<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 20-F




(Mark One)

[ ]      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, 2000

                                       or

[ ]       Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the transition period from ________ to ________

                      Commission file number _____________

               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: Common Shares, no par value

  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:

                     35,560,000 Common Shares, no par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by

<PAGE>   2

Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such 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>   3



                           FORWARD-LOOKING STATEMENTS


         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 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.

                                 EXCHANGE RATES


         As of May 11, 2001, the noon buying rate in New York City for cable
transfers in Canadian dollars was Cdn.$1.00 equals U.S. $0.6450. 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 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,
                                     1996            1997           1998            1999           2000
                                     ----            ----           ----            ----           ----
<S>                                <C>             <C>             <C>            <C>             <C>
End of period...............       $0.7301         $0.6999         $0.6504        $0.6925         $0.6669
Average for period..........       $0.7329         $0.7198         $0.6714        $0.6744         $0.6732
High for period.............       $0.7513         $0.7467         $0.7105        $0.6925         $0.6969
Low for period..............       $0.7235         $0.6945         $0.6341        $0.6535         $0.6410
</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 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 19 of our financial statements for the years
ended December 31, 1999 and 2000 included elsewhere in this annual report.

         Our functional currency is 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, 2000, as set forth in note 2 of our
financial statements for the years ended December 31, 1999 and 2000. For periods
subsequent to December 31, 2000, 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 years ended December 31, 1999 and 2000.

<PAGE>   4


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

<S>                                                                                                                         <C>
PART I                                                                                                                       PAGE

          ITEM 1.  Identity of Directors, Senior Management and Advisors................................................       1

          ITEM 2.  Offer Statistics and Expected Timetable..............................................................       1

          ITEM 3.  Key Information......................................................................................       1

          ITEM 4.  Information on the Company...........................................................................      14

          ITEM 5.  Operating and Financial Review and Prospects.........................................................      25

          ITEM 6.  Directors, Senior Management and Employees...........................................................      30

          ITEM 7.  Major Shareholders and Related Party Transactions....................................................      38

          ITEM 8.  Financial Information................................................................................      39

          ITEM 9.  The Offer and Listing................................................................................      40

          ITEM 10. Additional Information...............................................................................      41

          ITEM 11. Quantitative and Qualitative Disclosure About Market Risk............................................      49

          ITEM 12. Description of Securities Other than Equity Securities...............................................      49

PART II

          ITEM 13. Defaults, Dividend Arrearages and Delinquencies......................................................      49

          ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.........................      49

PART III

          ITEM 17. Financial Statements ................................................................................      51

          ITEM 18. Financial Statements.................................................................................      51

          ITEM 19. Exhibits ............................................................................................      51

</TABLE>

                                       i
<PAGE>   5

                                     PART I


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

         A.       DIRECTORS AND SENIOR MANAGEMENT.

                  Not applicable.

         B.       ADVISERS.

                  Not applicable.

         C.       AUDITORS.

                  PricewaterhouseCoopers LLP
                  145 King Street West
                  Toronto, Ontario
                  Canada M5H 1V8

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

         Not Applicable.

ITEM 3.  KEY INFORMATION.

         A. SELECTED FINANCIAL DATA.

         Our financial statements are prepared in accordance with Canadian
generally accepted accounting principles. These principles conform in all
material respects with U.S. generally accepted accounting principles except as
disclosed in note 19 to our financial statements for the years ended December
31, 1999 and 2000. The following selected financial data should be read with
"Operating and Financial Review and Prospects" and our financial statements and
notes appearing elsewhere in this annual report. The statements of operations
data for the years ended December 31, 1998, 1999 and 2000, and the balance sheet
data as of December 31, 1999 and 2000 are derived from our financial statements
that have been audited by PricewaterhouseCoopers LLP, our independent auditors,
which are included elsewhere in this annual report. The statement of operations
data for the years ended December 31, 1995 and 1996 and the balance sheet data
as of December 31, 1995, 1996 and 1997 are derived from our financial statements
that have been audited by PricewaterhouseCoopers LLP that are not included in
this annual report.

<TABLE>
<CAPTION>
                                   PERIOD FROM
                                   OCTOBER 31,
                                       TO
                                   DECEMBER 31,                                 YEAR ENDED DECEMBER 31,
                                      1995              1996              1997              1998          1999              2000
                                                          (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S>                              <C>               <C>              <C>               <C>            <C>               <C>
STATEMENT OF OPERATIONS
    DATA:
Canadian GAAP:
Revenues                                   $2              $116              $97              $665         $2,674            $8,883
Cost of Revenues                           --                52               72               415          2,105             6,485
                                 ------------      ------------     ------------      ------------   ------------      ------------
Gross Profit                                2                64               25               250            569             2,398
                                 ------------      ------------     ------------      ------------   ------------      ------------

Operating expenses:
Selling, general and
     administrative                         2                17               28                89            534             2,069
Research and
     development                           --                41               (8)               45            162               775
</TABLE>

                                       1
<PAGE>   6


<TABLE>
<CAPTION>
<S>                              <C>               <C>              <C>               <C>            <C>               <C>
Depreciation of
     capital assets                        --                 1                2                 3             18                99
                                 ------------      ------------     ------------      ------------   ------------      ------------


Total operating expenses                    2                59               22               137            714             2,934
                                 ------------      ------------     ------------      ------------   ------------      ------------


Income (loss) from
     operations                            --                 5                3               113           (145)             (545)
Other expenses                             --                --                1                 2             64             1,019
                                 ------------      ------------     ------------      ------------   ------------      ------------


Income (loss) before
     income taxes                          --                 5                2               111           (209)           (1,564)
Income tax expense                         --                 2                3                12             (1)              172
                                 ------------      ------------     ------------      ------------   ------------      ------------


Net income (loss)                          (0)                3               (1)               99           (208)           (1,736)
                                 ------------      ------------     ------------      ------------   ------------      ------------

Basic and fully diluted
earnings (loss) per share              $(0.00)            $0.00           $(0.01)            $0.01         $(0.01)           $(0.08)
                                 ============      ============     ============      ============   ============      ============


Shares used in computing basic
and fully diluted earnings
(loss) per share                   19,687,500        19,687,500       19,687,500        19,687,500     19,687,500        22,341,370
                                 ============      ============     ============      ============   ============      ============


Pro forma earnings (loss)
     per share..............                                                                           $    (0.01)
                                                                                                     ============

U.S. GAAP:
Revenues....................                                                          $        647          2,598             8,883
                                                                                      ============   ============      ============


Net income (loss)...........                                                          $         96    $      (165)     $     (4,843)
                                                                                      ============   ============      ============


Basic and fully diluted
earnings (loss) per share.......                                                        $     0.00    $     (0.01)     $      (0.22)
                                                                                      ============   ============      ============


Pro forma earnings (loss)
per share...................                                                                             $  (0.01)
                                                                                                     ============
</TABLE>

<TABLE>
<CAPTION>

                                                                               AS OF DECEMBER 31,
                                                     --------------------------------------------------------------------
                                                       1995        1996         1997        1998        1999        2000
                                                     -------     -------      -------     -------     -------     -------
                                                                                (IN THOUSANDS)
<S>                                                  <C>         <C>          <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Canadian GAAP
Cash and cash equivalents                                $19         $16          $--        $819        $453     $77,436
Working capital                                           19          22           15       1,123         700      78,796
Total assets                                              23          58           80       1,249       1,964      82,992
Total shareholders' equity                                20          24           23         247          38      80,260
U.S. GAAP:
Total assets                                                                                1,176       1,964      82,992
Total shareholders' equity
     (deficiency)                                                                             115         (66)     80,260
</TABLE>

         Although the Canadian dollar is our functional currency, we have
adopted the U.S. dollar as our reporting currency. See note 2 of our financial
statements for the years ended December 31, 1999 and 2000.


                  B. CAPITALIZATION AND INDEBTEDNESS.

                     Not applicable.

                                       2
<PAGE>   7

                  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 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. In light of
the foregoing, 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 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 expand significantly our
development and manufacture of PEM fuel cell products and to market these
products in the transportation, stationary and portable markets. In so doing, we
will incur significant expenditures for research and development, expansion of
our manufacturing capabilities, general administrative and sales and marketing
expenses. As a result of these increased costs, we will need to generate
significantly higher revenues to achieve and sustain profitability. We incurred
a net loss for the year 2000, we may continue to incur losses beyond 2000 and we
may never sustain 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 must develop or acquire access to substantial technological
advances to be incorporated into our products, particularly in the area of
hydrogen fuel processing, before we will be able to produce commercially viable
products other than fuel cell testing stations. We will be unable to meet our
business and growth objectives if we do not produce these other products.

WE MUST LOWER THE COST OF OUR FUEL CELL PRODUCTS AND DEMONSTRATE THEIR
RELIABILITY OR WE WILL NOT GENERATE SUFFICIENT REVENUES TO ACHIEVE OR MAINTAIN
PROFITABILITY.

                                       3
<PAGE>   8

         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 to achieve or maintain 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 will continue to do so for the foreseeable future.
For the year ended December 31, 1999, our three largest customers accounted for
approximately 80% of our revenues. For the year ended December 31, 2000, these
customers accounted for approximately 78% 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. In addition, if a significant customer
breaches its contractual obligation to pay amounts it owes us under
non-cancelable binding purchase orders because of its inability or refusal to
pay, or does not pay those amounts on time, our revenues and earnings could be
materially adversely affected.

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. 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 the
net proceeds from our initial public offering and cash on hand will be
sufficient to meet our working capital and capital expenditure needs for the
next 24 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. 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 shareholders will be
reduced.

OUR ABILITY TO COMPETE EFFECTIVELY IN THE TRANSPORTATION AND STATIONARY POWER
MARKETS MAY SUFFER BECAUSE WE CURRENTLY DO NOT HAVE A SIGNIFICANT STRATEGIC
PARTNER.

         One of our leading competitors in the market for transportation-related
fuel cells has a well-established relationship with two leading automobile
manufacturers, which is a significant competitive advantage because it provides
this competitor with preferred access to broad market opportunities. Similarly,
competitors in the stationary power market have strategic relationships with
leading suppliers of power generation technology and electric utilities. We do
not currently have any similar strategic relationships and, if similar
relationships do not develop, we may not have access to similar broad market
opportunities. Furthermore, due to the developing nature of our industry,
forming alliances and gaining membership in industry consortiums may become
important to our success. If we are unable to form such alliances or gain
membership to any industry consortiums of which our competitors are members, our
access to broad market opportunities may be similarly impeded.

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.

                                       4
<PAGE>   9
         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 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 primarily on research and development and 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


                                       5
<PAGE>   10
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 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 incurred in settling environmental liabilities, and in
some instances, we may not be reimbursed at all.

OUR PRODUCT REVENUES WILL NOT GROW WITHOUT SUCCESSFUL MARKETING AND SALES
EFFORTS OF THIRD PARTIES THAT WE DO NOT CONTROL.

         To be commercially useful, some of our fuel cell products must be
integrated into products manufactured by other manufacturers. Our success in
growing our revenues and achieving profitability is therefore dependent in part
upon the successful marketing and sales efforts of third parties and upon their
designing and engineering their products to be compatible with our own. Our
success also depends upon our ability to make our products compatible with the
products of these manufacturers. We cannot be assured that these manufacturers
will manufacture appropriate products or, if they do, that they will choose to
use our fuel cell products. Any

                                       6
<PAGE>   11
integration, design, manufacturing or marketing problems encountered by these
manufacturers could adversely affect our future revenues.

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 business
customer and the first receipt 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. In many
cases, we recognize revenues on a percentage-of-completion basis. Under this
accounting method, revenues are recognized on a pro rata basis in relation to
contract costs incurred. As costs may vary significantly from quarter to quarter
depending on the stage of development of the project, 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. Our management does not have
previous experience running a public company, and in one or more future quarters
our operating results could fall below the expectations of securities analysts
and investors. If this happens, the trading price of our common shares could be
materially adversely affected.

EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR GROSS MARGINS.

         Exchange rate fluctuations may cause fluctuations in our quarterly
results. We transact business internationally in multiple currencies. In
particular, a portion of our cost of revenues consists of materials purchased in
U.S. dollars and a significant portion of our cash and cash equivalents is held
in U.S. dollars, which is only partially offset by revenues generated in U.S.
dollars. We do not currently engage in any hedging transactions related to our
exchange rate risk. Accordingly, gains and losses on the conversion of foreign
payments may contribute to fluctuations in our results of operations and
fluctuating exchange rates could cause reduced revenue and gross margins from
our international sales.

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.

         To date, we have not completed any acquisitions, and we may not be able
to do so in an effective manner. In addition, our shareholders' interests in our
company will be diluted if we issue equity securities in connection with an
acquisition.

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

                                       7
<PAGE>   12
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 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.

         We also seek to protect our proprietary intellectual property through
contracts, including, when possible, confidentiality agreements and inventors'
rights agreements with our customers and employees. We cannot be assured that
the parties that enter into such agreements with us will not breach them, that
we will have adequate remedies for any breach or that such persons or
institutions will not assert rights to intellectual property arising out of
these relationships. If necessary or desirable, we may seek licenses under the
patents or other intellectual property rights of others. However, we can give no
assurances that we will obtain such licenses or that the terms of any offered
licenses will be acceptable to us. The failure to obtain a license from a third
party for intellectual property we use in the future could cause us to incur
substantial liabilities and to suspend the manufacture, shipment of products or
our use of processes which exploit such intellectual property.

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. If we are found to infringe the
intellectual property rights of others in such litigation, we may, among other
things, be required to:

                                       8
<PAGE>   13

         -        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.

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.

OUR EARNINGS AS DETERMINED IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, OR GAAP, WILL BE REDUCED, OR OUR LOSSES WILL BE INCREASED, BY
CHARGES ASSOCIATED WITH OUR ISSUANCES OF OPTIONS. THESE CHARGES MAY INCREASE IN
THE FUTURE AND COULD DEPRESS THE MARKET PRICE FOR OUR COMMON SHARES.

         As of December 31, 2000, we had outstanding options to purchase
3,892,650 of our common shares which were granted to our employees and
non-employee directors, including options to purchase 2,547,117 shares which
were granted during 2000. Some of these options were granted with exercise
prices lower than the deemed fair value, for U.S. financial reporting purposes,
of our common shares at the dates of grant. Our financial statements are
prepared in accordance with Canadian GAAP and as such include no expense for
stock-based compensation. If our financial statements were prepared in
accordance with U.S. GAAP, in connection with the granting of these options, we
would be required to record stock-based compensation over the vesting period of
the applicable options, generally four years in the case of options granted to
employees and non-employee directors. These types of charges may increase in the
future and could depress the market price for our common shares.

                 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;

                                       9
<PAGE>   14

         -        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.

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 derive hydrogen from fuels such as natural gas, propane,
methanol and other petroleum products. Even if these fuels are available to us,
if their prices are 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.

         Fuel cell products use dangerous substances. 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 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.

                                       10
<PAGE>   15

         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 large 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. For example, California delayed implementation of its zero emission
vehicle mandate from 1998 to 2003 after a study determined that existing battery
technology provided inadequate performance to meet consumer needs. 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.

ZERO EMISSION VEHICLE REQUIREMENTS CAN BE MET WITHOUT USING FUEL CELLS.

         It is possible to meet the zero emission vehicle requirements imposed
by California, New York, Massachusetts and Maine by using technologies other
than fuel cells. For example, vehicles powered by batteries can receive full
credit and vehicles powered by low emission internal combustion engines and
hybrid internal combustion/battery engines can receive partial credit toward the
zero emission vehicle requirement. We can offer no assurance that automobile
manufacturers will use fuel cells in their vehicles to meet regulatory
requirements. Their failure to do so could have a material adverse effect on our
business and financial results and would significantly impair our ability to
expand our business.

                    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
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, and if our shareholders sell any of our common shares or
receive some types of distributions from us, then they may have to pay taxes
that are higher than if we were not considered a passive foreign investment
company. It is impossible to predict how much the taxes for our shareholders
would increase, if at all, because these taxes depend upon the number of common
shares sold by them and the price at which they are sold, or the amount of a
distribution from us, as well as upon the marginal rate at which they would be
taxed for the sale or distribution.

                                       11
<PAGE>   16

         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, including entities affiliated with members
of our management team, own more than 78% 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 the 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 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. All 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:

                                       12
<PAGE>   17

         -        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;

         -        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. As of December 31, 2000, we had 35,560,000 common shares outstanding. In
accordance with applicable U.S. securities laws and after giving effect to
lock-up agreements executed by our directors and executive officers and existing
principal shareholders, the common shares held by our affiliates who are U.S.
residents have been available for sale in the public market beginning April 25,
2001.

         Under applicable Canadian securities laws, no common shares, or common
shares issuable upon the exercise of options to purchase common shares, held by
residents of Canada, other than those acquired in our initial public offering,
may be sold or otherwise disposed of for value except pursuant to a prospectus,
a discretionary exemption or a statutory exemption available only in specific
limited circumstances, until we have been a reporting issuer in good standing
for at least 12 months. We became a reporting issuer on October 25, 2000.

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

         In recent years, and especially in the last six months, 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.


                                       13
<PAGE>   18



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. By
articles of amendment dated September 29, 2000, we effected a seven-for-one
share split of our common shares and deleted the restrictions in our articles
concerning transfer and subscription for shares by the public.

         On November 1, 2000, we completed the initial public offering of our
common shares, pursuant to which we raised approximately $76.5 million in net
proceeds.

         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, 2000 were $1.5
million, compared to $0.3 million and $11,000 for the years ended December 31,
1999 and 1998 respectively. This increase is attributable to equipment and
facility expenditures related to outfitting our facilities and our expanded
research and development efforts.

         Capital expenditure plans for 2001 and subsequent years will result in
further investment in capital assets as we continue our manufacturing and
development initiatives. Our current budget for 2001 includes a capital budget
of $7.0 million to purchase equipment, primarily for our research and
development programs. 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. With cash and cash
equivalents of over $77 million, we believe that we have the resources necessary
to meet projected capital expenditures for the next 24 months, without the need
to raise additional funds.

         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.

         B.       BUSINESS OVERVIEW.

OUR COMMERCIAL BUSINESS

         We design, develop and manufacture proton-exchange membrane, or PEM,
fuel cell automated test stations. 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, which derives hydrogen from fuels such as propane or
natural gas; 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. The other components and subsystems of a fuel cell system 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,

                                       14
<PAGE>   19
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.

OUR PRODUCTS

         In 2000, and since our inception, our revenues have been 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.

         The distribution of revenues determined by the location of our
customers is as follows:

<TABLE>
<CAPTION>
                          2000             1999               1998
                             $                $                  $
<S>                    <C>               <C>                 <C>
Canada                    35,000            77,000           160,000
United States          5,098,000         1,753,000           505,000
United Kingdom         3,442,000           795,000                --
Rest of World            308,000            49,000                --
                       ---------         ---------           -------
                       8,883,000         2,674,000           665,000
                       ---------         ---------           -------
</TABLE>


         Our business is not subject to any seasonal fluctuations.

         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 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 generating commercial sales from test stations, we are
adapting the balance of plant components and subsystems used in our test
stations as commercial products for fuel cell systems. We are also developing
PEM fuel cell systems designed for use in situations that require high quality,
reliable power regardless of the environment, such as in remote and extreme
weather locations, military applications or for backup power in
telecommunications applications. For example, we are developing what we believe
is the first fuel cell system designed to operate at - 40(degree)C. We have
developed a fuel cell system that will be used to power a military device that
detects chemical and biological agents in the field. We demonstrated this
product in the second half of 2000. Over the longer term, we will be targeting
our fuel cell systems toward the transportation, stationary and portable
commercial markets. 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.

                                       15
<PAGE>   20

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 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;

         -        Deregulation in the energy industry;

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

         -        Environmental concerns regarding conventional power
                  technologies; and

         -        Rising 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

         Our products 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 85kW FCATS would be able to test
a fuel cell stack that can generate up to 85kW 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.

         The testing requirements of our customers are dictated by the power
requirements of the applications for which they are developing fuel 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

                                       16
<PAGE>   21
with higher currents of up to 2000 amps. Single fuel cells are not usually used
as power generators for products or buildings, such as automobiles or houses,
but 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, will 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
will typically produce a fuel cell stack that can generate a greater amount of
electric power. The amount of power produced by a fuel cell stack will determine
the commercial markets for its use. For example, a 4kW fuel cell stack could
produce enough electricity to power a small house, whereas an 85kW fuel cell
stack could produce enough electricity to power an automobile.

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

FUEL CELL AUTOMATED TEST STATIONS

<TABLE>
<CAPTION>

         PRODUCT                       APPLICATION                   TARGET MARKET             STATUS
         -------                       -----------                   -------------             ------
<S>                        <C>                                   <C>                    <C>
   FCATS                   Automated control and monitoring of      Transportation,        - 4kW, 12kW, 24kW and
                           fuel cell stacks ranging from 2kW          Stationary             85 kW systems in
                           to 85kW                                                           commercial production

   FCATS-LAA               Automated control & monitoring of a      Transportation,        - Commercial
                           large active area single cell (up          Stationary             production
                           to 1000cm2) with current up to 2000
                           amps

   FCATS Screener          Automated control and monitoring of      Transportation,        - Commercial
                           single cell with total current        Stationary, Portable        production
                           output of 300 amps

   FCAVS Residential       Automated performance verification         Stationary           - Commercial
                           and incubation for quality                                        production
                           assurance of manufactured fuel cell
                           stacks for residential fuel cell
                           systems of 12kW and under

   FCAVS                   Automated performance verification       Transportation,        - Commercial
                           and incubation for quality                 Stationary             production
                           assurance of manufactured fuel cell
                           stack for 2kW to 85kW
</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 advanced safety features which permit unattended automated operation,
and proprietary software. 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;

                                       17
<PAGE>   22

         -        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 85kW, which we believe covers the
power range for most PEM fuel cell stacks currently in development. We believe
that few of our competitors have developed test equipment capable of measuring
PEM fuel cell stacks above 5kW. 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 2001, we plan 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.

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>
Balance of Plant     Control and operation of PEM fuel cell systems   Transportation,          - In development
Components and                                                          Stationary,
Subsystems                                                                Portable

IMPACT               Subsystem designed to measure AC impedance in    Transportation,         - Commercial
                     real-time and under dynamic conditions             Stationary,             development
                                                                          Portable
</TABLE>

                                       18
<PAGE>   23

<TABLE>
<CAPTION>

<S>                  <C>                                              <C>                      <C>
Cathode subsystem    Humidification of fuel cell system or power      Transportation,          - Commercial
                     module                                             Stationary,              development
                                                                          Portable
</TABLE>

       FUEL CELL SYSTEMS FOR PREMIUM POWER APPLICATIONS

<TABLE>
<CAPTION>
      PRODUCT                          APPLICATION                     TARGET MARKET               STATUS
      -------                          -----------                     -------------               ------
<S>                  <C>                                                <C>                <C>
HyTEF                Automated/remote power source for demands up       Stationary,        -  First demonstration
                     to 500W with capability to operate at -            Portable              units delivered in
                     40(degree)C                                                              Portable second
                                                                                              half of 2000

                                                                                           -  Currently designing
                                                                                              for kW power output
                                                                                              for larger range of
                                                                                              applications


HyPORT               1-10kW portable power generator for premium          Portable         -  Demonstrated unit
                     multi-kW demands such as military                                        in second half of 2000
                     instrumentation and remote power applications

                                                                                           -  Currently designing
                                                                                              for higher kW power
                                                                                              output for larger range
                                                                                              of  applications
</TABLE>


                                       19
<PAGE>   24

       FUEL CELL SYSTEMS FOR BROAD COMMERCIAL MARKETS

<TABLE>
<CAPTION>
      PRODUCT                          APPLICATION                               TARGET MARKET              STATUS
      -------                          -----------                               -------------              ------
<S>                     <C>                                                       <C>                  <C>
Fuel Cell Systems       -  Fuel cell systems for utility                          Transportation,      -  In development
                           vehicles such as underground mining                     Stationary,
                           vehicles and forklift trucks                              Portable

                        -  Fuel cell systems for commercial markets, including
                           primary power generators for buildings, factories,
                           hospitals and backup power generators for computers,
                           Internet service providers, communications networks
                           and commercial facilities

                        -  Fuel cell systems for portable power generation,
                           scientific and environmental monitoring, remote and
                           extreme weather power generation, control
                           instrumentation at remote sites, auxiliary power and
                           other specialty applications

                        -  Portable electronic devices

                        -  Regenerative fuel cell systems for
                           the applications described above
</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 2000 we successfully incorporated our IMPACT subsystem into a
number of our FCATS products. The IMPACT subsystem is designed to measure AC
impedance non-intrusively, in real-time and under dynamic conditions. We believe
that this feature represents an improvement over previous techniques and
equipment. In addition, during 2000 we continued to evolve 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.

Fuel Cell Systems For Premium Power Applications

         Remote Location Applications. Our HyTEF system, which we began
developing in 1996, is a PEM fuel cell generator and incorporates a fuel cell
system designed to generate 50W and to operate between -40(degree)C to
+40(degree)C, from 0% to 100% relative humidity, and from 0 meters to 10,000
meters elevation. To achieve these operating results, the system combines a fuel
cell, a burner which can be used for the delivery of hydrogen and the
co-generation of heat, a controller and other components to maintain performance
under all operating conditions.

         We have also developed a line of power generators for remote location
applications which emphasize efficiency over reliability in all operating
conditions. We have commenced the manufacture of pre-commercial

                                       20
<PAGE>   25
units under the HyTEF name. We are extending our power output in this product
line for a broader range of applications.

         We believe that our technology for remote locations can be applied to
power sources for various commercial applications such as road and highway
controls, refrigeration, remote cellular towers, remote lighting applications,
remote data collection, remote cameras and solar panel replacement.

         1-10kW Portable Power Generator. We have developed, with support from
Natural Resources Canada and the Canadian Department of National Defence, a 2kW
portable fuel cell system that powers a device for detecting chemical and
biological agents. This product is marketed under the name of HyPORT. We
demonstrated our first prototype unit in the second half of 2000. We believe
that this system 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.

Fuel Cell Systems for Broad Commercial Markets

         Fuel Cell Systems. 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. We believe that we will be able
to develop our current systems to reach a 50kW power rating for these products.

         We have identified the mining industry as an early, commercially-viable
adopter of fuel cell technology. We are a member of the Fuel Cell Propulsion
Institute and are contributing our expertise to the integration of a 14kW fuel
cell system into an underground mining locomotive. This Institute is planning a
loader demonstration project in a larger kilowatt range and it is our intention
to expand our involvement in this project as it proceeds.

         Regenerative Fuel Cell Systems. We are developing a regenerative fuel
cell system, which can both generate electricity and produce hydrogen fuel from
water and store it for later use. We believe that the system has the potential
to achieve higher kilowatt hours per kilogram than advanced battery systems.

         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. Operating as a fuel cell, the stored
hydrogen and oxygen are consumed by the regenerative system to generate
electricity. We are currently in the development phase of a 500W regenerative
fuel cell system and are in the research and development phases of a 10kW
regenerative fuel cell system.

         Our regenerative fuel cell systems will be designed to enable our
customers to invest in a single system that can be applied to both refueling and
electricity generation. We believe the single system characteristic to have
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 believe that our regenerative fuel cell technology will have
applications in each of the transportation, stationary and portable markets.

         Compact Fuel Cell System. We are developing a compact fuel cell system
designed to provide portable fuel cell power. We expect that this compact fuel
cell will enjoy substantial advantages over conventional batteries, such as
higher reliability, longer life, lower life-cycle cost, continuous operation as
long as fuel and oxidant supplies are provided, reduced maintenance, more
reliable monitoring and no environmental pollution. In the long term, this
compact fuel cell could potentially be used for powering personal electronic
devices such as laptop computers and cameras.

Other Products and Services

                                       21
<PAGE>   26

         In addition to our products described above, we design and manufacture
stand-alone PEM fuel cell stacks that can be integrated into other fuel cell
developers' systems. We also design and manufacture catalytic burners, a key
component of our extreme weather power products that can be used for clean,
cost-effective and efficient delivery of hydrogen and the co-generation of heat.

RESEARCH AND DEVELOPMENT

         We are targeting our research and development efforts to integrate fuel
cells into specific commercial applications while enhancing the performance and
life span of fuel cell systems. Developmental research in the areas of hydrogen
generation and regenerative fuel cell systems is also a focus of our research
and development program. We also undertake projects with our customers for
developing prototype and pre-commercial products.

SALES & MARKETING

         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 October 2000, we hired a sales representative who
is based in Tokyo and who will cover Japan and other parts of Asia. The sales
force is currently organized by customer account 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. To date, our sales efforts have focused on
supplying automotive fuel cell test stations to automotive manufacturers and
automotive original equipment manufacturers, or OEMs. Delivered fuel cell test
stations range from 2kW to 85kW, and include most aspects of the balance of
plant required to control and operate large fuel cell stacks. We intend to
develop fuel cell systems for emerging power applications in this market, such
as underground mining vehicles and forklift trucks.

         Over the longer term, we hope to build sales in the automotive fuel
cell market with OEMs, who are actively expanding their own market opportunities
through the adoption of fuel cell technology. We intend to seek opportunities to
manufacture fuel cell 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 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.

         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/contractors, as well as energy service providers and
distributors of reciprocating engines and microturbines.

         Portable Market. Our primary near-term customer for portable fuel cell
systems will continue to be the Canadian Department of National Defence.
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, auxiliary power 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

                                       22
<PAGE>   27
and with existing OEMs who wish to expand into a fuel cell line. In either case,
our current intentions are to supply fuel cell systems 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.

         In the long term, as manufacturing costs decline, we also hope to enter
the area of sub-kW electronic devices, such as cell phones and laptop computers.
Our marketing goal will be to promote the longevity of the fuel cell system and
its ease of recharging, compared to the capabilities of battery technology. Our
objectives are to form non-exclusive relationships or joint ventures with
leading industry partners.

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.

         Our strategy is to develop and secure intellectual property in areas of
underdeveloped technologies within our core business or areas not widely pursued
by our competitors, in which a cohesive block of patents can be secured as an
important competitive advantage. This strategy has led us to focus on the
development of fuel cell stacks functioning with unpressurized air, no or
limited humidification, no fuel conditioning and simple cooling techniques.

         We currently have been granted patents on our HyTEF technology in the
United States and Canada. Corresponding applications have been filed in Europe
covering seven of the European Union nations, and in Iceland, Japan, Norway,
Russia and Chile. More recently, twelve new patent applications have been filed
in Canada and the United States. Other patent applications are in preparation.
Subject to the payment of maintenance fees, our U.S. and Canadian patents
relating to our HyTEF technology will expire in 2016 and 2017, respectively.

TECHNOLOGY DEVELOPMENT FUNDING ARRANGEMENTS

         We typically retain sole ownership of the intellectual property we
develop. However, we have agreed to pay royalties to some of our funding
partners as follows:

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

                                       23
<PAGE>   28

         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 million to be used in the development of a 50 kW 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 Cdn.$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.

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 and price. A number of companies currently manufacture
fuel cell automated test stations. These companies include Emprise Corporation,
ElectroChem, Inc. and Lynntech 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. When we begin commercial production of fuel cell
systems and subsystems, 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., General Motors Corporation, Honda Motor Co. Ltd., H Power Corp.,
International Fuel Cells Corporation, Northwest Power Systems, LLC, Plug Power
Inc., Toshiba Corporation, the Toyota Motor Corporation, Giner, 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 International Fuel Cells Corporation.

         A number of corporations, national laboratories and universities in the
United States, Canada, Europe, Japan and elsewhere also possess fuel cell
technology. Many of our competitors have financial, technological and personnel
resources far greater than ours and represent significant competition.

                                       24
<PAGE>   29
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

         We are not currently subject to any material legal proceedings;
however, we may from time to time become a party to various legal proceedings
arising in the ordinary course of business.

                  C.       ORGANIZATIONAL STRUCTURE.

We have two wholly-owned subsidiaries: Hydrogenics USA, Inc., incorporated under
the laws of the State of Delaware, and Hydrogenics Japan Inc., incorporated
under the laws of the Province of Ontario.

                  D.       PROPERTY, PLANTS 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 95,000 square feet. 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 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. We intend to use this facility to perform testing and engineering services
on behalf of one of our largest customers. The lease for this facility expires
in December 2004.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

         The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes to those statements included elsewhere in this annual report which have
been prepared in accordance with generally accepted accounting principles, or
GAAP, in Canada. Differences between Canadian GAAP and GAAP in the United States
are discussed in note 19 to our financial statements for the years ended
December 31, 1999 and 2000. All financial information is reported in U.S.
dollars unless otherwise noted. This discussion contains forward-looking
statements that involve risks and uncertainties.


                                       25
<PAGE>   30

OVERVIEW

         During the year 2000, we continued to concentrate our efforts on the
development of fuel cell systems, components and subsystems targeted towards the
broad transportation, stationary and portable power markets. During fiscal 2000
we expanded our expertise and knowledge of proton exchange membrane (PEM) fuel
cell systems through the design, development and manufacture of our FCATS (Fuel
Cell Automated Test System) product line. For fiscal 2000, operating revenue
increased 230% to $8.9 million from $2.7 million for the comparable period in
1999. During fiscal 2000 we also expanded our FCATS product line as four new
FCATS products were designed, built and sold, including an 85 kW system, a
reformer system, a manufacturing verification system and a system targeted at
the residential fuel cell market.

      During fiscal 2000, we increased our capacity and capability to meet the
upcoming challenges of our industry by:

      -     adding 50 employees to finish the year at 74, a pace of growth we
            expect to continue into 2001, as manufacturing and research
            requirements continue to grow;

      -     increasing our manufacturing and production space to 95,000 square
            feet from 13,500 square feet;

      -     expanding our sales and marketing efforts by establishing an
            Asia-Pacific sales office in Japan;

      -     completing an initial public offering of our common shares; and

      -     completing the year with a strong balance sheet, including $77.4
            million in cash and cash equivalents.

RESULTS OF OPERATIONS

COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999

Revenues

         Revenues increased to $8.9 million for the year ended December 31, 2000
compared to $2.7 million for the year ended December 31, 1999. The increase in
revenues was primarily due to increased demand for our FCATS products from our
existing customers. We also expanded our customer base during this period which
resulted in additional revenue.

         We continue to generate much of our revenue from a small number of our
customers. Revenues from our three largest customers accounted for 78% and 80%
of our total revenues for the years ended December 31, 2000 and 1999
respectively.

         The majority of our revenues is recognized on a percentage of
completion basis due to the length of the build cycle of our FCATS product line.
As we standardize our manufacturing processes and reduce our build cycle, we
expect that a greater percentage of our revenue will be recognized when products
are delivered.

         We anticipate continued revenue growth from our FCATS product line as
our existing and future customers expand their fuel cell development programs.
We also anticipate that revenues from system integration and, to a lesser
extent, full power systems production will increase in 2001 and beyond as we
apply the extensive knowledge we have gained in designing and manufacturing our
FCATS product line toward these larger market opportunities.

Cost of revenue

         As a result of a significant increase in revenues, cost of revenues
increased to $6.5 million for the year ended December 31, 2000 compared to $2.1
million for the year ended December 31, 1999. Cost of revenues consist of
materials, direct labor costs and benefits, indirect labor costs and benefits
relating to engineering and

                                       26
<PAGE>   31
design and overhead costs. We realized a gross margin of $2.4 million, or 27% of
revenues, for the year ended December 31, 2000 compared to $0.6 million or 21%
of revenues for the year ended December 31, 1999. A number of variables beyond
our control can impact our gross margin, for example the volume and the timing
of orders, the degree of customization required by our customers, and the
product mix at any one time.

Selling, general and administration

         Selling, general and administrative (SG&A) expenses increased to $2.1
million for the year ended December 31, 2000, compared to $0.5 million for the
year ended December 31, 1999. SG&A expenses consist primarily of wages and
salaries of our sales, marketing and corporate staff, professional fees,
corporate travel, insurance and facilities costs.


         The increase in SG&A expenses in 2000 is attributable to a number of
items, including:

      -     an increase in insurance, professional fees and investor relations
            expenses of approximately $0.4 million, associated with our change
            of status from a private company to a public company;

      -     an increase in utilities and rent of approximately $0.3 million,
            resulting from the move to our new 95,000 square foot facility
            during the fourth quarter of 2000;

      -     an increase in sales and marketing expenses of approximately $0.2
            million, reflecting an expansion of our sales and marketing staff
            and the opening of our Asia Pacific office in Tokyo during the third
            quarter;

      -     an increase of approximately $0.32 million, reflecting the hiring of
            additional employees during the year to facilitate our manufacturing
            and development initiatives.

      We anticipate that SG&A will continue to increase in 2001, although at a
slower pace than in 2000. We expect that increases in SG&A expenses in 2001 will
result from continued staff expansion and the effect of a full year of occupancy
costs associated with operating in our new facility.

Research and development

         Research and development expenses, excluding grants, increased to $0.9
million for the year ended December 31, 2000, compared to $0.4 million for the
year ended December 31, 1999. Research and development costs consist of
materials, labor costs and benefits, depreciation on research and development
equipment, legal fees for the protection of intellectual property and an
allocation of overhead attributable to research and development.

         We anticipate that research and development expenses will increase
significantly in 2001 as we focus our efforts on the commercial and practical
applications of our technology. Funding for research and development will come
from our cash reserves and external sources such as government research grants.

Accrued dividend and amortization of discount on preferred shares

         Expenses related to the accrued dividend and amortization of discount
on our preferred shares increased to $0.3 million for the year ended December
31, 2000 compared to $0.1 million for the comparable period in 1999. This
increase is directly attributable to the issuance of preferred shares in January
2000. Under Canadian GAAP our preferred shares were treated, in part, as debt
and the accrued dividends and discounts associated with such debt were
amortized, reflecting an expense on our financial statements. Upon the closing
of our public offering, all issued and outstanding preferred shares were
automatically converted into common shares. As a result we will no longer incur
expenses associated with these preferred shares.

                                       27
<PAGE>   32
Provincial capital tax
         As a result of the proceeds realized on the closing of our initial
public offering, our total assets have increased to a level that exceeds the
small business classification under Ontario tax legislation. As a result we are
now subject to a provincial capital tax on our total assets. Under Canadian GAAP
this is not classified as income tax expense. For the year ended December 31,
2000 this amount was $0.3 million. In prior years we were not subject to this
tax.

Interest and bank charges

         Interest income, net of bank charges and interest paid increased to
$0.8 million for the year ended December 31, 2000, compared to $9,000 for the
year ended December 31, 1999. This increase is primarily attributable to the
interest earned on the investment of the proceeds of our initial public
offering. We anticipate a significant increase in interest income, reflecting a
full year of interest on the short term investments we hold. Our investments are
held exclusively in short term Canadian or U.S. government securities.

Foreign exchange loss

         We incurred a foreign exchange loss of $1.3 million for the year ended
December 31, 2000, as a result of a strengthening of the Canadian dollar against
the U.S. dollar in the fourth quarter of 2000. The loss arises primarily because
the Canadian dollar is our functional currency and the majority of our cash or
cash equivalents are held in U.S. dollar short term investments. There were no
significant foreign exchange gains or losses in prior years.

Income taxes

         Income taxes increased to $0.2 million for the year ended December 31,
2000 compared to a recovery of income tax of $1,000 for the year ended December
31, 1999. The increase is attributable to the Federal large corporations tax on
capital, which was triggered by the significant increase in our net assets.
Large corporations tax is imposed at a rate of 0.225 percent of an adjusted net
assets amount. This tax is considered an income tax for disclosure purposes.

         We were not subject to any tax on income during the year ended December
31, 2000, due to our net loss for the year. Our effective tax rate changed
during fiscal 2000, reflecting our change of status from a Canadian controlled
private corporation to a public company. Income of Canadian controlled private
corporations can be taxed at a lower rate than income of public companies. The
change in our effective tax rate will have an impact on future income tax
payable.

Net income (loss)

         Net loss increased to $1.7 million for the year ended December 31, 2000
compared to $0.2 million for the year ended December 31, 1999. Most of this
increase is attributable to the foreign exchange loss of $1.3 million, increased
SG&A and research and development expenses.

         Loss per share increased to ($0.08) for the year ended December 31,
2000 compared to a loss of ($0.01) for the year ended December 31, 1999. The
weighted average number of shares used in calculating the loss per share
increased to 22.3 million shares for fiscal 2000, reflecting our public offering
on November 1, 2000. The number of common shares outstanding at December 31,
2000 was 35.6 million. Options granted under our stock option plan have not been
included in the calculation of the fully diluted loss per share, as the effect
would be anti-dilutive. As at December 31, 2000, there were 3.9 million options
issued and outstanding, of which 2.0 million were exercisable.

                                       28
<PAGE>   33
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1999

      Revenues

         Revenues increased to $2.7 million in 1999, compared to $0.7 million in
1998. This increase of $2.0 million is attributable primarily to increasing unit
sales of FCATS. We recognized revenue on a percentage completion basis in 1998
and 1999 relating to four and 26 FCATS units, respectively, which were completed
or partially completed in those years.

      Cost of revenues

         Cost of revenues increased to $2.1 million in 1999, compared to $0.4
million in 1998. This increase primarily reflects costs associated with
increased production of FCATS units. Approximately $87,000 of the costs in 1999
is attributable to the establishment of a product warranty reserve charge. 1999
was the first year we accrued a warranty reserve charge. Our policy is to accrue
a warranty reserve charge as revenue is recognized. The amount of the warranty
reserve charge for 1999 was based on an estimate of future claims and was not
based on historical or actual claims presented to us.

      Selling and marketing expenses

         Selling and marketing expenses in 1999 increased to $0.1 million,
compared to $38,000 for 1998. This increase reflects the expansion of our
infrastructure during the period to support sales growth and the
commercialization of our products, primarily in the United States, Europe and
Asia. Specific expenses include salaries for additional marketing personnel and
increased travel costs, which accounted for the increase.

      General and administrative expenses

         General and administrative expenses in 1999 increased to $0.4 million,
compared to $51,000 in 1998. This increase includes expenses incurred in moving
to larger premises in 1999 of approximately $64,000, the hiring of 19 additional
employees of approximately $226,000 and professional advisory expenses of
approximately $26,000. The remaining $42,000 represents expenses incurred in
continuing to build our infrastructure.

      Research and development expenses

         Research and development expenses excluding research and development
grants in 1999 increased to $0.4 million, from $0.1 million in 1998. This
increase is attributable to higher personnel and materials expenditures incurred
in the expansion of our existing research programs and lower investment tax
credits.

         In 1999, we received approximately $0.3 million in research and
development grants from various governmental and educational entities for
specific research and development projects. In 1998, we received approximately
$50,000 in research and development grants from various governmental and
educational entities for specific research and development projects

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2000, we held cash and short-term investments of $77.4
million, compared to $0.5 million at December 31, 1999. As a result of a private
placement of our preferred shares, which closed on January 24, 2000, we received
proceeds of approximately $3.6 million. Our cash position further increased by
the completion of an initial public offering of our common shares which closed
November 1, 2000. Pursuant to this offering we issued 7 million common shares at
$12.00 per share, for net proceeds (after commissions and expenses relating to
the offering) of approximately $76.2 million. Cash and cash equivalents
accounted for 93% of our total assets at December 31, 2000 compared to 23% of
our total assets at December 31, 1999.



                                       29
<PAGE>   34
         Cash used in operations for the year ended December 31, 2000 increased
to $1.2 million, compared to $0.1 million used in the year ended December 31,
1999. The majority of cash was used to fund non-cash working capital,
specifically accounts receivable and inventories.

         Accounts receivable increased as a result of increased revenue from our
FCATS products. Inventory increased commensurate with our initiatives to
decrease the manufacturing build cycles of our FCATS products. A contributing
factor to the long build cycles is the delay in receiving materials from our
suppliers.

         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. However, with cash and cash
equivalents of over $77 million we believe that we have the resources necessary
to meet projected capital expenditures for 2001 and 2002, without the need to
raise additional funds.

         Our current budget for 2001 includes a capital budget of $7.0 million
to purchase equipment, primarily for our research and development programs.

CAPITAL EXPENDITURES

         Capital expenditures increased to $1.5 million for the year ended
December 31, 2000 compared to $0.3 million for the year ended December 31, 1999.
This increase is attributable to equipment and facility expenditures related to
outfitting our new facility and our expanded research and development efforts.
During fiscal 2000 we manufactured 6 FCATS for our own research and development
program along with other external capital expenditures.

         Capital expenditure plans for 2001 and subsequent years will result in
further investment in capital assets as we continue our manufacturing and
development initiatives.

DISCLOSURE ABOUT MARKET RISK

         Our functional currency is 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 2000 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, 2000, as set forth in note 2 of our
financial statements for the years ended December 31, 1999 and 2000. 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 years ended December 31, 1999 and 2000.

         Exchange rate fluctuations may cause fluctuations in our quarterly
results. We transact business internationally in multiple currencies. In
particular, a significant portion of our cost of revenues consists of materials
purchased in U.S. dollars, which is only partially offset by revenues generated
in U.S. dollars. We do not currently engage in any hedging transactions related
to our exchange rate risk. Accordingly, gains and losses on the conversion of
foreign payments may contribute to fluctuations in our results of operations and
fluctuating exchange rates could cause reduced revenue and gross margins from
our international sales.

         Our cash equivalents and investments, all of which have maturities of
less than one year, may expose us to market risk. Our investments are held
exclusively in short-term Canadian or U.S. government securities. The fair value
of these securities approximates their cost.

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:



                                       30
<PAGE>   35
<TABLE>
<CAPTION>
        Name               Age                   Position
        ----               ---                   --------
<S>                        <C>     <C>
Pierre Rivard..........     45     President, Chief Executive Officer and Director
Norman M. Seagram......     66     Chairman of the Board of Directors
Boyd J. Taylor.........     41     Vice President Sales and Marketing and Director
Joseph Cargnelli.......     31     Vice President Technology and Director
Robert Edwards.........     43     Vice President Finance and Treasurer
Dr. Ravi B. Gopal......     40     Vice President Engineering, Electronics and Controls
Don J. Morrison........     40     Director
Donald J. Lowry........     48     Director
Dr. Robert Lee.........     76     Director
Charley Pappas.........     43     Vice President of Operations
Jonathan Lundy.........     37     Vice President Corporate Affairs 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 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 is President of Sportsco International LP. Prior to
joining Sportsco in February 2001, 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. 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
Aurora, 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. Mr. Cargnelli earned both a Master 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.



                                       31
<PAGE>   36
         ROBERT EDWARDS joined us in July 1999 as our Vice President Finance.
Mr. Edwards has served as our Treasurer since July 2000. From January 1999 to
July 1999, Mr. Edwards served as one of our directors as a nominee of Working
Ventures Canadian Fund Inc. From November 1996 to July 1999, Mr. Edwards was
employed by Working Ventures Canadian Fund Inc. as a Portfolio Manager and Vice
President of Investments. Mr. Edwards earned a Masters degree in Business
Administration from the University of Western Ontario and a Bachelor of Applied
Science degree from the University of British Columbia. Mr. Edwards resides in
Oakville, Ontario.

         DR. RAVI B. GOPAL joined us in May 1998 and was appointed Vice
President of Engineering, Electronics and Controls in June 1999. 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
Toronto, Ontario.

         DON J. MORRISON joined our board of directors in September 2000. Mr.
Morrison is Senior Vice President of Investments with Working Ventures Canadian
Fund Inc., a Canadian venture capital fund. Prior to joining Working Ventures in
July 1995, Mr. Morrison was a principal in the Financial Advisory Services Group
of PricewaterhouseCoopers LLP. Mr. Morrison represents Working Ventures on our
Board of Directors and on a number of private and public companies with a focus
on manufacturing, transportation and technology sectors. Mr. Morrison is a
chartered accountant. Mr. Morrison resides in Toronto, Ontario. Mr. Morrison was
originally appointed to our board by Working Ventures Canadian Fund Inc. in
accordance with the terms of our Amended and Restated Unanimous Shareholders'
Agreement, which expired upon completion of our initial public offering.

         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
currently serves as a director on the board of the Canadian Electrical
Association, Sasktel International, Imperial Rubber Co. Ltd., Total Telecom Inc.
and Encore Energy. Mr. Lowry earned both a Master's degree in Business
Administration and a Bachelor of Commerce degree from the University of
Manitoba. Mr. Lowry resides in Edmonton, Alberta.

         DR. ROBERT LEE joined our board of directors in January 1999 and served
as Chairman until July 2000. Prior to January 1999, Dr. Lee was a member of our
Advisory Board. Dr. Lee has worked for Air Liquide Canada since 1947. Since
1990, Dr. Lee has been an independent technical advisor to Air Liquide Canada
and several of its subsidiaries, as well as to various other institutions,
including the University of British Columbia-Center for Metallurgical Processing
and the American Iron and Steel Institute/Department of Energy. Since 1985, Dr.
Lee has served as a director and the Vice President of Technology of Q.S. Oxygen
Process Inc. Dr. Lee has been involved in the development of more than 25
inventions, securing over 200 patents. In 1998, Dr. Lee received an honorary
Doctorate of Science from McGill University for innovative contributions to the
metallurgical industry. Dr. Lee resides in Calgary, Alberta.

         CHARLEY PAPPAS joined us in April 2000 as our Director of Engineering
Operations and was appointed Vice President of Operations in September 2000.
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. 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.

         JONATHAN LUNDY joined us in October 2000 as our Vice President
Corporate Affairs and Corporate Secretary. 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


                                       32
<PAGE>   37
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.

                  B.       COMPENSATION.

COMPENSATION OF OFFICERS

         For the year ended December 31, 2000, our aggregate cash compensation
payments to our executive officers and directors for services rendered in these
capacities was approximately $291,192.

         The following table provides a summary of compensation earned during
the last three financial years by our executive officers at the end of the
financial year ended December 31, 2000:

<TABLE>
<CAPTION>
                                                         Annual Compensation               Long-Term
                                                                                          Compensation
                                                                                           Awards(1)
                                                --------------------------------------   -------------
    Name and Principal Position        Year      Salary      Bonus     Other               Securities        All other
                                                                       Annual            Under Options     Compensation
                                                                       Compensation(2)
-----------------------------------------------------------------------------------------------------------------------
                                                (U.S.$)     (U.S.$)        (U.S.$)            (#)             (U.S.$)
-----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>      <C>         <C>        <C>               <C>               <C>
Pierre Rivard,                         2000      57,208      6,544            0                0                 0
President, Chief Executive Officer     1999      51,964        0              0                0                 0
                                       1998      47,946        0              0                0                 0
Boyd Taylor,                           2000      57,289      6,544            0                0                 0
Vice President, Sales & Marketing      1999      51,964        0              0                0                 0
                                       1998      47,946        0              0                0                 0
Joseph Cargnelli,                      2000      57,208      6,544            0                0                 0
Vice President, Technology             1999      51,964        0              0                0                 0
                                       1998      47,946        0              0                0                 0
Robert Edwards(3),                     2000      57,208      6,544            0              92,967              0
Vice President, Finance                1999      21,652        0              0            1,394,533             0
Dr. Ravi Gopal,                        2000      56,967      6,544            0             857,500              0
Vice President, Engineering,           1999      45,483        0              0                0                 0
Electronics and Control                1998      28,407        0              0                0                 0
Charley Pappas(3),                     2000      47,796      3,272            0              35,000              0
Vice President, Operations
Jonathan Lundy(3),                     2000      14,724       272             0              70,000              0
Vice President, Corporate Affairs
and Corporate Secretary
</TABLE>

(1)      The Corporation 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.

(3)      Mr. Edwards joined the Corporation in July 1999. Mr. Pappas joined the
         Corporation in April 2000. Mr. Lundy joined the Corporation in October
         2000.


EMPLOYMENT AGREEMENTS

         We have employment agreements with the following executive officers:
Pierre Rivard, Boyd Taylor, Joseph Cargnelli and Dr. Ravi Gopal. In respect of
these agreements, we have agreed to provide these officers with


                                       33
<PAGE>   38
annual salaries in 2001 ranging from Cdn.$135,000 to Cdn.$160,000 per annum. In
addition, each agreement provides for an initial term of two years ending April
20, 2003, with automatic two 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 our control, all unvested options shall become immediately
exercisable for a period of ninety days from the date of termination.

         We also have an employment agreement with Robert Edwards, also an
executive officer. Under the terms of this agreement, a portion of Mr. Edwards'
unvested options shall vest immediately upon termination resulting from a change
of our control.

COMPENSATION OF DIRECTORS

         Each of our non-employee directors is paid an annual fee of Cdn.$10,000
for his services as a director. Non-employee directors who serve as Committee
Chairs are paid an additional annual fee of Cdn.$1,000. The chairman of the
board of directors is paid an annual fee of Cdn.$12,000 for his services, and an
attendance fee of Cdn.$900 for each board meeting attended. In addition,
non-employee directors receive an attendance fee of Cdn.$700 for each board and
committee meeting attended. Each committee chair receives an additional
attendance fee of Cdn.$200 for each committee meeting attended.

         Our non-employee directors are also reimbursed for their reasonable
out-of-pocket disbursements incurred on the business of the Corporation and are
also eligible to receive stock options in accordance with the recommendations of
the Management Development and Compensation Committee. Two of our non-management
directors, Donald Lowry and Norman Seagram, were granted options to purchase
4,200 and 4,900 of our common shares, respectively, in connection with their
agreements to serve on our board. Dr. Robert Lee, another of our non-management
directors, was granted options to purchase 108,500 of our common shares in
connection with his service as our Chairman from January 1999 to July 2000.

                  C.       BOARD PRACTICES.

COMPOSITION OF THE BOARD OF DIRECTORS

         Our board of directors currently consists of seven members, four of
whom are non-management directors. Our articles provide that we may have between
three and nine directors on our board. Each of our directors holds office until
the next annual meeting of shareholders and until the director's successor is
elected and qualified, or until the director's earlier death, resignation or
removal.

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 Norman Seagram, Donald Lowry and Pierre Rivard.

         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 and
auditing control. The members of our Audit Committee are Norman Seagram, Donald
Lowry and Robert Lee. We


                                       34
<PAGE>   39
may modify the composition of our Audit Committee 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
Norman Seagram, Donald Lowry and Pierre Rivard.

                  D.       EMPLOYEES.

         As of December 31, 2000, we employed 74 persons, up from 24 as at
December 31, 1999, all of whom are full-time employees. Approximately 30 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. As at December 31, 1998 we
employed 10 persons.

                  E.       SHARE OWNERSHIP.

         The following table sets forth certain information concerning the share
ownership of our directors and executive officers as of May 11, 2001:

<TABLE>
<CAPTION>
                                      Number of Common                                             Percentage of
                      Number of       Shares Which May    Range of Exercise        Range of        Common Shares
                        Common       Be Acquired Under    Price of Options     Expiration Dates    Beneficially
Name                 Shares Owned     our Option Plan          ($Cdn.)            of Options           Owned
----                 ------------     ---------------          -------            ----------           -----
<S>                  <C>             <C>                  <C>                  <C>                 <C>
Pierre Rivard         6,562,500              0                   N/A                  N/A             18.48%
Norman M. Seagram       16,200             14,900            $5.00-$8.70         August 2010-          0.05%
                                                                                 January 2011
Boyd J. Taylor        6,572,500              0                   N/A                  N/A             18.48%
Joseph Cargnelli      6,562,500              0                   N/A                  N/A             18.48%
Robert Edwards            0              1,487,500           $0.05-$0.29         January 2010
Ravi B. Gopal             0               857,500            $0.05-$8.70         January 2010
Don J. Morrison          500               10,000               $8.70            January 2011          0.00%
Donald J. Lowry         1,000              14,200            $5.00-$8.70         August 2010-          0.00%
                                                                                 January 2011
Robert Lee                0               118,500            $0.29-$8.70         January 2010-
                                                                                 January 2011
Charley Pappas          3,900              35,000               $4.64             April 2010           0.01%
Jonathan Lundy            0                70,000              $11.43            October 2010
</TABLE>

OPTION GRANTS DURING FISCAL 2000

         We granted options under our stock option plan to our senior executive
officers during the year ended December 31, 2000 as follows:


                                       35
<PAGE>   40
<TABLE>
<CAPTION>
                                                                               Fair Value
                                        % of Total                           Of Securities
                     Securities      Options Granted                           Underlying
                    Under Options      to Employees        Exercise or       Options On the
                       Granted         In Financial        Base price        Date Of Grant          Expiration
       Name              (#)               Year         (Cdn.$/Security)    (Cdn.$/Security)           Date
-----------------------------------------------------------------------------------------------------------------
<S>                 <C>              <C>                <C>                 <C>                 <C>
Pierre Rivard             0                 0%                 N/A                N/A                  N/A
Boyd Taylor               0                 0%                 N/A                N/A                  N/A
Joseph Cargnelli          0                 0%                 N/A                N/A                  N/A
Robert Edwards         65,625             3.65%               $0.29              $1.50          January 24, 2010
                       27,342                                 $0.05              $1.50          January 24, 2010
Dr. Ravi Gopal         420,000            33.67%              $0.29              $1.50          January 24, 2010
                       437,500                                $0.05              $1.50          January 24, 2010
Charley Pappas         35,000             2.51%               $4.64              $14.29           June 16, 2010
Jonathan Lundy         70,000             5.02%              $11.43              $14.29         October 31, 2010
</TABLE>


OPTIONS EXERCISED IN FISCAL YEAR 2000

         The following table details information with respect to all options of
the Corporation exercised by our executive officers during the fiscal year ended
December 31, 2000, and all options held by our Executive Officers and
outstanding on December 31, 2000:

Aggregated Options Exercised during the most recently completed Financial Year
and Financial Year-End Option Values

<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
Boyd Taylor             N/A           N/A             N/A                  N/A
Joseph Cargnelli        N/A           N/A             N/A                  N/A
Robert Edwards           0             0        809,376/678,124    4,726,725/3,878,275
Dr. Ravi Gopal           0             0        507,500/350,000    2,952,500/2,052,500
Charley Pappas           0             0           0/35,000             0/47,600
Jonathan Lundy           0             0           0/70,000                0/0
</TABLE>

DIRECTOR, EMPLOYEE AND CONSULTANT STOCK OPTIONS

         As of March 31, 2001, our executive officers, directors, employees and
consultants held options to purchase an aggregate of 3,931,100 of our common
shares. Our executive officers held options to acquire 2,450,000 of these common
shares, exercisable at prices ranging from Cdn.$0.05 to Cdn.$11.43, expiring
January 24, 2010 through October 31, 2010. Our directors who are not executive
officers held options to acquire 157,600 common shares, exercisable at prices
ranging from Cdn.$0.29 to Cdn.$8.70, expiring between January 24, 2010 through
January 19, 2011. Our employees, excluding our executive officers, held options
to acquire 1,323,500 common shares, exercisable at prices ranging from Cdn.$0.05
to Cdn.$18.12 expiring at dates ranging from January 24, 2010 to March 4, 2001.

         In 2000, the options granted to officers, directors and various
employees have been at the exercise prices indicated below:



                                       36
<PAGE>   41
         -        on January 24, 2000 we granted (i) Dr. Robert Lee, one of our
                  directors who was also the Chairman of our Board on the date
                  of the grant, 84,000 options at Cdn.$0.29 and 24,500 options
                  at Cdn.$1.05, (ii) Dr. Ravi Gopal our Vice President
                  Engineering, Electronics and Controls 420,000 options at
                  Cdn.$0.29 and 437,500 options at Cdn.$0.05, (iii) Robert
                  Edwards our Vice President Finance and Administration 65,625
                  options at Cd.$0.29 and 27,342 options at Cdn.$0.05, and (iv)
                  various employees (other than officers and directors) an
                  aggregate of 437,500 options at Cdn.$0.05, 280,000 options at
                  Cdn.$0.29 and 147,000 options at Cdn.$1.05;

         -        on April 19, 2000 we granted various employees (other than
                  officers and directors) an aggregate of 168,000 options at
                  Cdn.$1.05;

         -        on June 16, 2000 we granted (i) Charley Pappas our Vice
                  President of Operations 35,000 options at Cdn.$4.64, and (ii)
                  various other employees (other than officers and directors) an
                  aggregate of 80,500 options at Cdn.$1.05, 32,900 options at
                  Cdn.$1.50, 21,000 options at Cdn.$2.11, 10,500 options at
                  Cdn.$2.23, 1,400 options at Cdn.$3.01, 7,000 options at
                  Cdn.$3.38, 3,500 options at Cdn.$3.80 and 14,000 options at
                  Cdn.$5.07;

         -        on June 30, 2000 we granted (i) Donald Lowry, one of our
                  directors, 4,200 options at Cdn.$5.00, (ii) Norman Seagram,
                  one of our directors and the current Chairman of our Board,
                  4,900 options at Cdn.$5.00, and (iii) various employees (other
                  than officers and directors) an aggregate of 65,450 options at
                  Cdn.$5.00 and 4,200 options at Cdn.$4.29;

         -        on September 11 we granted various employees (other than
                  officers and directors) an aggregate of 10,500 options at
                  Cdn.$6.43, 7,000 options at Cdn.$9.29, 3,150 options at
                  Cdn.$10.00, 10,850 options at Cdn.$10.71 and 4,200 options at
                  Cdn.$11.43;

         -        on October 6, 2000 we granted various employees (other than
                  officers and directors) an aggregate of 3,500 options at
                  Cdn.$10.71, 10,500 options at Cdn.$11.43 and 8,400 options at
                  Cdn.$12.14;

         -        on October 28, 2000 we granted Jonathan Lundy our Vice
                  President Corporate Affairs and Corporate Secretary 70,000
                  options at Cdn.$11.43;

         -        on November 1, 2000 we granted various employees (other than
                  officers and directors) an aggregate of 5,000 options at
                  Cdn.$18.12; and

         -        on December 15, 2000 we granted various employees (other than
                  officers and directors) an aggregate of 17,000 options at
                  Cdn.$5.85.

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 allow
for the exercise of the unvested portion of each option prior to the completion
of the change of control. Our stock option agreement with Mr. Edwards covering
options to purchase 1,487,500 of our common shares at a weighted average
exercise price of Cdn.$0.22 per share provides that all of Mr. Edwards' then
unvested options subject to such agreement will immediately vest upon his
termination without cause in connection with a change of control of our company.



                                       37
<PAGE>   42
NEW STOCK OPTION PLAN

         Our board approved a new stock option plan, which was implemented on
November 1, 2000 by our Management Development and Compensation Committee. 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 three years with one third 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 4,641,000.

         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.

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 March 31, 2001, 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 held by such person that are exercisable within 60 days of March 31,
2001, but excludes common shares underlying options held by any other person.
Percentage ownership is calculated by reference to the 35,568,750 common shares
deemed outstanding as of March 31, 2001. All of our shareholders hold common
shares.


                                       38
<PAGE>   43
<TABLE>
<CAPTION>
BENEFICIAL OWNER                               NUMBER OF COMMON SHARES BENEFICIALLY OWNED
----------------                               ------------------------------------------
                                                      NUMBER               PERCENT
                                                      ------               -------
<S>                                            <C>                         <C>
Pierre Rivard (1)                                   6,562,500               18.45%
Boyd Taylor                                         6,572,500               18.48
Joseph Cargnelli                                    6,562,500               18.45
Micro-Generation Technology Fund, LLC (2)           2,758,000                7.75
Working Ventures Canadian Fund Inc. (3)             2,583,000                7.26
CIBC Capital Partners (4)                           2,758,000                7.75
</TABLE>

----------

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

         (2)      Micro-Generation Technology Fund, L.L.C. is a private venture
                  capital fund managed on behalf of investors by Arete
                  Corporation. The address of Micro-Generation Technology Fund,
                  L.L.C. is c/o Arete Corporation, Manager, P.O. Box 1299,
                  Center Harbor, New Hampshire 03226.

         (3)      Don J. Morrison, one of our directors, was appointed to our
                  board as a nominee of Working Ventures Canadian Fund Inc. in
                  accordance with the terms of our Amended and Restated
                  Unanimous Shareholders' Agreement, which expired upon
                  completion of our initial public offering. Working Ventures
                  Canadian Fund Inc. is a widely held Canadian mutual fund. The
                  address of Working Ventures Canadian Fund Inc. is 250 Bloor
                  Street East, Suite 1600, Toronto, Ontario, Canada M4W 1E6.

         (4)      CIBC Capital Partners is a division of a Canadian chartered
                  bank and carries on merchant banking operations under that
                  registered business name. The address of CIBC Capital Partners
                  is BCE Place, P.O. Box 500, 8th Floor, 161 Bay Street,
                  Toronto, Ontario, Canada M5J 2S8.

                  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, 2000, this company billed us approximately $615,104. 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.

                  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.

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



                                       39
<PAGE>   44
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>
Quarterly Market Prices
   Fiscal Year Ended December 31, 2000
     Fourth Quarter (from November 1)...              $12.3125                    $2.75
   Fiscal Year Ended December 31, 2001
     First Quarter......................               $8.0938                    $3.25

Monthly Market Prices

     November 2000......................              $12.3125                    $4.00
     December 2000......................               $4.75                      $2.75
     January 2001.......................               $7.50                      $3.25
     February 2001......................               $8.0938                    $4.5312
     March 2001.........................               $7.5625                    $3.7812
     April 2001.........................               $6.05                      $3.62
</TABLE>


                           The Toronto Stock Exchange

<TABLE>
<CAPTION>
                                            Highest Reported Price     Lowest Reported Price
                                            ----------------------     ---------------------
<S>                                         <C>                        <C>
Quarterly Market Prices
   Fiscal Year Ended December 31, 2000
     Fourth Quarter (from November 1)..           Cdn.$21.75                 Cdn.$4.30
   Fiscal Year Ended December 31, 2001
     First Quarter.....................           Cdn.$21.75                 Cdn.$4.30

Monthly Market Prices

     October 2000......................           Cdn.$21.75                Cdn.$ 18.15
     November 2000.....................           Cdn.$18.70                 Cdn.$ 6.40
     December 2000.....................           Cdn.$7.25                  Cdn.$ 4.30
     January 2001......................          Cdn.$ 11.25                 Cdn.$ 5.05
     February 2001.....................          Cdn.$ 12.25                 Cdn.$ 7.05
     March 2001........................          Cdn.$ 11.10                 Cdn.$ 5.57
     April 2001........................           Cdn.$9.30                  Cdn.$5.50
</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



                                       40
<PAGE>   45
                  D.       SELLING SHAREHOLDERS.

                           Not applicable.

                  E.       DILUTION.

                           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 35,560,000 common shares and no preferred shares
were issued and outstanding as of December 31, 2000.

                           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
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 seven directors, all 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,


                                       41
<PAGE>   46
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 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


                                       42
<PAGE>   47
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.

                           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 July 3, 1997, between Canada (National
Resources Efficiency and Alternative Energy Program) and the Company;
Contribution agreement, dated June 9, 1998, between Canada (National Resources
Efficiency and Alternative Energy Program) and the Company, including amendments
dated June 9, 1999, February 1, 2000 and March 13, 2000. Under these agreements
National Resources Canada, or 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
decide not to commercialize the technology.

         Contribution agreement, dated December 1, 1999, between National
Research Council of Canada and the Company. Pursuant to this agreement, the
National Research Council of Canada, or 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 $494,500. 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.

         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 50 kW 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. In respect
of these agreements, we have agreed to provide these officers with annual
salaries in 2001 ranging from Cdn.$135,000 to Cdn.$160,000 per annum. In
addition, each agreement provides for an initial term of two years ending April
20, 2003, with automatic two 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.



                                       43
<PAGE>   48
         Employment letter agreements between Robert Edwards and the Company,
dated July 15 and 16, 1999. Under the terms of the letter agreement dated July
16, 1999, we offered Mr. Edwards an annual salary of $51,964, options to
purchase 984,375 common shares at an exercise price of Cdn.$0.29 per share
vesting over four years, and various other customary benefits. Pursuant to this
letter agreement, all of Mr. Edwards' unvested options will immediately vest
upon his termination without cause in connection with a change of control of our
company. Pursuant to the letter agreement dated July 15, 1999, we also offered
Mr. Edwards options to purchase an additional 410,158 common shares at an
exercise price of Cdn.$0.046 per share. These additional options have no such
automatic accelerated vesting provisions.

                  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):

         -        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 it
is 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, formerly Revenue
Canada, all specific proposals to amend the Income Tax Act (Canada) and the
regulations announced by the Minister of Finance (Canada) prior to the date of
this annual report and all judicial decisions currently in effect.



                                       44
<PAGE>   49
         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 nonrefundable Canadian withholding tax under the
Income Tax Act at the rate of 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, 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 or had rights to acquire 25% or
more of our issued shares of any class at any time during the five-year period
before the actual or deemed disposition.

                 UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

         The following is a summary of 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; or

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

         This summary deals only with common shares that are held as a capital
asset by a United States holder, 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;



                                       45
<PAGE>   50
         -        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;

         -        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.

         The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended, or Code, and regulations, rulings and
judicial decisions as of the date of this annual report; any authority 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 specifically.
We advise a shareholder to consult a tax advisor.

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 the current
and accumulated earnings and profits of the Company, 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 the current and accumulated earnings and
profits of the Company, 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 its shares of 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 separate 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.

         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 EXCHANGE

         Upon a sale or exchange 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 exchange and the United States holder's adjusted
tax basis in the common shares (determined in U.S. dollars). 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 and
will be long-term capital gain or loss if the United States holder has held our
common shares for more than one year. Special rules may apply in the case of a
sale of common shares to Hydrogenics Corporation.



                                       46
<PAGE>   51
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 Internal Revenue 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.

BACKUP WITHHOLDING TAX

         Backup withholding tax at a rate of 31% may apply to payments of
dividends and to payments of proceeds of the sale or other disposition of our
common shares within the United States by a non-corporate United States holder,
if the holder fails to furnish a correct taxpayer identification number or
otherwise fails to comply with applicable requirements of the backup withholding
tax rules. Backup withholding tax is not an additional tax and may be credited
against a United States holder's United States federal income tax liability,
provided that correct information is provided to the Internal Revenue Service.

PASSIVE FOREIGN INVESTMENT COMPANIES

         In general, a foreign corporation is a passive foreign investment
company for any taxable year in which (i) 75% or more of its gross income
consists of passive income (such as dividends, interest, rents and royalties,
other than rents and royalties derived in the active conduct of a trade or
business) or (ii) 50% or more of the average of the quarterly values of its
assets consists of assets that produce, or are held for the production of,
passive income. We will determine the fair market value of our assets based on
the market price of our common shares, less total liabilities. As a result,
fluctuations in the market price of our common shares would affect the
determination of whether we would be considered a passive foreign investment
company.

         Based upon our current and projected income, and the market value of
our assets as determined by reference to the market value of our common shares,
we do not expect to be considered to be a passive foreign investment company.
However, because the determination of whether we are a passive foreign
investment company is based on the composition of our income and assets from
time to time and because the market price of our shares is likely to fluctuate,
there can be no assurance that we will not be considered a passive foreign
investment company for any fiscal year. If we are a passive foreign investment
company at any time that a shareholder owns common shares, a shareholder will
likely be subject to the rules described below, even if we subsequently cease to
be a passive foreign investment company. United States holders will be
responsible for determining whether we are a passive foreign investment company
each year for purposes of applying the rules described below.

         Except as described below, if we are considered to be a passive foreign
investment company, the following special rules will apply to:



                                       47
<PAGE>   52
         -        any gain realized on the sale or other disposition (including
                  a pledge as security for a loan) of our common shares, and

         -        any "excess distribution" on the common shares, that is any
                  distribution received by a shareholder on the common shares in
                  a taxable year other than the first year in which such
                  shareholder holds the common shares that are greater than 125%
                  of the average annual distributions received by such
                  shareholder in the preceding three taxable years, or, if
                  shorter, such shareholder's holding period for the common
                  shares).

         Under these rules:

         -        the gain or excess distribution would be allocated ratably
                  over a shareholder's holding period for the common shares;

         -        the amount allocated to the current taxable year and to
                  taxable years before the first day in which we became a
                  passive foreign investment company would be taxed as ordinary
                  income; and

         -        the amount allocated to each of the prior taxable years in
                  which we were a passive foreign investment company would be
                  subject to tax at the highest rate of tax in effect for a
                  corporate or individual taxpayer, as applicable, that year,
                  and an interest charge for the deemed deferral benefit would
                  be imposed on the resulting tax attributable to such prior
                  year.

         Alternatively, as long as our common shares are regularly traded on the
Nasdaq National Market (or another qualifying market), a shareholder will be
able to make an election with respect to the common shares upon acquisition of
the common shares to include in income as ordinary income each year the excess
of the fair market value of the common shares over such shareholder's adjusted
basis in the common shares, and such shareholder will be entitled to deduct as
an ordinary loss each year the lesser of (a) the excess of his original or, if
applicable, adjusted basis in the common shares over their fair market value,
and (b) the excess of the total amount of income included in prior years over
the total amount of deductions allowed in prior years under these rules. A
shareholder's adjusted basis in the common shares will be increased by the
amount of any income inclusions and will be decreased by the amount of any
deductions. If a shareholder disposes of the common shares for an amount in
excess of his adjusted basis, the gain will be taxed at ordinary income tax
rates.

         A United States holder who owns common shares during any year that we
are a passive foreign investment company must file Internal Revenue Service Form
8621, describing any distributions received from the ownership of common shares
and any gain realized on the sale or other disposition of common shares.

                  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.



                                       48
<PAGE>   53
         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 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.     7 World Trade Center     500 West Madison Street
         Room 1024         New York, New York 10048         Suite 1400
   Washington D.C. 20549                              Chicago, Illinois 60661

         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 primary of United States Treasury
obligations. The average duration of all of our investments in 2000 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. Our financial statements are
prepared in U.S. dollars and much of our business is conducted in U.S. dollars.
A significant proportion of our cost of revenues consists of materials purchased
in U.S. dollars. This may expose us to some currency rate risk associated with
our exchange of Canadian dollars for U.S. dollars. We believe that this risk is
mitigated to a significant extent by the fact that a large proportion of our
revenues are received in U.S. dollars. We do not currently engage in any hedging
transactions relating to our exchange rate risk. However, as our business
expands, we anticipate that we will increasingly incur expenses and bill and
receive payments in local currencies at prevailing exchange rates. As a result,
in the future we may suffer losses due to fluctuations in the exchange rates
between the U.S. dollar and the Canadian dollar and the U.S. dollar and the
currencies of other countries.

                                     PART II

ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

                  Not applicable.

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 have been no material modifications.

ITEM 15.          [RESERVED]



                                       49
<PAGE>   54
                  Not applicable.

ITEM 16.          [RESERVED]

                  Not applicable.







                                       50
<PAGE>   55
                                    PART III

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.

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 Robert Edwards
                           and the Company, dated July 16, 1999.(7)
         4.5               Employment letter agreement between Dr. Ravi Gopal
                           and the Company, dated March 16, 1998.(8)
         4.6               Offer to Lease dated June 1, 2000 by and between the
                           Company and Orlando Corporation.(9)
         4.7               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated October 17, 1996, between Canada and the
                           Company.(10)
         4.8               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated July 3, 1997, between Canada and the
                           Company.(11)
         4.9               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated June 9, 1998, between Canada and the
                           Company.(12)
         4.10              Efficiency and Alternative Energy Program Amendment
                           to the Contribution Agreement between Canada and the
                           Company, dated March 13, 2000.(13)
         4.11              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated June 9, 1999, between Canada and the
                           Company.(14)
         4.12              Natural Resources Canada Efficiency and Alternative
                           Energy Program Amendment No. 1 to the Contribution
                           Agreement between Canada and the Company, dated
                           February 1, 2000.(15)
         4.13              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated May 25, 2000, between Canada and the
                           Company.(16)
         4.14              Industrial Research Assistance Program Contribution
                           Agreement, dated November 24, 1998, between National
                           Research Council Canada and the Company.(17)
         4.15              Industrial Research Assistance Program Contribution
                           Agreement, dated December 1, 1999, between National
                           Research Council Canada and the Company.(18)
         4.16              Research Agreement for a Cooperative Project, dated
                           November 19, 1996, between Universite du Quebec a
                           Trois-Rivieres and the Company.(19)
         4.17              Lease, dated June 23, 2000, by and between Orlando
                           Corporation and the Company.(20)
         4.18              Employment Agreement between Pierre Rivard and the
                           Company, dated April 20, 2001.
</TABLE>

                                       51
<PAGE>   56
<TABLE>
<CAPTION>
     EXHIBIT NUMBER        NAME OF DOCUMENT
     --------------        ----------------
<S>                        <C>
         4.19              Employment Agreement between Boyd Taylor and the
                           Company, dated April 20, 2001.
         4.20              Employment Agreement between Ravi Gopal and the
                           Company, dated April 20, 2001.
         4.21              Employment Agreement between Joseph Cargnelli and the
                           Company, dated April 20, 2001.
         4.22              Agreement of Lease, dated as of December 15, 2000,
                           between Crown/Chadwick Realty Corp. and the Company
         4.23              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement
                           between Canada and the Company, dated January 10,
                           2001.
         4.24              Natural Resources Canada Efficiency and Alternative
                           Energy Program Amendment No. 1 to the Contribution
                           Agreement, dated April 11, 2001.
</TABLE>


----------

(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 3.1 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.

(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 10.6 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 10.7 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.

(9)      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.

(10)     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.

(11)     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.

(12)     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.

(13)     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.

(14)     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.

(15)     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.



                                       52
<PAGE>   57
(16)     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.

(17)     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.

(18)     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.

(19)     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.

(20)     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.







                                       53
<PAGE>   58


                             HYDROGENICS CORPORATION

                          INDEX TO FINANCIAL STATEMENTS

AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000
AND 1999

<TABLE>
<S>                                                                                                <C>
Auditor's Report...............................................................................    F-2

Consolidated Balance Sheets as at December 31, 2000
and 1999.......................................................................................    F-3

Consolidated Statements of Operations and Retained Earnings (Deficit) for
the years ended December 31, 2000, 1999 and 1998...............................................    F-4

Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998............................................................................    F-5

Notes to Consolidated Financial Statements.....................................................    F-6
</TABLE>


                                      F-1
<PAGE>   59

March 7, 2001

AUDITORS' REPORT

TO THE SHAREHOLDERS OF HYDROGENICS CORPORATION
We have audited the consolidated balance sheets of Hydrogenics Corporation as at
December 31, 2000 and 1999 and the consolidated statements of operations,
retained earnings (deficit) and cash flows for each of the years in the
three-year period ended December 31, 2000. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements 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, 2000
and 1999 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2000 in accordance with
Canadian generally accepted accounting principles.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP (signed)
Chartered Accountants
Toronto, Canada

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

                                       F-2





<PAGE>   60
--------------------------------------------------------------------------------

HYDROGENICS CORPORATION
CONSOLIDATED BALANCE SHEETS
as at December 31, 2000 and 1999
(expressed in thousands of U.S. dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                                   2000      1999
                                                                 ------     -----
                                                                      $         $
<S>                                                              <C>        <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note 14).........................     77,436       453
Accounts receivable and unbilled revenues (note 6)..........      2,582       993
Grants receivable...........................................         75       143
Inventories (note 7)........................................      1,213       117
Prepaid expenses............................................        122         8
                                                                 ------     -----
                                                                 81,428     1,714
DEPOSITS (note 3)...........................................         67         -
CAPITAL ASSETS (note 4).....................................      1,497       250
                                                                 ------     -----
                                                                 82,992     1,964
                                                                 ------     -----
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 8)...........      2,463       953
Dividends payable on preferred shares (note 11).............          -        52
Income taxes payable........................................        169         9
                                                                 ------     -----
                                                                  2,632     1,014
LOAN PAYABLE (note 9).......................................        100         -
PREFERRED SHARES (note 11)..................................          -       912
                                                                 ------     -----
                                                                  2,732     1,926
                                                                 ------     -----
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 11).....................................     80,740       145
DEFICIT.....................................................     (1,843)     (107)
CURRENCY TRANSLATION ADJUSTMENT.............................      1,363         -
                                                                 ------     -----
                                                                 80,260        38
                                                                 ------     -----
                                                                 82,992     1,964
                                                                 ------     -----
</TABLE>

COMMITMENTS AND CONTINGENCIES (note 10)

APPROVED BY THE BOARD OF DIRECTORS:

<TABLE>
<S>                                          <C>

/s/ Norman Seagram                           /s/ Pierre Rivard
Norman Seagram,                              Pierre Rivard,
Chairman                                     Director, President and CEO
</TABLE>

The accompanying notes form an integral part of these financial statements.

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

                                       F-3
<PAGE>   61
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

HYDROGENICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
for the years ended December 31, 2000, 1999 and 1998
(expressed in thousands of U.S. dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                      2000           1999           1998
                                                ----------     ----------     ----------
                                                         $              $              $
<S>                                             <C>            <C>            <C>
REVENUES...................................          8,883          2,674            665
COST OF REVENUES...........................          6,485          2,105            415
                                                ----------     ----------     ----------
                                                     2,398            569            250
OPERATING EXPENSES
Selling, general and administrative........          2,069            534             89
Research and development (note 5)..........            915            424             94
Research and development grants............           (140)          (262)           (49)
Depreciation of capital assets.............             99             18              3
                                                ----------     ----------     ----------
                                                     2,943            714            137
                                                ----------     ----------     ----------
INCOME (LOSS) FROM OPERATIONS..............           (545)          (145)           113
                                                ----------     ----------     ----------
OTHER (INCOME) EXPENSES
Accrued dividend and amortization of
  discount on preferred shares.............            262             73              -
Provincial capital tax.....................            260              -              -
Interest and bank charges..................           (832)            (9)             2
Foreign exchange losses....................          1,329              -              -
                                                ----------     ----------     ----------
                                                     1,019             64              2
                                                ----------     ----------     ----------
INCOME (LOSS) BEFORE INCOME TAXES..........         (1,564)          (209)           111
INCOME TAX EXPENSE (RECOVERY) (note 12)
Current....................................            172              8              4
Future.....................................              -             (9)             8
                                                ----------     ----------     ----------
                                                       172             (1)            12
                                                ----------     ----------     ----------
NET INCOME (LOSS) FOR THE YEAR.............         (1,736)          (208)            99
RETAINED EARNINGS (DEFICIT) - BEGINNING OF
  YEAR.....................................           (107)           101              2
                                                ----------     ----------     ----------
RETAINED EARNINGS (DEFICIT) - END OF
  YEAR.....................................         (1,843)          (107)           101
                                                ----------     ----------     ----------
BASIC AND FULLY DILUTED EARNINGS (LOSS) PER
  SHARE (note 16)..........................          (0.08)         (0.01)          0.01
SHARES USED IN COMPUTING BASIC AND FULLY
  DILUTED EARNINGS (LOSS) PER SHARE........     22,341,370     19,687,500     19,687,500
</TABLE>

The accompanying notes form an integral part of these financial statements.

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

                                       F-4


<PAGE>   62
--------------------------------------------------------------------------------

HYDROGENICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2000, 1999 and 1998
(expressed in thousands of U.S. dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                                 2000     1999      1998
                                                               ------     ----     -----
                                                                    $        $         $
<S>                                                            <C>        <C>      <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Income (loss) for the year................................     (1,736)    (208)       99
Items not affecting cash
  Foreign exchange loss...................................      1,329        -         -
  Depreciation of capital assets..........................        224       45         3
  Amortization of discount on preferred shares............         85       20         -
  Imputed interest on grant payable.......................          7        -         -
  Future income taxes.....................................          -       (9)        8
Net change in non-cash working capital (note 17)..........     (1,122)      66      (262)
                                                               ------     ----     -----
                                                               (1,213)     (86)     (152)
                                                               ------     ----     -----
INVESTING ACTIVITIES
Deposits..................................................        (67)       -         -
Purchase of capital assets................................     (1,492)    (280)      (11)
                                                               ------     ----     -----
                                                               (1,559)    (280)      (11)
                                                               ------     ----     -----
FINANCING ACTIVITIES
Increase in shareholders' advances........................          -        -        12
Repayment of shareholders' advances.......................          -        -       (32)
Increase (decrease) in bank indebtedness..................          -        -       (14)
Increase in loan payable..................................         92        -         -
Preferred shares issued - net of issuance costs...........      3,623        -     1,016
Common shares issued - net of issuance costs..............     76,186        -         -
                                                               ------     ----     -----
                                                               79,901        -       982
                                                               ------     ----     -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING
  THE YEAR................................................     77,179     (366)      819
EFFECT OF EXCHANGE RATE ON CASH...........................       (146)       -         -
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR.............        453      819         -
                                                               ------     ----     -----
CASH AND CASH EQUIVALENTS - END OF YEAR...................     77,436      453       819
                                                               ------     ----     -----
SUPPLEMENTAL DISCLOSURE
Interest paid.............................................          7        -         2
Income taxes paid.........................................          -        4         -
</TABLE>

The accompanying notes form an integral part of these financial statements.

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

                                        F-5

<PAGE>   63
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

HYDROGENICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2000, 1999 and 1998
(expressed in thousands of U.S. dollars, except per share amounts)

1       DESCRIPTION OF BUSINESS
Hydrogenics Corporation designs, develops and manufactures proton-exchange
membrane, or PEM, fuel cell automated test stations. The company's principal
customers include automotive companies, fuel cell developers and component
suppliers principally located in Canada, the United States and the United
Kingdom.

2       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the company have been prepared in
accordance with Canadian generally accepted accounting principles and include
the results of the company and its wholly-owned subsidiaries, Hydrogenics
(Japan) Inc. and Hydrogenics USA, Inc., both of which were incorporated in the
fourth quarter of 2000.

The functional currency of the company is the Canadian dollar. Effective
December 31, 1999, the U.S. dollar was adopted as the reporting currency and the
financial information for 1999 and prior years has been presented in U.S.
dollars in accordance with a translation of convenience method using the
exchange rate of December 31, 1999 of US$1.00 - Cdn$1.4433 being the Bank of
Canada noon buying rate at December 31, 1999. For periods subsequent to December
31, 1999, Canadian dollar amounts are translated into the reporting currency
using the current rate method, whereby assets and liabilities are translated at
the period-end exchange rate, and revenues and expenses are translated at the
average exchange rate for the period. Gains or losses from translation into the
reporting currency are included in the cumulative translation adjustment in
shareholders' equity.

Revenue recognition
Revenues from long-term contracts are determined under the
percentage-of-completion method where revenues are recognized on a pro rata
basis in relation to contract costs incurred. The company may provide
installation services under long-term contracts. These costs are included in
determining the percentage of completion and timing of revenue recognition.
Unbilled revenues (included in accounts receivable) represent revenues earned in
excess of amounts billed on uncompleted contracts.

Revenues related to the sale of fuel cell system component parts are recorded
when such parts are delivered.

Product warranty
The company typically provides a warranty for parts and labour for one year and
provides for future warranty costs based on management's best estimates of such
costs, taking into account the nature of the contracts.

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

                                        F-6

<PAGE>   64
--------------------------------------------------------------------------------

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, a reduction
of the cost of the applicable capital assets, or a credit in the statement of
operations and retained earnings (deficit) 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 probable.

Investment tax credits related to qualifying research and development
expenditures are recorded as either a reduction of the cost of applicable
capital assets or credited in the statement of operations and retained earnings
(deficit) depending on the nature of the expenditures which gave rise to the
credits. Investment tax credits are recognized in the year in which the credits
are earned and realization is reasonably assured.

Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term interest bearing securities with original terms to maturity of three
months or less.

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

Capital assets
Capital assets are recorded at cost less accumulated depreciation. Capital
assets are depreciated from the date of acquisition or, in respect of internally
constructed research and development 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 or straight-line
method as follows:

<TABLE>
<S>                                     <C>
Computer hardware and software                                    30% per annum
Office furniture and equipment                                    20% per annum
Research and development equipment                                30% per annum
Automobiles                                                       30% per annum
Leasehold improvements                       Straight line over the term of the
                                                                          lease
</TABLE>

Long-lived assets
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 of any asset to future net undiscounted cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the net recoverable amount.

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

                                        F-7

<PAGE>   65
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

Research and development costs
Research and product development costs are expensed as incurred until
technological feasibility is reached, there is intention to produce or market
the developed product and the future market is clearly defined. Costs for
research and development equipment that have alternative uses are capitalized.

Costs incurred in applying for patents and licenses are expensed as incurred.

Foreign currency translation
Monetary assets and liabilities denominated in currencies other than the
Canadian dollar, the company's functional currency, are translated at the rate
of exchange in effect at the end of the year. Revenue and expense items are
translated into Canadian dollars at the rate of exchange in effect on the dates
transactions occur. Exchange gains or losses are reflected in other expenses.
See note 2 "basis of presentation" regarding the company's reporting currency.

Financial instruments
Financial instruments are initially recorded at historical cost. If subsequent
circumstances indicate that a decline in the fair value of a financial
instrument is other than temporary, the financial asset is written down to its
fair value.

Use of estimates
The preparation of these financial statements in conformity with Canadian
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.

Stock-based compensation
No compensation expense is recognized when stock options are granted to
employees. Any consideration paid by employees on exercise of stock options or
purchase of stock is credited to share capital.

Income taxes
Income taxes are recorded using the liability method. Future income tax amounts
arise due to the temporary differences in the assets and liabilities between
their accounting and income tax bases. Future tax assets are recognized to the
extent that realization of such benefits is more likely than not.

3       DEPOSITS
Deposits represent amounts paid as security for rental property and utility
services.

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

                                        F-8

<PAGE>   66
--------------------------------------------------------------------------------

4       CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                                 2000    1999
                                                                -----    ----
                                                                    $       $
<S>                                                             <C>      <C>
Cost
  Computer hardware and software                                  253      65
  Office furniture and equipment                                  307      59
  Research and development equipment                            1,032     176
  Automobiles                                                      16       -
  Leasehold improvements                                          148       -
                                                                -----    ----
                                                                1,756     300
                                                                -----    ----
Accumulated depreciation
  Computer hardware and software                                   58      16
  Office furniture and equipment                                   43       8
  Research and development equipment                              149      26
  Automobiles                                                       1       -
  Leasehold improvements                                            8       -
                                                                -----    ----
                                                                  259      50
                                                                -----    ----
Net
  Computer hardware and software                                  195      49
  Office furniture and equipment                                  264      51
  Research and development equipment                              883     150
  Automobiles                                                      15       -
  Leasehold improvements                                          140       -
                                                                -----    ----
                                                                1,497     250
                                                                -----    ----
</TABLE>

5       RESEARCH AND DEVELOPMENT
Research and development expenses consist of the following:

<TABLE>
<CAPTION>
                                                                2000    1999    1998
                                                                ----    ----    ----
                                                                   $       $       $
<S>                                                             <C>     <C>     <C>
Materials                                                        586     184      59
Labour                                                           301     189     127
Overhead                                                          20       -       -
Subcontracts                                                       -       6      10
Patent costs                                                     110      19       5
Depreciation of research and development assets                  125      26       -
Investment tax credits                                          (227)      -    (107)
                                                                ----    ----    ----
                                                                 915     424      94
                                                                ----    ----    ----
</TABLE>

The company develops products and related technology using its own resources and
through product development and demonstration contracts with various government
and public sector agencies. The company owns or is entitled to use the products
and technology developed under these contracts.

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

                                        F-9

<PAGE>   67
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

The company obtains protection of the intellectual property, which it develops,
by filing for patents in Canada, the United States and other countries. Legal
expenditures related to such filings in the year are included above.

6       ACCOUNTS RECEIVABLE AND UNBILLED REVENUES
Accounts receivable and unbilled revenues consist of the following amounts:

<TABLE>
<CAPTION>
                                                                 2000     1999
                                                                -----    -----
                                                                    $        $
<S>                                                             <C>      <C>
Trade accounts receivable                                       1,939      158
Less: Allowance for doubtful accounts                               -      (13)
Goods and services tax                                            253       77
Refundable investment tax credits                                 333       92
Unbilled revenues on contracts-in-progress                         57    1,390
Less: Progress payments                                             -     (711)
                                                                -----    -----
                                                                2,582      993
                                                                -----    -----
</TABLE>

Progress payments relate to contracts-in-progress at the end of the year with
unbilled revenues.

7       INVENTORIES
Inventories include the following accounts:

<TABLE>
<CAPTION>
                                                                   2000     1999
                                                                 ------     ----
                                                                      $        $
<S>                                                              <C>        <C>
Raw materials                                                     1,161      117
Work-in-progress                                                     18        -
Finished goods                                                       34        -
                                                                 ------     ----
                                                                  1,213      117
                                                                 ------     ----
</TABLE>

8       ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities include the following accounts:

<TABLE>
<CAPTION>
                                                                 2000     1999
                                                                -----    -----
                                                                    $        $
<S>                                                             <C>      <C>
Trade accounts payable                                          1,816      801
Provincial capital tax                                            265        -
Accrued payroll costs                                              80       34
Warranty accrual                                                  186       87
Other                                                             116       31
                                                                -----    -----
                                                                2,463      953
                                                                -----    -----
</TABLE>

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

                                        F-10

<PAGE>   68
--------------------------------------------------------------------------------

9       LOAN PAYABLE
In April 2000, the company received $92 in repayable grant financing from a
government agency for research and development activities. The principal is
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 proceeding
quarter. The maximum amount repayable is 150% of the principal representing an
effective interest rate of 10% per year.

The company has charged to expense imputed interest of $7 (1999 - $nil).

10      COMMITMENTS AND CONTINGENCIES
The company incurred rental expenses under operating leases of $390 in 2000
(1999 - $30; 1998 - $17) The company has future minimum lease payments under
operating leases relating to premises and office equipment at December 31, 2000
as follows:

<TABLE>
<CAPTION>
                                                                    $
<S>                                                             <C>
2001                                                              875
2002                                                              858
2003                                                              706
2004                                                              687
2005                                                              456
                                                                -----
                                                                3,582
                                                                -----
</TABLE>

The company has entered into repayable contribution and other research and
development arrangements with the Department of Natural Resources (DNR), the
National Research Council, Canada (NRC), and the University of Quebec at Trois
Rivieres (UQTR). Under these arrangements, the company will receive up to a
cumulative amount of Cdn$1,521 (1999 - Cdn$1,418; 1998 - Cdn$312) towards agreed
upon research and development project costs. The utilized amount of the advances
at December 31, 2000 was Cdn$986 (1999 - Cdn$682; 1998 - Cdn$304). In return,
DNR, NRC and UQTR have a right to receive as repayments, 1.3% to 4% of gross
revenue received by the company as a result of the commercial exploitation of
the associated technology. These arrangements will expire in stages between
September 30, 2006 and March 31, 2016, or when total payments paid reach the
utilized amount of the advance, depending on the terms of the individual
contracts.

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.

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

                                        F-11

<PAGE>   69
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

11      SHARE CAPITAL AND PREFERRED SHARES
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.

<TABLE>
<CAPTION>
                                                            2000    1999
                                                          ------    ----
                                                               $       $
<S>                                                       <C>       <C>
ISSUED AND OUTSTANDING
35,560,000 (1999 - 19,687,500) common shares              80,740      21
Other equity                                                   -     124
                                                          ------    ----
                                                          80,740     145
                                                          ------    ----
</TABLE>

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 initial public offering,
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 December 21, 1998, the company issued 750,000 Series A preferred shares at
$1.39 (Cdn$2.00) per share for proceeds, net of issue costs, of $1,015
(Cdn$1,466). These shares were voting, convertible, redeemable and earned 5%
cumulative dividends.

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%
cumulative dividends.

For financial reporting purposes, the Series A and B preferred shares have
liability and equity components. The liability component was based on discounted
future cash flows to the holders of the preferred shares and was recorded as
preferred shares on the balance sheets. The remaining balance of $567 was
included in other equity within share capital. Accrued dividend and amortization
of discount on the debt component is charged to the statement of operations in
the period.

On November 1, 2000, the company completed an initial public offering and listed
the 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 of $4,529. At
conversion, $229 cumulative dividends were paid to the preferred shareholders.

During 2000, the Company adopted a broad-based employee share option plan. This
plan replaces previous employee share purchase arrangements. 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 three years unless otherwise determined by the board of directors. As
at December 31, 2000, 1,981,438 options are fully vested and the remainder vest
over four years from the date of grant. Under Canadian generally accepted

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

                                        F-12
<PAGE>   70
--------------------------------------------------------------------------------

accounting principles ("GAAP") no compensation expense has been recorded in
respect of these options. A summary of the company's stock option activity is as
follows:

<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                                                       AVERAGE
                                                               OPTIONS FOR      EXERCISE PRICE
                                                             COMMON SHARES                CAN$
                                                       -------------------     ---------------
<S>                                                    <C>                     <C>
Balance - December 31, 1998                                              -                   -
Options granted                                                  1,394,533                0.22
                                                       -------------------
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
                                                       -------------------
</TABLE>

The following table summarizes information about the company's share options
outstanding as at December 31, 2000:

<TABLE>
<CAPTION>
                                                     WEIGHTED
                                 NUMBER               AVERAGE                   NUMBER
EXERCISE PRICE           OUTSTANDING AT             REMAINING           EXERCISABLE AT
          CAN$        DECEMBER 31, 2000      CONTRACTUAL LIFE        DECEMBER 31, 2000
-------------    ----------------------      ----------------   ----------------------
<S>              <C>                         <C>                <C>
         0.05                 1,312,500                  8.89                  861,329
         0.29                 1,834,000                  8.74                  950,797
         1.05                   392,000                  9.23                  162,313
 1.50 to 5.07                   125,300                  9.46                    7,000
 4.29 to 5.00                    78,750                  9.50                        -
         5.85                    17,000                  9.96                        -
6.43 to 10.00                    20,650                  9.67                        -
        10.71                    14,350                  9.69                        -
        11.43                    84,700                  9.60                        -
        12.14                     8,400                  9.76                        -
        18.12                     5,000                  9.84                        -
                  ---------------------                         ----------------------
                              3,892,650                                      1,981,439
                  ---------------------                         ----------------------
</TABLE>

All options granted after November 1, 2000, the date of the company's initial
public offering, have an exercise price equal to the market price of the
company's shares on the date of grant.

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

                                        F-13
<PAGE>   71
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

12      INCOME TAXES
Significant components of the company's future income tax asset are:

<TABLE>
<CAPTION>
                                                                 2000     1999
                                                                ------    ----
                                                                     $       $
<S>                                                             <C>       <C>
Non capital losses                                                 878       -
Investment tax credits                                              22       -
Warranty and other provisions                                      113      19
Capital assets                                                     (59)      2
Share issue costs                                                3,235       -
Unrealized foreign exchange loss                                   715       -
Valuation allowance                                             (4,904)    (21)
                                                                ------    ----
                                                                     -       -
                                                                ------    ----
</TABLE>

The company's computation of income tax expense (benefit) is as follows:

<TABLE>
<CAPTION>
                                                                  2000     1999    1998
                                                                ------    -----    -----
                                                                     $        $        $
<S>                                                             <C>       <C>      <C>
Income (loss) before income taxes                               (1,564)    (208)     110
                                                                ------    -----    -----
Statutory income tax rate                                        34.95%   21.62%   22.12%
                                                                ------    -----    -----
Income taxes at statutory rate                                    (547)     (45)      24
  Non-deductible interest                                           91       16        -
  Other permanent differences                                       18        7      (12)
  Large corporations tax                                           172        -        -
  Change in valuation allowance                                    438       21        -
                                                                ------    -----    -----
Income tax expense (benefit)                                       172       (1)      12
                                                                ------    -----    -----
</TABLE>

As at December 31, 2000, the company has available federal loss carry-forwards
of $1,320 (1999 - $17; 1998 - $nil) that may be used to reduce federal taxable
income in future years, expiring in 2007. In addition, the company has available
provincial loss carry-forwards of $1,840 (1999 - $551; 1998 - $nil) that may be
used to reduce provincial taxable income in future years, expiring between 2006
and 2007. The company has earned non-refundable investment tax credits amounting
to approximately $22 (1999 - $nil; 1998 - $nil) that can be used to reduce
future federal income taxes payable, expiring in 2009. Due to the uncertainties
related to the industry in which the company operates, the tax benefit of the
above carried forward amounts has been completely offset by the valuation
allowance.

13      RELATED PARTY TRANSACTIONS
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 totaled $615 (1999 - $178; 1998 - $67). There were sales
to the related company in relation to project work it was involved with totaling
$nil (1999 - $3; 1998 - $36). At December 31, 2000, the company has an accounts
payable balance due to this related company of $46 (1999 - $69).

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

                                        F-14
<PAGE>   72
--------------------------------------------------------------------------------

14      FINANCIAL INSTRUMENTS
At December 31, 2000 and 1999, the fair values of cash and cash equivalents,
accounts receivable, grants receivable, accounts payable and accrued liabilities
approximate their respective carrying values because of the short-term nature of
these instruments. Preferred shares and loan payable are at market terms and
accordingly, fair value approximates carrying value.

U.S. dollar-denominated amounts included with cash and cash equivalents at
December 31, 2000 are $75,547 (Cdn$116,313) (1999 - $616 (Cdn$804)). All amounts
are with major financial institutions within Canada.

A substantial portion of the company's accounts receivable are with a limited
number of customers (note 18).

15      LINE OF CREDIT
The company has an operating line of credit available up to $173 (Cdn$250). As
at December 31, 2000, the company had not drawn on this line (1999 - $nil). The
operating facility bears interest at Royal Bank of Canada prime rate plus 1.75%
, is due on demand and includes a general security agreement over all assets.

16      NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is calculated using the weighted average number of
common shares outstanding for the year, adjusted for stock splits, of 22,341,370
shares in 2000 (1999 - 19,687,500; 1998 - 19,687,500). No effect has been given
to the potential exercise of stock options in the calculation of fully diluted
earnings (loss) per share as the effect would be antidilutive.

17      STATEMENT OF CASH FLOWS
Net change in working capital is as follows:

<TABLE>
<CAPTION>
                                                                  2000    1999    1998
                                                                ------    ----    ----
                                                                     $       $       $
<S>                                                             <C>       <C>     <C>
Decrease (increase) in current assets
  Accounts receivable and unbilled revenues                     (1,626)   (639)   (314)
  Grants receivable                                                 63    (109)      3
  Inventories                                                   (1,100)    (89)    (28)
  Prepaid expenses                                                (114)     (8)      1
Increase (decrease) in current liabilities
  Accounts payable and accrued liabilities                       1,545     850      80
  Income taxes payable                                             160       9      (4)
  Dividends payable                                                (50)     52       -
                                                                ------    ----    ----
                                                                (1,122)     66    (262)
                                                                ------    ----    ----
</TABLE>

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

                                        F-15
<PAGE>   73
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

18      SEGMENTED FINANCIAL INFORMATION
The company currently operates in a single operating segment, being the design,
development and manufacturing of proton-exchange membrane, or PEM, fuel cell
automated test stations. Substantially all the company's operations including
capital assets are located in Canada. The distribution of revenue determined by
location of customers is as follows:

<TABLE>
<CAPTION>
                                                                 2000     1999    1998
                                                                -----    -----    ----
                                                                    $        $       $
<S>                                                             <C>      <C>      <C>
Canada                                                             35       77     160
United States                                                   5,098    1,753     505
United Kingdom                                                  3,442      795       -
Rest of World                                                     308       49       -
                                                                -----    -----    ----
                                                                8,883    2,674     665
                                                                -----    -----    ----
</TABLE>

The company's largest customers comprise the following percentages of total
sales:

<TABLE>
<CAPTION>
                                                                2000    1999    1998
                                                                ----    ----    ----
                                                                   %       %       %
<S>                                                             <C>     <C>     <C>
First                                                             39      36      45
Second                                                            29      30      23
Third                                                             10      14      15
Fourth                                                             7       9      11
Others                                                            15      11       6
                                                                ----    ----    ----
                                                                 100     100     100
                                                                ----    ----    ----
</TABLE>

19      DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES AND
        PRACTICES

The financial statements have been prepared in accordance with Canadian
generally accepted accounting practices (Canadian GAAP), which differ in certain
respects from those principles and practices that the company would have
followed had its financial statements been prepared in accordance with
accounting principles and practices generally accepted in the United States
(U.S. GAAP).

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

                                        F-16
<PAGE>   74
--------------------------------------------------------------------------------

The reconciliation of net income (loss) based on Canadian GAAP to conform to
U.S. GAAP is as follows:

<TABLE>
<CAPTION>
                                                                      2000          1999
                                                                ----------    ----------
                                                                         $             $
<S>                                                             <C>           <C>
Net income (loss) for the year based on Canadian GAAP               (1,736)         (208)
Accrued dividends and amortization of discount on preferred
  shares                                                               262            73
Change in reporting currency                                             -             4
Stock-based compensation                                            (3,369)          (34)
                                                                ----------    ----------
Net income (loss) for the year based on U.S. GAAP                   (4,843)         (165)
Other comprehensive income (loss)
  Foreign currency translation                                       1,360             1
                                                                ----------    ----------
Comprehensive income (loss) based on U.S. GAAP                      (3,483)         (164)
                                                                ----------    ----------
Basic and diluted earnings (loss) per share based on U.S.
  GAAP                                                               (0.22)        (0.01)
Weighted average number of shares used in calculating
  earnings (loss) per share                                     22,341,370    19,687,500
</TABLE>

The effect of these adjustments on the shareholders' equity of the company is as
follows:

<TABLE>
<CAPTION>
                                                                  2000    1999
                                                                ------    ----
<S>                                                             <C>       <C>
Shareholders' equity based on Canadian GAAP                     80,260      38
Equity component of preferred shares                                 -    (124)
Cumulative amortization of discount on preferred shares              -      21
                                                                ------    ----
Shareholders' equity (deficiency) based on U.S. GAAP            80,260     (65)
                                                                ------    ----
</TABLE>

----------

(i)   Preferred Shares

     Under Canadian GAAP, convertible, redeemable, preferred shares are
     presented as debt and equity components on the balance sheet. The 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.

(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,

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

                                        F-17
<PAGE>   75
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

     2000, equity balances for deferred stock-based compensation and stock
     options outstanding are $5,762 and $2,589, 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 fair market value of
     the stock options granted in 2000 would be $3,822 (1999 - $108) and the pro
     forma net (loss) income would be $(5,444) ($(0.15) loss per share ) (1999 -
     $(185), $(0.09) loss per share). Stock options are valued using the
     Black-Scholes option pricing model with the following weighted average
     assumptions: risk free interest rate of 6.25%, expected life of four years
     and expected volatility of 100%.

(iii)  New accounting standards

     For U.S. GAAP reporting purposes, the company will be required to adopt FAS
     133 "Accounting for Derivative Instruments and Hedging Activities" for the
     2001 fiscal year. The company does not use derivative financial instruments
     for trading purposes and, at present, does not enter into hedging
     transactions and therefore the impact of adopting FAS 133 on financial
     reporting will not be material.

     For Canadian GAAP reporting purposes, the company will adopt the new
     Canadian standard for reporting earnings per share effective January 1,
     2001. The new requirements are in line with U.S. standards. The treasury
     stock method is to be used, instead of the current imputed earnings
     approach, for determining the dilutive effect of options.

(iv)  Change in reporting currency

     As discussed in note 2, effective as of December 31, 1999, the company
     adopted the U.S. dollar as its reporting currency. Under U.S. GAAP, the
     financial statements, including prior years', are translated according to
     the current rate method whereby revenues and expenses are translated at
     exchange rates prevailing at the respective transaction dates. Under
     Canadian GAAP, at the time of change in reporting currency, the historical
     financial statements are presented using a translation of convenience
     whereby all amounts for the current year and comparative figures were
     translated at the exchange rate prevailing at December 31, 1999.

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

                                        F-18
<PAGE>   76
--------------------------------------------------------------------------------

     The condensed balance sheets as at December 31, 2000 and 1999, and
     statements of operations and cash flows for the years ended December 31,
     2000 and 1999, after giving effect to the change in reporting currency
     under U.S. GAAP, are as follows:

<TABLE>
<CAPTION>
                                                                       2000     1999
                                                                     ------    -----
                                                                          $        $
     <S>                                                             <C>       <C>
     Current assets                                                  81,428    1,714
     Total assets                                                    82,992    1,964
     Current liabilities                                              2,632      962
     Total liabilities                                                2,732      962
     Mandatorily redeemable preferred shares                              -    1,067
     Shareholders' equity (deficiency)                               80,260      (65)
</TABLE>

<TABLE>
<CAPTION>
                                                                       2000     1999
                                                                     ------    -----
                                                                          $        $
     <S>                                                             <C>       <C>
     Revenues                                                         8,883    2,598
     Cost of revenues                                                 6,485    2,045
     Operating expenses                                               6,312      727
     Loss from operations                                            (3,914)    (174)
     Loss for the period                                             (4,843)    (165)
</TABLE>

<TABLE>
<CAPTION>
                                                                       2000     1999
                                                                     ------    -----
                                                                          $        $
     <S>                                                             <C>       <C>
     Cash used in operating activities                                 (984)     (83)
     Cash used in investing activities                               (1,559)    (272)
     Cash used in financing activities                               79,672        -
</TABLE>

(v)   Comprehensive income

     U.S. GAAP requires disclosure of comprehensive income which comprises
     income (loss) and other comprehensive income. The only item of other
     comprehensive income for the company is the charge to the currency
     translation account. Under Canadian GAAP, there is no standard for
     reporting comprehensive income.

(vi)  Earnings (loss) per share

     The numerator for purposes of calculating earnings (loss) per share has
     been calculated as follows:

<TABLE>
<CAPTION>
                                                                       2000    1999
                                                                     ------    ----
                                                                          $       $
     <S>                                                             <C>       <C>
     Net income (loss)                                               (4,843)   (165)
     Less: Dividends on preferred shares                                179      50
                                                                     ------    ----
     Income (loss) available to common shares                        (5,022)   (215)
                                                                     ------    ----
</TABLE>

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

                                        F-19
<PAGE>   77
                                   SIGNATURES

         The Company 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
                                           -------------------------------------
                                           Pierre Rivard
                                           Chief Executive Officer and President


Date: May 18, 2001
<PAGE>   78
                                  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 Robert Edwards
                           and the Company, dated July 16, 1999.(7)
         4.5               Employment letter agreement between Dr. Ravi Gopal
                           and the Company, dated March 16, 1998.(8)
         4.6               Offer to Lease dated June 1, 2000 by and between the
                           Company and Orlando Corporation.(9)
         4.7               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated October 17, 1996, between Canada and the
                           Company.(10)
         4.8               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated July 3, 1997, between Canada and the
                           Company.(11)
         4.9               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated June 9, 1998, between Canada and the
                           Company.(12)
         4.10              Efficiency and Alternative Energy Program Amendment
                           to the Contribution Agreement between Canada and the
                           Company, dated March 13, 2000.(13)
         4.11              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated June 9, 1999, between Canada and the
                           Company.(14)
         4.12              Natural Resources Canada Efficiency and Alternative
                           Energy Program Amendment No. 1 to the Contribution
                           Agreement between Canada and the Company, dated
                           February 1, 2000.(15)
         4.13              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated May 25, 2000, between Canada and the
                           Company.(16)
         4.14              Industrial Research Assistance Program Contribution
                           Agreement, dated November 24, 1998, between National
                           Research Council Canada and the Company.(17)
         4.15              Industrial Research Assistance Program Contribution
                           Agreement, dated December 1, 1999, between National
                           Research Council Canada and the Company.(18)
         4.16              Research Agreement for a Cooperative Project, dated
                           November 19, 1996, between Universite du Quebec a
                           Trois-Rivieres and the Company.(19)
         4.17              Lease, dated June 23, 2000, by and between Orlando
                           Corporation and the Company.(20)
         4.18              Employment Agreement between Pierre Rivard and the
                           Company, dated April 20, 2001.
         4.19              Employment Agreement between Boyd Taylor and the
                           Company, dated April 20, 2001.
         4.20              Employment Agreement between Ravi Gopal and the
                           Company, dated April 20, 2001.
         4.21              Employment Agreement between Joseph Cargnelli and the
                           Company, dated April 20, 2001.
         4.22              Agreement of Lease, dated as of December 15, 2000,
                           between Crown/Chadwick Realty Corp. and the Company
         4.23              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement
                           between Canada and the Company, dated January 10,
                           2001.
         4.24              Natural Resources Canada Efficiency and Alternative
                           Energy Program Amendment No. 1 to the Contribution
                           Agreement, dated April 11, 2001.
</TABLE>
<PAGE>   79
----------

(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 3.1 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.

(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 10.6 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 10.7 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.

(9)      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.

(10)     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.

(11)     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.

(12)     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.

(13)     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.

(14)     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.

(15)     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.

(16)     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.

(17)     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.

(18)     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.

(19)     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.

(20)     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.
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1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 20-F

(Mark One)

[ ]      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, 2000

                                       or

[ ]       Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the transition period from ________ to ________

                      Commission file number _____________

               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: Common Shares, no par value

  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:

                     35,560,000 Common Shares, no par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by
2

Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such 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]
3

                           FORWARD-LOOKING STATEMENTS

         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 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.

                                 EXCHANGE RATES

         As of May 11, 2001, the noon buying rate in New York City for cable
transfers in Canadian dollars was Cdn.$1.00 equals U.S. $0.6450. 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 for cable transfers payable in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York.
YEAR ENDED DECEMBER 31,
                                     1996            1997           1998            1999           2000
                                     ----            ----           ----            ----           ----
End of period...............       $0.7301         $0.6999         $0.6504        $0.6925         $0.6669
Average for period..........       $0.7329         $0.7198         $0.6714        $0.6744         $0.6732
High for period.............       $0.7513         $0.7467         $0.7105        $0.6925         $0.6969
Low for period..............       $0.7235         $0.6945         $0.6341        $0.6535         $0.6410
Unless stated otherwise, all references to "$" 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 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 19 of our financial statements for the years
ended December 31, 1999 and 2000 included elsewhere in this annual report.

         Our functional currency is 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, 2000, as set forth in note 2 of our
financial statements for the years ended December 31, 1999 and 2000. For periods
subsequent to December 31, 2000, 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 years ended December 31, 1999 and 2000.
4

                                TABLE OF CONTENTS
PART I                                                                                                                       PAGE

          ITEM 1.  Identity of Directors, Senior Management and Advisors................................................       1

          ITEM 2.  Offer Statistics and Expected Timetable..............................................................       1

          ITEM 3.  Key Information......................................................................................       1

          ITEM 4.  Information on the Company...........................................................................      14

          ITEM 5.  Operating and Financial Review and Prospects.........................................................      25

          ITEM 6.  Directors, Senior Management and Employees...........................................................      30

          ITEM 7.  Major Shareholders and Related Party Transactions....................................................      38

          ITEM 8.  Financial Information................................................................................      39

          ITEM 9.  The Offer and Listing................................................................................      40

          ITEM 10. Additional Information...............................................................................      41

          ITEM 11. Quantitative and Qualitative Disclosure About Market Risk............................................      49

          ITEM 12. Description of Securities Other than Equity Securities...............................................      49

PART II

          ITEM 13. Defaults, Dividend Arrearages and Delinquencies......................................................      49

          ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.........................      49

PART III

          ITEM 17. Financial Statements ................................................................................      51

          ITEM 18. Financial Statements.................................................................................      51

          ITEM 19. Exhibits ............................................................................................      51
i
5

                                     PART I

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

         A.       DIRECTORS AND SENIOR MANAGEMENT.

                  Not applicable.

         B.       ADVISERS.

                  Not applicable.

         C.       AUDITORS.

                  PricewaterhouseCoopers LLP
                  145 King Street West
                  Toronto, Ontario
                  Canada M5H 1V8

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

         Not Applicable.

ITEM 3.  KEY INFORMATION.

         A. SELECTED FINANCIAL DATA.

         Our financial statements are prepared in accordance with Canadian
generally accepted accounting principles. These principles conform in all
material respects with U.S. generally accepted accounting principles except as
disclosed in note 19 to our financial statements for the years ended December
31, 1999 and 2000. The following selected financial data should be read with
"Operating and Financial Review and Prospects" and our financial statements and
notes appearing elsewhere in this annual report. The statements of operations
data for the years ended December 31, 1998, 1999 and 2000, and the balance sheet
data as of December 31, 1999 and 2000 are derived from our financial statements
that have been audited by PricewaterhouseCoopers LLP, our independent auditors,
which are included elsewhere in this annual report. The statement of operations
data for the years ended December 31, 1995 and 1996 and the balance sheet data
as of December 31, 1995, 1996 and 1997 are derived from our financial statements
that have been audited by PricewaterhouseCoopers LLP that are not included in
this annual report.
PERIOD FROM
                                   OCTOBER 31,
                                       TO
                                   DECEMBER 31,                                 YEAR ENDED DECEMBER 31,
                                      1995              1996              1997              1998          1999              2000
                                                          (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
    DATA:
Canadian GAAP:
Revenues                                   $2              $116              $97              $665         $2,674            $8,883
Cost of Revenues                           --                52               72               415          2,105             6,485
                                 ------------      ------------     ------------      ------------   ------------      ------------
Gross Profit                                2                64               25               250            569             2,398
                                 ------------      ------------     ------------      ------------   ------------      ------------

Operating expenses:
Selling, general and
     administrative                         2                17               28                89            534             2,069
Research and
     development                           --                41               (8)               45            162               775
1
6
Depreciation of
     capital assets                        --                 1                2                 3             18                99
                                 ------------      ------------     ------------      ------------   ------------      ------------

Total operating expenses                    2                59               22               137            714             2,934
                                 ------------      ------------     ------------      ------------   ------------      ------------

Income (loss) from
     operations                            --                 5                3               113           (145)             (545)
Other expenses                             --                --                1                 2             64             1,019
                                 ------------      ------------     ------------      ------------   ------------      ------------

Income (loss) before
     income taxes                          --                 5                2               111           (209)           (1,564)
Income tax expense                         --                 2                3                12             (1)              172
                                 ------------      ------------     ------------      ------------   ------------      ------------

Net income (loss)                          (0)                3               (1)               99           (208)           (1,736)
                                 ------------      ------------     ------------      ------------   ------------      ------------

Basic and fully diluted
earnings (loss) per share              $(0.00)            $0.00           $(0.01)            $0.01         $(0.01)           $(0.08)
                                 ============      ============     ============      ============   ============      ============

Shares used in computing basic
and fully diluted earnings
(loss) per share                   19,687,500        19,687,500       19,687,500        19,687,500     19,687,500        22,341,370
                                 ============      ============     ============      ============   ============      ============

Pro forma earnings (loss)
     per share..............                                                                           $    (0.01)
                                                                                                     ============

U.S. GAAP:
Revenues....................                                                          $        647          2,598             8,883
                                                                                      ============   ============      ============

Net income (loss)...........                                                          $         96    $      (165)     $     (4,843)
                                                                                      ============   ============      ============

Basic and fully diluted
earnings (loss) per share.......                                                        $     0.00    $     (0.01)     $      (0.22)
                                                                                      ============   ============      ============

Pro forma earnings (loss)
per share...................                                                                             $  (0.01)
                                                                                                     ============
AS OF DECEMBER 31,
                                                     --------------------------------------------------------------------
                                                       1995        1996         1997        1998        1999        2000
                                                     -------     -------      -------     -------     -------     -------
                                                                                (IN THOUSANDS)
BALANCE SHEET DATA:
Canadian GAAP
Cash and cash equivalents                                $19         $16          $--        $819        $453     $77,436
Working capital                                           19          22           15       1,123         700      78,796
Total assets                                              23          58           80       1,249       1,964      82,992
Total shareholders' equity                                20          24           23         247          38      80,260
U.S. GAAP:
Total assets                                                                                1,176       1,964      82,992
Total shareholders' equity
     (deficiency)                                                                             115         (66)     80,260
Although the Canadian dollar is our functional currency, we have
adopted the U.S. dollar as our reporting currency. See note 2 of our financial
statements for the years ended December 31, 1999 and 2000.

                  B. CAPITALIZATION AND INDEBTEDNESS.

                     Not applicable.

                                       2
7

                  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 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. In light of
the foregoing, 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 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 expand significantly our
development and manufacture of PEM fuel cell products and to market these
products in the transportation, stationary and portable markets. In so doing, we
will incur significant expenditures for research and development, expansion of
our manufacturing capabilities, general administrative and sales and marketing
expenses. As a result of these increased costs, we will need to generate
significantly higher revenues to achieve and sustain profitability. We incurred
a net loss for the year 2000, we may continue to incur losses beyond 2000 and we
may never sustain 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 must develop or acquire access to substantial technological
advances to be incorporated into our products, particularly in the area of
hydrogen fuel processing, before we will be able to produce commercially viable
products other than fuel cell testing stations. We will be unable to meet our
business and growth objectives if we do not produce these other products.

WE MUST LOWER THE COST OF OUR FUEL CELL PRODUCTS AND DEMONSTRATE THEIR
RELIABILITY OR WE WILL NOT GENERATE SUFFICIENT REVENUES TO ACHIEVE OR MAINTAIN
PROFITABILITY.

                                       3
8

         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 to achieve or maintain 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 will continue to do so for the foreseeable future.
For the year ended December 31, 1999, our three largest customers accounted for
approximately 80% of our revenues. For the year ended December 31, 2000, these
customers accounted for approximately 78% 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. In addition, if a significant customer
breaches its contractual obligation to pay amounts it owes us under
non-cancelable binding purchase orders because of its inability or refusal to
pay, or does not pay those amounts on time, our revenues and earnings could be
materially adversely affected.

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. 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 the
net proceeds from our initial public offering and cash on hand will be
sufficient to meet our working capital and capital expenditure needs for the
next 24 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. 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 shareholders will be
reduced.

OUR ABILITY TO COMPETE EFFECTIVELY IN THE TRANSPORTATION AND STATIONARY POWER
MARKETS MAY SUFFER BECAUSE WE CURRENTLY DO NOT HAVE A SIGNIFICANT STRATEGIC
PARTNER.

         One of our leading competitors in the market for transportation-related
fuel cells has a well-established relationship with two leading automobile
manufacturers, which is a significant competitive advantage because it provides
this competitor with preferred access to broad market opportunities. Similarly,
competitors in the stationary power market have strategic relationships with
leading suppliers of power generation technology and electric utilities. We do
not currently have any similar strategic relationships and, if similar
relationships do not develop, we may not have access to similar broad market
opportunities. Furthermore, due to the developing nature of our industry,
forming alliances and gaining membership in industry consortiums may become
important to our success. If we are unable to form such alliances or gain
membership to any industry consortiums of which our competitors are members, our
access to broad market opportunities may be similarly impeded.

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.

                                       4
9
         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 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 primarily on research and development and 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

                                       5
10
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 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 incurred in settling environmental liabilities, and in
some instances, we may not be reimbursed at all.

OUR PRODUCT REVENUES WILL NOT GROW WITHOUT SUCCESSFUL MARKETING AND SALES
EFFORTS OF THIRD PARTIES THAT WE DO NOT CONTROL.

         To be commercially useful, some of our fuel cell products must be
integrated into products manufactured by other manufacturers. Our success in
growing our revenues and achieving profitability is therefore dependent in part
upon the successful marketing and sales efforts of third parties and upon their
designing and engineering their products to be compatible with our own. Our
success also depends upon our ability to make our products compatible with the
products of these manufacturers. We cannot be assured that these manufacturers
will manufacture appropriate products or, if they do, that they will choose to
use our fuel cell products. Any

                                       6
11
integration, design, manufacturing or marketing problems encountered by these
manufacturers could adversely affect our future revenues.

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 business
customer and the first receipt 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. In many
cases, we recognize revenues on a percentage-of-completion basis. Under this
accounting method, revenues are recognized on a pro rata basis in relation to
contract costs incurred. As costs may vary significantly from quarter to quarter
depending on the stage of development of the project, 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. Our management does not have
previous experience running a public company, and in one or more future quarters
our operating results could fall below the expectations of securities analysts
and investors. If this happens, the trading price of our common shares could be
materially adversely affected.

EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR GROSS MARGINS.

         Exchange rate fluctuations may cause fluctuations in our quarterly
results. We transact business internationally in multiple currencies. In
particular, a portion of our cost of revenues consists of materials purchased in
U.S. dollars and a significant portion of our cash and cash equivalents is held
in U.S. dollars, which is only partially offset by revenues generated in U.S.
dollars. We do not currently engage in any hedging transactions related to our
exchange rate risk. Accordingly, gains and losses on the conversion of foreign
payments may contribute to fluctuations in our results of operations and
fluctuating exchange rates could cause reduced revenue and gross margins from
our international sales.

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.

         To date, we have not completed any acquisitions, and we may not be able
to do so in an effective manner. In addition, our shareholders' interests in our
company will be diluted if we issue equity securities in connection with an
acquisition.

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

                                       7
12
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 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.

         We also seek to protect our proprietary intellectual property through
contracts, including, when possible, confidentiality agreements and inventors'
rights agreements with our customers and employees. We cannot be assured that
the parties that enter into such agreements with us will not breach them, that
we will have adequate remedies for any breach or that such persons or
institutions will not assert rights to intellectual property arising out of
these relationships. If necessary or desirable, we may seek licenses under the
patents or other intellectual property rights of others. However, we can give no
assurances that we will obtain such licenses or that the terms of any offered
licenses will be acceptable to us. The failure to obtain a license from a third
party for intellectual property we use in the future could cause us to incur
substantial liabilities and to suspend the manufacture, shipment of products or
our use of processes which exploit such intellectual property.

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. If we are found to infringe the
intellectual property rights of others in such litigation, we may, among other
things, be required to:

                                       8
13

         -        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.

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.

OUR EARNINGS AS DETERMINED IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, OR GAAP, WILL BE REDUCED, OR OUR LOSSES WILL BE INCREASED, BY
CHARGES ASSOCIATED WITH OUR ISSUANCES OF OPTIONS. THESE CHARGES MAY INCREASE IN
THE FUTURE AND COULD DEPRESS THE MARKET PRICE FOR OUR COMMON SHARES.

         As of December 31, 2000, we had outstanding options to purchase
3,892,650 of our common shares which were granted to our employees and
non-employee directors, including options to purchase 2,547,117 shares which
were granted during 2000. Some of these options were granted with exercise
prices lower than the deemed fair value, for U.S. financial reporting purposes,
of our common shares at the dates of grant. Our financial statements are
prepared in accordance with Canadian GAAP and as such include no expense for
stock-based compensation. If our financial statements were prepared in
accordance with U.S. GAAP, in connection with the granting of these options, we
would be required to record stock-based compensation over the vesting period of
the applicable options, generally four years in the case of options granted to
employees and non-employee directors. These types of charges may increase in the
future and could depress the market price for our common shares.

                 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;

                                       9
14

         -        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.

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 derive hydrogen from fuels such as natural gas, propane,
methanol and other petroleum products. Even if these fuels are available to us,
if their prices are 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.

         Fuel cell products use dangerous substances. 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 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.

                                       10
15

         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 large 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. For example, California delayed implementation of its zero emission
vehicle mandate from 1998 to 2003 after a study determined that existing battery
technology provided inadequate performance to meet consumer needs. 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.

ZERO EMISSION VEHICLE REQUIREMENTS CAN BE MET WITHOUT USING FUEL CELLS.

         It is possible to meet the zero emission vehicle requirements imposed
by California, New York, Massachusetts and Maine by using technologies other
than fuel cells. For example, vehicles powered by batteries can receive full
credit and vehicles powered by low emission internal combustion engines and
hybrid internal combustion/battery engines can receive partial credit toward the
zero emission vehicle requirement. We can offer no assurance that automobile
manufacturers will use fuel cells in their vehicles to meet regulatory
requirements. Their failure to do so could have a material adverse effect on our
business and financial results and would significantly impair our ability to
expand our business.

                    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
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, and if our shareholders sell any of our common shares or
receive some types of distributions from us, then they may have to pay taxes
that are higher than if we were not considered a passive foreign investment
company. It is impossible to predict how much the taxes for our shareholders
would increase, if at all, because these taxes depend upon the number of common
shares sold by them and the price at which they are sold, or the amount of a
distribution from us, as well as upon the marginal rate at which they would be
taxed for the sale or distribution.

                                       11
16

         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, including entities affiliated with members
of our management team, own more than 78% 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 the 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 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. All 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:

                                       12
17

         -        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;

         -        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. As of December 31, 2000, we had 35,560,000 common shares outstanding. In
accordance with applicable U.S. securities laws and after giving effect to
lock-up agreements executed by our directors and executive officers and existing
principal shareholders, the common shares held by our affiliates who are U.S.
residents have been available for sale in the public market beginning April 25,
2001.

         Under applicable Canadian securities laws, no common shares, or common
shares issuable upon the exercise of options to purchase common shares, held by
residents of Canada, other than those acquired in our initial public offering,
may be sold or otherwise disposed of for value except pursuant to a prospectus,
a discretionary exemption or a statutory exemption available only in specific
limited circumstances, until we have been a reporting issuer in good standing
for at least 12 months. We became a reporting issuer on October 25, 2000.

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

         In recent years, and especially in the last six months, 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.

                                       13
18

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. By
articles of amendment dated September 29, 2000, we effected a seven-for-one
share split of our common shares and deleted the restrictions in our articles
concerning transfer and subscription for shares by the public.

         On November 1, 2000, we completed the initial public offering of our
common shares, pursuant to which we raised approximately $76.5 million in net
proceeds.

         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, 2000 were $1.5
million, compared to $0.3 million and $11,000 for the years ended December 31,
1999 and 1998 respectively. This increase is attributable to equipment and
facility expenditures related to outfitting our facilities and our expanded
research and development efforts.

         Capital expenditure plans for 2001 and subsequent years will result in
further investment in capital assets as we continue our manufacturing and
development initiatives. Our current budget for 2001 includes a capital budget
of $7.0 million to purchase equipment, primarily for our research and
development programs. 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. With cash and cash
equivalents of over $77 million, we believe that we have the resources necessary
to meet projected capital expenditures for the next 24 months, without the need
to raise additional funds.

         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.

         B.       BUSINESS OVERVIEW.

OUR COMMERCIAL BUSINESS

         We design, develop and manufacture proton-exchange membrane, or PEM,
fuel cell automated test stations. 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, which derives hydrogen from fuels such as propane or
natural gas; 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. The other components and subsystems of a fuel cell system 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,

                                       14
19
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.

OUR PRODUCTS

         In 2000, and since our inception, our revenues have been 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.

         The distribution of revenues determined by the location of our
customers is as follows:
2000             1999               1998
                             $                $                  $
Canada                    35,000            77,000           160,000
United States          5,098,000         1,753,000           505,000
United Kingdom         3,442,000           795,000                --
Rest of World            308,000            49,000                --
                       ---------         ---------           -------
                       8,883,000         2,674,000           665,000
                       ---------         ---------           -------
Our business is not subject to any seasonal fluctuations.

         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 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 generating commercial sales from test stations, we are
adapting the balance of plant components and subsystems used in our test
stations as commercial products for fuel cell systems. We are also developing
PEM fuel cell systems designed for use in situations that require high quality,
reliable power regardless of the environment, such as in remote and extreme
weather locations, military applications or for backup power in
telecommunications applications. For example, we are developing what we believe
is the first fuel cell system designed to operate at - 40(degree)C. We have
developed a fuel cell system that will be used to power a military device that
detects chemical and biological agents in the field. We demonstrated this
product in the second half of 2000. Over the longer term, we will be targeting
our fuel cell systems toward the transportation, stationary and portable
commercial markets. 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.

                                       15
20

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 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;

         -        Deregulation in the energy industry;

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

         -        Environmental concerns regarding conventional power
                  technologies; and

         -        Rising 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

         Our products 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 85kW FCATS would be able to test
a fuel cell stack that can generate up to 85kW 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.

         The testing requirements of our customers are dictated by the power
requirements of the applications for which they are developing fuel 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

                                       16
21
with higher currents of up to 2000 amps. Single fuel cells are not usually used
as power generators for products or buildings, such as automobiles or houses,
but 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, will 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
will typically produce a fuel cell stack that can generate a greater amount of
electric power. The amount of power produced by a fuel cell stack will determine
the commercial markets for its use. For example, a 4kW fuel cell stack could
produce enough electricity to power a small house, whereas an 85kW fuel cell
stack could produce enough electricity to power an automobile.

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

FUEL CELL AUTOMATED TEST STATIONS
PRODUCT                       APPLICATION                   TARGET MARKET             STATUS
         -------                       -----------                   -------------             ------
FCATS                   Automated control and monitoring of      Transportation,        - 4kW, 12kW, 24kW and
                           fuel cell stacks ranging from 2kW          Stationary             85 kW systems in
                           to 85kW                                                           commercial production

   FCATS-LAA               Automated control & monitoring of a      Transportation,        - Commercial
                           large active area single cell (up          Stationary             production
                           to 1000cm2) with current up to 2000
                           amps

   FCATS Screener          Automated control and monitoring of      Transportation,        - Commercial
                           single cell with total current        Stationary, Portable        production
                           output of 300 amps

   FCAVS Residential       Automated performance verification         Stationary           - Commercial
                           and incubation for quality                                        production
                           assurance of manufactured fuel cell
                           stacks for residential fuel cell
                           systems of 12kW and under

   FCAVS                   Automated performance verification       Transportation,        - Commercial
                           and incubation for quality                 Stationary             production
                           assurance of manufactured fuel cell
                           stack for 2kW to 85kW
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 advanced safety features which permit unattended automated operation,
and proprietary software. 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;

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22

         -        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 85kW, which we believe covers the
power range for most PEM fuel cell stacks currently in development. We believe
that few of our competitors have developed test equipment capable of measuring
PEM fuel cell stacks above 5kW. 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 2001, we plan 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.

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
PRODUCT                          APPLICATION                     TARGET MARKET               STATUS
      -------                          -----------                     -------------               ------
Balance of Plant     Control and operation of PEM fuel cell systems   Transportation,          - In development
Components and                                                          Stationary,
Subsystems                                                                Portable

IMPACT               Subsystem designed to measure AC impedance in    Transportation,         - Commercial
                     real-time and under dynamic conditions             Stationary,             development
                                                                          Portable
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Cathode subsystem    Humidification of fuel cell system or power      Transportation,          - Commercial
                     module                                             Stationary,              development
                                                                          Portable
FUEL CELL SYSTEMS FOR PREMIUM POWER APPLICATIONS
PRODUCT                          APPLICATION                     TARGET MARKET               STATUS
      -------                          -----------                     -------------               ------
HyTEF                Automated/remote power source for demands up       Stationary,        -  First demonstration
                     to 500W with capability to operate at -            Portable              units delivered in
                     40(degree)C                                                              Portable second
                                                                                              half of 2000

                                                                                           -  Currently designing
                                                                                              for kW power output
                                                                                              for larger range of
                                                                                              applications

HyPORT               1-10kW portable power generator for premium          Portable         -  Demonstrated unit
                     multi-kW demands such as military                                        in second half of 2000
                     instrumentation and remote power applications

                                                                                           -  Currently designing
                                                                                              for higher kW power
                                                                                              output for larger range
                                                                                              of  applications
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       FUEL CELL SYSTEMS FOR BROAD COMMERCIAL MARKETS
PRODUCT                          APPLICATION                               TARGET MARKET              STATUS
      -------                          -----------                               -------------              ------
Fuel Cell Systems       -  Fuel cell systems for utility                          Transportation,      -  In development
                           vehicles such as underground mining                     Stationary,
                           vehicles and forklift trucks                              Portable

                        -  Fuel cell systems for commercial markets, including
                           primary power generators for buildings, factories,
                           hospitals and backup power generators for computers,
                           Internet service providers, communications networks
                           and commercial facilities

                        -  Fuel cell systems for portable power generation,
                           scientific and environmental monitoring, remote and
                           extreme weather power generation, control
                           instrumentation at remote sites, auxiliary power and
                           other specialty applications

                        -  Portable electronic devices

                        -  Regenerative fuel cell systems for
                           the applications described above
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 2000 we successfully incorporated our IMPACT subsystem into a
number of our FCATS products. The IMPACT subsystem is designed to measure AC
impedance non-intrusively, in real-time and under dynamic conditions. We believe
that this feature represents an improvement over previous techniques and
equipment. In addition, during 2000 we continued to evolve 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.

Fuel Cell Systems For Premium Power Applications

         Remote Location Applications. Our HyTEF system, which we began
developing in 1996, is a PEM fuel cell generator and incorporates a fuel cell
system designed to generate 50W and to operate between -40(degree)C to
+40(degree)C, from 0% to 100% relative humidity, and from 0 meters to 10,000
meters elevation. To achieve these operating results, the system combines a fuel
cell, a burner which can be used for the delivery of hydrogen and the
co-generation of heat, a controller and other components to maintain performance
under all operating conditions.

         We have also developed a line of power generators for remote location
applications which emphasize efficiency over reliability in all operating
conditions. We have commenced the manufacture of pre-commercial

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units under the HyTEF name. We are extending our power output in this product
line for a broader range of applications.

         We believe that our technology for remote locations can be applied to
power sources for various commercial applications such as road and highway
controls, refrigeration, remote cellular towers, remote lighting applications,
remote data collection, remote cameras and solar panel replacement.

         1-10kW Portable Power Generator. We have developed, with support from
Natural Resources Canada and the Canadian Department of National Defence, a 2kW
portable fuel cell system that powers a device for detecting chemical and
biological agents. This product is marketed under the name of HyPORT. We
demonstrated our first prototype unit in the second half of 2000. We believe
that this system 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.

Fuel Cell Systems for Broad Commercial Markets

         Fuel Cell Systems. 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. We believe that we will be able
to develop our current systems to reach a 50kW power rating for these products.

         We have identified the mining industry as an early, commercially-viable
adopter of fuel cell technology. We are a member of the Fuel Cell Propulsion
Institute and are contributing our expertise to the integration of a 14kW fuel
cell system into an underground mining locomotive. This Institute is planning a
loader demonstration project in a larger kilowatt range and it is our intention
to expand our involvement in this project as it proceeds.

         Regenerative Fuel Cell Systems. We are developing a regenerative fuel
cell system, which can both generate electricity and produce hydrogen fuel from
water and store it for later use. We believe that the system has the potential
to achieve higher kilowatt hours per kilogram than advanced battery systems.

         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. Operating as a fuel cell, the stored
hydrogen and oxygen are consumed by the regenerative system to generate
electricity. We are currently in the development phase of a 500W regenerative
fuel cell system and are in the research and development phases of a 10kW
regenerative fuel cell system.

         Our regenerative fuel cell systems will be designed to enable our
customers to invest in a single system that can be applied to both refueling and
electricity generation. We believe the single system characteristic to have
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 believe that our regenerative fuel cell technology will have
applications in each of the transportation, stationary and portable markets.

         Compact Fuel Cell System. We are developing a compact fuel cell system
designed to provide portable fuel cell power. We expect that this compact fuel
cell will enjoy substantial advantages over conventional batteries, such as
higher reliability, longer life, lower life-cycle cost, continuous operation as
long as fuel and oxidant supplies are provided, reduced maintenance, more
reliable monitoring and no environmental pollution. In the long term, this
compact fuel cell could potentially be used for powering personal electronic
devices such as laptop computers and cameras.

Other Products and Services

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26

         In addition to our products described above, we design and manufacture
stand-alone PEM fuel cell stacks that can be integrated into other fuel cell
developers' systems. We also design and manufacture catalytic burners, a key
component of our extreme weather power products that can be used for clean,
cost-effective and efficient delivery of hydrogen and the co-generation of heat.

RESEARCH AND DEVELOPMENT

         We are targeting our research and development efforts to integrate fuel
cells into specific commercial applications while enhancing the performance and
life span of fuel cell systems. Developmental research in the areas of hydrogen
generation and regenerative fuel cell systems is also a focus of our research
and development program. We also undertake projects with our customers for
developing prototype and pre-commercial products.

SALES & MARKETING

         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 October 2000, we hired a sales representative who
is based in Tokyo and who will cover Japan and other parts of Asia. The sales
force is currently organized by customer account 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. To date, our sales efforts have focused on
supplying automotive fuel cell test stations to automotive manufacturers and
automotive original equipment manufacturers, or OEMs. Delivered fuel cell test
stations range from 2kW to 85kW, and include most aspects of the balance of
plant required to control and operate large fuel cell stacks. We intend to
develop fuel cell systems for emerging power applications in this market, such
as underground mining vehicles and forklift trucks.

         Over the longer term, we hope to build sales in the automotive fuel
cell market with OEMs, who are actively expanding their own market opportunities
through the adoption of fuel cell technology. We intend to seek opportunities to
manufacture fuel cell 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 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.

         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/contractors, as well as energy service providers and
distributors of reciprocating engines and microturbines.

         Portable Market. Our primary near-term customer for portable fuel cell
systems will continue to be the Canadian Department of National Defence.
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, auxiliary power 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

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27
and with existing OEMs who wish to expand into a fuel cell line. In either case,
our current intentions are to supply fuel cell systems 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.

         In the long term, as manufacturing costs decline, we also hope to enter
the area of sub-kW electronic devices, such as cell phones and laptop computers.
Our marketing goal will be to promote the longevity of the fuel cell system and
its ease of recharging, compared to the capabilities of battery technology. Our
objectives are to form non-exclusive relationships or joint ventures with
leading industry partners.

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.

         Our strategy is to develop and secure intellectual property in areas of
underdeveloped technologies within our core business or areas not widely pursued
by our competitors, in which a cohesive block of patents can be secured as an
important competitive advantage. This strategy has led us to focus on the
development of fuel cell stacks functioning with unpressurized air, no or
limited humidification, no fuel conditioning and simple cooling techniques.

         We currently have been granted patents on our HyTEF technology in the
United States and Canada. Corresponding applications have been filed in Europe
covering seven of the European Union nations, and in Iceland, Japan, Norway,
Russia and Chile. More recently, twelve new patent applications have been filed
in Canada and the United States. Other patent applications are in preparation.
Subject to the payment of maintenance fees, our U.S. and Canadian patents
relating to our HyTEF technology will expire in 2016 and 2017, respectively.

TECHNOLOGY DEVELOPMENT FUNDING ARRANGEMENTS

         We typically retain sole ownership of the intellectual property we
develop. However, we have agreed to pay royalties to some of our funding
partners as follows:

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

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28

         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 million to be used in the development of a 50 kW 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 Cdn.$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.

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 and price. A number of companies currently manufacture
fuel cell automated test stations. These companies include Emprise Corporation,
ElectroChem, Inc. and Lynntech 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. When we begin commercial production of fuel cell
systems and subsystems, 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., General Motors Corporation, Honda Motor Co. Ltd., H Power Corp.,
International Fuel Cells Corporation, Northwest Power Systems, LLC, Plug Power
Inc., Toshiba Corporation, the Toyota Motor Corporation, Giner, 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 International Fuel Cells Corporation.

         A number of corporations, national laboratories and universities in the
United States, Canada, Europe, Japan and elsewhere also possess fuel cell
technology. Many of our competitors have financial, technological and personnel
resources far greater than ours and represent significant competition.

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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

         We are not currently subject to any material legal proceedings;
however, we may from time to time become a party to various legal proceedings
arising in the ordinary course of business.

                  C.       ORGANIZATIONAL STRUCTURE.

We have two wholly-owned subsidiaries: Hydrogenics USA, Inc., incorporated under
the laws of the State of Delaware, and Hydrogenics Japan Inc., incorporated
under the laws of the Province of Ontario.

                  D.       PROPERTY, PLANTS 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 95,000 square feet. 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 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. We intend to use this facility to perform testing and engineering services
on behalf of one of our largest customers. The lease for this facility expires
in December 2004.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

         The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes to those statements included elsewhere in this annual report which have
been prepared in accordance with generally accepted accounting principles, or
GAAP, in Canada. Differences between Canadian GAAP and GAAP in the United States
are discussed in note 19 to our financial statements for the years ended
December 31, 1999 and 2000. All financial information is reported in U.S.
dollars unless otherwise noted. This discussion contains forward-looking
statements that involve risks and uncertainties.

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OVERVIEW

         During the year 2000, we continued to concentrate our efforts on the
development of fuel cell systems, components and subsystems targeted towards the
broad transportation, stationary and portable power markets. During fiscal 2000
we expanded our expertise and knowledge of proton exchange membrane (PEM) fuel
cell systems through the design, development and manufacture of our FCATS (Fuel
Cell Automated Test System) product line. For fiscal 2000, operating revenue
increased 230% to $8.9 million from $2.7 million for the comparable period in
1999. During fiscal 2000 we also expanded our FCATS product line as four new
FCATS products were designed, built and sold, including an 85 kW system, a
reformer system, a manufacturing verification system and a system targeted at
the residential fuel cell market.

      During fiscal 2000, we increased our capacity and capability to meet the
upcoming challenges of our industry by:

      -     adding 50 employees to finish the year at 74, a pace of growth we
            expect to continue into 2001, as manufacturing and research
            requirements continue to grow;

      -     increasing our manufacturing and production space to 95,000 square
            feet from 13,500 square feet;

      -     expanding our sales and marketing efforts by establishing an
            Asia-Pacific sales office in Japan;

      -     completing an initial public offering of our common shares; and

      -     completing the year with a strong balance sheet, including $77.4
            million in cash and cash equivalents.

RESULTS OF OPERATIONS

COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999

Revenues

         Revenues increased to $8.9 million for the year ended December 31, 2000
compared to $2.7 million for the year ended December 31, 1999. The increase in
revenues was primarily due to increased demand for our FCATS products from our
existing customers. We also expanded our customer base during this period which
resulted in additional revenue.

         We continue to generate much of our revenue from a small number of our
customers. Revenues from our three largest customers accounted for 78% and 80%
of our total revenues for the years ended December 31, 2000 and 1999
respectively.

         The majority of our revenues is recognized on a percentage of
completion basis due to the length of the build cycle of our FCATS product line.
As we standardize our manufacturing processes and reduce our build cycle, we
expect that a greater percentage of our revenue will be recognized when products
are delivered.

         We anticipate continued revenue growth from our FCATS product line as
our existing and future customers expand their fuel cell development programs.
We also anticipate that revenues from system integration and, to a lesser
extent, full power systems production will increase in 2001 and beyond as we
apply the extensive knowledge we have gained in designing and manufacturing our
FCATS product line toward these larger market opportunities.

Cost of revenue

         As a result of a significant increase in revenues, cost of revenues
increased to $6.5 million for the year ended December 31, 2000 compared to $2.1
million for the year ended December 31, 1999. Cost of revenues consist of
materials, direct labor costs and benefits, indirect labor costs and benefits
relating to engineering and

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design and overhead costs. We realized a gross margin of $2.4 million, or 27% of
revenues, for the year ended December 31, 2000 compared to $0.6 million or 21%
of revenues for the year ended December 31, 1999. A number of variables beyond
our control can impact our gross margin, for example the volume and the timing
of orders, the degree of customization required by our customers, and the
product mix at any one time.

Selling, general and administration

         Selling, general and administrative (SG&A) expenses increased to $2.1
million for the year ended December 31, 2000, compared to $0.5 million for the
year ended December 31, 1999. SG&A expenses consist primarily of wages and
salaries of our sales, marketing and corporate staff, professional fees,
corporate travel, insurance and facilities costs.

         The increase in SG&A expenses in 2000 is attributable to a number of
items, including:

      -     an increase in insurance, professional fees and investor relations
            expenses of approximately $0.4 million, associated with our change
            of status from a private company to a public company;

      -     an increase in utilities and rent of approximately $0.3 million,
            resulting from the move to our new 95,000 square foot facility
            during the fourth quarter of 2000;

      -     an increase in sales and marketing expenses of approximately $0.2
            million, reflecting an expansion of our sales and marketing staff
            and the opening of our Asia Pacific office in Tokyo during the third
            quarter;

      -     an increase of approximately $0.32 million, reflecting the hiring of
            additional employees during the year to facilitate our manufacturing
            and development initiatives.

      We anticipate that SG&A will continue to increase in 2001, although at a
slower pace than in 2000. We expect that increases in SG&A expenses in 2001 will
result from continued staff expansion and the effect of a full year of occupancy
costs associated with operating in our new facility.

Research and development

         Research and development expenses, excluding grants, increased to $0.9
million for the year ended December 31, 2000, compared to $0.4 million for the
year ended December 31, 1999. Research and development costs consist of
materials, labor costs and benefits, depreciation on research and development
equipment, legal fees for the protection of intellectual property and an
allocation of overhead attributable to research and development.

         We anticipate that research and development expenses will increase
significantly in 2001 as we focus our efforts on the commercial and practical
applications of our technology. Funding for research and development will come
from our cash reserves and external sources such as government research grants.

Accrued dividend and amortization of discount on preferred shares

         Expenses related to the accrued dividend and amortization of discount
on our preferred shares increased to $0.3 million for the year ended December
31, 2000 compared to $0.1 million for the comparable period in 1999. This
increase is directly attributable to the issuance of preferred shares in January
2000. Under Canadian GAAP our preferred shares were treated, in part, as debt
and the accrued dividends and discounts associated with such debt were
amortized, reflecting an expense on our financial statements. Upon the closing
of our public offering, all issued and outstanding preferred shares were
automatically converted into common shares. As a result we will no longer incur
expenses associated with these preferred shares.

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Provincial capital tax
         As a result of the proceeds realized on the closing of our initial
public offering, our total assets have increased to a level that exceeds the
small business classification under Ontario tax legislation. As a result we are
now subject to a provincial capital tax on our total assets. Under Canadian GAAP
this is not classified as income tax expense. For the year ended December 31,
2000 this amount was $0.3 million. In prior years we were not subject to this
tax.

Interest and bank charges

         Interest income, net of bank charges and interest paid increased to
$0.8 million for the year ended December 31, 2000, compared to $9,000 for the
year ended December 31, 1999. This increase is primarily attributable to the
interest earned on the investment of the proceeds of our initial public
offering. We anticipate a significant increase in interest income, reflecting a
full year of interest on the short term investments we hold. Our investments are
held exclusively in short term Canadian or U.S. government securities.

Foreign exchange loss

         We incurred a foreign exchange loss of $1.3 million for the year ended
December 31, 2000, as a result of a strengthening of the Canadian dollar against
the U.S. dollar in the fourth quarter of 2000. The loss arises primarily because
the Canadian dollar is our functional currency and the majority of our cash or
cash equivalents are held in U.S. dollar short term investments. There were no
significant foreign exchange gains or losses in prior years.

Income taxes

         Income taxes increased to $0.2 million for the year ended December 31,
2000 compared to a recovery of income tax of $1,000 for the year ended December
31, 1999. The increase is attributable to the Federal large corporations tax on
capital, which was triggered by the significant increase in our net assets.
Large corporations tax is imposed at a rate of 0.225 percent of an adjusted net
assets amount. This tax is considered an income tax for disclosure purposes.

         We were not subject to any tax on income during the year ended December
31, 2000, due to our net loss for the year. Our effective tax rate changed
during fiscal 2000, reflecting our change of status from a Canadian controlled
private corporation to a public company. Income of Canadian controlled private
corporations can be taxed at a lower rate than income of public companies. The
change in our effective tax rate will have an impact on future income tax
payable.

Net income (loss)

         Net loss increased to $1.7 million for the year ended December 31, 2000
compared to $0.2 million for the year ended December 31, 1999. Most of this
increase is attributable to the foreign exchange loss of $1.3 million, increased
SG&A and research and development expenses.

         Loss per share increased to ($0.08) for the year ended December 31,
2000 compared to a loss of ($0.01) for the year ended December 31, 1999. The
weighted average number of shares used in calculating the loss per share
increased to 22.3 million shares for fiscal 2000, reflecting our public offering
on November 1, 2000. The number of common shares outstanding at December 31,
2000 was 35.6 million. Options granted under our stock option plan have not been
included in the calculation of the fully diluted loss per share, as the effect
would be anti-dilutive. As at December 31, 2000, there were 3.9 million options
issued and outstanding, of which 2.0 million were exercisable.

                                       28
33
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1999

      Revenues

         Revenues increased to $2.7 million in 1999, compared to $0.7 million in
1998. This increase of $2.0 million is attributable primarily to increasing unit
sales of FCATS. We recognized revenue on a percentage completion basis in 1998
and 1999 relating to four and 26 FCATS units, respectively, which were completed
or partially completed in those years.

      Cost of revenues

         Cost of revenues increased to $2.1 million in 1999, compared to $0.4
million in 1998. This increase primarily reflects costs associated with
increased production of FCATS units. Approximately $87,000 of the costs in 1999
is attributable to the establishment of a product warranty reserve charge. 1999
was the first year we accrued a warranty reserve charge. Our policy is to accrue
a warranty reserve charge as revenue is recognized. The amount of the warranty
reserve charge for 1999 was based on an estimate of future claims and was not
based on historical or actual claims presented to us.

      Selling and marketing expenses

         Selling and marketing expenses in 1999 increased to $0.1 million,
compared to $38,000 for 1998. This increase reflects the expansion of our
infrastructure during the period to support sales growth and the
commercialization of our products, primarily in the United States, Europe and
Asia. Specific expenses include salaries for additional marketing personnel and
increased travel costs, which accounted for the increase.

      General and administrative expenses

         General and administrative expenses in 1999 increased to $0.4 million,
compared to $51,000 in 1998. This increase includes expenses incurred in moving
to larger premises in 1999 of approximately $64,000, the hiring of 19 additional
employees of approximately $226,000 and professional advisory expenses of
approximately $26,000. The remaining $42,000 represents expenses incurred in
continuing to build our infrastructure.

      Research and development expenses

         Research and development expenses excluding research and development
grants in 1999 increased to $0.4 million, from $0.1 million in 1998. This
increase is attributable to higher personnel and materials expenditures incurred
in the expansion of our existing research programs and lower investment tax
credits.

         In 1999, we received approximately $0.3 million in research and
development grants from various governmental and educational entities for
specific research and development projects. In 1998, we received approximately
$50,000 in research and development grants from various governmental and
educational entities for specific research and development projects

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2000, we held cash and short-term investments of $77.4
million, compared to $0.5 million at December 31, 1999. As a result of a private
placement of our preferred shares, which closed on January 24, 2000, we received
proceeds of approximately $3.6 million. Our cash position further increased by
the completion of an initial public offering of our common shares which closed
November 1, 2000. Pursuant to this offering we issued 7 million common shares at
$12.00 per share, for net proceeds (after commissions and expenses relating to
the offering) of approximately $76.2 million. Cash and cash equivalents
accounted for 93% of our total assets at December 31, 2000 compared to 23% of
our total assets at December 31, 1999.

                                       29
34
         Cash used in operations for the year ended December 31, 2000 increased
to $1.2 million, compared to $0.1 million used in the year ended December 31,
1999. The majority of cash was used to fund non-cash working capital,
specifically accounts receivable and inventories.

         Accounts receivable increased as a result of increased revenue from our
FCATS products. Inventory increased commensurate with our initiatives to
decrease the manufacturing build cycles of our FCATS products. A contributing
factor to the long build cycles is the delay in receiving materials from our
suppliers.

         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. However, with cash and cash
equivalents of over $77 million we believe that we have the resources necessary
to meet projected capital expenditures for 2001 and 2002, without the need to
raise additional funds.

         Our current budget for 2001 includes a capital budget of $7.0 million
to purchase equipment, primarily for our research and development programs.

CAPITAL EXPENDITURES

         Capital expenditures increased to $1.5 million for the year ended
December 31, 2000 compared to $0.3 million for the year ended December 31, 1999.
This increase is attributable to equipment and facility expenditures related to
outfitting our new facility and our expanded research and development efforts.
During fiscal 2000 we manufactured 6 FCATS for our own research and development
program along with other external capital expenditures.

         Capital expenditure plans for 2001 and subsequent years will result in
further investment in capital assets as we continue our manufacturing and
development initiatives.

DISCLOSURE ABOUT MARKET RISK

         Our functional currency is 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 2000 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, 2000, as set forth in note 2 of our
financial statements for the years ended December 31, 1999 and 2000. 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 years ended December 31, 1999 and 2000.

         Exchange rate fluctuations may cause fluctuations in our quarterly
results. We transact business internationally in multiple currencies. In
particular, a significant portion of our cost of revenues consists of materials
purchased in U.S. dollars, which is only partially offset by revenues generated
in U.S. dollars. We do not currently engage in any hedging transactions related
to our exchange rate risk. Accordingly, gains and losses on the conversion of
foreign payments may contribute to fluctuations in our results of operations and
fluctuating exchange rates could cause reduced revenue and gross margins from
our international sales.

         Our cash equivalents and investments, all of which have maturities of
less than one year, may expose us to market risk. Our investments are held
exclusively in short-term Canadian or U.S. government securities. The fair value
of these securities approximates their cost.

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:

                                       30
35
Name               Age                   Position
        ----               ---                   --------
Pierre Rivard..........     45     President, Chief Executive Officer and Director
Norman M. Seagram......     66     Chairman of the Board of Directors
Boyd J. Taylor.........     41     Vice President Sales and Marketing and Director
Joseph Cargnelli.......     31     Vice President Technology and Director
Robert Edwards.........     43     Vice President Finance and Treasurer
Dr. Ravi B. Gopal......     40     Vice President Engineering, Electronics and Controls
Don J. Morrison........     40     Director
Donald J. Lowry........     48     Director
Dr. Robert Lee.........     76     Director
Charley Pappas.........     43     Vice President of Operations
Jonathan Lundy.........     37     Vice President Corporate Affairs and Corporate
                                   Secretary
PIERRE RIVARD is one of our founders and has served as our President
and a director since the inception of our fuel cell related business in August
1995. Mr. Rivard has served as our Chief Executive Officer since July 2000. From
June 1994 to July 1995, Mr. Rivard served as a research engineer at the
University of Toronto with the Department of Mechanical Engineering. Mr. Rivard
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 is President of Sportsco International LP. Prior to
joining Sportsco in February 2001, 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. 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
Aurora, 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. Mr. Cargnelli earned both a Master 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.

                                       31
36
         ROBERT EDWARDS joined us in July 1999 as our Vice President Finance.
Mr. Edwards has served as our Treasurer since July 2000. From January 1999 to
July 1999, Mr. Edwards served as one of our directors as a nominee of Working
Ventures Canadian Fund Inc. From November 1996 to July 1999, Mr. Edwards was
employed by Working Ventures Canadian Fund Inc. as a Portfolio Manager and Vice
President of Investments. Mr. Edwards earned a Masters degree in Business
Administration from the University of Western Ontario and a Bachelor of Applied
Science degree from the University of British Columbia. Mr. Edwards resides in
Oakville, Ontario.

         DR. RAVI B. GOPAL joined us in May 1998 and was appointed Vice
President of Engineering, Electronics and Controls in June 1999. 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
Toronto, Ontario.

         DON J. MORRISON joined our board of directors in September 2000. Mr.
Morrison is Senior Vice President of Investments with Working Ventures Canadian
Fund Inc., a Canadian venture capital fund. Prior to joining Working Ventures in
July 1995, Mr. Morrison was a principal in the Financial Advisory Services Group
of PricewaterhouseCoopers LLP. Mr. Morrison represents Working Ventures on our
Board of Directors and on a number of private and public companies with a focus
on manufacturing, transportation and technology sectors. Mr. Morrison is a
chartered accountant. Mr. Morrison resides in Toronto, Ontario. Mr. Morrison was
originally appointed to our board by Working Ventures Canadian Fund Inc. in
accordance with the terms of our Amended and Restated Unanimous Shareholders'
Agreement, which expired upon completion of our initial public offering.

         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
currently serves as a director on the board of the Canadian Electrical
Association, Sasktel International, Imperial Rubber Co. Ltd., Total Telecom Inc.
and Encore Energy. Mr. Lowry earned both a Master's degree in Business
Administration and a Bachelor of Commerce degree from the University of
Manitoba. Mr. Lowry resides in Edmonton, Alberta.

         DR. ROBERT LEE joined our board of directors in January 1999 and served
as Chairman until July 2000. Prior to January 1999, Dr. Lee was a member of our
Advisory Board. Dr. Lee has worked for Air Liquide Canada since 1947. Since
1990, Dr. Lee has been an independent technical advisor to Air Liquide Canada
and several of its subsidiaries, as well as to various other institutions,
including the University of British Columbia-Center for Metallurgical Processing
and the American Iron and Steel Institute/Department of Energy. Since 1985, Dr.
Lee has served as a director and the Vice President of Technology of Q.S. Oxygen
Process Inc. Dr. Lee has been involved in the development of more than 25
inventions, securing over 200 patents. In 1998, Dr. Lee received an honorary
Doctorate of Science from McGill University for innovative contributions to the
metallurgical industry. Dr. Lee resides in Calgary, Alberta.

         CHARLEY PAPPAS joined us in April 2000 as our Director of Engineering
Operations and was appointed Vice President of Operations in September 2000.
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. 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.

         JONATHAN LUNDY joined us in October 2000 as our Vice President
Corporate Affairs and Corporate Secretary. 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

                                       32
37
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.

                  B.       COMPENSATION.

COMPENSATION OF OFFICERS

         For the year ended December 31, 2000, our aggregate cash compensation
payments to our executive officers and directors for services rendered in these
capacities was approximately $291,192.

         The following table provides a summary of compensation earned during
the last three financial years by our executive officers at the end of the
financial year ended December 31, 2000:
Annual Compensation               Long-Term
                                                                                          Compensation
                                                                                           Awards(1)
                                                --------------------------------------   -------------
    Name and Principal Position        Year      Salary      Bonus     Other               Securities        All other
                                                                       Annual            Under Options     Compensation
                                                                       Compensation(2)
-----------------------------------------------------------------------------------------------------------------------
                                                (U.S.$)     (U.S.$)        (U.S.$)            (#)             (U.S.$)
-----------------------------------------------------------------------------------------------------------------------
Pierre Rivard,                         2000      57,208      6,544            0                0                 0
President, Chief Executive Officer     1999      51,964        0              0                0                 0
                                       1998      47,946        0              0                0                 0
Boyd Taylor,                           2000      57,289      6,544            0                0                 0
Vice President, Sales & Marketing      1999      51,964        0              0                0                 0
                                       1998      47,946        0              0                0                 0
Joseph Cargnelli,                      2000      57,208      6,544            0                0                 0
Vice President, Technology             1999      51,964        0              0                0                 0
                                       1998      47,946        0              0                0                 0
Robert Edwards(3),                     2000      57,208      6,544            0              92,967              0
Vice President, Finance                1999      21,652        0              0            1,394,533             0
Dr. Ravi Gopal,                        2000      56,967      6,544            0             857,500              0
Vice President, Engineering,           1999      45,483        0              0                0                 0
Electronics and Control                1998      28,407        0              0                0                 0
Charley Pappas(3),                     2000      47,796      3,272            0              35,000              0
Vice President, Operations
Jonathan Lundy(3),                     2000      14,724       272             0              70,000              0
Vice President, Corporate Affairs
and Corporate Secretary
(1)      The Corporation 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.

(3)      Mr. Edwards joined the Corporation in July 1999. Mr. Pappas joined the
         Corporation in April 2000. Mr. Lundy joined the Corporation in October
         2000.

EMPLOYMENT AGREEMENTS

         We have employment agreements with the following executive officers:
Pierre Rivard, Boyd Taylor, Joseph Cargnelli and Dr. Ravi Gopal. In respect of
these agreements, we have agreed to provide these officers with

                                       33
38
annual salaries in 2001 ranging from Cdn.$135,000 to Cdn.$160,000 per annum. In
addition, each agreement provides for an initial term of two years ending April
20, 2003, with automatic two 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 our control, all unvested options shall become immediately
exercisable for a period of ninety days from the date of termination.

         We also have an employment agreement with Robert Edwards, also an
executive officer. Under the terms of this agreement, a portion of Mr. Edwards'
unvested options shall vest immediately upon termination resulting from a change
of our control.

COMPENSATION OF DIRECTORS

         Each of our non-employee directors is paid an annual fee of Cdn.$10,000
for his services as a director. Non-employee directors who serve as Committee
Chairs are paid an additional annual fee of Cdn.$1,000. The chairman of the
board of directors is paid an annual fee of Cdn.$12,000 for his services, and an
attendance fee of Cdn.$900 for each board meeting attended. In addition,
non-employee directors receive an attendance fee of Cdn.$700 for each board and
committee meeting attended. Each committee chair receives an additional
attendance fee of Cdn.$200 for each committee meeting attended.

         Our non-employee directors are also reimbursed for their reasonable
out-of-pocket disbursements incurred on the business of the Corporation and are
also eligible to receive stock options in accordance with the recommendations of
the Management Development and Compensation Committee. Two of our non-management
directors, Donald Lowry and Norman Seagram, were granted options to purchase
4,200 and 4,900 of our common shares, respectively, in connection with their
agreements to serve on our board. Dr. Robert Lee, another of our non-management
directors, was granted options to purchase 108,500 of our common shares in
connection with his service as our Chairman from January 1999 to July 2000.

                  C.       BOARD PRACTICES.

COMPOSITION OF THE BOARD OF DIRECTORS

         Our board of directors currently consists of seven members, four of
whom are non-management directors. Our articles provide that we may have between
three and nine directors on our board. Each of our directors holds office until
the next annual meeting of shareholders and until the director's successor is
elected and qualified, or until the director's earlier death, resignation or
removal.

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 Norman Seagram, Donald Lowry and Pierre Rivard.

         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 and
auditing control. The members of our Audit Committee are Norman Seagram, Donald
Lowry and Robert Lee. We

                                       34
39
may modify the composition of our Audit Committee 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
Norman Seagram, Donald Lowry and Pierre Rivard.

                  D.       EMPLOYEES.

         As of December 31, 2000, we employed 74 persons, up from 24 as at
December 31, 1999, all of whom are full-time employees. Approximately 30 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. As at December 31, 1998 we
employed 10 persons.

                  E.       SHARE OWNERSHIP.

         The following table sets forth certain information concerning the share
ownership of our directors and executive officers as of May 11, 2001:
Number of Common                                             Percentage of
                      Number of       Shares Which May    Range of Exercise        Range of        Common Shares
                        Common       Be Acquired Under    Price of Options     Expiration Dates    Beneficially
Name                 Shares Owned     our Option Plan          ($Cdn.)            of Options           Owned
----                 ------------     ---------------          -------            ----------           -----
Pierre Rivard         6,562,500              0                   N/A                  N/A             18.48%
Norman M. Seagram       16,200             14,900            $5.00-$8.70         August 2010-          0.05%
                                                                                 January 2011
Boyd J. Taylor        6,572,500              0                   N/A                  N/A             18.48%
Joseph Cargnelli      6,562,500              0                   N/A                  N/A             18.48%
Robert Edwards            0              1,487,500           $0.05-$0.29         January 2010
Ravi B. Gopal             0               857,500            $0.05-$8.70         January 2010
Don J. Morrison          500               10,000               $8.70            January 2011          0.00%
Donald J. Lowry         1,000              14,200            $5.00-$8.70         August 2010-          0.00%
                                                                                 January 2011
Robert Lee                0               118,500            $0.29-$8.70         January 2010-
                                                                                 January 2011
Charley Pappas          3,900              35,000               $4.64             April 2010           0.01%
Jonathan Lundy            0                70,000              $11.43            October 2010
OPTION GRANTS DURING FISCAL 2000

         We granted options under our stock option plan to our senior executive
officers during the year ended December 31, 2000 as follows:

                                       35
40
Fair Value
                                        % of Total                           Of Securities
                     Securities      Options Granted                           Underlying
                    Under Options      to Employees        Exercise or       Options On the
                       Granted         In Financial        Base price        Date Of Grant          Expiration
       Name              (#)               Year         (Cdn.$/Security)    (Cdn.$/Security)           Date
-----------------------------------------------------------------------------------------------------------------
Pierre Rivard             0                 0%                 N/A                N/A                  N/A
Boyd Taylor               0                 0%                 N/A                N/A                  N/A
Joseph Cargnelli          0                 0%                 N/A                N/A                  N/A
Robert Edwards         65,625             3.65%               $0.29              $1.50          January 24, 2010
                       27,342                                 $0.05              $1.50          January 24, 2010
Dr. Ravi Gopal         420,000            33.67%              $0.29              $1.50          January 24, 2010
                       437,500                                $0.05              $1.50          January 24, 2010
Charley Pappas         35,000             2.51%               $4.64              $14.29           June 16, 2010
Jonathan Lundy         70,000             5.02%              $11.43              $14.29         October 31, 2010
OPTIONS EXERCISED IN FISCAL YEAR 2000

         The following table details information with respect to all options of
the Corporation exercised by our executive officers during the fiscal year ended
December 31, 2000, and all options held by our Executive Officers and
outstanding on December 31, 2000:

Aggregated Options Exercised during the most recently completed Financial Year
and Financial Year-End Option Values
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
--------------------------------------------------------------------------------------
Pierre Rivard           N/A           N/A             N/A                  N/A
Boyd Taylor             N/A           N/A             N/A                  N/A
Joseph Cargnelli        N/A           N/A             N/A                  N/A
Robert Edwards           0             0        809,376/678,124    4,726,725/3,878,275
Dr. Ravi Gopal           0             0        507,500/350,000    2,952,500/2,052,500
Charley Pappas           0             0           0/35,000             0/47,600
Jonathan Lundy           0             0           0/70,000                0/0
DIRECTOR, EMPLOYEE AND CONSULTANT STOCK OPTIONS

         As of March 31, 2001, our executive officers, directors, employees and
consultants held options to purchase an aggregate of 3,931,100 of our common
shares. Our executive officers held options to acquire 2,450,000 of these common
shares, exercisable at prices ranging from Cdn.$0.05 to Cdn.$11.43, expiring
January 24, 2010 through October 31, 2010. Our directors who are not executive
officers held options to acquire 157,600 common shares, exercisable at prices
ranging from Cdn.$0.29 to Cdn.$8.70, expiring between January 24, 2010 through
January 19, 2011. Our employees, excluding our executive officers, held options
to acquire 1,323,500 common shares, exercisable at prices ranging from Cdn.$0.05
to Cdn.$18.12 expiring at dates ranging from January 24, 2010 to March 4, 2001.

         In 2000, the options granted to officers, directors and various
employees have been at the exercise prices indicated below:

                                       36
41
         -        on January 24, 2000 we granted (i) Dr. Robert Lee, one of our
                  directors who was also the Chairman of our Board on the date
                  of the grant, 84,000 options at Cdn.$0.29 and 24,500 options
                  at Cdn.$1.05, (ii) Dr. Ravi Gopal our Vice President
                  Engineering, Electronics and Controls 420,000 options at
                  Cdn.$0.29 and 437,500 options at Cdn.$0.05, (iii) Robert
                  Edwards our Vice President Finance and Administration 65,625
                  options at Cd.$0.29 and 27,342 options at Cdn.$0.05, and (iv)
                  various employees (other than officers and directors) an
                  aggregate of 437,500 options at Cdn.$0.05, 280,000 options at
                  Cdn.$0.29 and 147,000 options at Cdn.$1.05;

         -        on April 19, 2000 we granted various employees (other than
                  officers and directors) an aggregate of 168,000 options at
                  Cdn.$1.05;

         -        on June 16, 2000 we granted (i) Charley Pappas our Vice
                  President of Operations 35,000 options at Cdn.$4.64, and (ii)
                  various other employees (other than officers and directors) an
                  aggregate of 80,500 options at Cdn.$1.05, 32,900 options at
                  Cdn.$1.50, 21,000 options at Cdn.$2.11, 10,500 options at
                  Cdn.$2.23, 1,400 options at Cdn.$3.01, 7,000 options at
                  Cdn.$3.38, 3,500 options at Cdn.$3.80 and 14,000 options at
                  Cdn.$5.07;

         -        on June 30, 2000 we granted (i) Donald Lowry, one of our
                  directors, 4,200 options at Cdn.$5.00, (ii) Norman Seagram,
                  one of our directors and the current Chairman of our Board,
                  4,900 options at Cdn.$5.00, and (iii) various employees (other
                  than officers and directors) an aggregate of 65,450 options at
                  Cdn.$5.00 and 4,200 options at Cdn.$4.29;

         -        on September 11 we granted various employees (other than
                  officers and directors) an aggregate of 10,500 options at
                  Cdn.$6.43, 7,000 options at Cdn.$9.29, 3,150 options at
                  Cdn.$10.00, 10,850 options at Cdn.$10.71 and 4,200 options at
                  Cdn.$11.43;

         -        on October 6, 2000 we granted various employees (other than
                  officers and directors) an aggregate of 3,500 options at
                  Cdn.$10.71, 10,500 options at Cdn.$11.43 and 8,400 options at
                  Cdn.$12.14;

         -        on October 28, 2000 we granted Jonathan Lundy our Vice
                  President Corporate Affairs and Corporate Secretary 70,000
                  options at Cdn.$11.43;

         -        on November 1, 2000 we granted various employees (other than
                  officers and directors) an aggregate of 5,000 options at
                  Cdn.$18.12; and

         -        on December 15, 2000 we granted various employees (other than
                  officers and directors) an aggregate of 17,000 options at
                  Cdn.$5.85.

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 allow
for the exercise of the unvested portion of each option prior to the completion
of the change of control. Our stock option agreement with Mr. Edwards covering
options to purchase 1,487,500 of our common shares at a weighted average
exercise price of Cdn.$0.22 per share provides that all of Mr. Edwards' then
unvested options subject to such agreement will immediately vest upon his
termination without cause in connection with a change of control of our company.

                                       37
42
NEW STOCK OPTION PLAN

         Our board approved a new stock option plan, which was implemented on
November 1, 2000 by our Management Development and Compensation Committee. 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 three years with one third 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 4,641,000.

         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.

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 March 31, 2001, 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 held by such person that are exercisable within 60 days of March 31,
2001, but excludes common shares underlying options held by any other person.
Percentage ownership is calculated by reference to the 35,568,750 common shares
deemed outstanding as of March 31, 2001. All of our shareholders hold common
shares.

                                       38
43
BENEFICIAL OWNER                               NUMBER OF COMMON SHARES BENEFICIALLY OWNED
----------------                               ------------------------------------------
                                                      NUMBER               PERCENT
                                                      ------               -------
Pierre Rivard (1)                                   6,562,500               18.45%
Boyd Taylor                                         6,572,500               18.48
Joseph Cargnelli                                    6,562,500               18.45
Micro-Generation Technology Fund, LLC (2)           2,758,000                7.75
Working Ventures Canadian Fund Inc. (3)             2,583,000                7.26
CIBC Capital Partners (4)                           2,758,000                7.75
----------

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

         (2)      Micro-Generation Technology Fund, L.L.C. is a private venture
                  capital fund managed on behalf of investors by Arete
                  Corporation. The address of Micro-Generation Technology Fund,
                  L.L.C. is c/o Arete Corporation, Manager, P.O. Box 1299,
                  Center Harbor, New Hampshire 03226.

         (3)      Don J. Morrison, one of our directors, was appointed to our
                  board as a nominee of Working Ventures Canadian Fund Inc. in
                  accordance with the terms of our Amended and Restated
                  Unanimous Shareholders' Agreement, which expired upon
                  completion of our initial public offering. Working Ventures
                  Canadian Fund Inc. is a widely held Canadian mutual fund. The
                  address of Working Ventures Canadian Fund Inc. is 250 Bloor
                  Street East, Suite 1600, Toronto, Ontario, Canada M4W 1E6.

         (4)      CIBC Capital Partners is a division of a Canadian chartered
                  bank and carries on merchant banking operations under that
                  registered business name. The address of CIBC Capital Partners
                  is BCE Place, P.O. Box 500, 8th Floor, 161 Bay Street,
                  Toronto, Ontario, Canada M5J 2S8.

                  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, 2000, this company billed us approximately $615,104. 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.

                  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.

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

                                       39
44
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
Highest Reported Price      Lowest Reported Price
                                             ----------------------      ---------------------
Quarterly Market Prices
   Fiscal Year Ended December 31, 2000
     Fourth Quarter (from November 1)...              $12.3125                    $2.75
   Fiscal Year Ended December 31, 2001
     First Quarter......................               $8.0938                    $3.25

Monthly Market Prices

     November 2000......................              $12.3125                    $4.00
     December 2000......................               $4.75                      $2.75
     January 2001.......................               $7.50                      $3.25
     February 2001......................               $8.0938                    $4.5312
     March 2001.........................               $7.5625                    $3.7812
     April 2001.........................               $6.05                      $3.62
The Toronto Stock Exchange
Highest Reported Price     Lowest Reported Price
                                            ----------------------     ---------------------
Quarterly Market Prices
   Fiscal Year Ended December 31, 2000
     Fourth Quarter (from November 1)..           Cdn.$21.75                 Cdn.$4.30
   Fiscal Year Ended December 31, 2001
     First Quarter.....................           Cdn.$21.75                 Cdn.$4.30

Monthly Market Prices

     October 2000......................           Cdn.$21.75                Cdn.$ 18.15
     November 2000.....................           Cdn.$18.70                 Cdn.$ 6.40
     December 2000.....................           Cdn.$7.25                  Cdn.$ 4.30
     January 2001......................          Cdn.$ 11.25                 Cdn.$ 5.05
     February 2001.....................          Cdn.$ 12.25                 Cdn.$ 7.05
     March 2001........................          Cdn.$ 11.10                 Cdn.$ 5.57
     April 2001........................           Cdn.$9.30                  Cdn.$5.50
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

                                       40
45
                  D.       SELLING SHAREHOLDERS.

                           Not applicable.

                  E.       DILUTION.

                           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 35,560,000 common shares and no preferred shares
were issued and outstanding as of December 31, 2000.

                           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
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 seven directors, all 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,

                                       41
46
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 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

                                       42
47
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.

                           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 July 3, 1997, between Canada (National
Resources Efficiency and Alternative Energy Program) and the Company;
Contribution agreement, dated June 9, 1998, between Canada (National Resources
Efficiency and Alternative Energy Program) and the Company, including amendments
dated June 9, 1999, February 1, 2000 and March 13, 2000. Under these agreements
National Resources Canada, or 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
decide not to commercialize the technology.

         Contribution agreement, dated December 1, 1999, between National
Research Council of Canada and the Company. Pursuant to this agreement, the
National Research Council of Canada, or 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 $494,500. 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.

         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 50 kW 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. In respect
of these agreements, we have agreed to provide these officers with annual
salaries in 2001 ranging from Cdn.$135,000 to Cdn.$160,000 per annum. In
addition, each agreement provides for an initial term of two years ending April
20, 2003, with automatic two 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.

                                       43
48
         Employment letter agreements between Robert Edwards and the Company,
dated July 15 and 16, 1999. Under the terms of the letter agreement dated July
16, 1999, we offered Mr. Edwards an annual salary of $51,964, options to
purchase 984,375 common shares at an exercise price of Cdn.$0.29 per share
vesting over four years, and various other customary benefits. Pursuant to this
letter agreement, all of Mr. Edwards' unvested options will immediately vest
upon his termination without cause in connection with a change of control of our
company. Pursuant to the letter agreement dated July 15, 1999, we also offered
Mr. Edwards options to purchase an additional 410,158 common shares at an
exercise price of Cdn.$0.046 per share. These additional options have no such
automatic accelerated vesting provisions.

                  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):

         -        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 it
is 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, formerly Revenue
Canada, all specific proposals to amend the Income Tax Act (Canada) and the
regulations announced by the Minister of Finance (Canada) prior to the date of
this annual report and all judicial decisions currently in effect.

                                       44
49
         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 nonrefundable Canadian withholding tax under the
Income Tax Act at the rate of 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, 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 or had rights to acquire 25% or
more of our issued shares of any class at any time during the five-year period
before the actual or deemed disposition.

                 UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

         The following is a summary of 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; or

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

         This summary deals only with common shares that are held as a capital
asset by a United States holder, 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;

                                       45
50
         -        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;

         -        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.

         The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended, or Code, and regulations, rulings and
judicial decisions as of the date of this annual report; any authority 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 specifically.
We advise a shareholder to consult a tax advisor.

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 the current
and accumulated earnings and profits of the Company, 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 the current and accumulated earnings and
profits of the Company, 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 its shares of 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 separate 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.

         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 EXCHANGE

         Upon a sale or exchange 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 exchange and the United States holder's adjusted
tax basis in the common shares (determined in U.S. dollars). 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 and
will be long-term capital gain or loss if the United States holder has held our
common shares for more than one year. Special rules may apply in the case of a
sale of common shares to Hydrogenics Corporation.

                                       46
51
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 Internal Revenue 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.

BACKUP WITHHOLDING TAX

         Backup withholding tax at a rate of 31% may apply to payments of
dividends and to payments of proceeds of the sale or other disposition of our
common shares within the United States by a non-corporate United States holder,
if the holder fails to furnish a correct taxpayer identification number or
otherwise fails to comply with applicable requirements of the backup withholding
tax rules. Backup withholding tax is not an additional tax and may be credited
against a United States holder's United States federal income tax liability,
provided that correct information is provided to the Internal Revenue Service.

PASSIVE FOREIGN INVESTMENT COMPANIES

         In general, a foreign corporation is a passive foreign investment
company for any taxable year in which (i) 75% or more of its gross income
consists of passive income (such as dividends, interest, rents and royalties,
other than rents and royalties derived in the active conduct of a trade or
business) or (ii) 50% or more of the average of the quarterly values of its
assets consists of assets that produce, or are held for the production of,
passive income. We will determine the fair market value of our assets based on
the market price of our common shares, less total liabilities. As a result,
fluctuations in the market price of our common shares would affect the
determination of whether we would be considered a passive foreign investment
company.

         Based upon our current and projected income, and the market value of
our assets as determined by reference to the market value of our common shares,
we do not expect to be considered to be a passive foreign investment company.
However, because the determination of whether we are a passive foreign
investment company is based on the composition of our income and assets from
time to time and because the market price of our shares is likely to fluctuate,
there can be no assurance that we will not be considered a passive foreign
investment company for any fiscal year. If we are a passive foreign investment
company at any time that a shareholder owns common shares, a shareholder will
likely be subject to the rules described below, even if we subsequently cease to
be a passive foreign investment company. United States holders will be
responsible for determining whether we are a passive foreign investment company
each year for purposes of applying the rules described below.

         Except as described below, if we are considered to be a passive foreign
investment company, the following special rules will apply to:

                                       47
52
         -        any gain realized on the sale or other disposition (including
                  a pledge as security for a loan) of our common shares, and

         -        any "excess distribution" on the common shares, that is any
                  distribution received by a shareholder on the common shares in
                  a taxable year other than the first year in which such
                  shareholder holds the common shares that are greater than 125%
                  of the average annual distributions received by such
                  shareholder in the preceding three taxable years, or, if
                  shorter, such shareholder's holding period for the common
                  shares).

         Under these rules:

         -        the gain or excess distribution would be allocated ratably
                  over a shareholder's holding period for the common shares;

         -        the amount allocated to the current taxable year and to
                  taxable years before the first day in which we became a
                  passive foreign investment company would be taxed as ordinary
                  income; and

         -        the amount allocated to each of the prior taxable years in
                  which we were a passive foreign investment company would be
                  subject to tax at the highest rate of tax in effect for a
                  corporate or individual taxpayer, as applicable, that year,
                  and an interest charge for the deemed deferral benefit would
                  be imposed on the resulting tax attributable to such prior
                  year.

         Alternatively, as long as our common shares are regularly traded on the
Nasdaq National Market (or another qualifying market), a shareholder will be
able to make an election with respect to the common shares upon acquisition of
the common shares to include in income as ordinary income each year the excess
of the fair market value of the common shares over such shareholder's adjusted
basis in the common shares, and such shareholder will be entitled to deduct as
an ordinary loss each year the lesser of (a) the excess of his original or, if
applicable, adjusted basis in the common shares over their fair market value,
and (b) the excess of the total amount of income included in prior years over
the total amount of deductions allowed in prior years under these rules. A
shareholder's adjusted basis in the common shares will be increased by the
amount of any income inclusions and will be decreased by the amount of any
deductions. If a shareholder disposes of the common shares for an amount in
excess of his adjusted basis, the gain will be taxed at ordinary income tax
rates.

         A United States holder who owns common shares during any year that we
are a passive foreign investment company must file Internal Revenue Service Form
8621, describing any distributions received from the ownership of common shares
and any gain realized on the sale or other disposition of common shares.

                  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.

                                       48
53
         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 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.     7 World Trade Center     500 West Madison Street
         Room 1024         New York, New York 10048         Suite 1400
   Washington D.C. 20549                              Chicago, Illinois 60661

         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 primary of United States Treasury
obligations. The average duration of all of our investments in 2000 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. Our financial statements are
prepared in U.S. dollars and much of our business is conducted in U.S. dollars.
A significant proportion of our cost of revenues consists of materials purchased
in U.S. dollars. This may expose us to some currency rate risk associated with
our exchange of Canadian dollars for U.S. dollars. We believe that this risk is
mitigated to a significant extent by the fact that a large proportion of our
revenues are received in U.S. dollars. We do not currently engage in any hedging
transactions relating to our exchange rate risk. However, as our business
expands, we anticipate that we will increasingly incur expenses and bill and
receive payments in local currencies at prevailing exchange rates. As a result,
in the future we may suffer losses due to fluctuations in the exchange rates
between the U.S. dollar and the Canadian dollar and the U.S. dollar and the
currencies of other countries.

                                     PART II

ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

                  Not applicable.

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 have been no material modifications.

ITEM 15.          [RESERVED]

                                       49
54
                  Not applicable.

ITEM 16.          [RESERVED]

                  Not applicable.

                                       50
55
                                    PART III

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.

ITEM 19.          EXHIBITS.
EXHIBIT NUMBER        NAME OF DOCUMENT
     --------------        ----------------
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 Robert Edwards
                           and the Company, dated July 16, 1999.(7)
         4.5               Employment letter agreement between Dr. Ravi Gopal
                           and the Company, dated March 16, 1998.(8)
         4.6               Offer to Lease dated June 1, 2000 by and between the
                           Company and Orlando Corporation.(9)
         4.7               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated October 17, 1996, between Canada and the
                           Company.(10)
         4.8               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated July 3, 1997, between Canada and the
                           Company.(11)
         4.9               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated June 9, 1998, between Canada and the
                           Company.(12)
         4.10              Efficiency and Alternative Energy Program Amendment
                           to the Contribution Agreement between Canada and the
                           Company, dated March 13, 2000.(13)
         4.11              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated June 9, 1999, between Canada and the
                           Company.(14)
         4.12              Natural Resources Canada Efficiency and Alternative
                           Energy Program Amendment No. 1 to the Contribution
                           Agreement between Canada and the Company, dated
                           February 1, 2000.(15)
         4.13              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated May 25, 2000, between Canada and the
                           Company.(16)
         4.14              Industrial Research Assistance Program Contribution
                           Agreement, dated November 24, 1998, between National
                           Research Council Canada and the Company.(17)
         4.15              Industrial Research Assistance Program Contribution
                           Agreement, dated December 1, 1999, between National
                           Research Council Canada and the Company.(18)
         4.16              Research Agreement for a Cooperative Project, dated
                           November 19, 1996, between Universite du Quebec a
                           Trois-Rivieres and the Company.(19)
         4.17              Lease, dated June 23, 2000, by and between Orlando
                           Corporation and the Company.(20)
         4.18              Employment Agreement between Pierre Rivard and the
                           Company, dated April 20, 2001.
51
56
EXHIBIT NUMBER        NAME OF DOCUMENT
     --------------        ----------------
4.19              Employment Agreement between Boyd Taylor and the
                           Company, dated April 20, 2001.
         4.20              Employment Agreement between Ravi Gopal and the
                           Company, dated April 20, 2001.
         4.21              Employment Agreement between Joseph Cargnelli and the
                           Company, dated April 20, 2001.
         4.22              Agreement of Lease, dated as of December 15, 2000,
                           between Crown/Chadwick Realty Corp. and the Company
         4.23              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement
                           between Canada and the Company, dated January 10,
                           2001.
         4.24              Natural Resources Canada Efficiency and Alternative
                           Energy Program Amendment No. 1 to the Contribution
                           Agreement, dated April 11, 2001.
----------

(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 3.1 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.

(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 10.6 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 10.7 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.

(9)      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.

(10)     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.

(11)     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.

(12)     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.

(13)     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.

(14)     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.

(15)     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.

                                       52
57
(16)     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.

(17)     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.

(18)     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.

(19)     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.

(20)     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.

                                       53
58

                             HYDROGENICS CORPORATION

                          INDEX TO FINANCIAL STATEMENTS

AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000
AND 1999
Auditor's Report...............................................................................    F-2

Consolidated Balance Sheets as at December 31, 2000
and 1999.......................................................................................    F-3

Consolidated Statements of Operations and Retained Earnings (Deficit) for
the years ended December 31, 2000, 1999 and 1998...............................................    F-4

Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998............................................................................    F-5

Notes to Consolidated Financial Statements.....................................................    F-6
F-1
59

March 7, 2001

AUDITORS' REPORT

TO THE SHAREHOLDERS OF HYDROGENICS CORPORATION
We have audited the consolidated balance sheets of Hydrogenics Corporation as at
December 31, 2000 and 1999 and the consolidated statements of operations,
retained earnings (deficit) and cash flows for each of the years in the
three-year period ended December 31, 2000. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements 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, 2000
and 1999 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2000 in accordance with
Canadian generally accepted accounting principles.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP (signed)
Chartered Accountants
Toronto, Canada

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

                                       F-2
60
--------------------------------------------------------------------------------

HYDROGENICS CORPORATION
CONSOLIDATED BALANCE SHEETS
as at December 31, 2000 and 1999
(expressed in thousands of U.S. dollars, except per share amounts)
2000      1999
                                                                 ------     -----
                                                                      $         $
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note 14).........................     77,436       453
Accounts receivable and unbilled revenues (note 6)..........      2,582       993
Grants receivable...........................................         75       143
Inventories (note 7)........................................      1,213       117
Prepaid expenses............................................        122         8
                                                                 ------     -----
                                                                 81,428     1,714
DEPOSITS (note 3)...........................................         67         -
CAPITAL ASSETS (note 4).....................................      1,497       250
                                                                 ------     -----
                                                                 82,992     1,964
                                                                 ------     -----
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 8)...........      2,463       953
Dividends payable on preferred shares (note 11).............          -        52
Income taxes payable........................................        169         9
                                                                 ------     -----
                                                                  2,632     1,014
LOAN PAYABLE (note 9).......................................        100         -
PREFERRED SHARES (note 11)..................................          -       912
                                                                 ------     -----
                                                                  2,732     1,926
                                                                 ------     -----
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 11).....................................     80,740       145
DEFICIT.....................................................     (1,843)     (107)
CURRENCY TRANSLATION ADJUSTMENT.............................      1,363         -
                                                                 ------     -----
                                                                 80,260        38
                                                                 ------     -----
                                                                 82,992     1,964
                                                                 ------     -----
COMMITMENTS AND CONTINGENCIES (note 10)

APPROVED BY THE BOARD OF DIRECTORS:
/s/ Norman Seagram                           /s/ Pierre Rivard
Norman Seagram,                              Pierre Rivard,
Chairman                                     Director, President and CEO
The accompanying notes form an integral part of these financial statements.

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

                                       F-3
61
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

HYDROGENICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
for the years ended December 31, 2000, 1999 and 1998
(expressed in thousands of U.S. dollars, except per share amounts)
2000           1999           1998
                                                ----------     ----------     ----------
                                                         $              $              $
REVENUES...................................          8,883          2,674            665
COST OF REVENUES...........................          6,485          2,105            415
                                                ----------     ----------     ----------
                                                     2,398            569            250
OPERATING EXPENSES
Selling, general and administrative........          2,069            534             89
Research and development (note 5)..........            915            424             94
Research and development grants............           (140)          (262)           (49)
Depreciation of capital assets.............             99             18              3
                                                ----------     ----------     ----------
                                                     2,943            714            137
                                                ----------     ----------     ----------
INCOME (LOSS) FROM OPERATIONS..............           (545)          (145)           113
                                                ----------     ----------     ----------
OTHER (INCOME) EXPENSES
Accrued dividend and amortization of
  discount on preferred shares.............            262             73              -
Provincial capital tax.....................            260              -              -
Interest and bank charges..................           (832)            (9)             2
Foreign exchange losses....................          1,329              -              -
                                                ----------     ----------     ----------
                                                     1,019             64              2
                                                ----------     ----------     ----------
INCOME (LOSS) BEFORE INCOME TAXES..........         (1,564)          (209)           111
INCOME TAX EXPENSE (RECOVERY) (note 12)
Current....................................            172              8              4
Future.....................................              -             (9)             8
                                                ----------     ----------     ----------
                                                       172             (1)            12
                                                ----------     ----------     ----------
NET INCOME (LOSS) FOR THE YEAR.............         (1,736)          (208)            99
RETAINED EARNINGS (DEFICIT) - BEGINNING OF
  YEAR.....................................           (107)           101              2
                                                ----------     ----------     ----------
RETAINED EARNINGS (DEFICIT) - END OF
  YEAR.....................................         (1,843)          (107)           101
                                                ----------     ----------     ----------
BASIC AND FULLY DILUTED EARNINGS (LOSS) PER
  SHARE (note 16)..........................          (0.08)         (0.01)          0.01
SHARES USED IN COMPUTING BASIC AND FULLY
  DILUTED EARNINGS (LOSS) PER SHARE........     22,341,370     19,687,500     19,687,500
The accompanying notes form an integral part of these financial statements.

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

                                       F-4
62
--------------------------------------------------------------------------------

HYDROGENICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2000, 1999 and 1998
(expressed in thousands of U.S. dollars, except per share amounts)
2000     1999      1998
                                                               ------     ----     -----
                                                                    $        $         $
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Income (loss) for the year................................     (1,736)    (208)       99
Items not affecting cash
  Foreign exchange loss...................................      1,329        -         -
  Depreciation of capital assets..........................        224       45         3
  Amortization of discount on preferred shares............         85       20         -
  Imputed interest on grant payable.......................          7        -         -
  Future income taxes.....................................          -       (9)        8
Net change in non-cash working capital (note 17)..........     (1,122)      66      (262)
                                                               ------     ----     -----
                                                               (1,213)     (86)     (152)
                                                               ------     ----     -----
INVESTING ACTIVITIES
Deposits..................................................        (67)       -         -
Purchase of capital assets................................     (1,492)    (280)      (11)
                                                               ------     ----     -----
                                                               (1,559)    (280)      (11)
                                                               ------     ----     -----
FINANCING ACTIVITIES
Increase in shareholders' advances........................          -        -        12
Repayment of shareholders' advances.......................          -        -       (32)
Increase (decrease) in bank indebtedness..................          -        -       (14)
Increase in loan payable..................................         92        -         -
Preferred shares issued - net of issuance costs...........      3,623        -     1,016
Common shares issued - net of issuance costs..............     76,186        -         -
                                                               ------     ----     -----
                                                               79,901        -       982
                                                               ------     ----     -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING
  THE YEAR................................................     77,179     (366)      819
EFFECT OF EXCHANGE RATE ON CASH...........................       (146)       -         -
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR.............        453      819         -
                                                               ------     ----     -----
CASH AND CASH EQUIVALENTS - END OF YEAR...................     77,436      453       819
                                                               ------     ----     -----
SUPPLEMENTAL DISCLOSURE
Interest paid.............................................          7        -         2
Income taxes paid.........................................          -        4         -
The accompanying notes form an integral part of these financial statements.

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

                                        F-5
63
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

HYDROGENICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2000, 1999 and 1998
(expressed in thousands of U.S. dollars, except per share amounts)

1       DESCRIPTION OF BUSINESS
Hydrogenics Corporation designs, develops and manufactures proton-exchange
membrane, or PEM, fuel cell automated test stations. The company's principal
customers include automotive companies, fuel cell developers and component
suppliers principally located in Canada, the United States and the United
Kingdom.

2       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the company have been prepared in
accordance with Canadian generally accepted accounting principles and include
the results of the company and its wholly-owned subsidiaries, Hydrogenics
(Japan) Inc. and Hydrogenics USA, Inc., both of which were incorporated in the
fourth quarter of 2000.

The functional currency of the company is the Canadian dollar. Effective
December 31, 1999, the U.S. dollar was adopted as the reporting currency and the
financial information for 1999 and prior years has been presented in U.S.
dollars in accordance with a translation of convenience method using the
exchange rate of December 31, 1999 of US$1.00 - Cdn$1.4433 being the Bank of
Canada noon buying rate at December 31, 1999. For periods subsequent to December
31, 1999, Canadian dollar amounts are translated into the reporting currency
using the current rate method, whereby assets and liabilities are translated at
the period-end exchange rate, and revenues and expenses are translated at the
average exchange rate for the period. Gains or losses from translation into the
reporting currency are included in the cumulative translation adjustment in
shareholders' equity.

Revenue recognition
Revenues from long-term contracts are determined under the
percentage-of-completion method where revenues are recognized on a pro rata
basis in relation to contract costs incurred. The company may provide
installation services under long-term contracts. These costs are included in
determining the percentage of completion and timing of revenue recognition.
Unbilled revenues (included in accounts receivable) represent revenues earned in
excess of amounts billed on uncompleted contracts.

Revenues related to the sale of fuel cell system component parts are recorded
when such parts are delivered.

Product warranty
The company typically provides a warranty for parts and labour for one year and
provides for future warranty costs based on management's best estimates of such
costs, taking into account the nature of the contracts.

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

                                        F-6
64
--------------------------------------------------------------------------------

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, a reduction
of the cost of the applicable capital assets, or a credit in the statement of
operations and retained earnings (deficit) 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 probable.

Investment tax credits related to qualifying research and development
expenditures are recorded as either a reduction of the cost of applicable
capital assets or credited in the statement of operations and retained earnings
(deficit) depending on the nature of the expenditures which gave rise to the
credits. Investment tax credits are recognized in the year in which the credits
are earned and realization is reasonably assured.

Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term interest bearing securities with original terms to maturity of three
months or less.

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

Capital assets
Capital assets are recorded at cost less accumulated depreciation. Capital
assets are depreciated from the date of acquisition or, in respect of internally
constructed research and development 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 or straight-line
method as follows:
Computer hardware and software                                    30% per annum
Office furniture and equipment                                    20% per annum
Research and development equipment                                30% per annum
Automobiles                                                       30% per annum
Leasehold improvements                       Straight line over the term of the
                                                                          lease
Long-lived assets
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 of any asset to future net undiscounted cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the net recoverable amount.

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

                                        F-7
65
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

Research and development costs
Research and product development costs are expensed as incurred until
technological feasibility is reached, there is intention to produce or market
the developed product and the future market is clearly defined. Costs for
research and development equipment that have alternative uses are capitalized.

Costs incurred in applying for patents and licenses are expensed as incurred.

Foreign currency translation
Monetary assets and liabilities denominated in currencies other than the
Canadian dollar, the company's functional currency, are translated at the rate
of exchange in effect at the end of the year. Revenue and expense items are
translated into Canadian dollars at the rate of exchange in effect on the dates
transactions occur. Exchange gains or losses are reflected in other expenses.
See note 2 "basis of presentation" regarding the company's reporting currency.

Financial instruments
Financial instruments are initially recorded at historical cost. If subsequent
circumstances indicate that a decline in the fair value of a financial
instrument is other than temporary, the financial asset is written down to its
fair value.

Use of estimates
The preparation of these financial statements in conformity with Canadian
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.

Stock-based compensation
No compensation expense is recognized when stock options are granted to
employees. Any consideration paid by employees on exercise of stock options or
purchase of stock is credited to share capital.

Income taxes
Income taxes are recorded using the liability method. Future income tax amounts
arise due to the temporary differences in the assets and liabilities between
their accounting and income tax bases. Future tax assets are recognized to the
extent that realization of such benefits is more likely than not.

3       DEPOSITS
Deposits represent amounts paid as security for rental property and utility
services.

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

                                        F-8
66
--------------------------------------------------------------------------------

4       CAPITAL ASSETS
2000    1999
                                                                -----    ----
                                                                    $       $
Cost
  Computer hardware and software                                  253      65
  Office furniture and equipment                                  307      59
  Research and development equipment                            1,032     176
  Automobiles                                                      16       -
  Leasehold improvements                                          148       -
                                                                -----    ----
                                                                1,756     300
                                                                -----    ----
Accumulated depreciation
  Computer hardware and software                                   58      16
  Office furniture and equipment                                   43       8
  Research and development equipment                              149      26
  Automobiles                                                       1       -
  Leasehold improvements                                            8       -
                                                                -----    ----
                                                                  259      50
                                                                -----    ----
Net
  Computer hardware and software                                  195      49
  Office furniture and equipment                                  264      51
  Research and development equipment                              883     150
  Automobiles                                                      15       -
  Leasehold improvements                                          140       -
                                                                -----    ----
                                                                1,497     250
                                                                -----    ----
5       RESEARCH AND DEVELOPMENT
Research and development expenses consist of the following:
2000    1999    1998
                                                                ----    ----    ----
                                                                   $       $       $
Materials                                                        586     184      59
Labour                                                           301     189     127
Overhead                                                          20       -       -
Subcontracts                                                       -       6      10
Patent costs                                                     110      19       5
Depreciation of research and development assets                  125      26       -
Investment tax credits                                          (227)      -    (107)
                                                                ----    ----    ----
                                                                 915     424      94
                                                                ----    ----    ----
The company develops products and related technology using its own resources and
through product development and demonstration contracts with various government
and public sector agencies. The company owns or is entitled to use the products
and technology developed under these contracts.

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

                                        F-9
67
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

The company obtains protection of the intellectual property, which it develops,
by filing for patents in Canada, the United States and other countries. Legal
expenditures related to such filings in the year are included above.

6       ACCOUNTS RECEIVABLE AND UNBILLED REVENUES
Accounts receivable and unbilled revenues consist of the following amounts:
2000     1999
                                                                -----    -----
                                                                    $        $
Trade accounts receivable                                       1,939      158
Less: Allowance for doubtful accounts                               -      (13)
Goods and services tax                                            253       77
Refundable investment tax credits                                 333       92
Unbilled revenues on contracts-in-progress                         57    1,390
Less: Progress payments                                             -     (711)
                                                                -----    -----
                                                                2,582      993
                                                                -----    -----
Progress payments relate to contracts-in-progress at the end of the year with
unbilled revenues.

7       INVENTORIES
Inventories include the following accounts:
2000     1999
                                                                 ------     ----
                                                                      $        $
Raw materials                                                     1,161      117
Work-in-progress                                                     18        -
Finished goods                                                       34        -
                                                                 ------     ----
                                                                  1,213      117
                                                                 ------     ----
8       ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities include the following accounts:
2000     1999
                                                                -----    -----
                                                                    $        $
Trade accounts payable                                          1,816      801
Provincial capital tax                                            265        -
Accrued payroll costs                                              80       34
Warranty accrual                                                  186       87
Other                                                             116       31
                                                                -----    -----
                                                                2,463      953
                                                                -----    -----
--------------------------------------------------------------------------------

                                        F-10
68
--------------------------------------------------------------------------------

9       LOAN PAYABLE
In April 2000, the company received $92 in repayable grant financing from a
government agency for research and development activities. The principal is
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 proceeding
quarter. The maximum amount repayable is 150% of the principal representing an
effective interest rate of 10% per year.

The company has charged to expense imputed interest of $7 (1999 - $nil).

10      COMMITMENTS AND CONTINGENCIES
The company incurred rental expenses under operating leases of $390 in 2000
(1999 - $30; 1998 - $17) The company has future minimum lease payments under
operating leases relating to premises and office equipment at December 31, 2000
as follows:
$
2001                                                              875
2002                                                              858
2003                                                              706
2004                                                              687
2005                                                              456
                                                                -----
                                                                3,582
                                                                -----
The company has entered into repayable contribution and other research and
development arrangements with the Department of Natural Resources (DNR), the
National Research Council, Canada (NRC), and the University of Quebec at Trois
Rivieres (UQTR). Under these arrangements, the company will receive up to a
cumulative amount of Cdn$1,521 (1999 - Cdn$1,418; 1998 - Cdn$312) towards agreed
upon research and development project costs. The utilized amount of the advances
at December 31, 2000 was Cdn$986 (1999 - Cdn$682; 1998 - Cdn$304). In return,
DNR, NRC and UQTR have a right to receive as repayments, 1.3% to 4% of gross
revenue received by the company as a result of the commercial exploitation of
the associated technology. These arrangements will expire in stages between
September 30, 2006 and March 31, 2016, or when total payments paid reach the
utilized amount of the advance, depending on the terms of the individual
contracts.

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.

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

                                        F-11
69
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

11      SHARE CAPITAL AND PREFERRED SHARES
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.
2000    1999
                                                          ------    ----
                                                               $       $
ISSUED AND OUTSTANDING
35,560,000 (1999 - 19,687,500) common shares              80,740      21
Other equity                                                   -     124
                                                          ------    ----
                                                          80,740     145
                                                          ------    ----
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 initial public offering,
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 December 21, 1998, the company issued 750,000 Series A preferred shares at
$1.39 (Cdn$2.00) per share for proceeds, net of issue costs, of $1,015
(Cdn$1,466). These shares were voting, convertible, redeemable and earned 5%
cumulative dividends.

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%
cumulative dividends.

For financial reporting purposes, the Series A and B preferred shares have
liability and equity components. The liability component was based on discounted
future cash flows to the holders of the preferred shares and was recorded as
preferred shares on the balance sheets. The remaining balance of $567 was
included in other equity within share capital. Accrued dividend and amortization
of discount on the debt component is charged to the statement of operations in
the period.

On November 1, 2000, the company completed an initial public offering and listed
the 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 of $4,529. At
conversion, $229 cumulative dividends were paid to the preferred shareholders.

During 2000, the Company adopted a broad-based employee share option plan. This
plan replaces previous employee share purchase arrangements. 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 three years unless otherwise determined by the board of directors. As
at December 31, 2000, 1,981,438 options are fully vested and the remainder vest
over four years from the date of grant. Under Canadian generally accepted

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

                                        F-12
70
--------------------------------------------------------------------------------

accounting principles ("GAAP") no compensation expense has been recorded in
respect of these options. A summary of the company's stock option activity is as
follows:
WEIGHTED
                                                                                       AVERAGE
                                                               OPTIONS FOR      EXERCISE PRICE
                                                             COMMON SHARES                CAN$
                                                       -------------------     ---------------
Balance - December 31, 1998                                              -                   -
Options granted                                                  1,394,533                0.22
                                                       -------------------
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
                                                       -------------------
The following table summarizes information about the company's share options
outstanding as at December 31, 2000:
WEIGHTED
                                 NUMBER               AVERAGE                   NUMBER
EXERCISE PRICE           OUTSTANDING AT             REMAINING           EXERCISABLE AT
          CAN$        DECEMBER 31, 2000      CONTRACTUAL LIFE        DECEMBER 31, 2000
-------------    ----------------------      ----------------   ----------------------
0.05                 1,312,500                  8.89                  861,329
         0.29                 1,834,000                  8.74                  950,797
         1.05                   392,000                  9.23                  162,313
 1.50 to 5.07                   125,300                  9.46                    7,000
 4.29 to 5.00                    78,750                  9.50                        -
         5.85                    17,000                  9.96                        -
6.43 to 10.00                    20,650                  9.67                        -
        10.71                    14,350                  9.69                        -
        11.43                    84,700                  9.60                        -
        12.14                     8,400                  9.76                        -
        18.12                     5,000                  9.84                        -
                  ---------------------                         ----------------------
                              3,892,650                                      1,981,439
                  ---------------------                         ----------------------
All options granted after November 1, 2000, the date of the company's initial
public offering, have an exercise price equal to the market price of the
company's shares on the date of grant.

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

                                        F-13
71
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

12      INCOME TAXES
Significant components of the company's future income tax asset are:
2000     1999
                                                                ------    ----
                                                                     $       $
Non capital losses                                                 878       -
Investment tax credits                                              22       -
Warranty and other provisions                                      113      19
Capital assets                                                     (59)      2
Share issue costs                                                3,235       -
Unrealized foreign exchange loss                                   715       -
Valuation allowance                                             (4,904)    (21)
                                                                ------    ----
                                                                     -       -
                                                                ------    ----
The company's computation of income tax expense (benefit) is as follows:
2000     1999    1998
                                                                ------    -----    -----
                                                                     $        $        $
Income (loss) before income taxes                               (1,564)    (208)     110
                                                                ------    -----    -----
Statutory income tax rate                                        34.95%   21.62%   22.12%
                                                                ------    -----    -----
Income taxes at statutory rate                                    (547)     (45)      24
  Non-deductible interest                                           91       16        -
  Other permanent differences                                       18        7      (12)
  Large corporations tax                                           172        -        -
  Change in valuation allowance                                    438       21        -
                                                                ------    -----    -----
Income tax expense (benefit)                                       172       (1)      12
                                                                ------    -----    -----
As at December 31, 2000, the company has available federal loss carry-forwards
of $1,320 (1999 - $17; 1998 - $nil) that may be used to reduce federal taxable
income in future years, expiring in 2007. In addition, the company has available
provincial loss carry-forwards of $1,840 (1999 - $551; 1998 - $nil) that may be
used to reduce provincial taxable income in future years, expiring between 2006
and 2007. The company has earned non-refundable investment tax credits amounting
to approximately $22 (1999 - $nil; 1998 - $nil) that can be used to reduce
future federal income taxes payable, expiring in 2009. Due to the uncertainties
related to the industry in which the company operates, the tax benefit of the
above carried forward amounts has been completely offset by the valuation
allowance.

13      RELATED PARTY TRANSACTIONS
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 totaled $615 (1999 - $178; 1998 - $67). There were sales
to the related company in relation to project work it was involved with totaling
$nil (1999 - $3; 1998 - $36). At December 31, 2000, the company has an accounts
payable balance due to this related company of $46 (1999 - $69).

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

                                        F-14
72
--------------------------------------------------------------------------------

14      FINANCIAL INSTRUMENTS
At December 31, 2000 and 1999, the fair values of cash and cash equivalents,
accounts receivable, grants receivable, accounts payable and accrued liabilities
approximate their respective carrying values because of the short-term nature of
these instruments. Preferred shares and loan payable are at market terms and
accordingly, fair value approximates carrying value.

U.S. dollar-denominated amounts included with cash and cash equivalents at
December 31, 2000 are $75,547 (Cdn$116,313) (1999 - $616 (Cdn$804)). All amounts
are with major financial institutions within Canada.

A substantial portion of the company's accounts receivable are with a limited
number of customers (note 18).

15      LINE OF CREDIT
The company has an operating line of credit available up to $173 (Cdn$250). As
at December 31, 2000, the company had not drawn on this line (1999 - $nil). The
operating facility bears interest at Royal Bank of Canada prime rate plus 1.75%
, is due on demand and includes a general security agreement over all assets.

16      NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is calculated using the weighted average number of
common shares outstanding for the year, adjusted for stock splits, of 22,341,370
shares in 2000 (1999 - 19,687,500; 1998 - 19,687,500). No effect has been given
to the potential exercise of stock options in the calculation of fully diluted
earnings (loss) per share as the effect would be antidilutive.

17      STATEMENT OF CASH FLOWS
Net change in working capital is as follows:
2000    1999    1998
                                                                ------    ----    ----
                                                                     $       $       $
Decrease (increase) in current assets
  Accounts receivable and unbilled revenues                     (1,626)   (639)   (314)
  Grants receivable                                                 63    (109)      3
  Inventories                                                   (1,100)    (89)    (28)
  Prepaid expenses                                                (114)     (8)      1
Increase (decrease) in current liabilities
  Accounts payable and accrued liabilities                       1,545     850      80
  Income taxes payable                                             160       9      (4)
  Dividends payable                                                (50)     52       -
                                                                ------    ----    ----
                                                                (1,122)     66    (262)
                                                                ------    ----    ----
--------------------------------------------------------------------------------

                                        F-15
73
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

18      SEGMENTED FINANCIAL INFORMATION
The company currently operates in a single operating segment, being the design,
development and manufacturing of proton-exchange membrane, or PEM, fuel cell
automated test stations. Substantially all the company's operations including
capital assets are located in Canada. The distribution of revenue determined by
location of customers is as follows:
2000     1999    1998
                                                                -----    -----    ----
                                                                    $        $       $
Canada                                                             35       77     160
United States                                                   5,098    1,753     505
United Kingdom                                                  3,442      795       -
Rest of World                                                     308       49       -
                                                                -----    -----    ----
                                                                8,883    2,674     665
                                                                -----    -----    ----
The company's largest customers comprise the following percentages of total
sales:
2000    1999    1998
                                                                ----    ----    ----
                                                                   %       %       %
First                                                             39      36      45
Second                                                            29      30      23
Third                                                             10      14      15
Fourth                                                             7       9      11
Others                                                            15      11       6
                                                                ----    ----    ----
                                                                 100     100     100
                                                                ----    ----    ----
19      DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES AND
        PRACTICES

The financial statements have been prepared in accordance with Canadian
generally accepted accounting practices (Canadian GAAP), which differ in certain
respects from those principles and practices that the company would have
followed had its financial statements been prepared in accordance with
accounting principles and practices generally accepted in the United States
(U.S. GAAP).

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

                                        F-16
74
--------------------------------------------------------------------------------

The reconciliation of net income (loss) based on Canadian GAAP to conform to
U.S. GAAP is as follows:
2000          1999
                                                                ----------    ----------
                                                                         $             $
Net income (loss) for the year based on Canadian GAAP               (1,736)         (208)
Accrued dividends and amortization of discount on preferred
  shares                                                               262            73
Change in reporting currency                                             -             4
Stock-based compensation                                            (3,369)          (34)
                                                                ----------    ----------
Net income (loss) for the year based on U.S. GAAP                   (4,843)         (165)
Other comprehensive income (loss)
  Foreign currency translation                                       1,360             1
                                                                ----------    ----------
Comprehensive income (loss) based on U.S. GAAP                      (3,483)         (164)
                                                                ----------    ----------
Basic and diluted earnings (loss) per share based on U.S.
  GAAP                                                               (0.22)        (0.01)
Weighted average number of shares used in calculating
  earnings (loss) per share                                     22,341,370    19,687,500
The effect of these adjustments on the shareholders' equity of the company is as
follows:
2000    1999
                                                                ------    ----
Shareholders' equity based on Canadian GAAP                     80,260      38
Equity component of preferred shares                                 -    (124)
Cumulative amortization of discount on preferred shares              -      21
                                                                ------    ----
Shareholders' equity (deficiency) based on U.S. GAAP            80,260     (65)
                                                                ------    ----
----------

(i)   Preferred Shares

     Under Canadian GAAP, convertible, redeemable, preferred shares are
     presented as debt and equity components on the balance sheet. The 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.

(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,

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

                                        F-17
75
HYDROGENICS CORPORATION
--------------------------------------------------------------------------------

     2000, equity balances for deferred stock-based compensation and stock
     options outstanding are $5,762 and $2,589, 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 fair market value of
     the stock options granted in 2000 would be $3,822 (1999 - $108) and the pro
     forma net (loss) income would be $(5,444) ($(0.15) loss per share ) (1999 -
     $(185), $(0.09) loss per share). Stock options are valued using the
     Black-Scholes option pricing model with the following weighted average
     assumptions: risk free interest rate of 6.25%, expected life of four years
     and expected volatility of 100%.

(iii)  New accounting standards

     For U.S. GAAP reporting purposes, the company will be required to adopt FAS
     133 "Accounting for Derivative Instruments and Hedging Activities" for the
     2001 fiscal year. The company does not use derivative financial instruments
     for trading purposes and, at present, does not enter into hedging
     transactions and therefore the impact of adopting FAS 133 on financial
     reporting will not be material.

     For Canadian GAAP reporting purposes, the company will adopt the new
     Canadian standard for reporting earnings per share effective January 1,
     2001. The new requirements are in line with U.S. standards. The treasury
     stock method is to be used, instead of the current imputed earnings
     approach, for determining the dilutive effect of options.

(iv)  Change in reporting currency

     As discussed in note 2, effective as of December 31, 1999, the company
     adopted the U.S. dollar as its reporting currency. Under U.S. GAAP, the
     financial statements, including prior years', are translated according to
     the current rate method whereby revenues and expenses are translated at
     exchange rates prevailing at the respective transaction dates. Under
     Canadian GAAP, at the time of change in reporting currency, the historical
     financial statements are presented using a translation of convenience
     whereby all amounts for the current year and comparative figures were
     translated at the exchange rate prevailing at December 31, 1999.

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

                                        F-18
76
--------------------------------------------------------------------------------

     The condensed balance sheets as at December 31, 2000 and 1999, and
     statements of operations and cash flows for the years ended December 31,
     2000 and 1999, after giving effect to the change in reporting currency
     under U.S. GAAP, are as follows:
2000     1999
                                                                     ------    -----
                                                                          $        $
Current assets                                                  81,428    1,714
     Total assets                                                    82,992    1,964
     Current liabilities                                              2,632      962
     Total liabilities                                                2,732      962
     Mandatorily redeemable preferred shares                              -    1,067
     Shareholders' equity (deficiency)                               80,260      (65)
2000     1999
                                                                     ------    -----
                                                                          $        $
Revenues                                                         8,883    2,598
     Cost of revenues                                                 6,485    2,045
     Operating expenses                                               6,312      727
     Loss from operations                                            (3,914)    (174)
     Loss for the period                                             (4,843)    (165)
2000     1999
                                                                     ------    -----
                                                                          $        $
Cash used in operating activities                                 (984)     (83)
     Cash used in investing activities                               (1,559)    (272)
     Cash used in financing activities                               79,672        -
(v)   Comprehensive income

     U.S. GAAP requires disclosure of comprehensive income which comprises
     income (loss) and other comprehensive income. The only item of other
     comprehensive income for the company is the charge to the currency
     translation account. Under Canadian GAAP, there is no standard for
     reporting comprehensive income.

(vi)  Earnings (loss) per share

     The numerator for purposes of calculating earnings (loss) per share has
     been calculated as follows:
2000    1999
                                                                     ------    ----
                                                                          $       $
Net income (loss)                                               (4,843)   (165)
     Less: Dividends on preferred shares                                179      50
                                                                     ------    ----
     Income (loss) available to common shares                        (5,022)   (215)
                                                                     ------    ----
--------------------------------------------------------------------------------

                                        F-19
77
                                   SIGNATURES

         The Company 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
                                           -------------------------------------
                                           Pierre Rivard
                                           Chief Executive Officer and President

Date: May 18, 2001
78
                                  EXHIBIT LIST
EXHIBIT NUMBER        NAME OF DOCUMENT
     --------------        ----------------
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 Robert Edwards
                           and the Company, dated July 16, 1999.(7)
         4.5               Employment letter agreement between Dr. Ravi Gopal
                           and the Company, dated March 16, 1998.(8)
         4.6               Offer to Lease dated June 1, 2000 by and between the
                           Company and Orlando Corporation.(9)
         4.7               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated October 17, 1996, between Canada and the
                           Company.(10)
         4.8               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated July 3, 1997, between Canada and the
                           Company.(11)
         4.9               Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated June 9, 1998, between Canada and the
                           Company.(12)
         4.10              Efficiency and Alternative Energy Program Amendment
                           to the Contribution Agreement between Canada and the
                           Company, dated March 13, 2000.(13)
         4.11              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated June 9, 1999, between Canada and the
                           Company.(14)
         4.12              Natural Resources Canada Efficiency and Alternative
                           Energy Program Amendment No. 1 to the Contribution
                           Agreement between Canada and the Company, dated
                           February 1, 2000.(15)
         4.13              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement,
                           dated May 25, 2000, between Canada and the
                           Company.(16)
         4.14              Industrial Research Assistance Program Contribution
                           Agreement, dated November 24, 1998, between National
                           Research Council Canada and the Company.(17)
         4.15              Industrial Research Assistance Program Contribution
                           Agreement, dated December 1, 1999, between National
                           Research Council Canada and the Company.(18)
         4.16              Research Agreement for a Cooperative Project, dated
                           November 19, 1996, between Universite du Quebec a
                           Trois-Rivieres and the Company.(19)
         4.17              Lease, dated June 23, 2000, by and between Orlando
                           Corporation and the Company.(20)
         4.18              Employment Agreement between Pierre Rivard and the
                           Company, dated April 20, 2001.
         4.19              Employment Agreement between Boyd Taylor and the
                           Company, dated April 20, 2001.
         4.20              Employment Agreement between Ravi Gopal and the
                           Company, dated April 20, 2001.
         4.21              Employment Agreement between Joseph Cargnelli and the
                           Company, dated April 20, 2001.
         4.22              Agreement of Lease, dated as of December 15, 2000,
                           between Crown/Chadwick Realty Corp. and the Company
         4.23              Department of Natural Resources Efficiency and
                           Alternative Energy Program Contribution Agreement
                           between Canada and the Company, dated January 10,
                           2001.
         4.24              Natural Resources Canada Efficiency and Alternative
                           Energy Program Amendment No. 1 to the Contribution
                           Agreement, dated April 11, 2001.
79
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(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 3.1 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.

(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 10.6 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 10.7 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.

(9)      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.

(10)     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.

(11)     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.

(12)     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.

(13)     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.

(14)     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.

(15)     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.

(16)     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.

(17)     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.

(18)     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.

(19)     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.

(20)     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.