##### 



Exhibit 99.1
  TO THE SHAREHOLDERS OF HYDROGENICS CORPORATION
     Daryl Wilson
    
    Lawrence DavisPresident and Chief Executive Officer
    
    Chief Financial Officer-s- Daryl Wilson
    

-s- Lawrence DavisMarch 7, 2008Mississauga, Ontario
 31
    
    2007 ANNUAL REPORT




---



##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Corporations assets that could have a material effect
on the Corporations financial statements.
    
    pertain to the maintenance of records that accurately and fairly reflect, in reasonable
detail, the transactions related to and dispositions of the Corporations assets;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with Canadian generally
accepted accounting principles, and that the Corporations receipts and expenditures are made
only in accordance with authorizations of management and the Corporations directors; and
    Daryl Wilson
    
    Lawrence DavisPresident and Chief Executive Officer
    
    Chief Financial Officer-s- Daryl Wilson
    

-s- Lawrence DavisMarch 7, 2008Mississauga, Ontario
 2007 ANNUAL REPORT
    
    32




---



##### 



INDEPENDENT AUDITORS REPORT
To the Shareholders of Hydrogenics Corporation
  Consolidated Financial statements
    Internal control over financial reporting
 Internal Control  Integrated Framework
   33
    
    2007 ANNUAL REPORT




---



##### 



(PRICEWATERHOUSE COOPERS LLP)Chartered Accountants, Licensed Public AccountantsMarch 7, 2008Toronto, Ontario
 2007 ANNUAL REPORT
    
    34




---



##### 



2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    15,460
    
    
    $
    5,937Short-term investments
    
    
    15,032
    
    
    
    54,350Accounts receivable (note 6)
    
    
    12,713
    
    
    
    9,740Grants receivable
    
    
    850
    
    
    
    1,901Inventories (note 7)
    
    
    12,659
    
    
    
    12,718Prepaid expenses
    
    
    1,077
    
    
    
    1,53957,791
    
    
    
    86,185Property, plant and equipment(note 8)
    
    
    4,847
    
    
    
    5,435Intangible assets(note 9)
    
    
    249
    
    
    
    500Goodwill
    
    
    5,025
    
    
    
    5,025Other non-current assets
    
    
    28
    
    
    
    28$
    67,940
    
    
    $
    97,173LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities (notes 10 and 17)
    
    $
    18,166
    
    
    $
    21,380Unearned revenue
    
    
    9,042
    
    
    
    8,80927,208
    
    
    
    30,189Long-term debt(note 11)
    
    
    11
    
    
    
    94Deferred research and development grants
    
    
    337
    
    
    
    13327,556
    
    
    
    30,416Shareholders Equity(note 12)Share capital
    
    
    306,872
    
    
    
    307,376Combined surplus
    
    
    15,606
    
    
    
    13,718Deficit
    
    
    (277,101
    )
    
    
    (249,033
    )Accumulated other comprehensive income
    
    
    (4,993
    )
    
    
    (5,304
    )Total deficit and accumulated other comprehensive income
    
    
    (282,094
    )
    
    
    (254,337
    )$
    40,384
    
    
    $
    66,757$
    67,940
    
    
    $
    97,173
    Norman Seagram
    
    Douglas AlexanderChairman
    
    Director-s- Norman Seagram
    

-s- Douglas Alexander
 35
    
    2007 ANNUAL REPORT




---



##### 



AccumulatedCommon shares

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    other
    
    
    TotalContributed
    
    
    
    
    
    
    comprehensive
    
    
    shareholdersNumber
    
    
    Amount
    
    
    Warrants
    
    
    surplus
    
    
    Deficit
    
    
    loss
    
    
    equityBalance at Dec. 31, 2004
    
    
    64,626,989
    
    
    $
    187,282
    
    
    $
    4,722
    
    
    $
    2,155
    
    
    $
    (80,900
    )
    
    $
    (4,046
    )
    
    $
    109,213Comprehensive loss:Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,374
    )
    
    
    
    
    
    
    (37,374
    )Foreign currency
translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (977
    )
    
    
    (977
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,351
    )Issuance of common
shares and options
granted on the
acquisition of Stuart
Energy
    
    
    26,999,103
    
    
    
    119,526
    
    
    
    
    
    
    
    3,382
    
    
    
    
    
    
    
    
    
    
    
    122,908Repurchase and
cancellation
of warrants
    
    
    
    
    
    
    
    
    
    
    (4,722
    )
    
    
    3,972
    
    
    
    
    
    
    
    
    
    
    
    (750
    )Issuance of common
shares on exercise of
options
    
    
    53,578
    
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149Stock-based consulting
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    76Employee stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,262
    
    
    
    
    
    
    
    
    
    
    
    2,262Balance at Dec. 31, 2005
    
    
    91,679,670
    
    
    $
    306,957
    
    
    $
    
    
    
    $
    11,847
    
    
    $
    (118,274
    )
    
    $
    (5,023
    )
    
    $
    195,507Comprehensive loss:Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (130,759
    )
    
    
    
    
    
    
    (130,759
    )Foreign currency
translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (281
    )
    
    
    (281
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131,040
    )Issuance of common
shares
on exercise of options
    
    
    236,796
    
    
    
    419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    419Stock-based consulting
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    39Employee stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,832
    
    
    
    
    
    
    
    
    
    
    
    1,832Balance at Dec. 31, 2006
    
    
    91,916,466
    
    
    $
    307,376
    
    
    $
    
    
    
    $
    13,718
    
    
    $
    (249,033
    )
    
    $
    (5,304
    )
    
    $
    66,757Comprehensive loss:Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,068
    )
    
    
    
    
    
    
    (28,068
    )Foreign currency
translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311
    
    
    
    311Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,757
    )Shares returned to
treasury
    
    
    (150,775
    )
    
    
    (504
    )
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    
    
    
    
    (169
    )Employee stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,553
    
    
    
    
    
    
    
    
    
    
    
    1,553Balance at Dec. 31, 2007
    
    
    91,765,691
    
    
    $
    306,872
    
    
    $
    
    
    
    $
    15,606
    
    
    $
    (277,101
    )
    
    $
    (4,993
    )
    
    $
    40,384
   2007 ANNUAL REPORT
    
    36




---



##### 



2007
    
    
    2006
    
    
    2005Revenues
    
    $
    37,990
    
    
    $
    30,059
    
    
    $
    37,191Cost of revenues
    
    
    33,601
    
    
    
    29,360
    
    
    
    33,8814,389
    
    
    
    699
    
    
    
    3,310Operating expensesSelling, general and administrative (note 4)
    
    
    24,006
    
    
    
    27,891
    
    
    
    24,616Research and product development (note 13)
    
    
    9,690
    
    
    
    9,379
    
    
    
    7,745Windup of test equipment business (note 4)
    
    
    2,016
    
    
    
    
    
    
    
    Amortization of property, plant and equipment
    
    
    903
    
    
    
    1,285
    
    
    
    1,365Amortization of intangible assets
    
    
    251
    
    
    
    7,139
    
    
    
    8,429Impairment of intangible assets and goodwill (notes 5 and 9)
    
    
    
    
    
    
    90,834
    
    
    
    Integration costs (note 23)
    
    
    
    
    
    
    
    
    
    
    1,12336,866
    
    
    
    136,528
    
    
    
    43,278Loss from operations
    
    
    (32,477
    )
    
    
    (135,829
    )
    
    
    (39,968
    )Other income (expenses)Sale of asset
    
    
    
    
    
    
    477
    
    
    
    Loss on disposal of property, plant and equipment (note 4)
    
    
    (308
    )
    
    
    
    
    
    
    Provincial capital tax
    
    
    (127
    )
    
    
    (42
    )
    
    
    (91
    )Interest
    
    
    2,249
    
    
    
    3,551
    
    
    
    2,936Foreign currency gains (losses)
    
    
    2,617
    
    
    
    904
    
    
    
    (251
    )4,431
    
    
    
    4,890
    
    
    
    2,594Loss before income taxes
    
    
    (28,046
    )
    
    
    (130,939
    )
    
    
    (37,374
    )Current income tax expense (recovery)(note 18)
    
    
    22
    
    
    
    (180
    )
    
    
    Net loss for the year
    
    
    (28,068
    )
    
    
    (130,759
    )
    
    
    (37,374
    )Deficit  Beginning of year
    
    
    (249,033
    )
    
    
    (118,274
    )
    
    
    (80,900
    )Deficit  End of year
    
    $
    (277,101
    )
    
    $
    249,033
    
    
    $
    (118,274
    )Net loss per shareBasic and diluted (note 20)
    
    $
    (0.31
    )
    
    $
    (1.42
    )
    
    $
    (0.41
    )Shares used in calculating basic and diluted net loss per share
    
    
    91,797,911
    
    
    
    91,816,049
    
    
    
    91,226,912
  37
    
    2007 ANNUAL REPORT




---



##### 



2007
    
    
    2006
    
    
    2005CASH AND CASH EQUIVALENTS PROVIDED BY (USED IN):Operating activitiesNet loss for the year
    
    $
    (28,068
    )
    
    $
    (130,759
    )
    
    $
    (37,374
    )Items not affecting cashAmortization of property, plant and equipment
    
    
    1,611
    
    
    
    1,948
    
    
    
    2,267Amortization of intangible assets
    
    
    251
    
    
    
    7,139
    
    
    
    8,429Impairment of intangible assets and goodwill
    
    
    
    
    
    
    90,834
    
    
    
    Unrealized foreign exchange (gains) losses
    
    
    29
    
    
    
    (74
    )
    
    
    210Imputed interest on long-term debt
    
    
    
    
    
    
    1
    
    
    
    21Non-cash consulting fees
    
    
    
    
    
    
    39
    
    
    
    76Stock-based compensation
    
    
    1,553
    
    
    
    1,832
    
    
    
    2,262Sale of asset
    
    
    
    
    
    
    (477
    )
    
    
    Loss on disposal of property, plant and equipment
    
    
    308
    
    
    
    
    
    
    
    Net change in non-cash working capital (note 21)
    
    
    (4,100
    )
    
    
    5,029
    
    
    
    (5,012
    )(28,416
    )
    
    
    (24,488
    )
    
    
    (29,121
    )Investing activitiesDecrease in short-term investments
    
    
    39,318
    
    
    
    26,046
    
    
    
    9,052Purchase of property, plant and equipment
    
    
    (1,331
    )
    
    
    (1,701
    )
    
    
    (333
    )Business acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (343
    )Proceeds from sale of assets
    
    
    
    
    
    
    477
    
    
    
    37,987
    
    
    
    24,822
    
    
    
    8,376Financing activitiesRepayment of long-term debt
    
    
    (83
    )
    
    
    (193
    )
    
    
    (180
    )Deferred research and development grant
    
    
    204
    
    
    
    (17
    )
    
    
    (39
    )Common shares issued (purchased and cancelled), net of issuance costs
    
    
    (169
    )
    
    
    419
    
    
    
    149(48
    )
    
    
    209
    
    
    
    (70
    )Increase (decrease) in cash and cash equivalents during the year
    
    
    9,523
    
    
    
    543
    
    
    
    (20,815
    )Cash and cash equivalents  Beginning of year
    
    
    5,937
    
    
    
    5,394
    
    
    
    26,209Cash and cash equivalents  End of year
    
    $
    15,460
    
    
    $
    5,937
    
    
    $
    5,394Supplemental disclosureInterest paid
    
    $
    52
    
    
    $
    80
    
    
    $
    36Income taxes paid
    
    
    63
    
    
    
    
    
    
    
    1
  2007 ANNUAL REPORT
    
    38




---



##### 



Note 1.   Description of business
  Note 2.  Summary of significant accounting policies
 Basis of Presentation
  Principles of Consolidation
  Use of Estimates
   Cash and Cash Equivalents
  Short-term Investments
  Inventories
  Property, Plant and Equipment
   Test equipment
    
    30% per annumComputer hardware and software
    
    30% per annumFurniture and equipment
    
    20% per annumAutomobiles
    
    30% per annum
   39
    
    2007 ANNUAL REPORT




---



##### 



Goodwill and Intangible Assets
 Goodwill
  Intangible assets with finite useful lives
  Intellectual property
    
    50% per annum declining balanceManagement services contracts
    
    50% per annum declining balanceProduct technology
    
    4 -7 years straight-lineCustomer relationships
    
    8 years straight-lineTrade names
    
    3 years straight-lineISO certifications
    
    1 year straight-line
   Revenue Recognition
      Product Warranties
  2007 ANNUAL REPORT
    
    40




---



##### 



Research And Product Development Costs
   Stock-based Compensation
  Deferred Share Units
  Income Taxes
  Foreign Currency Translation
    Net Earnings (Loss) Per Share
  41
    
    2007 ANNUAL REPORT




---



##### 



Note 3.  New accounting standards
  (I) Canadian Standards
   (II) U.S. Standards
   New Accounting Standards
 (I) Canadian Standards
    2007 ANNUAL REPORT
    
    42




---



##### 



Convergence with International Financial Reporting Standards (IFRS)
   (II) U.S. Standards
     43
    
    2007 ANNUAL REPORT




---



##### 



Note 4.  Business streamlining initiatives and windup of test equipment business
   Note 5.  Business acquisition and goodwill
  Cash, cash equivalents and short-term investments
    
    $
    27,615Other current assets
    
    
    11,222Property, plant and equipment
    
    
    2,664Intangible assets
    
    
    38,500Goodwill
    
    
    63,936Other non-current assets
    
    
    64Current liabilities
    
    
    (18,649
    )$
    125,352
   Goodwill
  2007 ANNUAL REPORT
    
    44




---



##### 



Goodwill of the OnSite Generation reporting unit
    
    $
    59,388Intangible assets of the OnSite Generation reporting unit
    
    
    26,333Goodwill of the Test Systems reporting unit
    
    
    5,113Total
    
    $
    90,834
   Note 6.   Accounts receivable
 2007
    
    
    2006Trade accounts receivable
    
    $
    12,683
    
    
    $
    9,248Less: Allowance for doubtful accounts
    
    
    (351
    )
    
    
    (325
    )Goods and services tax
    
    
    381
    
    
    
    817$
    12,713
    
    
    $
    9,740
 Note 7.  Inventories
 2007
    
    
    2006Raw materials
    
    $
    5,070
    
    
    $
    5,866Work-in-progress
    
    
    6,768
    
    
    
    6,322Finished goods
    
    
    821
    
    
    
    530$
    12,659
    
    
    $
    12,718
 Note 8.  Property, plant and equipment
  Accumulated
    
    
    Net bookCost
    
    
    amortization
    
    
    ValueTest equipment
    
    $
    6,030
    
    
    $
    4,544
    
    
    $
    1,486Furniture and equipment
    
    
    4,192
    
    
    
    2,141
    
    
    
    2,051Computer hardware and software
    
    
    2,829
    
    
    
    1,870
    
    
    
    959Leasehold improvements
    
    
    1,066
    
    
    
    739
    
    
    
    327Automobiles
    
    
    69
    
    
    
    45
    
    
    
    24$
    14,186
    
    
    $
    9,339
    
    
    $
    4,847
  45
    
    2007 ANNUAL REPORT




---



##### 



Accumulated
    
    
    Net bookCost
    
    
    amortization
    
    
    valueTest equipment
    
    $
    6,016
    
    
    $
    3,881
    
    
    $
    2,135Furniture and equipment
    
    
    3,518
    
    
    
    2,047
    
    
    
    1,471Computer hardware and software
    
    
    3,627
    
    
    
    2,156
    
    
    
    1,471Leasehold improvements
    
    
    1,023
    
    
    
    673
    
    
    
    350Automobiles
    
    
    51
    
    
    
    43
    
    
    
    8$
    14,235
    
    
    $
    8,800
    
    
    $
    5,435
   Note 9.  Intangible assets
  Accumulatedamortization and
    
    
    Net bookCost
    
    
    impairment charge
    
    
    valueProduct technology
    
    $
    30,300
    
    
    $
    30,051
    
    
    $
    249
  Accumulatedamortizationandimpairment
    
    
    Net bookCost
    
    
    charge
    
    
    valueIntellectual property
    
    $
    33,629
    
    
    $
    33,629
    
    
    $
    Management services contracts
    
    
    565
    
    
    
    565
    
    
    
    Product technology
    
    
    30,300
    
    
    
    29,800
    
    
    
    500Customer relationships
    
    
    7,600
    
    
    
    7,600
    
    
    
    Trade names
    
    
    500
    
    
    
    500
    
    
    
    ISO certifications
    
    
    100
    
    
    
    100
    
    
    
    $
    72,694
    
    
    $
    72,194
    
    
    $
    500
   2007 ANNUAL REPORT
    
    46




---



##### 



Note 10.  Accounts payable and accrued liabilities
 2007
    
    
    2006Severance and related compensation payments
    
    $
    4,136
    
    
    $
    1,373Trade accounts payable
    
    
    3,748
    
    
    
    7,021Warranty liability accruals
    
    
    3,592
    
    
    
    5,077Facility accruals
    
    
    1,975
    
    
    
    2,322Supplier accruals
    
    
    1,829
    
    
    
    1,704Accrued payroll costs
    
    
    1,734
    
    
    
    2,256Accrued professional fees
    
    
    487
    
    
    
    1,025Provincial capital tax payable
    
    
    195
    
    
    
    57Current portion of long-term debt (note 11)
    
    
    16
    
    
    
    194Other
    
    
    454
    
    
    
    351$
    18,166
    
    
    $
    21,380
   Balance, December 31, 2006
    
    $
    5,077Accruals for warranties issued during the year
    
    
    2,391Settlements made during the year
    
    
    (3,876
    )Balance, December 31, 2007
    
    $
    3,592
 Note 11.  Long-term debt
    2008
    
    $
    162009
    
    
    1127Less: Current portion
    
    
    (16
    )$
    11
 Note 12.  Employee stock-based compensation
 Stock Option Plan
   47
    
    2007 ANNUAL REPORT




---



##### 



2007
    
    
    2006
    
    
    2005Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    
    exercise
    
    
    
    
    
    
    exerciseNumber of
    
    
    price
    
    
    Number of
    
    
    price
    
    
    Number of
    
    
    priceshares
    
    
    (CDN$)
    
    
    shares
    
    
    (CDN$)
    
    
    shares
    
    
    (CDN$)Outstanding, beginning of year
    
    
    6,893,353
    
    
    
    4.85
    
    
    
    6,243,753
    
    
    
    5.22
    
    
    
    3,818,566
    
    
    
    4.62Granted
    
    
    1,644,960
    
    
    
    1.17
    
    
    
    1,470,400
    
    
    
    3.16
    
    
    
    3,650,804
    
    
    
    6.24Exercised
    
    
    
    
    
    
    
    
    
    
    (236,500
    )
    
    
    2.01
    
    
    
    (53,578
    )
    
    
    3.37Forfeited
    
    
    (1,250,810
    )
    
    
    4.72
    
    
    
    (584,300
    )
    
    
    5.73
    
    
    
    (1,172,039
    )
    
    
    6.54Expired
    
    
    (355,200
    )
    
    
    5.65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    6,932,303
    
    
    
    4.05
    
    
    
    6,893,353
    
    
    
    4.85
    
    
    
    6,243,753
    
    
    
    5.22Options exercisable, end of year
    
    
    4,333,740
    
    
    
    4.47
    
    
    
    4,518,681
    
    
    
    5.32
    
    
    
    4,242,575
    
    
    
    5.21
  WeightedNumber
    
    
    Weighted
    
    
    Weighted
    
    
    Number
    
    
    averageoutstanding at
    
    
    average
    
    
    average
    
    
    exercisable at
    
    
    shareExercise price
    
    December 31
    
    
    remaining
    
    
    share price
    
    
    December 31
    
    
    priceCDN$
    
    2007
    
    
    contractual life
    
    
    CDN$
    
    
    2007
    
    
    CDN$0.01 - 0.29
    
    
    766,500
    
    
    
    2.07
    
    
    
    0.20
    
    
    
    766,500
    
    
    
    0.200.30 - 4.00
    
    
    2,870,821
    
    
    
    8.30
    
    
    
    1.88
    
    
    
    723,211
    
    
    
    2.404.01 - 5.00
    
    
    804,526
    
    
    
    5.42
    
    
    
    4.48
    
    
    
    504,955
    
    
    
    4.465.01 - 6.00
    
    
    763,000
    
    
    
    6.20
    
    
    
    5.64
    
    
    
    659,876
    
    
    
    5.696.01 - 8.00
    
    
    583,776
    
    
    
    5.10
    
    
    
    6.67
    
    
    
    535,248
    
    
    
    6.688.01 - 18.15
    
    
    1,143,680
    
    
    
    3.58
    
    
    
    9.38
    
    
    
    1,143,680
    
    
    
    9.386,932,303
    
    
    
    
    
    
    
    
    
    
    
    4,333,740
   Deferred Share Unit Plan
    2007 ANNUAL REPORT
    
    48




---



##### 



Note 13.  Research and product development
  2007
    
    
    2006
    
    
    2005Research and product development expenses
    
    $
    10,346
    
    
    $
    12,024
    
    
    $
    10,733Research and product development funding
    
    
    (656
    )
    
    
    (2,645
    )
    
    
    (2,988
    )Total research and product development expenses
    
    $
    9,690
    
    
    $
    9,379
    
    
    $
    7,745
 Note 14.  Commitments
  2008
    
    $
    1,3642009
    
    
    1,1612010
    
    
    5722011
    
    
    802012
    
    
    30Thereafter
    
    
    8$
    3,215
  Note 15.  Contingencies
      49
    
    2007 ANNUAL REPORT




---



##### 



Note 16.  Lines of credit
   Note 17.  Related party transactions
  Note 18.  Income taxes
  2008
    
    $
    30,7342009
    
    
    40,9572010
    
    
    18,7482013
    
    
    24,4842014
    
    
    43,7902015
    
    
    26,7012026
    
    
    22,9572027
    
    
    29,511No expiry
    
    
    53,355$
    291,237
   2007 ANNUAL REPORT
    
    50




---



##### 



2007
    
    
    2006AssetsNon-capital losses
    
    $
    87,122
    
    
    $
    73,419Scientific research and experimental development expenses
    
    
    8,731
    
    
    
    8,355Property, plant and equipment and intellectual property
    
    
    15,140
    
    
    
    14,430Investment tax credits
    
    
    6,536
    
    
    
    5,282Warranty and other provisions
    
    
    937
    
    
    
    1,127Share issue costs
    
    
    (145
    )
    
    
    (232
    )Valuation allowance
    
    
    (118,321
    )
    
    
    (102,381
    )Net future income tax assets
    
    $
    
    
    
    $
    
   2007
    
    
    2006
    
    
    2005Loss before income taxes
    
    $
    (28,046
    )
    
    $
    (130,939
    )
    
    $
    (37,374
    )Statutory income tax rate
    
    
    36.12
    %
    
    
    32.96
    %
    
    
    35.93
    %Income tax recovery at statutory rate
    
    
    (10,130
    )
    
    
    (43,157
    )
    
    
    (13,428
    )Non-deductible expenses
    
    
    433
    
    
    
    497
    
    
    
    1,383Other permanent and temporary differences
    
    
    24
    
    
    
    (359
    )
    
    
    182Effect of income tax rate changes on future income taxes
    
    
    10,651
    
    
    
    6,635
    
    
    
    Effect of foreign currency rate changes on future income taxes
    
    
    (15,528
    )
    
    
    
    
    
    
    Currency effect of difference in U.S. dollar financial reporting
compared with CDN dollar income tax reporting
    
    
    (1,390
    )
    
    
    1,410
    
    
    
    (1,172
    )Non-deductible amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    3,028Foreign exchange gain on CDN dollar denominated future income taxes
    
    
    
    
    
    
    (34
    )
    
    
    (3,036
    )Change in valuation allowance related to the current year
    
    
    15,940
    
    
    
    5,065
    
    
    
    13,043Write down of intangible assets and goodwill
    
    
    
    
    
    
    29,943
    
    
    
    Other
    
    
    22
    
    
    
    (180
    )
    
    
    Income tax expense (recovery)
    
    $
    22
    
    
    $
    (180
    )
    
    $
    
 Note 19.  Financial instruments
       51
    
    2007 ANNUAL REPORT




---



##### 



Note 20.  Net loss per share
  Note 21.  Consolidated statements of cash flows
  2007
    
    
    2006
    
    
    2005Decrease (increase) in current assetsAccounts receivable
    
    $
    (2,687
    )
    
    $
    (2,305
    )
    
    $
    (478
    )Grants receivable
    
    
    1,290
    
    
    
    (64
    )
    
    
    639Inventories
    
    
    59
    
    
    
    (4,033
    )
    
    
    3,521Prepaid expenses and other current assets
    
    
    507
    
    
    
    814
    
    
    
    (200
    )Increase (decrease) in current liabilitiesAccounts payable and accrued liabilities
    
    
    (3,486
    )
    
    
    5,580
    
    
    
    (9,979
    )Unearned revenue
    
    
    217
    
    
    
    5,037
    
    
    
    1,485$
    (4,100
    )
    
    $
    5,029
    
    
    $
    (5,012
    )
 Note 22.  Segmented financial information
    Year ended December 31, 2007OnSite
    
    
    Power
    
    
    Test
    
    
    CorporateGeneration
    
    
    Systems
    
    
    Systems
    
    
    and Other
    
    
    TotalRevenue from external customers
    
    $
    19,608
    
    
    $
    6,103
    
    
    $
    12,279
    
    
    $
    
    
    
    $
    37,990Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251
    
    
    
    251Amortization of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    903
    
    
    
    903Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,301
    
    
    
    2,301Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    (52
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    22Segment loss (i)
    
    
    (5,436
    )
    
    
    (14,283
    )
    
    
    (1,465
    )
    
    
    (6,884
    )
    
    
    (28,068
    )
 Year ended December 31, 2006OnSite
    
    
    Power
    
    
    Test
    
    
    CorporateGeneration
    
    
    Systems
    
    
    Systems
    
    
    and Other
    
    
    TotalRevenue from external customers
    
    $
    12,032
    
    
    $
    6,943
    
    
    $
    11,084
    
    
    $
    
    
    
    $
    30,059Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,139
    
    
    
    7,139Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,834
    
    
    
    90,834Amortization of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,285
    
    
    
    1,285Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,607
    
    
    
    3,607Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Income tax recovery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (180
    )
    
    
    (180
    )Segment loss (i)
    
    
    (14,885
    )
    
    
    (7,182
    )
    
    
    279
    
    
    
    (108,971
    )
    
    
    (130,759
    )
  2007 ANNUAL REPORT
    
    52




---



##### 



Year ended December 31, 2005OnSite
    
    
    Power
    
    
    Test
    
    
    CorporateGeneration
    
    
    Systems
    
    
    Systems
    
    
    and Other
    
    
    TotalRevenue from external customers
    
    $
    21,748
    
    
    $
    3,861
    
    
    $
    11,582
    
    
    $
    
    
    
    $
    37,191Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,429
    
    
    
    8,429Amortization of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,365
    
    
    
    1,365Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,972
    
    
    
    2,972Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )Segment loss (i)
    
    
    (6,372
    )
    
    
    (9,041
    )
    
    
    (1,557
    )
    
    
    (20,404
    )
    
    
    (37,374
    )
 
 (i)
    
    Segment loss includes directly attributable selling, general and administration costs, product
research and development costs net of associated grants, amortization of property, plant and
equipment and amortization of intangible assets.     2007
    
    
    2006
    
    
    2005RevenuesProducts
    
    $
    34,486
    
    
    $
    26,653
    
    
    $
    34,470Services
    
    
    3,504
    
    
    
    3,406
    
    
    
    2,721$
    37,990
    
    
    $
    30,059
    
    
    $
    37,191
 2007
    
    
    2006
    
    
    2005Cost of revenuesProducts
    
    $
    32,402
    
    
    $
    28,114
    
    
    $
    32,953Services
    
    
    1,199
    
    
    
    1,246
    
    
    
    928$
    33,601
    
    
    $
    29,360
    
    
    $
    33,881
  53
    
    2007 ANNUAL REPORT




---



##### 



2007
    
    
    2006
    
    
    2005Russia
    
    $
    5,629
    
    
    $
    68
    
    
    $
    1,963United States
    
    
    5,609
    
    
    
    8,140
    
    
    
    13,225Canada
    
    
    4,378
    
    
    
    2,163
    
    
    
    1,263France
    
    
    2,633
    
    
    
    3,163
    
    
    
    130Japan
    
    
    2,256
    
    
    
    2,841
    
    
    
    1,773Brazil
    
    
    2,017
    
    
    
    
    
    
    
    Argentina
    
    
    2,010
    
    
    
    
    
    
    
    China
    
    
    1,435
    
    
    
    266
    
    
    
    1,696Germany
    
    
    1,395
    
    
    
    2,471
    
    
    
    1,557Slovenia
    
    
    1,275
    
    
    
    
    
    
    
    Dubai
    
    
    1,255
    
    
    
    
    
    
    
    Korea
    
    
    1,070
    
    
    
    2,499
    
    
    
    1,823Romania
    
    
    277
    
    
    
    1,367
    
    
    
    United Kingdom
    
    
    552
    
    
    
    877
    
    
    
    1,311Vietnam
    
    
    
    
    
    
    
    
    
    
    2,321Algeria
    
    
    
    
    
    
    
    
    
    
    1,992Rest of world
    
    
    6,199
    
    
    
    6,204
    
    
    
    8,137$
    37,990
    
    
    $
    30,059
    
    
    $
    37,191
  2007
    
    
    2006
    
    
    2005%
    
    
    %
    
    
    %Largest
    
    
    12
    
    
    
    12
    
    
    
    11Second largest
    
    
    5
    
    
    
    10
    
    
    
    10Third largest
    
    
    5
    
    
    
    5
    
    
    
    5Fourth largest
    
    
    4
    
    
    
    4
    
    
    
    5Others
    
    
    74
    
    
    
    69
    
    
    
    69100
    
    
    
    100
    
    
    
    100
  2007
    
    
    2006Canada
    
    $
    2,998
    
    
    $
    4,341Belgium
    
    
    1,849
    
    
    
    1,094$
    4,847
    
    
    $
    5,435
  Note 23.  Integration costs
   2007
    
    
    2006
    
    
    2005Termination benefits
    
    
    
    
    
    
    
    
    
    
    716Consulting and information systems
    
    
    
    
    
    
    
    
    
    
    308Travel and accommodation
    
    
    
    
    
    
    
    
    
    
    6Other
    
    
    
    
    
    
    
    
    
    
    93$
    
    
    
    $
    
    
    
    $
    1,123
  2007 ANNUAL REPORT
    
    54




---



##### 



Note 24.  Differences between Canadian and United States accounting principles
   2007
    
    
    2006
    
    
    2005Net loss for the year based on Canadian GAAP
    
    $
    (28,068
    )
    
    $
    (130,759
    )
    
    $
    (37,374
    )Write-off of in-process research and product development (i)
    
    
    
    
    
    
    
    
    
    
    (18,400
    )Impairment charge related to intangible assets (i)
    
    
    
    
    
    
    13,800
    
    
    
    Amortization of in-process research and product development (i)
    
    
    
    
    
    
    1,971
    
    
    
    2,629Net loss for the year based on U.S. GAAP
    
    
    (28,068
    )
    
    
    (114,988
    )
    
    
    (53,145
    )Basic and fully diluted comprehensive loss per share based on U.S. GAAP
    
    $
    (0.31
    )
    
    $
    (1.26
    )
    
    $
    (0.59
    )Weighted average number of shares used in calculating comprehensive
loss per share
    
    
    91,797,911
    
    
    
    91,816,049
    
    
    
    91,226,912
 2007
    
    
    2006
    
    
    2005Shareholders equity based on Canadian GAAP
    
    $
    40,384
    
    
    $
    66,757
    
    
    $
    195,507Shareholders equity based on U.S. GAAP
    
    $
    40,384
    
    
    $
    66,757
    
    
    $
    179,736
  2007
    
    
    2006
    
    
    2005Revenues
    
    $
    37,990
    
    
    $
    30,059
    
    
    $
    37,191Cost of revenues
    
    
    33,601
    
    
    
    29,360
    
    
    
    33,881Operating expenses
    
    
    36,866
    
    
    
    120,757
    
    
    
    59,049Loss from operations
    
    
    (32,477
    )
    
    
    (120,058
    )
    
    
    (55,739
    )Net loss for the year
    
    
    (28,068
    )
    
    
    (114,988
    )
    
    
    (53,145
    )Cash used in operating activities
    
    
    (28,416
    )
    
    
    (24,488
    )
    
    
    (29,121
    )Cash provided by investing activities
    
    
    37,987
    
    
    
    24,822
    
    
    
    8,376Cash provided by (used in) financing activities
    
    
    (48
    )
    
    
    209
    
    
    
    (70
    )
 (l) In-process Research and Development
 Note 25.  Comparative information
   55
    
    2007 ANNUAL REPORT