Additional notes and commentary:

• The NASDAQ Composite Index ("the NASDAQ") was up 9.52% for 2006, (from 2205.32 to 2415.29). The Dow Jones Industrial Average Index ("the DOW") was up 16.29% for 2006, (from 10,717.50 to 12,463.15). BLDP and MDTL were the only U.S. traded fuel cell stocks that outperformed these indices in 2006.

• Regarding the accuracy of "shares outstanding" data shown in the table above:
  • U.S. companies that are listed for trading on the primary U.S. stock exchanges (NASDAQ, New York Stock Exchange) file quarterly and annual reports with the U.S. Securities and Exchange Commission ("SEC") in which they report the number of common shares they have outstanding as of either the date of the filing of those reports or the last day of the quarter. These companies are also required to file "Form 4s" ("statements of changes in beneficial ownership of securities") (example) within a few days of issuing new common shares, as when they sell shares to raise cash, when their employees exercise options, or when their investors exercise warrants. So the number of a U.S. publicly traded company's outstanding common shares can be determined on any particular day by starting with the number reported in the most recent quarterly report and adding to it the number reported in each subsequent Form 4.
  • Non-U.S. companies that trade on U.S. exchanges (such as BLDP and HYGS - both based in Canada, both also trade on the Toronto Stock Exchange) also file quarterly and annual reports with the SEC in which the number of shares outstanding are reported as of the last day of the quarter or the date of the filing. However, such companies are not required to file Form 4s when they issue new shares, and BLDP and HYGS do not file them. (They do not file any equivalent of Form 4s with the Canadian Securities Administrators either. A few years ago H2FC wanted to find out how many options Ballard executives had been exercising. The only way to find out was to mail a check to a company in Canada that somehow compiled the information and mailed back a printed report.) So the actual number of shares outstanding for these companies on any particular day, other than the day for which the number is stated in the filings, cannot be reliably determined by an outsider.
  • Companies whose stocks trade in London or on the Australian exchange state the number of their shares outstanding in some "regulatory filings" but not in others, and are apparently not required to file anything equivalent to a Form 4 with any regulatory agency.
  • So . . .
    • For CFU.AU, CWR.UK and ITM.UK, the numbers of shares outstanding at year end shown in the table are those reported in the last filing H2FC has been able to find for each company during each year which reports a number of shares outstanding.
    • For BLDP and HYGS the numbers of shares outstanding at year end shown in the table are those reported in the last quarterly report filed during the calendar year by each company. For BLDP the values shown above are actually as of 10/14/05 and 10/13/06, and for HYGS the values shown are actually as of September 30 of each year. The number of shares of additional stock issued by these companies between the date for which they last reported a number and the end of the respective year, if any, should be insignificant, since neither company did a stock offering during the fourth quarter of either year, and since none of these companies' outstanding options appear to have been in the money during those fourth quarters. (A Ballard filing on 10/24/06 reports that the weighted average exercise price of all of the company's 6M outstanding options was $34.43 and that the lowest exercise price of any of its outstanding options is $6.10; a Hydrogenics filing of 11/13/06 reports that the weighted average exercise price of all of the company's 1.25M outstanding options was $3.07 but does not break down the exercise prices further.)
    • For the rest of the stocks listed in the table (except for Medis), all of which are based in the U.S. and trade on NASDAQ, the numbers of shares outstanding at year end shown in the table are those reported in the last quarterly report each company filed with the SEC during each year. In each case the reporting date is sometime between September 30th and the middle of November of 2005 and 2006, except for QTWW, which reports fiscal Q2 results in mid-December. None of these companies did public offerings or private placements in the 4th quarter of 2005 or 2006. H2FC did not go through the process of adding up of every additional share reported in every subsequent Form 4 filed by each one of the companies. H2FC did look at each company's Form 4s filed during the relevant intervals, and in no case did any of the companies (except Medis) issue more than ~50,000 new shares during the 4th quarter of 2005 or 2006. Most of these shares were issued to compensate the companies' directors. FCEL issued the most. (To see each company's quarterly reports and Form 4s, go to the SEC web site and enter the ticker symbol of interest.) So the actual numbers of outstanding shares for these companies at the end of each year do not differ significantly from the numbers shown above.
    • In the case of Medis, the last quarterly report filed in 2005 and 2006 disclosed the number of shares outstanding as of 11/4/05 and 11/3/06. But the Chairman and Deputy Chairman exercised options to buy a total of 843,500 shares on the last trading day of 2006, and other Medis employees, in aggregate, exercised options to buy an additional 322,500 shares during December 2006. The total of 1.166M new shares issued in december of 2006 is significant with respect to the number of shares outstanding on 11/3/06 (32.2M). H2FC therefore added up all of the new shares issued in the 4th quarter of each year as reported in the Form 4s and added those totals to the numbers reported by the company in November of 2005 and 2006, and the number of shares outstanding shown above for Medis as of the last trading day of each year are as accurate as H2FC can possibly make them.

• Comparing the change in share price of one stock to that of another during a particular period of time does not necessarily reflect the relative progress of the two companies during that period of time. The results for 2006 shown above provide a good example. The price of BLDP rose twice as much (on a percentage basis) as the price of MDTL during the year, but in H2FC's view it would be exceedingly difficult for anyone to make a convincing argument that Ballard made twice as much progress toward its business objectives during 2006 as did Medis. Furthermore, share price alone does not always accurately reflect the change in the percentage ownership of a company represented by a share of its common stock resulting from the company issuing additional shares. In other words, share price alone does not always accurately reflect dilution, and in isolation does not always accurately reflect changes in the equity market's valuation of a company following events that result in dilution - events such as raising the cash needed to execute the company's business plan. The fact that BLDP's price went up twice as much MDTL's even though the increase in the market caps of the two companies was about the same was due, at least in part, to the fact that MDTL experienced significant dilution during the year and BLDP did not. The fact that ENER's market cap went up while its share price went down is probably due in large part to the fact that ENER experienced 33% dilution during the year.
  
  "Market capitalization" (shares outstanding multiplied by share price) is by definition an exact measure of the stock market's valuation of a company. When a company issues new shares the equity market "automatically" adjusts the share price to reflect both the increase in the number of shares and the market's view of the improvement (or not) in the company's circumstances and prospects as a result of the event that resulted in additional shares being issued. Change in market cap is therefore a more complete measure than is share price of the market's assessment of a company's progress and the change in its value over time.
  
  (A company's share price and therefore its market cap can of course swing wildly in either direction on nothing more than speculation and trading momentum and in the absence of any change in share count or the company's real prospects or fundamentals. BLDP's big run up in the spring of 2006, for example, appears to have been entirely a response to rising energy prices and political posturing about "our addiction to oil", even though Ballard didn't put out any major news during that period, and even though Ballard was in no position to sell any product that might help anyone address the problem. Still, the market viewed Ballard as more valuable then in light of those circumstances. This doesn't negate the point that H2FC is trying to make here: that market cap is a more complete measure than share price of the market's view of a company's value and progress.)
  
  Dilution: The best reason for a development stage company to be public is to facilitate the very activities that result in dilution: selling shares in order to raise cash with which to finance the company's development. (Company insiders at development stage companies might have other reasons for wanting to go public that are not so good for outside investors, such as the desire to be able sell there own shares and cash in on the value of the company.) A public market in the company's shares makes new shares more attractive to the investors that buy them, because the investors can sell the shares in the public market at any time and do not necessarily have to go out and find an individual buyer or wait for the company to become profitable and pay dividends before realizing a return on their investment. The result is that a public company can generally get better financing terms than can a private company under similar circumstances.
  
  So dilution is not necessarily "bad". If a company is not progressing, is desperate for cash and is forced to repeatedly sell shares at prices way below market prices just to make payroll and keep the lights on, or if insiders sell large numbers of their own shares at whatever price they can get while the company makes little or no progress, then the resulting dilution can fairly be viewed as "bad". If a company sells shares judiciously at prices near or higher than prevailing market price, uses the proceeds to finance real development of the company (e.g. building production capacity), and the company's market cap goes up as a result, then the resulting dilution can reasonably be considered "OK" (if not "good" - no one likes to see their shares diluted). The dilution at MDTL and ENER during 2006 was the result of those companies raising large amounts of cash to finance production capacity, and the market capitalization of each company was up for the year, making it seem unfair to characterize the dilution at those companies during 2006 as "bad".

• While BLDP's share price (although not its market cap) rose more than MDTL's during 2006, MDTL's share price has risen more than any of the NASDAQ traded pure play fuel cell and hydrogen energy stocks over the past 2 years, 3 years, 4 years, etc. since MDTL began trading in 2000, and more than any of these stocks except BLDP during 2006. See charts.

The performance of the AIM (London) traded stocks CFU (Ceramic Fuel Cell) and CWR (Ceres Power) during 2006 had much more to do with the current popularity of fuel cell stocks in Europe than with any convincing improvement in the fundamentals or prospects of these companies during the year. Both companies are trying to develop fully integrated solid oxide fuel cell based systems for the "domestic combined heat and power" ("domestic-CHP") market. This idea appears to have become very attractive in Europe during 2006, and it is much easier for European retail investors to buy AIM listed stocks than stocks listed in North America. But the announcements made by CFU and CWR that drove their share prices up during 2006, "partnerships" with much larger companies like BOC and Gaz De France respectively, are very similar in nature to those made by companies like Plug Power (DTE, Honda), FuelCell Energy (Caterpillar, Marubeni) and Global Thermoelectric (Enbridge) back in 2000 and 2001, and we can see how things have played out for those companies and those stocks since. Note that much of the increase in CFU's share price for 2006 followed a single announcement late in December. In H2FC's view it seems quite likely that a year or two from now the shape of the charts of CWR and the CFUs will look much like that of ITM over the past two years. SOFC technology and the economics of the "Domestic-CHP" market remain unproven, and H2FC has not seen any announcement or evidence from either CFU or CWR that raises any higher expectations for these stocks. In short, in H2FC's view, the share prices of CFU and CWR were in a bubble at the end of 2006, much like those of the North American fuel cell stocks were five to six years ago. Note that ITM.UK's bubble appears to have already burst in May of 2006 (chart).

To anyone who has read all of this and is wondering whether the ruminations about dilution and price performance versus market cap performance are an attempt to rationalize viewing MDTL as the "winner" for 2006: H2FC won't deny it. In H2FC's view Medis made far more progress during 2006 than any other public fuel cell company. None of the others even came close based on what the other companies have said publicly, and why would any of them hold back positive news about progress toward commercialization or profitability? At the end of 2006 Medis had a UL listed product suitable for the enterprise and consumer mobility markets, orders in hand for millions of units, UL certified pilot production capacity in place, high volume production capacity less than six months away, ~$80M in cash and no debt. For H2FC all of these circumstances, combined with the fact that on a percentage basis MDTL was the the top market gap gainer for the year among the NASDAQ stocks in the face of relentless efforts by short sellers to keep the share price down, makes MDTL the clear winner for 2006. H2FC's strong view is that 2007 will be the year in which Medis finally breaks through and achieves real commercial success.