
shares on exercise of
options                      994,440       128           -           -          -           -            -            128

Net loss                           -         -           -           -          -      (2,816)           -         (2,816)

Foreign currency
translation adjustment             -         -           -           -          -           -       (5,409)        (5,409)

BALANCE AT DECEMBER
31, 2001                  47,918,446   109,804           -       4,722          -      (4,659)      (4,046)       105,821
Issuance of common
shares on exercise of
options                      877,675       193           -           -          -           -            -            193

Stock-based consulting
expense                            -         -           -                     29           -            -             29

Net loss                           -         -           -           -          -     (20,611)           -        (20,611)
-------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER
31, 2002                  48,796,121  $109,997           -      $4,722     $   29    $(25,270)    $ (4,046)      $ 85,432
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

F-14

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

         The authorized capital stock of the Company consists of an unlimited
         number of common shares and an unlimited number of preferred shares
         issuable in series.

         During 2002, the Company issued 877,675 (2001 - 994,440; 2000 - 49,000)
         common shares for $193 (2001 - $128; 2000 - $23) in cash under the
         exercise of options.

         During 2002, the Company issued 50,000 (2001 - nil; 2000 -nil) stock
         options in exchange for consulting services from an outside supplier.
         Each option is exercisable for one common share of the Company at a
         price of $12.00 CAD per share. These options are for a term of 10 years
         from the date of grant and vest quarterly over four years and are
         expensed at the fair value in accordance with CICA Handbook Section
         3870 "Stock Based Compensation and Other Stock Based Payments." The
         fair value of stock options expensed in the year amounted to $29 and
         was determined using a Black-Scholes pricing model with a risk-free
         rate of 5.12 percent, an expected life of 4 years, a volatility factor
         of 77 percent and no dividends.

         On October 16, 2001, the Company issued 11,364,006 common shares and
         2,470,436 common share purchase warrants with an aggregate value of
         $33,658 (net of issuance costs of $277) in exchange for perpetual
         royalty-free intellectual property rights for certain fuel cell stack
         technology. Each common share purchase warrant is exercisable upon
         release from escrow for one common share of the Company at a price of
         $4.00 per share. The fair value of common share purchase warrants
         issued amounted to $4,722, net of issuance costs, and was determined
         using a Black-Scholes pricing model with a risk-free rate of 3.9
         percent, a 5 year term and a volatility factor of 108 percent. The
         common share purchase warrants were placed in escrow on October 16,
         2001 and are to be automatically released from escrow at a rate of
         61,761 warrants per month over 40 months and expire on October 16,
         2006.

         During 2000, the Company completed a reverse share split reducing the
         number of common shares from 3,000,000 to 2,812,500. Prior to the
         Company's initial public offering in November 2000, the shares were
         split on a seven to one basis. The effect of these splits has been
         recognized retroactively in all share and per share data in the
         financial statements and notes.

         On January 24, 2000, the Company issued 510,500 Series B preferred
         shares at $7.27 (Cdn$10.50) per share for proceeds, net of issue costs,
         of $3,623 (Cdn$5,261). These shares were voting, convertible,
         redeemable and earned 5 percent cumulative dividends.

         On November 1, 2000, the Company completed an initial public offering
         and listed its common shares on the NASDAQ National Market and The
         Toronto Stock Exchange, and issued 7,000,000 common shares raising
         proceeds of $76,167 net of issue costs of $7,833.

         On November 1, 2000, all outstanding Series A and B preferred shares
         were converted to common shares in accordance with the terms of the
         share agreements. A total of 8,823,500 common shares were issued for a
         total stated value of $4,529. At conversion, cumulative dividends of
         $229 were paid to the preferred shareholders.

F-15

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

10.      EMPLOYEE STOCK BASED COMPENSATION

         During 2000, the Company adopted a broad-based employee stock option
         plan. The number of common shares that may be issued under the share
         option plan is limited to 4,641,000. All options are for a term of 10
         years from the date of grant and vest over four years unless otherwise
         determined by the board of directors. Under Canadian GAAP no
         compensation expense has been recorded with respect to options granted
         to employees. A summary of the Company's employee stock option plan
         activity is as follows:

<TABLE>
<CAPTION>
                                                            WEIGHTED
                                                        AVERAGE EXERCISE
                                       OPTIONS FOR            PRICE
                                      COMMON SHARES           CAD$
<S>                                   <C>               <C>
Balance - December 31, 1999             1,394,533             0.22

Options granted                         2,547,117             1.21
Options exercised                         (49,000)            0.72

                                        ---------
Balance - December 31, 2000             3,892,650             0.86

Options granted                           668,100             5.73
Options exercised                        (994,440)            0.20
Options forfeited on termination         (460,715)            0.70
                                        ---------

Balance December 31, 2001               3,105,595             2.15
Options granted                           396,900             6.46
Options exercised                        (877,675)            0.35
                                        ---------
Balance December 31, 2002               2,624,820             3.37
                                        ---------
</TABLE>

<TABLE>
<CAPTION>
                                                            WEIGHTED
                                                        AVERAGE EXERCISE
                                       OPTIONS FOR            PRICE
                                      COMMON SHARES           CAD$
<S>                                   <C>               <C>
Exercisable at December 31, 2000        1,981,439             0.25
Exercisable at December 31, 2001        1,970,335             0.69
Exercisable at December 31, 2002        1,652,874             1.87
</TABLE>

F-16

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

         The following table summarizes information about the Company's share
         options outstanding as at December 31, 2002:

<TABLE>
<CAPTION>
                      NUMBER          WEIGHTED           WEIGHTED         NUMBER         WEIGHTED
                  OUTSTANDING AT       AVERAGE           AVERAGE       EXERCISABLE AT    AVERAGE
EXERCISE PRICE     DECEMBER 31,       REMAINING        SHARE PRICE     DECEMBER 31,    SHARE PRICE
     CAD$             2002         CONTRACTUAL LIFE       CAD$            2002            CAD$
<S>               <C>              <C>                 <C>             <C>             <C>
          0.05        287,500            7.06              0.05            287,500         0.05
          0.29        684,000            7.06              0.29            684,000         0.29
  1.00 to 2.00        332,350            7.23              1.09            295,163         1.08
  2.01 to 4.00        433,100            8.66              3.64            144,900         3.56
 4.01 to 10.00        728,120            8.73              6.63            176,203         7.32
10.01 to 18.12        159,750            8.34             11.76             65,108        11.70
                    ---------                                            ---------

                    2,624,820                                            1,652,874
                    ---------                                            ---------
</TABLE>

         All options granted after November 1, 2000, the date of the Company's
         initial public offering, have an exercise price equal to the closing
         share price on the Toronto Stock Exchange the day before the grant.

         For the year ended December 31, 2002, a total of 396,900 stock options
         were granted to employees in accordance with the terms of the employee
         share option plan. Had the Company determined compensation cost based
         on the fair value method described in CICA Handbook Section 3870 "Stock
         Based Compensation and Other Stock Based Payments," the fair value of
         the stock options granted during the year would have been $1,543
         (weighted average $3.89 per share) and the related expense for the year
         ended December 31, 2002 would have been $295 ($0.01 per share on a
         basic and diluted basis). Pro-forma loss for the year ended December
         31, 2002 would have been $20,906 (($0.43) per share on a basic and
         diluted basis). For the purpose of these disclosures stock options are
         valued using the Black-Scholes option pricing model with the following
         assumptions: risk-free interest rate of 4.50 percent to 4.86 percent,
         expected life of 4 years, expected volatility of 77 percent, and no
         dividends.

11.      COMMITMENTS AND CONTINGENCIES

         The Company incurred rental expenses of $886 under operating leases in
         2002 (2001 - $788, 2000 - $390). The Company has future minimum lease
         payments under operating leases relating to premises and office
         equipment as follows:

<TABLE>
<CAPTION>
                          $
<S>                    <C>
       2003              859
       2004              693
       2005              449
       2006                -
       2007                -
2008 and thereafter        -
                       -----

                       2,001
                       =====
</TABLE>

F-17

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

         The Company has entered into repayable contribution and other research
         and development arrangements with various Canadian governmental
         ministries and public sector enterprises. Under these arrangements, the
         Company was eligible to receive up to a cumulative amount of $3,194
         (2001 - $1,912; 2000- $657) towards agreed upon research and
         development project costs. The utilized amount of the advances at
         December 31, 2002 was $2,194 (2001 - $1,726; 2000- $547). In return,
         these funding parties have a right to receive as repayments, 1.3
         percent to 4 percent of gross revenue received by the Company as a
         result of the commercial exploitation of the associated technology. To
         date, no revenues from these technologies have been recognized and no
         repayable amounts have been reflected in the accounts. These
         arrangements will expire in stages between September 30, 2006 and March
         31, 2016, or when total amounts repaid reach the utilized amount of the
         advance, depending on the terms of the individual contracts.

         The Company has entered into indemnification agreements with its
         current and former directors and officers to indemnify them, to the
         extent permitted by law, against any and all charges, costs, expenses,
         amounts paid in settlement and damages incurred by the directors and
         officers as a result of any lawsuit or any other judicial,
         administrative or investigative proceeding in which the directors and
         officers are sued as a result of their service. These indemnification
         claims will be subject to any statutory or other legal limitation
         period. The nature of the indemnification agreements prevents the
         Company from making a reasonable estimate of the maximum potential
         amount it could be required to pay to counter parties. The Company has
         purchased directors' and officers' liability insurance. No amount has
         been recorded in the financial statements with respect to these
         indemnification agreements.

         In the normal course of operations, The company may provide
         indemnification agreements, other than those listed above, to
         counterparties that would require the company to compensate them for
         costs incurred as a result of changes in laws and regulations or as a
         result of litigation claims or statutory sanctions that may be suffered
         by the counterparty as a consequence of the transaction. The terms of
         these indemnification agreements will vary based upon the contract. The
         nature of the indemnification agreements prevents the Company from
         making a reasonable estimate of the maximum potential amount if could
         be required to pay to counter parties. No amount has been recorded in
         the financial statements with respect to these indemnification
         agreements.

         In January, 2002, a legal action was commenced against the Company in
         federal court (Southern District, Texas), alleging patent infringement.
         The Company considers the claims in this suit to be without merit and
         plans to continue vigorously defending this action. The outcome of this
         action is not considered determinable. Accordingly, an estimate of
         potential loss, if any, cannot be made at this time.

12.      INCOME TAXES

         As at December 31, 2002, the Company has available income tax loss
         carry-forwards of $12,209 that may be used to reduce taxable income in
         future years, expiring as follows:

<TABLE>
<S>               <C>
2006                   -
2007                 280
2008               4,923
2009               7,006
                  ------

Total             12,209
                  ======
</TABLE>

F-18

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

         As at December 31, 2002, the Company has unclaimed scientific research
         and experimental development expenditures of $1,412 that can be used to
         offset future income over an indefinite period.

         The Company also has non-refundable investment tax credits amounting to
         approximately $398 that can be used to reduce future federal income
         taxes payable, expiring in 2010 and 2011.

         The Company has recorded a valuation allowance to reflect uncertainties
         associated with the realization of all future income tax assets.

         The Company's computation of income tax expense (recovery), which is
         all arising in Canada, is as follows:

<TABLE>
<CAPTION>
                                                 2002          2001        2000
                                                   $             $           $
<S>                                             <C>           <C>          <C>
Loss before income taxes                        (20,357)      (2,660)      (1,564)
                                                -------       ------       ------
Statutory income tax rate                         33.12%       34.12%       34.95%
                                                =======       ======       ======
Income taxes (recovery) at statutory rate        (6,742)        (908)        (547)
     Non-deductible expenses                      1,034          306           91
     Other permanent differences                   (160)         151           18
     Large corporations tax                         254          156          172
     Income tax rate changes                        584          441            -
     Change in valuation allowance                5,284           10          438
                                                -------       ------       ------
Income tax expense                                  254          156          172
                                                -------       ------       ------
</TABLE>

         Components of the Company's net future income tax assets, which are all
         arising in Canada, are:

<TABLE>
<CAPTION>
                                                                 2002       2001
                                                                   $          $
<S>                                                             <C>       <C>
Non capital losses                                               3,989     2,017
Scientific research and experimental development expenses          425         -
Investment tax credits                                             278        22
Warranty and other provisions                                      165        60
Property, plant and equipment and intellectual property          3,313       231
Share issue costs                                                  961      1433
Unrealized foreign exchange gain                                  (559)     (475)
Valuation allowance                                             (8,572)   (3,288)
                                                                ------    ------
                                                                     -         -
                                                                ------    ------
</TABLE>

F-19

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

13.      RELATED PARTY TRANSACTIONS

         In the normal course of operations, the Company sells certain products
         and performs services to a company that owns a significant number of
         its common shares. Revenues from this related company totalled $9,622
         in 2002 (2001 - $2,460; 2000 - $2,556). At December 31, 2002, the
         Company has an accounts receivable due from this related company of
         $3,647 (2001 - $2,058; 2000 - $519)

         In the normal course of operations, the Company subcontracts certain
         manufacturing functions to a company owned by a relative of one of the
         principal shareholders of Hydrogenics Corporation. Billings by this
         related company for manufacturing functions totalled $999 in 2002 (2001
         - $1,219; 2000 - $615). At December 31, 2002, the Company has an
         accounts payable balance due to this related company of $140 (2001 -
         $119; 2000 - $46).

         All related party transactions have been recorded at the exchange
         amount, which is the consideration paid or received as established and
         agreed to by the related parties.

14.      FINANCIAL INSTRUMENTS

         At December 31, 2002, 2001 and 2000, the fair values of cash,
         short-term investments, accounts receivable, grants receivable,
         accounts payable and accrued liabilities approximate their respective
         carrying values because of the short-term nature of these instruments.

         The carrying value of loans payable approximates the fair value because
         interest is imputed at a rate available to the Company for long term
         borrowings and is included in the loan balance.

         U.S. dollar-denominated amounts included in cash and short-term
         investments at December 31, 2002 amount to $27,697 (2001 - $26,546;
         2000 - $75,547). All cash and short-term investments are deposited with
         highly rated financial institutions within Canada.

         A substantial portion of the Company's accounts receivable is owing
         from a limited number of customers located globally (note 18). The
         Company performs ongoing credit evaluations on its customers' financial
         condition and generally requires no collateral from its customers. The
         Company maintains an allowance for doubtful accounts receivable based
         on management's assessment of expected collectibility and past history.

15.      LINE OF CREDIT

         The Company has an operating line of credit available up to $632
         (Cdn$1,000). As at December 31, 2002, 2001 and 2000, the Company had
         not drawn on this line. The operating facility bears interest at Royal
         Bank of Canada prime rate plus 0.5 percent, is due on demand and is
         collateralized by a general security agreement over all assets.

16.      LOSS PER SHARE

         Loss per share is calculated using the weighted average number of
         common shares outstanding for the year of 48,437,813 shares in 2002
         (2001 - 38,217,593; 2000 - 22,341,370). No effect has been given to the
         potential exercise of stock options and warrants in the calculation of
         diluted earnings (loss) per share as the effect would be anti-dilutive.

F-20
<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

17. STATEMENTS OF CASH FLOWS

    Components of the net change in non-cash working capital are as follows:

<TABLE>
<CAPTION>
                                                 2002      2001      2000
                                                  $          $         $
<S>                                             <C>       <C>       <C>
Decrease (increase) in current assets
     Accounts receivable                        (1,383)   (1,920)   (1,626)
     Grants receivable                             343      (690)       63
     Inventories                                (1,586)   (1,879)   (1,100)
     Prepaid expenses                             (147)      (54)     (114)
     Deposits                                        -         -       (67)
Increase (decrease) in current liabilities
     Accounts payable and accrued liabilities    2,501      (749)    1,545
     Unearned revenue                              520         -         -
     Income taxes payable                          131      (152)      160
     Dividends payable                               -         -       (50)
                                                ------    ------    ------

                                                   378    (5,444)   (1,189)
                                                ------    ------    ------
</TABLE>

18. SEGMENTED FINANCIAL INFORMATION

    The Company currently operates in a single reporting segment, being the
    design, development, manufacturing and sale of proton-exchange membrane, or
    PEM, fuel cell automated test stations and fuel cell systems and provides
    engineering and other services. Substantially all the Company's long-lived
    assets are located in Canada. Revenue is derived primarily from the sale of
    goods and services to customers located as follows:

<TABLE>
<CAPTION>
                      2002      2001    2000
                        $        $        $
<S>                  <C>       <C>      <C>
United States        12,715    3,080    5,098
Japan                   703    2,081        -
United Kingdom        1,108      600    3,442
Rest of World         1,314    1,657      343
                     ------    -----    -----

                     15,840    7,418    8,883
                     ------    -----    -----
</TABLE>

<TABLE>
<CAPTION>
REVENUES              2002      2001    2000
                       $         $        $
<S>                  <C>       <C>      <C>
Products              7,794    7,040    8,883
Services              8,046      378        -
                     ------    -----    -----
                     15,840    7,418    8,883
                     ------    -----    -----
</TABLE>

F-21

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

<TABLE>
<CAPTION>
COST OF SALES                             2002     2001     2000
                                            $        $        $
<S>                                      <C>       <C>      <C>
Products                                  4,906    4,657    6,485
Services (excluding depreciation)         5,797      284        -
                                         ------    -----    -----
                                         10,703    4,941    6,485
                                         ------    -----    -----
</TABLE>

         The Company's largest customers comprise the following percentages of
total revenue:

<TABLE>
<CAPTION>
                     2002    2001    2000
                      %       %        %
<S>                  <C>     <C>     <C>
First                 61      33      39
Second                 7      28      29
Third                  7       9      10
Fourth                 6       6       7
Others                19      24      15
                     ---     ---     ---

                     100     100     100
                     ---     ---     ---
</TABLE>

19. BUSINESS ACQUISITION

         On May 1, 2002, the Company acquired all the issued and outstanding
         common shares of EnKAT GmbH (EnKAT). EnKAT, based in Gelsenkirchen,
         Germany, designs and manufactures test systems for fuel cells,
         reformers and electrochemical engines. The purchase price was $645
         which includes cash paid of $277, repayment of debt on acquisition of
         $281 and transaction costs of $87. The purchase price allocated to the
         assets acquired and the liabilities assumed on the basis of their
         respective estimated fair market values on the acquisition date was:

<TABLE>
<S>                                                       <C>
Current assets                                             86
Property, plant and equipment                              30
Intangible assets                                         565
Current liabilities                                       (36)
                                                          ---
                                                          645
                                                          ---
</TABLE>

         As part of the acquisition, the Company obtained management services
         contracts for five years for each of the two principals of EnKAT. The
         fair value of these contracts has been included in intangible assets
         and is being amortized on a declining balance basis at an annual rate
         of 50 percent.

         This acquisition was accounted for by the purchase method. The results
         of operations of the Company include the results of EnKAT commencing
         May 1, 2002.

F-22

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

20. SUBSEQUENT EVENT

         On January 7, 2003, the Company acquired all the issued and outstanding
         common shares of Greenlight Power Technologies (Greenlight).
         Greenlight, based in Burnaby, British Columbia, designs and
         manufactures test systems for fuel cells, reformers and electrochemical
         engines. The purchase price was $29,472 CAD (US $19,044) exclusive of
         expenses of $1,062 relating to the acquisition. Consideration consisted
         of cash of $2,282 and the issuance of 4,164,093 common shares of the
         Company with an aggregate value of $16,762 at the acquisition date. The
         allocation of the purchase price to the assets and liabilities acquired
         is as follows:

<TABLE>
<S>                                                  <C>
Current assets                                        2,970
Property, plant and equipment                         2,120
Intangible assets                                    13,505
Goodwill                                              5,262
Future tax asset                                      5,393
Current liabilities                                  (3,549)
 Long term debt                                        (202)
 Future tax liabilities                              (5,393)
                                                     ------
                                                     20,106
                                                     ------
</TABLE>

         This allocation is preliminary and will be finalized upon receipt of a
         completed report by an independent valuator. This acquisition will be
         accounted for by the purchase method. From the date of acquisition
         onwards the Company will consolidate the operations of Greenlight in
         its financial statements.

21. NEW ACCOUNTING STANDARDS

    (i)  Canadian standards

                  GUARANTEES

                  In December 2002, the CICA issued Accounting Guideline No. 14
                  (AcG 14) relating to disclosure of guarantees. AcG 14 requires
                  disclosure of key information about certain types of guarantee
                  contracts that require payments contingent on specified types
                  of future events. The guideline is effective for periods
                  beginning on or after January 1, 2003.

                  ASSET RETIREMENT OBLIGATIONS

                  In December 2002, the CICA approved new Handbook section
                  "Asset Retirement Obligations" to replace the current guidance
                  on future removal and site restoration costs included in the
                  CICA accounting standard 3061 "Property, Plant and Equipment".
                  The standard is effective for years beginning on or after
                  January 1, 2004. The standard requires recognition of a
                  liability at its fair value for the obligation associated with
                  the retirement of a tangible long-lived asset. A corresponding
                  asset retirement cost would be added to the carrying amount of
                  the related asset and amortized to expense over the useful
                  life of the asset. The effect on net income of adopting this
                  standard, on January 1, 2004, is not expected to be material.

F-23

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

    (ii)  U.S. standards

                  FIN 45 - GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS
                  FOR GUARANTEES

                  In December 2002, the FASB issued Financial Interpretation No.
                  45 "Guarantor's Accounting and Disclosure Requirements for
                  Guarantees, Including Indirect Guarantees of Indebtedness of
                  Others, an interpretation of FASB Statements No. 5, 57 and
                  107" (FIN 45). FIN 45 requires that, effective for years
                  beginning after September 15, 2002, a guarantor recognizes, at
                  the inception of a guarantee, a liability for the fair value
                  of the obligations it has undertaken in issuing the guarantee.
                  The Company has adopted the disclosure of provisions of FIN 45
                  for the year ended December 31, 2002. The Company is currently
                  evaluating the impact of adopting the recognition provisions
                  of FIN 45.

                  ASSET RETIREMENT OBLIGATIONS

                  The FASB has issued SFAS No. 143, Accounting for Asset
                  Retirement Obligations. This statement addresses financial
                  accounting and reporting for obligations associated with the
                  retirement of tangible long-lived assets and the associated
                  asset retirement costs. It requires that the fair value of a
                  liability for an asset retirement obligation be recognized in
                  the period in which it is incurred if a reasonable estimate of
                  fair value can be made. The associated asset retirement costs
                  are capitalized as part of the carrying amount of the
                  long-lived asset. The effect on net income of adopting this
                  standard on January 1, 2003, is not expected to be material.

                  EXTINGUISHMENT OF DEBT

                  The FASB has issued SFAS No. 145, "Rescission of FASB
                  Statements No. 4, 44 and 64, Amendment of FASB Statement No.
                  13, and Technical Corrections". This standard updates, defines
                  and simplifies several existing accounting pronouncements. For
                  fiscal years beginning after May 15, 2002, gains and losses
                  from extinguishment of debt are no longer required to be
                  treated as an extraordinary item, net of income taxes. The
                  effect on net income of adopting this standard, on January 1,
                  2003, is considered not to be material.

                  EXIT AND DISPOSAL ACTIVITIES

                  The FASB has issued SFAS No. 146, "Accounting for Costs
                  Associated with Exit or Disposal Activities". Under this
                  standard, exit costs and restructuring liabilities generally
                  will be recognized only when incurred. SFAS No. 146 is
                  effective for exit or disposal activities that are initiated
                  after December 31, 2002. The effect on net income of adopting
                  this standard, on January 1, 2003, is considered not to be
                  material.

22. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES AND
PRACTICES

    The financial statements have been prepared in accordance Canadian GAAP,
    which differ in certain respects from those principles that the Company
    would have followed had its financial statements been prepared in accordance
    with accounting principles generally accepted in the United States (U.S.
    GAAP).

F-24

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

         The reconciliation of net loss for the year from Canadian GAAP to
conform with U.S. GAAP is as follows:

<TABLE>
<CAPTION>
                                                        2002          2001           2000
                                                          $             $              $
<S>                                                  <C>           <C>            <C>
Loss for the year based on Canadian GAAP                (20,611)       (2,816)        (1,736)
Accrued dividends and amortization of discount on
   preferred shares (i)                                       -             -            262
Stock-based compensation (ii)                              (443)       (1,468)        (3,369)
                                                     ----------    ----------     ----------

Loss for the year based on U.S. GAAP                    (21,054)       (4,284)        (4,843)
Other comprehensive income (loss)
   Foreign currency translation (iii)                         -        (5,409)         1,360
                                                     ----------    ----------     ----------

Comprehensive loss based on U.S. GAAP                   (21,054)       (9,693)        (3,483)
                                                     ----------    ----------     ----------

Basic and fully diluted loss per share based
   on U.S. GAAP                                           (0.43)        (0.11)         (0.22)

Weighted average number of shares used in
   calculating loss per share                        48,437,813    38,217,593     22,341,370
</TABLE>

<TABLE>
<CAPTION>
                                                         2002          2001            2000
                                                           $            $                $
<S>                                                     <C>           <C>             <C>
Shareholders' equity based on Canadian GAAP             85,432        105,821         80,260
                                                        ------        -------         ------
Shareholders' equity based on U.S. GAAP                 85,432        105,821         80,260
                                                        ------        -------         ------
</TABLE>

    (i)   Preferred Shares

                  Under Canadian GAAP, convertible, redeemable, preferred shares
                  are presented as debt and equity components on the balance
                  sheet. The Canadian GAAP statement of operations includes a
                  charge for interest on the debt component and dividends.
                  However, under U.S. GAAP, these preferred shares meet the
                  definition of mandatorily redeemable shares, which are
                  considered a component of temporary equity outside of
                  shareholders' equity and dividends are charged directly to
                  equity.

F-25

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

   (ii)   Stock-based compensation

                  Under Canadian GAAP, no compensation expense has been
                  recognized with respect to employee stock options. For U.S.
                  GAAP reporting, the Company uses the intrinsic value method of
                  APB Opinion No. 25 and options issued under the plan are
                  deemed to be compensatory to the extent that the fair value of
                  the stock exceeds the exercise price at the date of grant. The
                  compensation cost is recognized over the vesting period. For
                  U.S. GAAP, the compensation cost not yet recognized is
                  presented as a deferred stock-based compensation charge, with
                  a corresponding amount included in stock options outstanding,
                  both of which form part of shareholders' equity. At December
                  31, 2002, equity balances for deferred stock-based
                  compensation and stock options outstanding are $175 and $3,206
                  respectively.

                  Had the Company determined compensation cost based on the fair
                  value method as prescribed in Statement of Financial
                  Accounting Standards No. 123, "Accounting for Stock-based
                  Compensation," the expense for the year ended December 31,
                  2002 would have been $2,025 (2001 - $3,018; 2000 - $3,970) or
                  $0.04 per share (2001 - $0.08; 2000 - $0.18). Pro-forma loss
                  for the year ended December 31, 2002 would have been $(22,636)
                  (2001- $(5,834); 2000 - $(5,444)) or $(0.47) (2001 - $(0.15);
                  2000 - $(0.25)) per share. For the purposes of these
                  disclosures stock options are valued using the Black-Scholes
                  option pricing model with the following weighted average
                  assumptions: risk free interest rate of 4.50 percent to 5.39
                  percent, expected life of four to ten years, expected
                  volatility of between 77 percent and 113 percent, and no
                  dividends.

                  The condensed statements of operations and cash flows for the
                  years ended December 31, under U.S. GAAP, are as follows:

<TABLE>
<CAPTION>
                                                       2002         2001           2000
                                                        $            $               $
<S>                                                  <C>           <C>            <C>
Revenues                                              15,840        7,418          8,883
Cost of revenues                                      10,703        4,941          6,485
Operating expenses                                    27,363       12,383          6,312
Loss from operations                                 (22,226)      (9,906)        (3,914)
Loss for the year                                    (21,054)      (4,284)        (4,843)
</TABLE>

<TABLE>
<CAPTION>
                                                       2002         2001           2000
                                                        $            $              $
<S>                                                   <C>          <C>           <C>
Cash used in operating activities                     (3,927)      (7,025)          (984)
Cash provided by (used in) investing activities        3,240        5,443        (77,869)
Cash provided by (used in)  financing activities          43          (52)        79,672
</TABLE>

   (iii)  Comprehensive income

                  U.S. GAAP requires disclosure of comprehensive income or loss
                  which comprises income (loss) and other comprehensive income.
                  The only item of other comprehensive income for the Company is
                  the change in the foreign currency translation adjustment
                  included in shareholders' equity. Under Canadian GAAP, there
                  is no concept of comprehensive income.

F-26

<PAGE>

HYDROGENICS CORPORATION
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(expressed in thousands of U.S. dollars, except per share amounts)

   (iv)   Loss per share

                  The numerator for purposes of calculating loss per share under
U.S. GAAP has been calculated as follows:

<TABLE>
<CAPTION>
                                                  2002             2001          2000
                                                   $                $              $
<S>                                             <C>               <C>           <C>
Net loss under U.S. GAAP                        (21,054)          (4,284)       (4,843)
Less: Dividends on preferred shares                   -                -           179
                                                -------           ------        ------
Loss available to common shareholders           (21,054)          (4,284)       (5,022)
</TABLE>

F-27

<PAGE>

                             HYDROGENICS CORPORATION

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNT
                         (IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                        Additions/
                                        Balance at      recoveries
                                       beginning of     charged to                    Balance at
                                           year          expense       Deductions(1)  end of year
                                            $               $                $              $
<S>                                    <C>              <C>            <C>            <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
RECEIVABLE
Year ended December 31, 2000                  13              -             (13)             -
Year ended December 31, 2001                   -            126              (4)           122
Year ended December 31, 2002                 122              -             (82)            40

DEFERRED INCOME TAX VALUATION
ALLOWANCE
Year ended December 31, 2000                  21          3,249               -          3,270
Year ended December 31, 2001               3,270             18               -          3,288
Year ended December 31, 2002               3,288          5,284               -         $8,572
</TABLE>

(1) amounts written off against the allowance

F-28

<PAGE>

         EXHIBIT LIST

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                 NAME OF DOCUMENT
--------------                                 ----------------
<S>               <C>
     1.1          Articles of the Company. (1)

     1.2          By-laws of the Company. (2)

     2.1          Form of share certificate. (3)

     4.1          Stock Option Plan. (4)

     4.2          Form of Stock Option Agreement. (5)

     4.3          Lease, dated May 19, 1999, by and between the Company and Atlantis Real Estate
                  Corporation. (6)

     4.4          Employment letter agreement between Dr. Ravi Gopal and the Company, dated March 16,
                  1998. (7)

     4.5          Offer to Lease dated June 1, 2000 by and between the Company and Orlando
                  Corporation. (8)

     4.6          Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated October 17, 1996, between Canada and the Company. (9)

     4.7          Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated July 3, 1997, between Canada and the Company. (10)

     4.8          Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated June 9, 1998, between Canada and the Company. (11)

     4.9          Efficiency and Alternative Energy Program Amendment to the Contribution Agreement
                  between Canada and the Company, dated March 13, 2000. (12)

     4.10         Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated June 9, 1999, between Canada and the Company. (13)

     4.11         Natural Resources Canada Efficiency and Alternative Energy Program Amendment No. 1
                  to the Contribution Agreement between Canada and the Company, dated February 1,
                  2000. (14)

     4.12         Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement, dated May 25, 2000, between Canada and the Company. (15)

     4.13         Industrial Research Assistance Program Contribution Agreement, dated November 24,
                  1998, between National Research Council Canada and the Company. (16)

     4.14         Industrial Research Assistance Program Contribution Agreement, dated December 1,
                  1999, between National Research Council Canada and the Company. (17)

     4.15         Research Agreement for a Cooperative Project, dated November 19,
</TABLE>

                                     -109-

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                 NAME OF DOCUMENT
--------------                                 ----------------
<S>               <C>
                  1996, between Universite du Quebec a Trois-Rivieres and the Company. (18)

     4.16         Lease, dated June 23, 2000, by and between Orlando Corporation and the Company. (19)

     4.17         Employment Agreement between Pierre Rivard and the Company, dated April 20, 2001. (20)

     4.18         Employment Agreement between Boyd Taylor and the Company, dated April 20, 2001. (21)

     4.19         Employment Agreement between Ravi Gopal and the Company, dated April 20, 2001. (22)

     4.20         Employment Agreement between Joseph Cargnelli and the Company, dated April 20, 2001. (23)

     4.21         Agreement of Lease, dated as of December 15, 2000, between Crown/Chadwick Realty
                  Corp. and the Company (24)

     4.22         Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement between Canada and the Company, dated January 10, 2001. (25)

     4.23         Natural Resources Canada Efficiency and Alternative Energy Program Amendment No. 1
                  to the Contribution Agreement, dated April 11, 2001. (26)

     4.24         Joint Development Agreement between the Company and Johnson Matthey, Inc, dated
                  April 18, 2001. (27)

     4.25         Sales Agency Agreement between the Company and Hankook BEP Co. Ltd., dated July 23, 2001. (28)

     4.26         Distribution Agreement between the Company and Toyota Tsusho Corporation, dated
                  August 22, 2001. (29)

     4.27         Corporate Alliance Agreement between General Motors Corporation and the Company,
                  dated October 16, 2001. (30)

     4.28         Master Intellectual Property Agreement between General Motors Corporation and the
                  Company, dated October 16, 2001. (31)

     4.29         Governance Agreement between General Motors Corporation and the Company, dated
                  October 16, 2001. (32)

     4.30         Share Subscription Agreement between General Motors Corporation and the Company,
                  dated October 16, 2001. (33)

     4.31         Escrow Agreement between General Motors Corporation and the Company, dated October
                  16, 2001. (34)

     4.32         Registration Rights Agreement between General Motors Corporation and the Company,
                  dated October 16, 2001. (35)

     4.33         Share Purchase Agreement among the Company, Dr. Bernd Pitschak, Dr. Karl Klug and
                  Creavis GmbH, dated April 16, 2002. (36)

     4.34         Department of Natural Resources Efficiency and Alternative Energy Program
                  Contribution Agreement between Canada and the Company, dated September 13, 2002. *

     4.35         Share Purchase Agreement dated January 7, 2003 among the Company, Greenlight Power
                  Technologies, Inc., Ventures West 7 Limited Partnership, Ventures West 7 U.S.
                  Limited Partnership, Horton Trading Co., Roger Harper, Jacek Piotrowski, Gary Sedun,
                  David Chapman, James Dean, Sedun Family Trust and Piotrowski Family Trust. *

     8.0          List of Subsidiaries of the Registrant. *
</TABLE>

                                     -110-

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                 NAME OF DOCUMENT
--------------                                 ----------------
<S>               <C>
     10.1         Certification of Chief Executive Officer of the Registrant pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002. *+

     10.2         Certification of Chief Financial Officer of the Registrant pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002.*+
</TABLE>

*  Filed herewith.

+ This document is being furnished in accordance with SEC Release Nos.
33-8212 and 34-47551.

(1) Incorporated by reference from Exhibit 3.1 to Amendment No. 4 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on October 13, 2000.

(2) Incorporated by reference from Exhibit 3.2 to Amendment No. 4 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on October 13, 2000.

(3) Incorporated by reference from Exhibit 4.1 to Amendment No. 5 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on October 23, 2000.

(4) Incorporated by reference from Exhibit 10.3 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(5) Incorporated by reference from Exhibit 10.4 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(6) Incorporated by reference from Exhibit 10.5 to the Company's Registration
Statement on Form F-1, File No. 333-42682, filed with the Securities and
Exchange Commission on July 31, 2000.

(7) Incorporated by reference from Exhibit 10.7 to the Company's Registration
Statement on Form F-1, File No. 333-42682, filed with the Securities and
Exchange Commission on July 31, 2000.

(8) Incorporated by reference from Exhibit 10.8 to the Company's Registration
Statement on Form F-1, File No. 333-42682, filed with the Securities and
Exchange Commission on July 31, 2000.

                                     -111-

<PAGE>

(9) Incorporated by reference from Exhibit 10.9 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(10) Incorporated by reference from Exhibit 10.10 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(11) Incorporated by reference from Exhibit 10.11 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(12) Incorporated by reference from Exhibit 10.12 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(13) Incorporated by reference from Exhibit 10.13 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(14) Incorporated by reference from Exhibit 10.14 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(15) Incorporated by reference from Exhibit 10.15 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(16) Incorporated by reference from Exhibit 10.16 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(17) Incorporated by reference from Exhibit 10.17 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(18) Incorporated by reference from Exhibit 10.18 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

                                     -112-

<PAGE>

(19) Incorporated by reference from Exhibit 10.19 to Amendment No. 2 to the
Company's Registration Statement on Form F-1, File No. 333-42682, filed with the
Securities and Exchange Commission on September 25, 2000.

(20) Incorporated by reference from Exhibit 4.18 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(21) Incorporated by reference from Exhibit 4.19 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(22) Incorporated by reference from Exhibit 4.20 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(23) Incorporated by reference from Exhibit 4.21 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(24) Incorporated by reference from Exhibit 4.22 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(25) Incorporated by reference from Exhibit 4.23 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(26) Incorporated by reference from Exhibit 4.24 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on May 22, 2001.

(27) Incorporated by reference from Exhibit 4.24 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(28) Incorporated by reference from Exhibit 4.25 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(29) Incorporated by reference from Exhibit 4.26 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(30) Incorporated by reference from Exhibit 4.27 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(31) Incorporated by reference from Exhibit 4.28 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.

(32) Incorporated by reference from Exhibit 2 to the Schedule 13D of General
Motors Corporation, filed with the Securities and Exchange Commission on October
25, 2001.

(33) Incorporated by reference from Exhibit 1 to the Schedule 13D of General
Motors Corporation, filed with the Securities and Exchange Commission on October
25, 2001.

(34) Incorporated by reference from Exhibit 4 to the Schedule 13D of General
Motors Corporation, filed with the Securities and Exchange Commission on October
25, 2001.

(35) Incorporated by reference from Exhibit 3 to the Schedule 13D of General
Motors Corporation, filed with the Securities and Exchange Commission on October
25, 2001.

(36) Incorporated by reference from Exhibit 4.33 to the Company's Annual Report
on Form 20-F, filed with the Securities and Exchange Commission on June 26,
2002.


                                     -113-