The following outlines the key events during the three months ended June
30, 2009 and up to the date of this MD&A in the development of the Company,
the HGS(R) product and the Class 8 truck market:

- In July 2009, subsequent to the quarter end, Professional Services
Industries, Inc. (PSI) completed additional third party validation
testing of the HGS(R). PSI followed the Joint SAE/TMC Fuel Consumption
Test Procedure, Type II, SAE J1321 (Oct 86) to validate and certify
the results. The tests were conducted over three days with Class 8
highway tractors with Caterpillar engines equipped with HGS(R) units.
PSI's testing concluded that the use of the HGS(R) resulted in an
overall reduction in fuel consumption of 10.47% and reduced opacity by
39.5%.

- The Company continued to invest in internal testing the reliability
and performance of its HGS(R) and component parts. That testing was
both in-lab and on-road and related to Thermal Ranges (-40C to +50C),
Vibration Testing, Salt-Spray Testing, Altitude Testing,
Electromagnetic Interference and Conduction Testing (EMI/EMC), and
Shock Testing. Reliability Demonstration Test results for the current
HGS(R) design show it meets performance requirements for a minimum of
9000 hours of operational hours.

- Hy-Drive commenced building HGS(R) units incorporating the latest
refinements developed over the past year. These units are expected to
be used for future on-road IPT testing and for sales.

- Hy-Drive's IPT Program continued in the quarter with several partners
using the latest HGS(R) technology.

- The Company implemented a program of cash conservation in 2008 that is
carried forward into 2009. Total cash and short-term investments used
in operating activities was $1,357,077 and $2,057,669 for the three
months and six months ended June 30, 2009 (2008 - $1,329,552 and
$3,066,351).

- Net loss for the three months and six months ended June 30, 2009 was
$1,150,246 and $2,023,739 ($0.02 and $0.03 per share respectively)
(2008 - $1,763,440 and $3,293,764 ($0.03 and $0.05 per share
respectively)).

- The Company reports cash, cash equivalents and short-term investments
of $6,001,251 as at June 30, 2009, compared to $9,235,324 as at
December 31, 2008; a reduction of $3,234,073 in the six months.

- The Company received notice of an action brought against it by a
company with a foreign distribution agreement for the HGS(R). The
Company and its counsel believe the action is without merit. The
plaintiff was required to post costs prior to further action being
taken. Hy-Drive has filed a defence in the action.

- Management recognizes that the economic downturn presents risks to the
trucking industry. However, management believes that its product will
provide sufficient economic benefit to prospective trucking customers
for them to purchase the HGS(R). Industry statistics indicate that
sales of Class 8 trucks have severely declined in 2009. This
represents an enhanced opportunity for Hy-Drive because our HGS(R)
unit is most effective with older truck engines, which are not being
replaced at prior rates.

- Management recognizes the risk the current economic climate presents
to the Company if prospective purchasers of our HGS(R) product are not
able to finance the acquisition of our product in spite of the value
proposition that it represents.

- Management believes that the growing importance of sustainability and
carbon trading in North America, Europe and elsewhere, combined with
the current business climate, will create an increase in interest in,
and the value of, our HGS(R) product and the Company. Our HGS(R)
should create sustainable carbon credits that our customers or the
Company will be able to market and further increase the value
proposition of purchasing our product.

- The Company settled a long-term purchase contract by a combination of
payment and return of unutilized goods. Hy-Drive intents to continue
its relationship with the supplier for use of the suppliers' product
in conjunction with the HGS(R) unit on a referral fee basis, the
details of which are still to be finalized.
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