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Hydrogenics

The spike in oil prices definitely raises the awareness for alternative energy sources. In fact, there are other reasons besides higher oil prices. For example, the U.S. government (as well as a variety of states) have adopted laws to regulate vehicle emissions. In fact, California wants to mandate zero emission levels by 2003.

Or look at the worldwide demand for electricity. It is surging. Factors for this include the heavy use of computers and the Net. A study shows that while electricity accounted for 25% of U.S. energy consumption 25 years ago, it now accounts for 37%.

Well, there is help. It comes from an alternative energy technology called proton exchange membrane (PEM) fuel cells. The technology is fairly reliable, has a long life span, lower life-cycle costs, and no environmental side-effects.

How does it work? Basically, a fuel cell is a system that converts fuel into power by using electrochemical reactions - which are twice as efficient as the internal combustion engine. It's quiet; has low vibrations; and the only by-product is water (although, I not sure I would drink it).

And, yes, a fuel cell company plans to go public this week: Hydrogenics. The lead underwriter is Salomon Smith Barney and the price range is $10-$12 (the company intends to issue 7 million shares). The proposed ticker symbol is HYGS.

Essentially, Hydrogenics is a developer of test stations for fuel cells. With these test stations, customers can simulate and control the effect of the power load, temperature, pressure and contaminants of a fuel cell. Of course, with this information, customers can develop better fuel cell designs. So far, the company has attracted top customers, such as General Motors Corporation, 3M, and the United States Army.

Interestingly enough, Hydrogenics is using its testing technology in order to develop products for third party fuel cell systems. Some of these products are for extreme environments, such as adverse weather conditions or military situations. For example, the company is developing a fuel cell that can operate in -40C environments (which makes it possible to have fuel cells in such places as Antarctica).

The financials are nascent. In 1999, sales were $2.7 million. Although, losses were small: $165,000. As for the first six months of 2000, revenues were $4.5 million and losses $1.7 million. But the losses were not the result of operations, but charges for stock option grants. Excluding these, the company was at break-even.

Actually, by being a testing equipment developer, the company has the opportunity of being a fuel cell product innovator. However, the fuel cell industry is still in its infancy and there is, as a result, lots of risk with these stocks. But if Hydrogenics can continue its innovation, it stands a chance of being a long-term winner.



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