Exhibit 99.1









Hydrogenics Corporation










2015 Consolidated Financial
Statements























Management’s Responsibility for Financial
Reporting



Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial statements have been prepared by management and approved by
the Board of Directors of Hydrogenics Corporation (the “Company”). The consolidated financial statements were prepared
in accordance with International Financial Reporting Standards and where appropriate, reflect management’s best estimates
and judgments. Where alternative accounting methods exist, management has chosen those methods considered most appropriate in
the circumstances. Management is responsible for the accuracy, integrity and objectivity of the consolidated financial statements
within reasonable limits of materiality, and for maintaining a system of internal controls over financial reporting as described
in “Management’s Report on Internal Control Over Financial Reporting.” Management is also responsible for the
preparation and presentation of other financial information included in the Annual Report and its consistency with the consolidated
financial statements.



The Audit Committee, which is appointed annually by the
Board of Directors and comprised exclusively of independent directors, meets with management as well as with the independent auditors
to satisfy itself that management is properly discharging its financial reporting responsibilities and to review the consolidated
financial statements and the independent auditor’s report.



The Audit Committee reports its findings to the Board
of Directors for consideration in approving the consolidated financial statements for presentation to the shareholders.



The Audit Committee considers, for review by the Board
of Directors and approval by the shareholders, the engagement or reappointment of the independent auditors.



The shareholders’ auditors have full access to
the Audit Committee, with and without management being present, to discuss the consolidated financial statements and to report
their findings from the audit process. The consolidated financial statements have been audited by the shareholders’ independent
auditors, PricewaterhouseCoopers LLP, Chartered Professional Accountants, and their report is provided herein.



|                                                                 |                                            
|---------------------------------------------------------------- | -------------------------------------------
|Daryl
C. F. Wilson
        President and Chief Executive Officer | Robert
Motz
        Chief Financial Officer



March 8, 2016

Mississauga, Ontario





2015 Consolidated Financial StatementsPage 2


Hydrogenics Corporation


Management’s Report on Internal Control Over Financial
Reporting



Management of the Company is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed
by, or under the supervision of, the President and Chief Executive Officer and the Chief Financial Officer and is effected by
the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial statements for external purposes in accordance with International Financial
Reporting Standards. It includes those policies and procedures that:



| | • | provide
                                         reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
                                         use or disposition of the Company’s assets that could have a material effect on
                                         the Company’s consolidated financial statements;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | pertain
                                         to the maintenance of records that accurately and fairly reflect, in reasonable detail,
                                         the transactions related to and dispositions of the Company’s assets; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | provide
                                         reasonable assurance that transactions are recorded as necessary to permit preparation
                                         of consolidated financial statements in accordance with International Financial Reporting
                                         Standards, and that the Company’s receipts and expenditures are made only in accordance
                                         with authorizations of management and the Company’s directors.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Due to its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control
over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Management assessed the effectiveness of the Company’s
internal control over financial reporting at December 31, 2015, based on the criteria set forth in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission as published in 2013. Based on this assessment
and those criteria, management concluded that as at December 31, 2015, the Corporation’s internal control over financial
reporting was effective.



The effectiveness of the Company's internal control over
financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting
firm, as stated in their report, which is included in the Company’s audited financial statements.



|                                                                 |                                            
|---------------------------------------------------------------- | -------------------------------------------
|Daryl
C. F. Wilson
        President and Chief Executive Officer | Robert
Motz
        Chief Financial Officer



March 8, 2016

Mississauga, Ontario





2015 Consolidated Financial StatementsPage 3


Hydrogenics Corporation








March 8, 2016



Independent Auditor’s Report



To the Shareholders of

Hydrogenics Corporation



We have completed integrated audits of Hydrogenics Corporation and
its subsidiaries’ 2015 consolidated financial statements and their internal control over financial reporting as at December
31, 2015. Our opinions, based on our audits are presented below.



Report on the consolidated financial statements



We have audited the accompanying consolidated financial statements
of Hydrogenics Corporation and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2015 and December 31, 2014
and the consolidated statements of operations and comprehensive loss, consolidated statements of changes in equity, and consolidated
statements of cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies
and other explanatory information.



Management’s responsibility for the consolidated
financial statements



Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.



Auditor’s responsibility



Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
Canadian generally accepted auditing standards also require that we comply with ethical requirements.



An audit involves performing procedures to obtain audit evidence,
on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion on the consolidated financial statements.



Opinion



In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of Hydrogenics Corporation and its subsidiaries as at December 31, 2015 and December
31, 2014 and their financial performance and their cash flows for the years then ended in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.





2015 Consolidated Financial StatementsPage 4


Hydrogenics Corporation


Report on internal control over financial reporting



We have also audited Hydrogenics Corporation and its subsidiaries’
internal control over financial reporting as at December 31, 2015, based on criteria established in Internal Control - Integrated
Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).



Management’s responsibility for internal control over financial
reporting



Management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Reporton Internal Control Over Financial Reporting.



Auditor’s responsibility



Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.



An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such
other procedures as we consider necessary in the circumstances.



We believe that our audit provides a reasonable basis
for our audit opinion on the company’s internal control over financial reporting.



Definition of internal control over financial reporting



A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.



Inherent limitations



Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies
or procedures may deteriorate.





2015 Consolidated Financial StatementsPage 5


Hydrogenics Corporation


Opinion



In our opinion, Hydrogenics Corporation and its subsidiaries maintained,
in all material respects, effective internal control over financial reporting as at December 31, 2015, based on criteria established
in Internal Control - Integrated Framework (2013) issued by COSO.



Yours very truly,









Chartered Professional Accountants, Licensed Public Accountants



Toronto, Ontario









2015 Consolidated Financial StatementsPage 6


Hydrogenics Corporation


Hydrogenics Corporation

Consolidated Balance Sheets

(in thousands of US dollars)






|                                          |  | December 31,  2015 |          |   | December 31,  2014 |  
|----------------------------------------- |  | ------------------ | -------- | - | ------------------ | -
|                                          |  |                    |          |   |                    |  
|Assets                                    |  |                    |          |   |                    |  
|Current assets                            |  |                    |          |   |                    |  
|Cash and cash equivalents (note 6)        |  | $                  | 23,398   |   |                    | $
|Restricted cash (note 6)                  |  |                    | 971      |   |                    |  
|Trade and other receivables (note 7)      |  |                    | 10,419   |   |                    |  
|Inventories (note 8)                      |  |                    | 14,270   |   |                    |  
|Prepaid expenses                          |  |                    | 428      |   |                    |  
|                                          |  |                    | 49,486   |   |                    |  
|Non-current assets                        |  |                    |          |   |                    |  
|Restricted cash (note 6)                  |  |                    | 532      |   |                    |  
|Investment in joint venture (note 9)      |  |                    | 1,951    |   |                    |  
|Property, plant and equipment (note 10)   |  |                    | 3,049    |   |                    |  
|Intangible assets (note 11)               |  |                    | 215      |   |                    |  
|Goodwill (note 12)                        |  |                    | 4,135    |   |                    |  
|                                          |  |                    | 9,882    |   |                    |  
|Total assets                              |  | $                  | 59,368   |   |                    | $
|                                          |  |                    |          |   |                    |  
|Liabilities                               |  |                    |          |   |                    |  
|Current liabilities                       |  |                    |          |   |                    |  
|Operating borrowings (note 16)            |  | $                  | 1,086    |   |                    | $
|Trade and other payables (note 13)        |  |                    | 7,776    |   |                    |  
|Financial liabilities (note 14)           |  |                    | 9,034    |   |                    |  
|Warranty provisions (note 15)             |  |                    | 2,255    |   |                    |  
|Deferred revenue                          |  |                    | 10,146   |   |                    |  
|                                          |  |                    | 30,297   |   |                    |  
|Non-current liabilities                   |  |                    |          |   |                    |  
|Other non-current liabilities (note 17)   |  |                    | 3,121    |   |                    |  
|Non-current warranty provisions (note 15) |  |                    | 938      |   |                    |  
|Non-current deferred revenue              |  |                    | 4,764    |   |                    |  
|                                          |  |                    | 8,823    |   |                    |  
|Total liabilities                         |  |                    | 39,120   |   |                    |  
|Equity                                    |  |                    |          |   |                    |  
|Share capital (note 18)                   |  |                    | 365,824  |   |                    |  
|Contributed surplus                       |  |                    | 18,964   |   |                    |  
|Accumulated other comprehensive loss      |  |                    | (3,224   | ) |                    |  
|Deficit                                   |  |                    | (361,316 | ) |                    |  
|Total equity                              |  |                    | 20,248   |   |                    |  
|Total equity and liabilities              |  | $                  | 59,368   |   |                    | $



Guarantees and Contingencies (notes 16 and 28)



|Douglas
S. Alexander
        Chair | David
C. Ferguson
        Director
|---------------------------------- | ----------------------------------



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





2015 Consolidated Financial StatementsPage 7


Hydrogenics Corporation


Hydrogenics Corporation

Consolidated Statements of Operations and Comprehensive Loss

For the years ended December 31,

(in thousands of US dollars, except
share and per share amounts)








|                                                               |  | 2015 |            |   | 2014 |  
|-------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Revenues                                                       |  | $    | 35,864     |   |      | $
|Cost of sales                                                  |  |      | 29,893     |   |      |  
|Gross profit                                                   |  |      | 5,971      |   |      |  
|                                                               |  |      |            |   |      |  
|Operating expenses                                             |  |      |            |   |      |  
|Selling, general and administrative expenses (note 20)         |  |      | 10,215     |   |      |  
|Research and product development expenses (note 21)            |  |      | 4,070      |   |      |  
|                                                               |  |      | 14,285     |   |      |  
|                                                               |  |      |            |   |      |  
|Loss from operations                                           |  |      | (8,314     | ) |      |  
|                                                               |  |      |            |   |      |  
|Finance income (expenses)                                      |  |      |            |   |      |  
|Interest expense, net                                          |  |      | (1,322     | ) |      |  
|Foreign currency gains (losses), net(1)                        |  |      | (428       | ) |      |  
|(Loss) from joint venture (note 9)                             |  |      | (40        | ) |      |  
|Other finance gains (losses), net (note 25)                    |  |      | (1,338     | ) |      |  
|Finance income (loss), net                                     |  |      | (3,128     | ) |      |  
|                                                               |  |      |            |   |      |  
|Loss before income taxes                                       |  |      | (11,442    | ) |      |  
|Income tax expense (note 26)                                   |  |      | -          |   |      |  
|Net loss for the period                                        |  |      | (11,442    | ) |      |  
|                                                               |  |      |            |   |      |  
|Items that will not be reclassified subsequently to net loss:  |  |      |            |   |      |  
|Re-measurement of actuarial liability                          |  |      | (104       | ) |      |  
|Items that may be reclassified subsequently to net loss        |  |      |            |   |      |  
|Exchange differences on translating foreign  operations        |  |      | (1,284     | ) |      |  
|Comprehensive loss for the period                              |  | $    | (12,830    | ) |      | $
|                                                               |  |      |            |   |      |  
|Net loss per share                                             |  |      |            |   |      |  
|Basic and diluted(note 27)                                     |  | $    | (1.12      | ) |      | $
|                                                               |  |      |            |   |      |  
|Weighted average number of common shares outstanding (note 27) |  |      | 10,199,015 |   |      |  



| | (1) | For
                                         the year ended December 31, 2015, a gain of $586 relates to foreign exchange on borrowings.
                                         For the year ended December 31, 2014, a gain of $293 relates to foreign exchange on borrowings.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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





2015 Consolidated Financial StatementsPage 8


Hydrogenics Corporation


Hydrogenics Corporation

Consolidated Statements of Changes in Equity

(in thousands of US dollars, except share and per share amounts)








|                                                                 |  | Common shares |            | Contributed |  |         |         | Accumulated
other comprehensive |  | Total  
|---------------------------------------------------------------- |  | ------------- | ---------- | ----------- |  | ------- | ------- | ------------------------------- |  | -------
|                                                                 |  | Number        |            | Amount      |  | surplus |         | Deficit                         |  | loss(1)
|Balance at December 31, 2014                                     |  |               | 10,090,325 |             |  | $       | 348,259 |                                 |  | $      
|Net loss                                                         |  |               | -          |             |  |         | -       |                                 |  |        
|Other comprehensive loss                                         |  |               | -          |             |  |         | -       |                                 |  |        
|Total comprehensive loss                                         |  |               | -          |             |  |         | -       |                                 |  |        
|Transfer                                                         |  |               |            |             |  |         |         |                                 |  |        
|Issuance of common shares (note 18)                              |  |               | 2,448,385  |             |  |         | 17,549  |                                 |  |        
|Adjustment for partial shares on share consolidation             |  |               | (3         | )           |  |         | -       |                                 |  |        
|Issuance of common shares on exercise of stock options (note 19) |  |               | 2,050      |             |  |         | 16      |                                 |  |        
|Stock-based compensation expense (note 19)                       |  |               | -          |             |  |         | -       |                                 |  |        
|Balance at December 31, 2015                                     |  |               | 12,540,757 |             |  | $       | 365,824 |                                 |  | $      



|                                                                 |  | Common shares |            | Contributed |  |         |         | Accumulated other comprehensive |  | Total  
|---------------------------------------------------------------- |  | ------------- | ---------- | ----------- |  | ------- | ------- | ------------------------------- |  | -------
|                                                                 |  | Number        |            | Amount      |  | surplus |         | Deficit                         |  | loss(1)
|Balance at December 31, 2013                                     |  |               | 9,017,617  |             |  | $       | 333,312 |                                 |  | $      
|Net loss                                                         |  |               | -          |             |  |         | -       |                                 |  |        
|Other comprehensive loss                                         |  |               | -          |             |  |         | -       |                                 |  |        
|Total comprehensive loss                                         |  |               | -          |             |  |         | -       |                                 |  |        
|Issuance of common shares and warrants exercised (note 18)       |  |               | 1,057,144  |             |  |         | 14,762  |                                 |  |        
|Issuance of common shares on exercise of stock options (note 19) |  |               | 15,564     |             |  |         | 185     |                                 |  |        
|Stock-based compensation expense (note 19)                       |  |               | -          |             |  |         | -       |                                 |  |        
|Balance at December 31, 2014                                     |  |               | 10,090,325 |             |  | $       | 348,259 |                                 |  | $      



| | (1) | Accumulated
                                         other comprehensive loss represents currency translation adjustments of $3,184 as of
                                         December 31, 2015 (2014 – $1,900), and loss on re-measurement of actuarial liability
                                         of ($40) as of December 31, 2015 (2014 – $208)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The authorized share capital of the Company consists of an unlimited
number of common shares, with no par value, and an unlimited number of preferred shares in series, with no par value.



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





2015 Consolidated Financial StatementsPage 9


Hydrogenics Corporation


Hydrogenics Corporation

Consolidated Statements of Cash Flows

For the years ended December 31,

(in thousands of US dollars)










|                                                                                                                 |  | 2015 |         |   | 2014 |  
|---------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Cash and cash equivalents provided by (used in):                                                                 |  |      |         |   |      |  
|Operating activities                                                                                             |  |      |         |   |      |  
|Net loss for the period                                                                                          |  | $    | (11,442 | ) |      | $
|Decrease (increase) in restricted cash                                                                           |  |      | 2,172   |   |      |  
|Items not affecting cash                                                                                         |  |      |         |   |      |  
|Loss on disposal of assets                                                                                       |  |      | 9       |   |      |  
|Amortization and depreciation                                                                                    |  |      | 630     |   |      |  
|Unrealized other gains and losses on hedging (note 25)                                                           |  |      | 43      |   |      |  
|Other finance losses (gains), net (note 25)                                                                      |  |      | -       |   |      |  
|Unrealized foreign exchange losses (gains)                                                                       |  |      | (369    | ) |      |  
|Unrealized loss on joint venture (note 9)                                                                        |  |      | 40      |   |      |  
|Portion of borrowings recorded as a reduction of research and development expenses                               |  |      | -       |   |      |  
|Accreted non-cash and unpaid interest  and amortization of deferred financing fees (note16 (i), (ii) and 16(iv)) |  |      | 920     |   |      |  
|Payment of post-retirement benefit liability (note 17(iii))                                                      |  |      | -       |   |      |  
|Stock-based compensation (note 18)                                                                               |  |      | 43      |   |      |  
|Stock-based compensation - RSUs and DSUs (note19)                                                                |  |      | (234    | ) |      |  
|Warrant issuance (notes 16 and 24)                                                                               |  |      | 752     |   |      |  
|Net change in non-cash working capital (note 30)                                                                 |  |      | 1,598   |   |      |  
|Cash used in operating activities                                                                                |  |      | (5,838  | ) |      |  
|                                                                                                                 |  |      |         |   |      |  
|Investing activities                                                                                             |  |      |         |   |      |  
|Investment in joint venture (note 9)                                                                             |  |      | -       |   |      |  
|Proceeds from disposals (note 10)                                                                                |  |      | -       |   |      |  
|Purchase of property, plant and equipment (note 10)                                                              |  |      | (2,028  | ) |      |  
|Receipt of IDF government funding (note 28)                                                                      |  |      | 118     |   |      |  
|Purchase of intangible assets (note 11)                                                                          |  |      | (105    | ) |      |  
|Cash used in investing activities                                                                                |  |      | (2,015  | ) |      |  
|                                                                                                                 |  |      |         |   |      |  
|Financing activities                                                                                             |  |      |         |   |      |  
|Repayment of repayable government contributions (note 17(iv))                                                    |  |      | (213    | ) |      |  
|Proceeds of borrowings, net of transaction costs (note 17(i))                                                    |  |      | 6,866   |   |      |  
|Proceeds of operating borrowings (note 16)                                                                       |  |      | 1,113   |   |      |  
|Common shares issued and stock options exercised, net of issuance costs (note 18)                                |  |      | 17,559  |   |      |  
|Cash provided by financing activities                                                                            |  |      | 25,325  |   |      |  
|                                                                                                                 |  |      |         |   |      |  
|Increase (decrease) in cash and cash equivalents during the period                                               |  |      | 17,472  |   |      |  
|Cash and cash equivalents - Beginning of period                                                                  |  |      | 6,572   |   |      |  
|Effect of exchange rate fluctuations on cash and cash equivalents held                                           |  |      | (646    | ) |      |  
|Cash and cash equivalents - End of period                                                                        |  | $    | 23,398  |   |      | $
|                                                                                                                 |  |      |         |   |      |  
|Supplemental disclosure                                                                                          |  |      |         |   |      |  
|Income taxes paid                                                                                                |  | $    | -       |   |      | $
|Interest paid                                                                                                    |  | $    | 432     |   |      | $

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





2015 Consolidated Financial StatementsPage 10


Hydrogenics Corporation




Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 1 - Description of Business



Hydrogenics Corporation and its subsidiaries (“Hydrogenics”
or the “Corporation” or the “Company”) design, develop and manufacture hydrogen generation products based
on water electrolysis technology, and fuel cell products based on proton exchange membrane (“PEM”) technology. The
Company has manufacturing plants in Canada and Belgium, a satellite facility in Germany, and a branch office in Russia. Its products
are sold throughout the world.



Hydrogenics is incorporated and domiciled in Canada. The address
of the Company’s registered head office is 220 Admiral Boulevard, Mississauga, Ontario, Canada. The Company’s shares
trade under the symbol “HYG” on the Toronto Stock Exchange and under the symbol “HYGS” on NASDAQ.



Note 2 - Basis of Preparation



These consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”) applicable to the preparation of consolidated financial statements.



The preparation of consolidated financial statements in accordance
with IFRS requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial
statements and notes to the consolidated financial statements. These estimates are based on management’s experience and
other factors, including expectations about future events that are believed to be reasonable under the circumstances. The Company
is required to make estimates that include revenue recognition, warranty provisions, and non-market vesting conditions to assess
the number of stock-based compensation awards to vest.



On March 8, 2016, the Board of Directors authorized the consolidated
financial statements for issue.



Note 3 - Summary of Significant Accounting Policies



The consolidated financial statements of the Company include the
accounts of Hydrogenics and all of its wholly-owned subsidiaries. All intercompany transactions, balances and unrealized gains
or losses on transactions between group companies have been eliminated. Accounting policies of subsidiaries have been changed,
where necessary, to ensure consistency with the policies adopted by the Company. Subsidiaries include all entities controlled
by the Company. Control exists when the Company has the power to, directly or indirectly, govern the financial and operating policies.
The existence and potential voting rights presently exercisable or convertible are considered when assessing whether the Company
controls another entity. Subsidiaries are fully consolidated from the date on which control was obtained by the Company and are
deconsolidated from the date on which control ceased. The consolidated financial statements have been prepared under the historical
cost convention, except for the revaluation of certain financial assets and financial liabilities to fair value.



Investments in joint ventures



Investments in joint ventures, over which the Company has joint
control, are accounted for using the equity method. Under the equity method of accounting, investments are initially recorded
at cost, and the carrying amount is increased or decreased to recognize the Company’s share of the investee’s net
profit or loss, including net profit or loss recognized in other comprehensive income (“OCI”), subsequent to the date
of acquisition.





2015 Consolidated Financial StatementsPage 11


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Foreign currency translation



Items included in the financial statements of each consolidated
entity in the Company’s consolidated financial statements are measured using the currency of the primary economic environment
in which the entity operates (the “functional currency”). The consolidated financial statements are presented in US
dollars, which is the functional currency of Hydrogenics Corporation (“the parent company”).



Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from
the settlement of foreign currency transactions and from the translation at period-end exchange rates of monetary assets and liabilities
denominated in currencies other than an operation’s functional currency are recognized in the consolidated statements of
operations and comprehensive loss.



The functional currency of the Company’s subsidiary located
in Belgium is the euro, which is the currency of the primary economic environment in which the subsidiary operates. The financial
statements of this subsidiary are translated into US dollars as follows: assets and liabilities, at the closing exchange rate
at the dates of the consolidated balance sheets; and the income and expenses and other comprehensive income (loss), at the average
exchange rate during the year as this is considered a reasonable approximation to the actual rates. All resulting changes are
recognized in other comprehensive loss as cumulative translation adjustments.



Cash and cash equivalents and restricted cash



Cash equivalents are short-term, highly liquid investments that
are readily convertible into known amounts of cash. Cash and cash equivalents, including restricted cash held as partial security
for standby letters of credit and letters of guarantee, include cash on hand deposits held with banks and other short-term highly
liquid investments with original maturities of three months or less.



Financial instruments



Financial assets and financial liabilities are recognized on the
trade date – the date on which the Company becomes a party to the contractual provisions of the instrument. Financial assets
are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the
Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when they are
extinguished, which occurs when the obligation specified in the contract is discharged, cancelled, or expired. Financial assets
and financial liabilities are offset and the net amount reported in the consolidated balance sheets when there is a legally enforceable
right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the financial asset and
settle the financial liability simultaneously.



At initial recognition, the Company classifies its financial instruments
in the following categories depending on the purpose for which the instruments were acquired, as follows:



| | (i) | Financial
                                         assets and financial liabilities at fair value through profit or loss. A financial
                                         asset or financial liability is classified in this category if acquired principally for
                                         the purpose of selling or repurchasing in the short term. Derivatives are also included
                                         in this category, unless designated as hedges. Financial instruments in this category
                                         are recognized initially and subsequently at fair value. Transaction costs are expensed
                                         in the consolidated statements of operations and comprehensive loss. Gains and losses
                                         arising from changes in fair value are presented in the consolidated statements of operations
                                         and comprehensive loss within other gains and losses in the period in which they arise.
                                         Financial assets and financial liabilities at fair value through profit or loss are classified
                                         as current, except for the portion expected to be realized or paid beyond 12 months of
                                         the consolidated balance sheet dates, which is classified as non-current. The measurement
                                         of the fair value of an asset or liability is based on assumptions that market participants
                                         would use when pricing the asset or liability under current market conditions.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





2015 Consolidated Financial StatementsPage 12


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






| |  | The Company also periodically enters
                                         into foreign exchange forward contracts to limit its exposure to foreign currency rate
                                         fluctuations. These derivatives are recognized initially at fair value and are recorded
                                         as either assets or liabilities based on their fair value. Subsequent to initial recognition,
                                         these derivatives are measured at fair value and changes to their value are recorded
                                         through net loss, unless these financial instruments are designated as hedges.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Loans
                                         and receivables.Loans and receivables are non-derivative financial assets with fixed
                                         or determinable payments that are not quoted in an active market. The Company’s
                                         loans and receivables comprise trade and other receivables, cash and cash equivalents
                                         and restricted cash, and are classified as current, except for the portion expected to
                                         be realized or paid beyond 12 months of the consolidated balance sheet dates, which is
                                         classified as non-current. Loans and receivables are initially recognized at fair value.
                                         The measurement of the fair value of an asset is based on assumptions that market participants
                                         would use when pricing the asset under current market conditions. Subsequently, loans
                                         and receivables are measured at amortized cost using the effective interest method less
                                         a provision for impairment.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Financial
                                         liabilities at amortized cost. Financial liabilities at amortized cost include trade
                                         and other payables, repayable government contributions and long-term debt. All financial
                                         liabilities at amortized cost are initially recognized at fair value and subsequently
                                         measured at amortized cost using the effective interest method. At the end of each reporting
                                         period, interest accretion related to repayable government contributions and long-term
                                         debt is included in interest expense and changes in value attributable to changes in
                                         the timing and amount of estimated future cash flows are included in other finance gains
                                         losses, net. Financial liabilities are classified as current liabilities if payment is
                                         due within 12 months (or within the normal operating cycle of the business if longer).
                                         Otherwise, they are presented as non-current liabilities.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Derivative
                                         financial instruments, including hedge accounting. The Company periodically holds
                                         derivative financial instruments to hedge its foreign currency risk exposures that are
                                         designated as the hedging instrument in a hedge relationship. On initial designation
                                         of the hedge, the Company formally documents the relationship between the hedging instrument
                                         and hedged item, including the risk management objectives and strategy in undertaking
                                         the hedge transaction, together with the methods that will be used to assess the effectiveness
                                         of the hedging relationship. The Company makes an assessment, both at the inception of
                                         the hedge relationship as well as on an ongoing basis, whether the hedging instruments
                                         are expected to be “highly effective” in offsetting the changes in the fair
                                         value or cash flows of the respective hedged items during the period for which the hedge
                                         is designated, and whether the actual results of each hedge are within a range of 80-125%.
                                         For a cash flow hedge of a forecast transaction, the transaction should be highly probable
                                         to occur and should present an exposure to variations in cash flows that could ultimately
                                         affect reported net income. Derivatives are recognized initially at fair value; attributable
                                         transaction costs are recognized in profit or loss as incurred. Subsequent to initial
                                         recognition, derivatives are measured at fair value, and changes therein are accounted
                                         for as described below.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Cash
                                         flow hedges.When a derivative is designated as the hedging instrument in a hedge
                                         of the variability in cash flows attributable to a particular risk associated with a
                                         recognized asset or liability or a highly probable forecast transaction that could affect
                                         profit or loss, the effective portion of changes in the fair value of the derivative
                                         is recognized in other comprehensive income and presented in unrealized gains/losses
                                         on cash flow hedges in equity. The amount recognized in other comprehensive income is
                                         removed and included in profit or loss in the same period as the hedged cash flows affect
                                         profit or loss under the same line item in the consolidated statements of operations
                                         and comprehensive loss as the hedged item. Any ineffective portion of changes in the
                                         fair value of the derivative is recognized immediately in profit or loss.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





2015 Consolidated Financial StatementsPage 13


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






If the hedging instrument no longer meets the criteria
for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued
prospectively. The cumulative gain or loss previously recognized in other comprehensive income and presented in unrealized gains/losses
on cash flow hedges in equity remains there until the forecast transaction affects profit or loss.



If the forecast transaction is no longer expected to
occur, then the balance in other comprehensive income is recognized immediately in profit or loss. In other cases the amount recognized
in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss.



Inventories



Raw materials, work-in-progress and finished goods are valued at
the lower of cost, determined on a first-in, first-out basis, and net realizable value. Inventory costs include the cost of material,
labour, variable overhead and an allocation of fixed manufacturing overhead including amortization based on normal production
volumes. Net realizable value is the estimated selling price less estimated costs of completion and applicable selling expenses.
If the carrying value exceeds the net realizable amount, a writedown is recognized. The writedown may be reversed in a subsequent
period if the circumstances causing it no longer exist.



Property, plant and equipment



Property, plant and equipment are stated at cost less government
grants, accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable
to the acquisition of the asset. Subsequent costs are included in the asset’s carrying value or recognized as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company
and the cost can be measured reliably. The cost and accumulated depreciation of replaced assets are derecognized when replaced.
Repairs and maintenance costs are charged to the consolidated statements of operations and comprehensive loss during the period
in which they are incurred.



Depreciation is calculated on a diminishing balance method to depreciate
the cost of the assets to their residual values over their estimated useful lives. The depreciation rates applicable to each category
of property, plant and equipment are as follows:



|Furniture
    and equipment | 20%
    - 25% per annum                     
|--------------------------- | --------------------------------------------
|Computer
    hardware       | 30%
    per annum                           
|Automobiles                 | 30%
    per annum                           
|Leasehold
    improvements  | Straight-line
    over the term of the lease



Residual values, method of depreciation and useful lives of the
assets are reviewed at least annually and adjusted if appropriate.



Construction-in-progress assets are not depreciated until such
time they are available for use. Depreciation ceases at the earlier of the date the asset is classified as held-for-sale and the
date the asset is derecognized.





2015 Consolidated Financial StatementsPage 14


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Gains and losses on disposals of property, plant and equipment
are determined by comparing the proceeds with the carrying value of the asset and are included as part of other gains and losses
in the consolidated statements of operations and comprehensive loss.



Intangible assets



The Company’s intangible assets consist of computer software
with finite useful lives. These assets are capitalized and amortized over their useful lives using the diminishing balance method
of 30% per annum. Costs associated with maintaining computer software programs are recognized as an expense as incurred. The method
of amortization and useful lives of the assets are reviewed at least annually and adjusted if appropriate.



Goodwill



Goodwill is recognized as the fair
value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the
fair value of the net identifiable assets acquired and liabilities assumed, as of the acquisition date. Subsequent to initial
recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill acquired in business combinations is allocated
to groups of cash generating units (“CGU”) that are expected to benefit from the synergies of the combination.
The goodwill recorded in the Company’s consolidated financial statements relates to the OnSite
Generation CGU. Goodwill is not amortized.



Impairment



At each reporting date, the Company assesses whether there is objective
evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss on the financial
asset, which is carried at amortized cost. The loss is determined as the difference between the amortized cost of the financial
asset and the present value of the estimated future cash flows, discounted using the financial asset’s original effective
interest rate. The carrying value of the asset is reduced by this amount indirectly through the use of an allowance account. Impairment
losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and
the decrease can be related objectively to an event occurring after the impairment was recognized.



Property, plant and equipment and definite life intangible assets
are tested for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Intangible
assets with an indefinite useful life or intangible assets not yet available-for-use are subject to an annual impairment test.
For the purpose of measuring recoverable values, assets are grouped at the lowest levels for which there are separately identifiable
cash inflows being the CGU. The recoverable value is the higher of an asset’s fair value less costs of disposal and value
in use (which is the present value of the expected future cash flows of the relevant asset or CGU). An impairment loss is recognized
for the value by which the asset’s carrying value exceeds its recoverable value.



Goodwill is not amortized but is reviewed for impairment annually
or at any time an indicator of impairment exists. Refer to Note 12 for a detailed discussion on how the goodwill testing is performed.
Goodwill acquired through a business combination is allocated to each CGU or group of CGUs that is expected to benefit from the
related business combination. A goodwill CGU represents the lowest level within an entity at which goodwill is monitored for internal
management purposes, which is not higher than an operating segment.



The Company evaluates impairment losses, other than goodwill impairment,
for potential reversals when events or circumstances warrant such consideration.





2015 Consolidated Financial StatementsPage 15


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Segment reporting



Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer.
The Corporation has two segments which are OnSite Generation and Power Systems. OnSite Generation includes the design, development,
manufacture and sale of hydrogen generation products. Power Systems includes the design, development, manufacture and sale of
fuel cell products.



Provisions and product warranties



Provisions are recognized when the Company has a present legal
or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required
to settle the obligation, and the amount can be reliably estimated. Provisions are measured based on management’s best estimate
of the expenditure required to settle the obligation at the end of the reporting period, and are discounted to their present value
where the effect is material. Additionally, the Company performs evaluations to identify onerous contracts and where applicable,
records provisions for such contracts. Onerous contracts are those in which the unavoidable costs of meeting the obligations under
the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the
least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties
arising from the failure to fulfill it.



The Company typically provides a warranty for parts and/or labour
for up to two years or based on time or certain operating specifications, such as hours of operation. In establishing the warranty
provision, the Company estimates the likelihood that products sold will experience warranty claims and the estimated cost to resolve
claims received, taking into account the nature of the contract and past and projected experience with the products. Provisions
are reviewed at each consolidated balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable
that a payment to settle the obligation will be incurred, the provision is reversed.



Warrants



The Company issued warrants in the second quarter of 2015, which
have been classified as liabilities, which are recorded at their fair value with changes in fair value reflected in the consolidated
statements of operations.



Leases



Leases are classified as finance leases when the lease arrangement
transfers substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
The assets held under a finance lease are recognized as assets at the lower of the following two values: the present value of
the minimum lease payments under the lease arrangement or their fair value determined at inception of the lease. The corresponding
obligation to the lessor is accounted for as long-term debt. These assets are depreciated over the shorter of the useful life
of the assets and the lease term when there is no reasonable certainty the lessee will obtain ownership by the end of the lease
term. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statements
of operations and comprehensive loss on a straight-line basis over the period of the lease.





2015 Consolidated Financial StatementsPage 16


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Research and product development



The Company incurs costs associated with the design and development
of new products. Expenditures during the research phase are expensed as incurred. Expenditures during the development phase are
capitalized if the Company can demonstrate each of the following criteria: (i) the technical feasibility of completing the intangible
asset so that it will be available-for-use or sale; (ii) its intention to complete the intangible asset and use or sell it; (iii)
its ability to use or sell the intangible asset; (iv) how the intangible asset will generate probable future economic benefits;
(v) the availability of adequate technical, financial, and other resources to complete the development and to use or sell the
intangible asset; and (vi) its ability to measure reliably the expenditure attributable to the intangible asset during its development;
otherwise, they are expensed as incurred. Capitalized costs are amortized over their estimated useful lives.



Funding for research and product development includes government
and non-government research and product development support. Government research and product development funding is recognized
when there is reasonable assurance the Company has complied with the conditions attached to the funding arrangement and is recognized
as the applicable costs are incurred. Non-governmental funding is recognized when the Company becomes party to the contractual
provisions of the funding agreement and is recognized as the applicable costs are incurred. Research and product development funding
is presented as a reduction in research and product development expenses unless it is for reimbursement of an asset, in which
case, it is accounted for as a reduction in the carrying amount of the applicable asset. Where the Company receives government
contributions that include fixed terms of repayment, a financial liability is recognized and measured as an amortized cost financial
liability, as discussed above.



Revenue recognition



Revenue is measured at the fair value of the consideration received
or receivable for the gross inflow of economic benefits during the period, arising in the ordinary course of the Company’s
activities.



Revenue is recognized when the Company has transferred the significant
risks and rewards of ownership of the goods to the buyer, it is probable the economic benefits will flow to the Company, delivery
has occurred, and the amount of revenue and costs incurred or to be incurred can be measured reliably. For sales of equipment,
these criteria are generally met at the time the product is shipped and delivered to the customer and depending on the delivery
conditions, title and risk have passed to the customer and acceptance of the product, when contractually required, has been obtained,
either via formal acceptance by the customer or lapse of rejection period. If all other revenue recognition criteria have been
met but delivery has not occurred, the Company recognizes revenue, provided that the following criteria have been met: (i) the
buyer must have assumed title to the goods and accepted billing; (ii) it must be probable delivery will take place; (iii) the
goods must be on hand identified and ready for delivery to the buyer at the time the sale is recognized; (iv) the buyer specifically
acknowledges the deferred delivery instructions; and (v) the usual payment terms apply.



Site commissioning revenue is recognized when the installation
has been completed. Revenue is measured based on the price specified in the sales contract, net of discounts and estimated returns.
Historical experience is used to estimate and provide for discounts and returns.



The Company also enters into transactions that represent multiple-element
arrangements, which may include any combination of equipment and service. These multiple-element arrangements are assessed to
determine whether they can be sold separately in order to determine whether they can be treated as more than one unit of accounting
or element for the purpose of revenue recognition. When there are multiple elements or units of accounting in an arrangement,
the arrangement consideration is allocated to the separate units of accounting or elements on a fair value basis. The revenue
recognition policy described above is then applied to each unit of accounting.





2015 Consolidated Financial StatementsPage 17


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Revenue from long-term contracts, such as customer specific product
development contracts, is recognized when the outcome of a transaction involving the rendering of services can be estimated reliably,
determined under the percentage-of-completion method based on the stage of completion. Under this method, the revenue recognized
equals the latest estimate of the total selling price of the contract multiplied by the actual completion rate, determined by
reference to the costs incurred for the transaction and the costs to complete the transaction. The outcome of a transaction can
be estimated reliably when the amount of revenue can be measured reliably, it is probable that the economic benefits associated
with the transaction will flow to the Company, the stage of completion at the end of the reporting period can be measured reliably,
and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.



If circumstances arise that may change the estimates of revenue,
the remaining costs or extent of progress toward completion, estimates of revenue are revised. These revisions may result in increases
or decreases in estimated revenue or remaining costs to complete and are accounted for prospectively from the period in which
the circumstances that give rise to the revision become known by management. If the outcome of a transaction cannot be estimated
reliably, revenue is recognized only to the extent of the expenses recognized that are recoverable. When the outcome of a transaction
cannot be estimated reliably and it is not probable the costs incurred will be recovered, revenue is not recognized and the costs
incurred are recognized as an expense. Once the uncertainty surrounding the outcome no longer exists, revenue is recognized by
reference to the state of completion of the transaction at the end of the reporting period.



Cash received in advance of revenue being recognized is classified
as current deferred revenue, except for the portion expected to be settled beyond 12 months of the consolidated balance sheet
dates, which is classified as non-current deferred revenue.



Cost of sales



Cost of sales for products includes the cost of finished goods
inventory and the costs related to shipping and handling. Cost of sales for service includes direct labour and additional direct
and indirect expenses.



Share capital



Common shares are classified as equity. Incremental costs directly
attributable to the issuance of shares are recognized as a deduction from equity.



Post-retirement benefit liabilities



The Company has a post-retirement benefit obligation with respect
to the Belgium subsidiary related to defined contribution plans. Under Belgian law, a guaranteed return on the contributions is
required and as a result this is accounted for as a defined benefit plan. The Company has recorded a long-term liability associated
with this plan for the present value of the obligation at the consolidated balance sheet dates. Changes in the fair value of this
liability represent actuarial gains and losses arising from experience adjustments and are charged/credited to equity in other
comprehensive income.



Stock-based compensation



The Company’s stock-based compensation plans are summarized
below:



| | (i) | Stock
                                         options
| | --- | ------------------------------------------------------



The Company grants stock options to certain employees. Stock options
vest 25% one year from the date of grant and annually thereafter over three years and expire after ten years. Each tranche in
an award is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche
is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized (with a corresponding
adjustment to contributed surplus) over the tranche’s vesting period, and is based on the estimated number of instruments
expected to vest, which are then reestimated at the reporting dates to the extent that subsequent information indicates the actual
number of instruments expected to vest is likely to differ from previous estimates. When options are exercised the Company issues
new shares and the proceeds received net of any directly attributable transaction costs are credited to share capital at market
value and the difference is adjusted to contributed surplus.





2015 Consolidated Financial StatementsPage 18


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






| | (ii) | Deferred
                                         share units (“DSU”)
| | ---- | ---------------------------------------------------------------------



The Company grants DSUs to directors as part of their compensation.
The DSUs vest upon grant and are settled in cash. The vested DSUs are marked-to-market at the end of each reporting period based
on the closing price of the Company’s shares with the change in fair value recorded in selling, general and administrative
expenses. The Company has set up a liability in the consolidated balance sheets, included within trade and other payables, for
the fair value of the vested DSUs.



| | (iii) | Performance
                                         share units (“PSU”)”
| | ----- | -------------------------------------------------------------------------



The Company grants PSUs to certain employees. The PSUs will be
settled in the Company’s shares. The cost of the Company’s PSUs is charged to selling, general and administrative
expenses using the graded vesting method. The fair value of the vested share units is the fair value of the Company’s share
price on the date of grant. The resulting compensation expense, based on the fair value of the awards granted, excluding the impact
of any non-market service and performance vesting conditions, is charged to income over the period the employees unconditionally
become entitled to the award, with a corresponding increase to contributed surplus. Non-market vesting conditions are considered
in making assumptions about the number of awards that are expected to vest. At each reporting date, the Company reassesses its
estimates of the number of awards that are expected to vest and recognizes the impact of any revision in the consolidated statements
of operations and comprehensive loss with a corresponding adjustment to contributed surplus.



Income taxes



Income tax expense comprises current income tax expense and deferred
income tax expense. Income tax expense is recognized in the consolidated statements of operations, except to the extent that it
relates to items recognized directly in equity, in which case, income taxes are also recognized directly in comprehensive loss
or equity. Current income taxes are the expected taxes payable on the taxable income for the year, using income tax rates enacted,
or substantively enacted at the end of the reporting period, and any adjustment to income taxes payable in respect of previous
years.



In general, deferred income taxes are the amount of income taxes
expected to be paid or recoverable in future periods in respect of temporary differences, carry-forwards of unused tax losses
and carry-forwards of unused tax credits. Deferred income taxes arise between the tax base and their carrying values in the consolidated
financial statements as well as on unused tax losses and tax credits. Deferred income taxes are determined on a non-discounted
basis using tax rates and laws that have been enacted or substantively enacted at the consolidated balance sheet dates and are
expected to apply when the deferred income tax asset or liability is settled.



Deferred income taxes are provided on temporary differences arising
on investments in subsidiaries and associates, except, in the case of subsidiaries, where the timing of the reversal of the temporary
difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognized to the extent it is probable that taxable profits will be available against which the
deductible temporary differences and unused tax losses and tax credits can be utilized. The carrying value of deferred income
tax assets is reviewed at each consolidated balance sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the deferred income tax asset to be recovered. Deferred income tax liabilities
are not recognized on temporary differences that arise from goodwill, which is not deductible for tax purposes. Deferred income
tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of certain
assets and liabilities acquired other than in a business combination. Deferred income tax assets and liabilities are presented
as non-current.





2015 Consolidated Financial StatementsPage 19


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Net loss per share



Basic net loss per share is calculated based on the weighted average
number of common shares outstanding for the year. Diluted net loss per share is calculated using the weighted average number of
common shares outstanding for the year for basic net loss per share plus the weighted average number of potential dilutive shares
that would have been outstanding during the year had all potential common shares been issued at the beginning of the year or when
the underlying stock options or warrants were granted, if later, unless they were anti-dilutive. The treasury stock method is
used to determine the incremental number of shares that would have been outstanding had the Company used proceeds from the exercise
of stock options and warrants to acquire common shares.



Note 4 - Significant Accounting Judgments and Estimation Uncertainties



Critical accounting estimates and judgments



The preparation of consolidated financial statements in accordance
with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and notes to the consolidated financial statements. These estimates are based on management’s experience and
other factors, including expectations about future events that are believed to be reasonable under the circumstances. Significant
areas requiring the Company to make estimates include revenue recognition, warranty provisions, and the expectations of the number
of PSU awards that are expected to vest.



These estimates and judgments are further discussed below:



| | (i) | Revenue recognition and contract
                                         accounting
| | --- | ------------------------------------------------------------------------------------



The Company uses the percentage-of-completion method of accounting
for its long-term contracts, such as customer specific product development contracts. Use of the percentage-of-completion method
requires the Company to estimate the services performed to date as a proportion of the total services to be performed. This estimate
impacts both the amount of revenue recognized by the Company as well as the amount of deferred revenue. The determination of estimated
costs for completing a fixed-price contract is based on estimates that can be affected by a variety of factors such as potential
variances in scheduling and cost of materials along with the availability and cost of qualified labour and subcontractors, productivity,
as well as possible claims from subcontractors.



The determination of expected revenue represents the contractually
agreed revenue, including change orders. A change order results from an official change to the scope of the work to be performed
compared to the original contract that was signed.



The Company estimates costs separately for each customer specific
product development contract. The determination of estimates is based on the Company’s business practices, considering budgets
as well as its historical experience. Furthermore, management regularly reviews underlying estimates of product development contract
profitability. The long-term nature of certain product development contract arrangements commonly results in significant estimates
related to scheduling and estimated costs.





2015 Consolidated Financial StatementsPage 20


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






| | (ii) | Warranty provision
| | ---- | ------------------



As noted above, the Company typically provides a warranty for parts
and/or labour for up to two years from the date of shipment or commissioning or based on certain operating specifications, such
as hours of operation. In establishing the warranty provision, management considers historical field data, results of internal
testing and in certain circumstances, application, in determining the value of this provision. Should these estimates prove to
be incorrect, the Company may incur costs different from those provided for in the warranty provision. Management reviews warranty
assumptions and makes adjustments to the provision at each reporting date based on the latest information available, including
the expiry of contractual obligations. Adjustments to the warranty provision are recorded in cost of sales.



Note 5 - Accounting Standards Issued But Not Yet Applied



In July 2014, the IASB issued a final version of IFRS 9, Financial
Instruments,which replacesIAS 39,Financial Instruments: Recognition and Measurement,and supersedes all previous
versions of the standard. The standard introduces a new model for the classification and measurement of financial assets and liabilities,
a single expected credit loss model for the measurement of the impairment of financial assets and a new model for hedge accounting
that is aligned with a company’s risk management activities. IFRS 9 is effective for annual periods beginning on or after
January 1, 2018, with earlier adoption permitted. The Company is currently evaluating the impact of adopting this standard on
its consolidated financial statements.



In May 2014, the IASB issued the final revenue standard, IFRS 15,
Revenue from Contracts with Customers,which will replace IAS 11, Construction Contracts,IAS 18, Revenue,IFRIC
13, Customer Loyalty Programmes,IFRIC 15, Agreements for the Construction of Real Estate,IFRIC 18, Transfer
of Assets from Customers,and SIC 31, Revenue - Barter Transactions Involving Advertising Services.
The new standard provides a comprehensive five-step revenue recognition model for all contracts with customers and requires management
to exercise significant judgment and make estimates that affect revenue recognition. In September 2015, the IASB deferred the
effective date of the revenue standard to fiscal years beginning on or after January 1, 2018 and interim periods within that year.
Earlier application is permitted. The Company is assessing the new standard to determine its impact on the Company’s consolidated
financial statements.



IFRS 16 Leases (“IFRS 16”)sets out the
principles for the recognition, measurement, presentation an ddisclosure of leases for both parties to a contract, the customer
(‘lessee’) and the supplier (‘lessor). This will replace IAS 17 Leases(“IAS 17”) and related
Interpretations. IFRS 16 provides revised guidance on identifying a lease and for separating lease and non-lease components of
a contract. IFRS 16 introduces a single accounting model for all lessees and requires a lessee to recognize right-of-use assets
and lease liabilities for leases with terms of more than 12 moths, unless the underlying asset is of low value, and depreciation
of lease assets separately from interest on lease liabilities in the income statement. Under IFRS 16, lessor accounting for operating
and finance leases will remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January
1, 2019, with earlier application permitted for entities that apply IFRS 15 Revenue from Contracts with Customers.The
Company’s contractual obligations in the form of operating leases under IAS 17 (note 28) will then be reflected on the balance
sheet resulting in an increase to both assets and liabilities upon adoption of IFRS 16, and changes to the timing of recognition
of expenses associated with the lease arrangements. The Company has not yet analyzed the new standard to determine its impact
on the Company’s consolidated balance sheet and consolidated statement of net loss and comprehensive loss.





2015 Consolidated Financial StatementsPage 21


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 6 – Cash and Cash Equivalents and Restricted Cash



|At December 31,               |  | 2015 |        |  | 2014 |  
|----------------------------- |  | ---- | ------ |  | ---- | -
|Cash and cash equivalents     |  | $    | 23,398 |  |      | $
|Restricted cash               |  |      | 971    |  |      |  
|Restricted cash - non-current |  |      | 532    |  |      |  
|Total                         |  | $    | 24,901 |  |      | $



The restricted cash is held by financial institutions
in Canada and Europe as partial security for standby letters of credit and letters of guarantee. At December 31, 2015, the Company
had standby letters of credit and letters of guarantee issued by several financial institutions of $5,357 (2014 - $8,000), with
expiry dates extending to December 2018. See Note 16 – Lines of Credit and Bank Guarantees for additional information.



Note 7 - Trade and Other Receivables



|                                       |  | December 31,  2015 |        |   | December 31,  2014 |  
|-------------------------------------- |  | ------------------ | ------ | - | ------------------ | -
|Trade accounts receivables             |  | $                  | 2,314  |   |                    | $
|Less:  Allowance for doubtful accounts |  |                    | (127   | ) |                    |  
|Net trade accounts receivable          |  |                    | 2,187  |   |                    |  
|Accrued receivables                    |  |                    | 6,450  |   |                    |  
|Other receivables                      |  |                    | 1,782  |   |                    |  
|Total receivables                      |  | $                  | 10,419 |   |                    | $



Included in accrued receivables is $6,450 relating to receivables
which are to be billed according to progress based, specified payment schedules, typical with long term percentage of completion
contracts. Management anticipates that $926 of this amount will not be billed within the next 12 months.



Note 8 - Inventories



|                 |  | December 31,  2015 |        |  | December 31,  2014 |  
|---------------- |  | ------------------ | ------ |  | ------------------ | -
|Raw materials    |  | $                  | 7,737  |  |                    | $
|Work-in-progress |  |                    | 6,440  |  |                    |  
|Finished goods   |  |                    | 93     |  |                    |  
|Total inventory  |  | $                  | 14,270 |  |                    | $





2015 Consolidated Financial StatementsPage 22


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






At December 31, 2015, the inventory obsolescence provision was
as follows:



|                                                |  | 2015 |       |   | 2014 |  
|----------------------------------------------- |  | ---- | ----- | - | ---- | -
|At January 1                                    |  | $    | 1,050 |   |      | $
|Net Increase in the provision                   |  |      | 547   |   |      |  
|Writedowns during the period, net of recoveries |  |      | (318  | ) |      |  
|Foreign exchange revaluation                    |  |      | (47   | ) |      |  
|At December 31,                                 |  | $    | 1,232 |   |      | $



Note 9 – Investment in Joint Venture



On May 28, 2014, the Company entered into a joint arrangement with
Kolon Water & Energy Co. Ltd., whereby the parties formed the joint venture Kolon Hydrogenics to launch and market potential
businesses based on products and technologies produced by Hydrogenics for the Korean market. The Company has a 49% equity position
in Kolon Hydrogenics and shares joint control. The Board of Directors of the joint venture has four directors consisting of two
nominees from each of Hydrogenics and Kolon Water and Energy and all resolutions are adopted by an affirmative vote of two thirds.
The Company accounts for this joint venture using the equity method in accordance with IFRS 11, “Joint Arrangements”.



|                                   |  | December 31,  2015 |       |   | December 31,  2014 |  
|---------------------------------- |  | ------------------ | ----- | - | ------------------ | -
|Balance January 1,                 |  | $                  | 2,150 |   |                    | $
|Equity investment in joint venture |  |                    | -     |   |                    |  
|Share in loss of the joint venture |  |                    | (40   | ) |                    |  
|Foreign currency translation       |  |                    | (159  | ) |                    |  
|Investment in joint venture        |  | $                  | 1,951 |   |                    | $



Financial information for the joint venture, as presented in the
IFRS financial statements of Kolon Hydrogenics follows below.



Summarized balance sheet information of Kolon Hydrogenics is a
follows:



|                        |  | December 31,  2015 |       |  | December 31,  2014 |  
|----------------------- |  | ------------------ | ----- |  | ------------------ | -
|Assets                  |  |                    |       |  |                    |  
|Current assets          |  | $                  | 590   |  |                    | $
|Non-current assets      |  |                    | 5,508 |  |                    |  
|Total assets            |  | $                  | 6,098 |  |                    | $
|Liabilities             |  |                    |       |  |                    |  
|Current liabilities     |  | $                  | 202   |  |                    | $
|Non-current liabilities |  |                    | 2,095 |  |                    |  
|Total liabilities       |  |                    | 2,297 |  |                    |  
|Net assets              |  | $                  | 3,801 |  |                    | $





2015 Consolidated Financial StatementsPage 23


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Summarized loss from continuing operations and total comprehensive
loss for Kolon Hydrogenics is as follows:



|                                              |  | 12 months ended,  December 31, 2015 |      |   | May 28,  2014 -  December 31, 2014 |  
|--------------------------------------------- |  | ----------------------------------- | ---- | - | ---------------------------------- | -
|Revenue                                       |  | $                                   | 119  |   |                                    | $
|Loss before income taxes                      |  |                                     | (271 | ) |                                    |  
|Joint venture loss from continuing operations |  | $                                   | (329 | ) |                                    |  



The Company’s portion of the joint venture’s
loss from continuing operations is 49% of the stated amount.



The following table is a reconciliation of the joint
venture’s financial information to the carrying amount of the Company’s investment in Kolon Hydrogenics:



|                                                            |  | December 31,  2015 |       |   | December 31,  2014 |  
|----------------------------------------------------------- |  | ------------------ | ----- | - | ------------------ | -
|Opening net assets of Kolon Hydrogenics (Equity Investment) |  | $                  | 4,454 |   |                    | $
|Investment in Kolon Hydrogenics                             |  |                    | -     |   |                    |  
|Loss of joint venture                                       |  |                    | (329  | ) |                    |  
|Foreign currency translation                                |  |                    | (324  | ) |                    |  
|Closing net assets of Kolon Hydrogenics                     |  | $                  | 3,801 |   |                    | $
|Unrealized (gains) losses on sales to Kolon                 |  |                    | 180   |   |                    |  
|Adjusted net assets of Kolon Hydrogenics                    |  |                    | 3,981 |   |                    |  
|Company’s share of net assets at 49%                        |  | $                  | 1,951 |   |                    | $





2015 Consolidated Financial StatementsPage 24


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 10 - Property, Plant and Equipment



|                                                                                                                 |  | Plant and test equipment |     |   | Furniture and equipment |   |       | Computer hardware |  |   | Leasehold improvements |   |  | Construction in progress |     |   | Total |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --- | - | ----------------------- | - | ----- | ----------------- |  | - | ---------------------- | - |  | ------------------------ | --- | - | ----- | -
|Net book value
                                                                                December 31, 2014 |  | $                        | 181 |   |                         | $ | 1,451 |                   |  | $ | 93                     |   |  | $                        | 148 |   |       | $
|Additions                                                                                                        |  |                          | 187 |   |                         |   | 395   |                   |  |   | 107                    |   |  |                          | 246 |   |       |  
|Disposals                                                                                                        |  |                          | -   |   |                         |   | (5    | )                 |  |   | (4                     | ) |  |                          | -   |   |       |  
|Depreciation                                                                                                     |  |                          | (66 | ) |                         |   | (392  | )                 |  |   | (65                    | ) |  |                          | (62 | ) |       |  
|Foreign exchange                                                                                                 |  |                          | (1  | ) |                         |   | (22   | )                 |  |   | (19                    | ) |  |                          | (1  | ) |       |  
|Net book value
                                                                          December 31, 2015       |  | $                        | 301 |   |                         | $ | 1,427 |                   |  | $ | 112                    |   |  | $                        | 331 |   |       | $



|                                 |  |   |        |   |  |   |        |   |  |   |      |   |  |   |        |   |  |   |     |  |  |   |         |  
|-------------------------------- |  | - | ------ | - |  | - | ------ | - |  | - | ---- | - |  | - | ------ | - |  | - | --- |  |  | - | ------- | -
|Total cost                       |  | $ | 5,373  |   |  | $ | 5,030  |   |  | $ | 436  |   |  | $ | 1,532  |   |  | $ | 878 |  |  | $ | 13,249  |  
|Total accumulated depreciation   |  |   | (5,072 | ) |  |   | (3,603 | ) |  |   | (324 | ) |  |   | (1,201 | ) |  |   | -   |  |  |   | (10,200 | )
|Net book value December 31, 2015 |  | $ | 301    |   |  | $ | 1,427  |   |  | $ | 112  |   |  | $ | 331    |   |  | $ | 878 |  |  | $ | 3,049   |  



Depreciation of $329 (2014 - $422) was included in selling, general
and administrative expenses and $256 (2014 - $186) in cost of sales.



|                                 |  | Plant and test equipment |     |   | Furniture and equipment |   |       | Computer hardware |  |   | Leasehold improvements |   |  | Total |    
|-------------------------------- |  | ------------------------ | --- | - | ----------------------- | - | ----- | ----------------- |  | - | ---------------------- | - |  | ----- | ---
|Net book value December 31, 2013 |  | $                        | 197 |   |                         | $ | 1,299 |                   |  | $ | 103                    |   |  | $     | 85 
|Additions                        |  |                          | 42  |   |                         |   | 673   |                   |  |   | 47                     |   |  |       | 109
|Disposals                        |  |                          | (10 | ) |                         |   | -     |                   |  |   | -                      |   |  |       | -  
|Depreciation                     |  |                          | (48 | ) |                         |   | (465  | )                 |  |   | (53                    | ) |  |       | (42
|Foreign exchange                 |  |                          | -   |   |                         |   | (56   | )                 |  |   | (4                     | ) |  |       | (4 
|Net book value December 31, 2014 |  | $                        | 181 |   |                         | $ | 1,451 |                   |  | $ | 93                     |   |  | $     | 148



|                                 |  |   |        |   |  |   |        |   |  |   |      |   |  |   |        |   |  |   |         |  
|-------------------------------- |  | - | ------ | - |  | - | ------ | - |  | - | ---- | - |  | - | ------ | - |  | - | ------- | -
|Total cost                       |  | $ | 5,240  |   |  | $ | 5,017  |   |  | $ | 661  |   |  | $ | 1,327  |   |  | $ | 12,245  |  
|Total accumulated depreciation   |  |   | (5,059 | ) |  |   | (3,566 | ) |  |   | (568 | ) |  |   | (1,179 | ) |  |   | (10,372 | )
|Net book value December 31, 2014 |  | $ | 181    |   |  | $ | 1,451  |   |  | $ | 93   |   |  | $ | 148    |   |  | $ | 1,873   |  





2015 Consolidated Financial StatementsPage 25


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 11 - Intangible Assets



|Computer software           |  | 2015 |     |   | 2014 |  
|--------------------------- |  | ---- | --- | - | ---- | -
|Net book value December 31, |  | $    | 157 |   |      | $
|Additions                   |  |      | 105 |   |      |  
|Amortization                |  |      | (45 | ) |      |  
|Foreign exchange            |  |      | (2  | ) |      |  
|Net book value December 31, |  | $    | 215 |   |      | $



|                               |  |   |        |   |  |  
|------------------------------ |  | - | ------ | - |  | -
|Total cost                     |  | $ | 1,989  |   |  | $
|Total accumulated depreciation |  |   | (1,774 | ) |  |  
|Net book value December 31,    |  | $ | 215    |   |  | $



Amortization of $45 (2014 - $53) is included in the consolidated
statements of operations and comprehensive loss in selling, general and administrative expenses.



Note 12 - Goodwill



The carrying amounts of goodwill at the beginning and end of the
current and previous years are set out below.



|                             |  | 2015 |       |   | 2014 |  
|---------------------------- |  | ---- | ----- | - | ---- | -
|At January 1                 |  | $    | 4,609 |   |      | $
|Foreign exchange revaluation |  |      | (474  | ) |      |  
|At December 31               |  | $    | 4,135 |   |      | $



The recoverable amount of the OnSite Generation CGU was estimated
based on an assessment of fair value less costs of disposal. The methodology used to test impairment is classified as Level 3
per the hierarchy described in Note 32. Fair value less costs of disposal is determined using a multiple of approximately 3 times
revenue determined by reference to specific risks in relation to the OnSite Generation CGU and revenue multiples based on past
experience, forecasted results, and those noted for comparable companies. Furthermore, the Company reconciles the recoverable
amount to its consolidated market capitalization and the fair value of its debt. An impairment charge is recognized to the extent
that the carrying value exceeds the recoverable amount.



No impairment charges have arisen as a result of the reviews performed
as at December 31, 2015 and 2014. Reasonably possible changes in key assumptions would not cause the recoverable amount of goodwill
to fall below the carrying value.





2015 Consolidated Financial StatementsPage 26


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 13 - Trade and Other Payables



Accounts payable and accrued liabilities are as follows:



|                                               |  | December 31,  2015 |       |  | December 31,  2014 |  
|---------------------------------------------- |  | ------------------ | ----- |  | ------------------ | -
|Trade accounts payable                         |  | $                  | 3,720 |  |                    | $
|Accrued payroll and related compensation       |  |                    | 1,798 |  |                    |  
|Supplier accruals                              |  |                    | 1,368 |  |                    |  
|Accrued professional fees                      |  |                    | 239   |  |                    |  
|Other                                          |  |                    | 651   |  |                    |  
|Total accounts payable and accrued liabilities |  | $                  | 7,776 |  |                    | $



Note 14 – Financial Liabilities



Financial liabilities are as follows:



|                                                                |  | December 31,  2015 |       |  | December 31,  2014 |  
|--------------------------------------------------------------- |  | ------------------ | ----- |  | ------------------ | -
|Debt - institutional (note 17)                                  |  |                    | 7,140 |  |                    |  
|Warrants                                                        |  |                    | 752   |  |                    |  
|Deferred share unit liability                                   |  |                    | 746   |  |                    |  
|Current portion of repayable government contributions (note 17) |  |                    | 354   |  |                    |  
|Derivative Liability (note 25)                                  |  |                    | 42    |  |                    |  
|Total financial liabilities                                     |  | $                  | 9,034 |  |                    | $



Warrants



On May 8, 2015, concurrent with a new loan agreement with a syndicate
of lenders, the Company issued 250,000 share purchase warrants. Each warrant was exercisable for one common share of the Company
at an exercise price of US$15.00 per common share. The warrants are non-transferrable and expire on May 6, 2019. As a result of
this issuance, the fair market value of these warrants of $885 was included in other finance (losses) gains. These warrants include
anti-dilution provisions, and as a result are accounted for as a financial liability with changes in fair value reflected in the
consolidated statements of operations.



On December 16, 2015, as a result of the public offering, the exercise
price of the warrants was reduced to US$10.85 per common share.





2015 Consolidated Financial StatementsPage 27


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






The fair value of the warrants was determined using the Black-Scholes
option pricing model with the following weighted average assumptions:



|                            |  | December 31, 2015 |      |   | Inception  May 8, 2015 | 
|--------------------------- |  | ----------------- | ---- | - | ---------------------- | 
|Risk-free interest rate (%) |  |                   | 0.56 | % |                        | 
|Expected volatility (%)     |  |                   | 68.3 | % |                        | 
|Expected life in years      |  |                   | 2.4  |   |                        | 
|Expected dividend           |  |                   | Nil  |   |                        | 



Expected volatility was revised using the historical volatility
for the Company’s share price for the remaining 2.4 years prior to the date of grant, as this is the expected remaining
life of the warrants.



Note 15 - Warranty Provisions



Changes in the Company’s aggregate warranty provisions are
as follows:



|                                             |  | 2015 |        |   | 2014 |  
|-------------------------------------------- |  | ---- | ------ | - | ---- | -
|At January 1,                                |  | $    | 2,547  |   |      | $
|Additional provisions                        |  |      | 1,977  |   |      |  
|Utilized during the period                   |  |      | (622   | ) |      |  
|Unused amounts reversed                      |  |      | (511   | ) |      |  
|Foreign currency translation                 |  |      | (198   | ) |      |  
|Total warranty provision at December 31,     |  |      | 3,193  |   |      |  
|Less current portion                         |  |      | (2,255 | ) |      |  
|Long-term warranty provision at December 31, |  | $    | 938    |   |      | $



Note 16 - Lines of Credit and Bank Guarantees



At December 31, 2015, the Company’s subsidiary in Belgium
(the “Borrower”) had a joint credit and operating line facility of €7,000. Under this facility, the Borrower
may borrow up to a maximum of 75% of the value of awarded sales contracts, approved by the Belgian financial institution, to a
maximum of €750; and may also borrow up to €1,250 for general business purposes, provided sufficient limit exists under
the overall facility limit of €7,000. Of this, €3,830 or approximately $4,159 was drawn as standby letters of credit
and bank guarantees and €1,000 or approximately $1,086 was drawn as an operating line. At December 31, 2015, the Company
had availability of less than €2,170 or approximately $2,356 (December 31, 2014 - $4,064) under this facility for use as
letters of credit and bank guarantees.





2015 Consolidated Financial StatementsPage 28


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






The credit facility bears interest at EURIBOR plus 1.45% per annum
and is secured by a €1,000 secured first charge covering all assets of the Borrower. The credit facility contains a negative
pledge precluding the Borrower from providing security over its assets. Additionally, the Borrower is required to maintain a solvency
covenant, defined as equity plus current account (intercompany account with the Corporate company), divided by total liabilities
of not less than 25% and ensure that its intercompany accounts with Hydrogenics do not fall below a defined level. At December
31, 2015, the Borrower was in compliance with these covenants.



At December 31, 2015, the Company also had a Canadian credit facility
of $2,275. At December 31, 2015, $113 was drawn as standby letters of credit and bank guarantees. At December 31, 2015, the Company
had $2,162 (December 31, 2014 - $1,879) available under this facility for use only as letters of credit and bank guarantees.



These letters of credit and bank guarantees relate primarily
to obligations in connection with the terms and conditions of the Company’s sales contracts. The standby letters of credit
and letters of guarantee may be drawn on by the customer if the Company fails to perform its obligations under the sales contracts.



Note 17 - Other Non-current Liabilities



Other non-current liabilities are as follows:



|                                                                        |  | December 31, 2015 |        |   | December 31, 2014 |  
|----------------------------------------------------------------------- |  | ----------------- | ------ | - | ----------------- | -
|Long-term debt - institutional (i)                                      |  | $                 | 7,140  |   |                   | $
|Long-term debt - Province of Ontario (ii)                               |  |                   | 2,865  |   |                   |  
|Non-current post-retirement benefit liabilities (iii)                   |  |                   | 288    |   |                   |  
|Repayable government contributions (iv)                                 |  |                   | 322    |   |                   |  
|Total                                                                   |  |                   | 10,615 |   |                   |  
|Less current portion of long-term debt - institutional (note 14)        |  |                   | (7,140 | ) |                   |  
|Less current portion of repayable government contribution (note 14)     |  |                   | (192   | ) |                   |  
|Less current portion of long-term debt - Province of Ontario  (note 14) |  |                   | (162   | ) |                   |  
|Total other non-current liabilities                                     |  | $                 | 3,121  |   |                   | $



| | (i) | Long-term
                                         debt – Institutional
| | --- | -----------------------------------------------------------------------



In the second quarter of 2015, the Company entered into a loan
agreement with a syndicate of lenders for an 18 month facility of $7,500. The amortized cost of this loan at December 31, 2015
was $7,140. The loan charges interest at an annual rate of 11%. Accrued interest of $140 is included within trade and other payables.
Total interest expense as at December 31, 2015 totalled $538. Total financing fees included in the amortized cost of the loan
at inception were $634. As of December 31, 2015 accretion of deferred financing fees of $274 has been included in interest expense.



| | (ii) | Long-term
                                         debt - Province of Ontario
| | ---- | -----------------------------------------------------------------------------



In 2011, the Company entered into a loan agreement with the Province
of Ontario’s Ministry of Economic Development and Trade, Strategic Jobs and Investment Fund for funding up to C$6,000. Each
draw on the loan is calculated based on 50% of eligible costs to a maximum of C$1,500 per disbursement. Eligible costs had to
be incurred between October 1, 2010 and September 30, 2015.





2015 Consolidated Financial StatementsPage 29


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






After this five-year period, the loan bears interest at a rate
of 3.67% and will require repayment at a rate of 20% per year of the outstanding balance for the five years subsequent to the
sixth anniversary of the first disbursement. There is no availability remaining under this facility at December 31, 2015.



The loan is collateralized by a general security agreement covering
assets of Hydrogenics Corporation. Additionally, the Corporation is required to maintain a minimum balance of cash in Canadian
dollars in a Canadian financial institution at all times. The Company was in compliance with this covenant at December 31, 2015.



The change in carrying value of this liability at December 31 was
as follows:





|                                     |  |   | 2015  |   |  |   | 2014  |  
|------------------------------------ |  | - | ----- | - |  | - | ----- | -
|At January 1,                        |  | $ | 2,922 |   |  | $ | 2,260 |  
|Drawdowns during the period          |  |   | -     |   |  |   | 494   |  
|Interest accretion during the period |  |   | 446   |   |  |   | 379   |  
|Foreign currency translation         |  |   | (503  | ) |  |   | (211  | )
|At December 31,                      |  | $ | 2,865 |   |  | $ | 2,922 |  









| | (iii) | Post-retirement
                                         benefit liabilities
| | ----- | ----------------------------------------------------------------------------



The liability at December 31, 2015 relates to defined contribution
pension plans in Belgium and is payable in euros. Applicable law states that in the context of defined contribution plans, the
employer must guarantee a minimum return of 3.75% on employee contributions and 3.25% on employer contributions. The minimum guaranteed
return for defined contributions plans in Belgium results in the employer being exposed to financial risk for the legal obligation
to pay further contributions if the fund does not hold sufficient assets to meet the minimum guaranteed return.



|                                      |  | 2015 |       
|------------------------------------- |  | ---- | ------
|At January 1,                         |  | $    | 208   
|Current service and net interest cost |  |      | 160   
|Employer contributions in the year    |  |      | (160  
|Re-measurement of actuarial liability |  |      | 104   
|Foreign currency translation          |  |      | (24   
|At December 31,                       |  | $    | 288   
|                                      |  |      |       
|Plan assets                           |  | $    | 1,316 
|Accrued benefit obligation            |  |      | (1,604
|Net defined benefit obligation        |  | $    | (288  



The Company has estimated the potential additional liabilities
as $288 at December 31, 2015, using an actuarial measurement.





2015 Consolidated Financial StatementsPage 30


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






| | (iv) | Repayable
                                         government contributions
| | ---- | ---------------------------------------------------------------------------



The Corporation has received government contributions related to
certain historical research and development projects. In 1998, the Company entered into an agreement (the “TPC Agreement”)
with Technologies Partnerships Canada (“TPC”), a program of Industry Canada to develop and demonstrate hydrogen fleet
fuel applications.



In January 2011, the Company entered into an amended agreement
(the “Amendment”) with TPC. Under the terms of the Amendment, C$1,500 will be paid to TPC in quarterly installments
until September 2017. An additional payment of 3% of the net proceeds of all equity instrument financing transactions completed
by the Company on or before December 31, 2017 or the sum of C$800, whichever is the lesser amount, was also to be paid to TPC.
The Company has paid the C$800 maximum under the agreement for this contingent payment.



The present value of this obligation at December 31, 2015 was $322
(2014 - $553), including the current portion of $192 (2014 - $219), which was included in trade and other payables.



The change in carrying value of this liability at December 31 was
as follows:



|                                     |  | 2015 |      |   | 2014 |  
|------------------------------------ |  | ---- | ---- | - | ---- | -
|At January 1,                        |  | $    | 553  |   |      | $
|Repayments during the period         |  |      | (213 | ) |      |  
|Interest accretion during the period |  |      | 62   |   |      |  
|Foreign currency translation         |  |      | (80  | ) |      |  
|Fair value (gain) loss               |  |      | -    |   |      |  
|At December 31,                      |  | $    | 322  |   |      | $
|Less current portion                 |  |      | (192 | ) |      |  
|At December 31,                      |  | $    | 130  |   |      | $



Fair value gains and losses have been recorded in other finance
gains and losses, net of interest expense.



Note 18 - Share Capital



Common shares



The authorized share capital of the Company consists of an unlimited
number of common shares, with no par value, and an unlimited number of preferred shares in series, with no par value.



|                                                     |  | 2015   |            |   | 2014   |  
|---------------------------------------------------- |  | ------ | ---------- | - | ------ | -
|                                                     |  | Number |            |   | Amount |  
|Balance at January 1                                 |  |        | 10,090,325 |   |        | $
|Share offering                                       |  |        | 2,448,385  |   |        |  
|Adjustment for partial shares on share consolidation |  |        | (3         | ) |        |  
|Warrants exercised                                   |  |        | -          |   |        |  
|Stock options exercised (note 19)                    |  |        | 2,050      |   |        |  
|At December 31                                       |  |        | 12,540,757 |   |        | $





2015 Consolidated Financial StatementsPage 31


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Common share issuance



On December 16, 2015, the Company completed a public offering for
which the Company issued 2,448,385 shares for gross proceeds of $18,975 inclusive of the overallotment. Net proceeds after underwriting
fees and expenses were $17,549.



On May 13, 2014, the Company and CommScope, Inc. of North Carolina
(“CommScope”) entered into an underwriting agreement to issue 1,500,000 common shares of the Company (1,000,000 from
Treasury and 500,000 secondary shares by CommScope) at a price of $15 per share. On May 16, 2014, the Company issued 1,000,000
shares for gross proceeds of $15,000. Net proceeds after underwriting fees and expenses were $13,545.



Warrants



On January 14, 2010, as part of a registered direct offering, the
Company issued 239,356 Series A warrants and 260,646 Series B warrants exercisable for a period of five years beginning in 2010.
The exercise price of the warrants is $3.68 per common share. All 239,356 of the Series A warrants and 191,574 of the Series B
warrants were fully exercised by December 31, 2013. The remaining 69,072 Series B warrants were exercised during 2014. The change
in fair value during the period was included in Other finance losses, net.



The activity of the Series A and B warrants during the year ended
2014 was as follows:



|                                  |  | 2014   |        
|--------------------------------- |  | ------ | -------
|                                  |  | Number |        
|Balance at January 1              |  |        | 69,072 
|Loss on revaluation to fair value |  |        | -      
|Fair value of warrants exercised  |  |        | (69,072
|Cash proceeds on exercise         |  |        | -      
|At December 31                    |  |        | -      



During 2014, 69,072 warrants were exercised for $nil cash proceeds
and 57,144 shares were issued.



The loss due to the change in fair value of warrants during the
year was $nil (2014 - $142) and was included in other finance (losses) gains, net.



Note 19 – Stock-Based Compensation



Under the Hydrogenics Omnibus Incentive Plan adopted in 2012, the
Corporation may issue stock options, RSUs and PSUs to employees, directors and consultants as part of a long-term incentive plan.
Stock options were previously granted under the Corporation’s Stock Option Plan.



Under the Company’s previous
Stock Option Plan, 252,006 stock options were outstanding at December 31, 2015. No further
stock options may be issued under this plan.



Of the 660,564 shares available under the Omnibus Incentive Plan,
to be issued as stock options, RSUs and PSUs, 284,168 have been granted as stock options and 199,772 have been granted as PSUs
and were outstanding at December 31, 2015. The Corporation has 176,624 of share units available for issue as RSUs and PSUs under
the Omnibus Incentive Plan at December 31, 2015.





2015 Consolidated Financial StatementsPage 32


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Stock options



A summary of the Company’s stock option plan is as follows:



|                                 |  | 2015             |         |   | 2014                               |  
|-------------------------------- |  | ---------------- | ------- | - | ---------------------------------- | -
|                                 |  | Number of shares |         |   | Weighted average exercise price C$ |  
|Outstanding, beginning of period |  |                  | 481,403 |   |                                    | $
|Granted                          |  |                  | 56,821  |   |                                    |  
|Exercised                        |  |                  | (2,050  | ) |                                    |  
|Forfeited                        |  |                  | -       |   |                                    |  
|Expired                          |  |                  | -       |   |                                    |  
|Outstanding, end of period       |  |                  | 536,174 |   |                                    | $



During the year ended Decmber 31, 2015, 2,050 (2014 – 15,564)
stock options were exercised resulting in cash proceeds of $10 (2014 - $119), an increase in equity of $16 (2014 – $185)
with an offset to contributed surplus of $6 (2014 – $66).



During the year ended December 30, 2015, 56,821 (2014 – nil)
stock options were granted with an average fair value of C$8.77 per option (2014 - nil). All options are for a term of ten years
from the date of grant and vest over four years unless otherwise determined by the Board of Directors. The fair value of the stock
options was determined using the Black-Scholes option pricing model with the following weighted average assumptions:



|                            |  | 2015 |     
|--------------------------- |  | ---- | ----
|Risk-free interest rate (%) |  |      | 0.88
|Expected volatility (%)     |  |      | 63.1
|Expected life in years      |  |      | 5   
|Expected dividend           |  |      | Nil 



Expected volatility was determined using the historical volatility
for the Company’s share price for the five years prior to the date of grant, as this is the expected life of the stock options.



Stock-based compensation expense for the year ended December 31,
2015, related to stock options, was $272 (2014 - $291) and was included in selling, general and administrative expenses with an
offsetting increase to contributed surplus.





2015 Consolidated Financial StatementsPage 33


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






The following table summarizes information about the Company’s
stock options outstanding as of December 31, 2015:



|Grant date        |  | Expiry date       |  | Total number of options |         |  | Weighted average remaining contractual life (in years) |  |      | Exercise price C$ |  |   | Number of vested options |  |  | Weighted average remaining contractual life (in years) |         |  | Exercise price C$ | 
|----------------- |  | ----------------- |  | ----------------------- | ------- |  | ------------------------------------------------------ |  | ---- | ----------------- |  | - | ------------------------ |  |  | ------------------------------------------------------ | ------- |  | ----------------- | 
|May 23, 2006      |  | May 23, 2016      |  |                         | 3,190   |  |                                                        |  | 0.39 |                   |  | $ | 84.25                    |  |  |                                                        | 3,190   |  |                   | 
|March 23, 2007    |  | March 23, 2017    |  |                         | 3,411   |  |                                                        |  | 1.23 |                   |  |   | 29.25                    |  |  |                                                        | 3,411   |  |                   | 
|March 12,2008     |  | March 12, 2018    |  |                         | 5,135   |  |                                                        |  | 2.20 |                   |  |   | 14.50                    |  |  |                                                        | 5,135   |  |                   | 
|March 27, 2009    |  | March 27, 2019    |  |                         | 6,216   |  |                                                        |  | 3.24 |                   |  |   | 13.25                    |  |  |                                                        | 6,216   |  |                   | 
|April 5, 2010     |  | April 5, 2020     |  |                         | 22,149  |  |                                                        |  | 4.26 |                   |  |   | 4.91                     |  |  |                                                        | 22,149  |  |                   | 
|March 31, 2011    |  | March 31, 2021    |  |                         | 85,000  |  |                                                        |  | 5.25 |                   |  |   | 6.96                     |  |  |                                                        | 85,000  |  |                   | 
|June 8, 2011      |  | June 8, 2021      |  |                         | 126,905 |  |                                                        |  | 5.44 |                   |  |   | 5.03                     |  |  |                                                        | 126,905 |  |                   | 
|May 11, 2012      |  | May 11, 2022      |  |                         | 157,871 |  |                                                        |  | 6.36 |                   |  |   | 6.25                     |  |  |                                                        | 118,403 |  |                   | 
|November 19, 2012 |  | November 19, 2022 |  |                         | 39,476  |  |                                                        |  | 6.89 |                   |  |   | 6.60                     |  |  |                                                        | 29,607  |  |                   | 
|March 21, 2013    |  | March 21, 2023    |  |                         | 30,000  |  |                                                        |  | 7.22 |                   |  |   | 8.10                     |  |  |                                                        | 15,000  |  |                   | 
|March 25, 2015    |  | March 25, 2015    |  |                         | 56,821  |  |                                                        |  | 9.23 |                   |  |   | 16.14                    |  |  |                                                        | -       |  |                   | 
|                  |  |                   |  |                         | 536,174 |  |                                                        |  | 6.13 |                   |  | $ | 7.97                     |  |  |                                                        | 415,016 |  |                   | 



Performance Share Units (“PSUs”)



Under the Hydrogenics Omnibus Incentive Plan adopted
in 2012, the Company may issue performance based share units to employees, directors and consultants. Pursuant to the Hydrogenics
Omnibus Incentive Plan, participants may be granted a portion of their long-term incentive plan in the form of PSUs instead of
RSUs and stock options. A PSU is a unit, equivalent in value to a common share of the Company. Each PSU entitles the participant
to receive a cash payment or common shares, at the option of the Company. The fair value of the PSUs is recognized as a compensation
expense and is pro-rated over the expected vesting period with the offsetting increase to contributed surplus. Fair value is calculated
as the market value of the common share at the date of grant. Each PSU is subject to vesting performance conditions. The Company
estimates the length of the expected vesting period at the grant date, based on the most likely outcome of the performance conditions.
The Company will revise its estimate of the length of the vesting period, if necessary, if subsequent information indicates that
the length of the vesting period differs from previous estimates and any change to compensation cost will be recognized in the
period in which the revised estimate is made. In the fourth quarter of 2015, the Company revised its estimate of the length of
the expected vesting period based on management’s best estimate of the achievement of the vesting of specific performance
conditions. This adjustment resulted in a reversal of previously charged compensation expense of $543, with the offset to contributed
surplus. Forfeitures are estimated at the grant date and are revised to reflect a change in expected or actual forfeitures. The
expiry date of PSUs granted is five years from the date of award.



A summary of the Company’s PSU activity is as follows:



|                      |  | 2015 |         |   | 2014 | 
|--------------------- |  | ---- | ------- | - | ---- | 
|Balance at January 1, |  |      | 192,320 |   |      | 
|Forfeited             |  |      | (25,218 | ) |      | 
|PSUs issued           |  |      | 32,670  |   |      | 
|At December 31,       |  |      | 199,772 |   |      | 





2015 Consolidated Financial StatementsPage 34


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Stock-based compensation expense for the year ended December 31,
2015, related to PSUs, was $314 (2014 - $236) and was included in selling, general and administrative expenses with an offsetting
increase to contributed surplus. Offsetting this amount is a credit of $543 for the year ended December 31, 2015 (2014 - $nil)
representing the revision for the change in estimate regarding the achievement of performance conditions.



Deferred Share Units (“DSUs”)



The Company has a deferred share unit plan for directors. Pursuant
to the DSU Plan, non-employee directors are entitled to receive all or any portion of their annual cash retainer and meeting fees
in the form of DSUs instead of cash. A DSU is a unit, equivalent in value to a common share of the Company. Each DSU entitles
the participant to receive a cash payment upon termination of directorship, valued at the price of the Company’s common
share on the TSX on the date of termination. Compensation cost for DSUs granted under the DSU plan is recorded as an expense with
a corresponding increase in accrued liabilities and is measured at fair value. The DSU liability is marked-to-market each reporting
period with the offset recorded in selling, general and administrative expenses.



A summary of the Company’s DSU activity is as follows:



|                           |  | 2015   |         |   | 2014   |  
|-------------------------- |  | ------ | ------- | - | ------ | -
|                           |  | Number |         |   | Amount |  
|Balance at January 1,      |  |        | 87,850  |   |        | $
|DSU redemptions            |  |        | (15,713 | ) |        |  
|DSU compensation expense   |  |        | 11,491  |   |        |  
|DSU fair value adjustments |  |        | -       |   |        |  
|At December 31,            |  |        | 83,628  |   |        | $



For the year ended December 30, 2015, the Company recognized $108
(2014 - $105) as expense for the issue of new DSUs and a recovery of ($342) (2014 - expense of $14) for the mark-to-market adjustment
on the liability.



The DSU liability at December 31, 2015 of $746 (2014 - $1,168)
was included in trade and other payables. DSUs vest immediately on the date of issuance.



Restricted Share Units (“RSUs”)



The RSU liability at December 30, 2015 was $nil (2014 - $nil) as
all outstanding units had vested and were paid out at December 31, 2014.



A summary of the Company’s RSU activity is as follows:



|                           |  | 2015   |   |  | 2014   |  
|-------------------------- |  | ------ | - |  | ------ | -
|                           |  | Number |   |  | Amount |  
|Balance at January 1,      |  |        | - |  |        | $
|RSUs vested redemptions    |  |        | - |  |        |  
|RSU amortization expense   |  |        | - |  |        |  
|RSU fair value adjustments |  |        | - |  |        |  
|At December 31,            |  |        | - |  |        | $





2015 Consolidated Financial StatementsPage 35


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Summary of stock-based compensation expense (recovery)



|                                                                                       |  | 2015 |      |   | 2014 |  
|-------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | -
|Stock-based compensation expense - stock options                                       |  | $    | 272  |   |      | $
|Stock-based compensation expense - performance share units                             |  |      | 314  |   |      |  
|Stock-based compensation expense - performance share units change in estimate recovery |  |      | (543 | ) |      |  
|Deferred share unit - new issuance                                                     |  |      | 108  |   |      |  
|Deferred share unit - mark-to-market adjustment                                        |  |      | (342 | ) |      |  
|Restricted share unit expense                                                          |  |      | -    |   |      |  
|Restricted share unit expense - mark-to-market adjustment                              |  |      | -    |   |      |  
|At December 31,                                                                        |  | $    | (191 | ) |      | $



Note 20 - Selling, General and Administrative Expenses



|Year ended December 31,                                         |  | 2015 |        |   | 2014 |  
|--------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Salaries and benefits, office administration and other expenses |  | $    | 10,032 |   |      | $
|Depreciation                                                    |  |      | 329    |   |      |  
|Amortization                                                    |  |      | 45     |   |      |  
|Stock-based compensation (including stock options and PSUs)     |  |      | 43     |   |      |  
|DSUs                                                            |  |      | (234   | ) |      |  
|RSUs                                                            |  |      | -      |   |      |  
|Total                                                           |  | $    | 10,215 |   |      | $



Note 21 - Research and Product Development Expenses



Research and product development expenses are recorded net of non-repayable
third party program funding received or receivable. For the years ended December 31, 2015 and 2014, research and product development
expenses and non-repayable program funding, which have been received or receivable, are as follows:



|Year ended December 31,                             |  | 2015 |        |   | 2014 |  
|--------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Research and product development expenses           |  | $    | 6,198  |   |      | $
|Government research and product development funding |  |      | (2,051 | ) |      |  
|Development costs capitalized                       |  |      | (77    | ) |      |  
|Total                                               |  | $    | 4,070  |   |      | $





2015 Consolidated Financial StatementsPage 36


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 22- Key Management Compensation



Key management includes the Company’s directors and key executive
members.



|Year ended December 31,                   |  | 2015 |       |  | 2014 |  
|----------------------------------------- |  | ---- | ----- |  | ---- | -
|Salaries and short-term employee benefits |  | $    | 1,977 |  |      | $
|Stock-based compensation                  |  |      |       |  |      |  
|DSUs                                      |  |      | 108   |  |      |  
|Stock options                             |  |      | 379   |  |      |  
|PSUs                                      |  |      | 412   |  |      |  
|Total                                     |  | $    | 2,876 |  |      | $



Note 23 - Expenses by Nature



The following expenses are included in cost of sales; selling,
general and administrative expenses; and gross research and development expenses.



|Year ended December 31,                        |  | 2015 |        |  | 2014 |  
|---------------------------------------------- |  | ---- | ------ |  | ---- | -
|Raw materials and consumables used             |  | $    | 25,155 |  |      | $
|Employee benefits (note 24)                    |  |      | 14,913 |  |      |  
|Facilities                                     |  |      | 2,680  |  |      |  
|Shareholder and other corporate communications |  |      | 419    |  |      |  
|Depreciation and amortization                  |  |      | 630    |  |      |  
|Professional services                          |  |      | 1,098  |  |      |  
|Insurance                                      |  |      | 501    |  |      |  
|Marketing                                      |  |      | 280    |  |      |  
|Other                                          |  |      | 630    |  |      |  
|Total                                          |  | $    | 46,306 |  |      | $



Note 24 - Employee Benefits Expense



The following employee benefits expenses are included in cost of
sales; selling, general and administrative expenses; and research and development expenses.



|Year ended December 31,                                                         |  | 2015 |        |   | 2014 |  
|------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Salaries and wages                                                              |  | $    | 14,145 |   |      | $
|Stock-based compensation (including PSUs), net of change in management estimate |  |      | 43     |   |      |  
|Medical, dental and insurance                                                   |  |      | 379    |   |      |  
|Pension costs                                                                   |  |      | 276    |   |      |  
|Stock-based compensation - RSUs and DSUs                                        |  |      | (234   | ) |      |  
|Other                                                                           |  |      | 304    |   |      |  
|Total                                                                           |  | $    | 14,913 |   |      | $





2015 Consolidated Financial StatementsPage 37


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 25 - Other Finance Gains and Losses, Net



Components of other finance gains and losses, net are as follows:



|Year ended December 31,                                                                                       |  | 2015 |        |   | 2014 |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Foreign exchange contracts - fair market value adjustment on settled held for trading financial instruments   |  | $    | (544   | ) |      | $
|Foreign exchange contracts - fair market value adjustment on unsettled held for trading financial instruments |  |      | (42    | ) |      |  
|Issuance of warrants (note 14)                                                                                |  |      | (885   | ) |      |  
|Loss from change in fair value of exercised warrants                                                          |  |      | -      |   |      |  
|Gain from change in fair value of outstanding warrants (note 14)                                              |  |      | 133    |   |      |  
|Loss from change in net present value of repayable government contribution (note 17)                          |  |      | -      |   |      |  
|Total                                                                                                         |  | $    | (1,338 | ) |      | $



Note 26 - Income Taxes



The Corporation had net losses for the periods ended December 31,
2015 and 2014 and income tax expense was $nil for each of these years.



The estimated income tax rate for the Company is based on substantively
enacted corporate tax rates, expected timing of reversals, and expected taxable income allocation to various tax jurisdictions.



The Company’s computation of income tax expense is as follows:



|Year ended December 31,                                                       |  | 2015 |         |   | 2014 |  
|----------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Loss before income taxes                                                      |  | $    | (11,442 | ) |      | $
|Statutory income tax rate                                                     |  |      | 25      | % |      |  
|Income tax recovery at statutory rates                                        |  |      | (2,860  | ) |      |  
|Non-deductible expenses                                                       |  |      | 102     |   |      |  
|Other permanent differences                                                   |  |      | (68     | ) |      |  
|Effect of income tax and rate changes on deferred income taxes                |  |      | 168     |   |      |  
|Effect of foreign currency rate changes on deferred income taxes              |  |      | 3,423   |   |      |  
|Income taxes at different rates in foreign and other provincial jurisdictions |  |      | (370    | ) |      |  
|Other                                                                         |  |      | (103    | ) |      |  
|Tax losses and other temporary differences not recognized                     |  |      | (292    | ) |      |  
|Total income tax expense                                                      |  | $    | -       |   |      | $





2015 Consolidated Financial StatementsPage 38


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






At December 31, 2015, the Company has available income tax loss
carry-forwards of $80,351 that may be used to reduce taxable income in future years, in certain jurisdictions, expiring as follows:



|For the years ended |  |   |       
|------------------- |  | - | ------
|2023                |  | $ | 130   
|2024                |  |   | 190   
|2025                |  |   | 244   
|2026                |  |   | 512   
|2027                |  |   | 14    
|2028                |  |   | 1     
|2029                |  |   | 541   
|2030                |  |   | 7,208 
|2031                |  |   | 6,432 
|2032                |  |   | 5,706 
|2033                |  |   | 130   
|2034                |  |   | 4,471 
|2035                |  |   | 5,876 
|No expiry           |  |   | 48,896
|Total               |  | $ | 80,351



Components of the Company’s deductible temporary differences
and unused tax losses are:



|Year ended December 31,                                 |  | 2015 |        |  | 2014 |  
|------------------------------------------------------- |  | ---- | ------ |  | ---- | -
|Non-capital losses                                      |  | $    | 24,224 |  |      | $
|Investment tax credits                                  |  |      | 1,460  |  |      |  
|Scientific research and experimental development        |  |      | 909    |  |      |  
|Property, plant and equipment and intellectual property |  |      | 1,027  |  |      |  
|Provisions                                              |  |      | 190    |  |      |  
|Other                                                   |  |      | 247    |  |      |  
|Total                                                   |  | $    | 28,057 |  |      | $



No deferred income tax asset has been recognized in respect of
the $28,057 of losses and other temporary differences, reflecting the Company’s uncertainty associated with the realization
of all deferred income tax assets.





2015 Consolidated Financial StatementsPage 39


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 27 - Net Loss Per Share



The loss per share for the periods ended December 31, 2015 and
2014 was as follows:



|                                                             |  | 2015 |            |   | 2014 |  
|------------------------------------------------------------ |  | ---- | ---------- | - | ---- | -
|Net loss                                                     |  | $    | (11,442    | ) |      | $
|                                                             |  |      |            |   |      |  
|Weighted average number of common shares outstanding – basic |  |      | 10,199,015 |   |      |  
|Dilutive effect of stock options                             |  |      | -          |   |      |  
|Dilutive effect of warrants                                  |  |      | -          |   |      |  
|Weighted average number of shares outstanding – diluted      |  |      | 10,199,015 |   |      |  
|Net loss per share – basic and diluted                       |  | $    | (1.12      | ) |      | $



No effect has been given to the potential exercise of stock options
and warrants in the calculation of diluted net loss per share, as their impact would be anti-dilutive.



Note 28 – Commitments and Contingencies



Forgivable loan facility



In November 2014, Hydrogenics entered into an agreement with the Independent Electricity System Operators
(“IESO”) to provide a 2MW Power-to-Gas storage unit to the Province of Ontario. It is anticipated that the unit will
ship in 2017. Hydrogenics will receive a total of C$2,950, paid in equal monthly instalments, in return for IESO’s use of
the energy storage solution over the three-year period.



In order to partially fund the development of the unit, Hydrogenics
and the Province of Ontario, through the Ministry of Research and Innovation (“MRI”), negotiated a forgivable loan
facility from the Innovation Demonstration Fund Program (“IDF”). The loan bears interest at 3.23%, is expected to
mature on June 30, 2020 and the principal and interest are forgivable upon the satisfaction of certain criteria. Under the terms
of the loan agreement, the government has committed to fund up to C$4,000 through a forgivable loan, to be funded at 50% of eligible
costs incurred on the project. The total cost of the energy storage solution is expected to be C$8,000, of which C$1,960 of the
costs will be funded by Hydrogenics, C$2,040 will be funded by Enbridge and the remaining C$4,000 from the forgivable loan. The
project completion date is expected to be March 31, 2017.



The forgiveness of the principal and interest on the loan is contingent
on a final commercialization report satisfactory to MRI, indicating successful commissioning and verification of the operation
of the multi-stack two MW PEM electrolyzer and demonstrated performance capabilities that would be deemed acceptable for ancillary
service as per the IESO specifications. The forgivable loan has been accounted for as a government grant as management estimates
there is reasonable assurance that the terms of forgiveness will be met.



At December 31, 2015, the Company has accumulated total costs in
building the unit of $755, which have been classified as property, plant and equipment. The Company has received total funding
of $118 under the IDF loan, of which $118 was received in the year ended December 31, 2015 relating to expenditures in the year
ended 2014, and has accrued an additional $215 of funding to be received relating to expenditures in the year ended 2015. The
funding amounts have been recorded as a reduction to property, plant and equipment.





2015 Consolidated Financial StatementsPage 40


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Rental expenses



The Company incurred rental expenses of $894 under operating leases
in 2015 (2014 - $884). The Company has future minimum lease payments under operating leases relating to premises, office equipment
and vehicles as follows:



|For the years ended |  |   |      
|------------------- |  | - | -----
|2016                |  | $ | 872  
|2017                |  |   | 930  
|2018                |  |   | 428  
|2019                |  |   | 386  
|2020                |  |   | 384  
|Thereafter          |  |   | 269  
|Total               |  | $ | 3,269



The Company leases various premises, office equipment and vehicles
under non-cancellable operating lease agreements. The lease agreements are classified as non-cancellable, as penalties are charged
if cancellation does occur. Certain leases contain purchase option clauses, which provide the Company with the ability to purchase
the equipment or automobile at fair value at the time of exercise. The leases have varying terms, escalation clauses and renewal
rights.



Indemnification agreements



The Company has entered into indemnification agreements with its
current and former directors and officers to indemnify them, to the extent permitted by law, against any and all charges, costs,
expenses, amounts paid in settlement, and damages incurred by the directors and officers as a result of any lawsuit or any other
judicial, administrative or investigative proceeding in which the directors and officers are sued as a result of their service.



These indemnification claims will be subject to any statutory or
other legal limitation period. The nature of the indemnification agreements prevents the Company from making a reasonable estimate
of the maximum potential amount it could be required to pay to counterparties. The Company has purchased directors’ and
officers’ liability insurance. No amount has been recorded in the consolidated financial statements with respect to these
indemnification agreements, as the Company is not aware of any claims.



In the normal course of operations, the Company may provide indemnification
agreements, other than those listed above, to counterparties that require the Company to compensate them for costs incurred as
a result of changes in laws and regulations or as a result of litigation claims or statutory sanctions that may be suffered by
the counterparty as a consequence of the transaction. The terms of these indemnification agreements will vary based on the contract.
The nature of the indemnification agreements prevents the Company from making a reasonable estimate of the maximum potential amount
it could be required to pay to counterparties. No amount has been recorded in the consolidated financial statements with respect
to these indemnification agreements, as the Company is not aware of any claims.





2015 Consolidated Financial StatementsPage 41


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 29 - Related Party Transactions



In the normal course of operations, the Company subcontracts certain
manufacturing functions to a company owned by a family member of an executive officer and Director of the Company. During 2015,
Hydrogenics made purchases of $105 (2014 - $171) from this related company. At December 31, 2015, the Company had an accounts
payable balance due to this related party of $26 (2014 - $12).



The Company holds an equity investment in the joint venture Kolon
Hydrogenics. During 2015, the Company had sales to the joint venture of $724 (2014 - $3,136), and at the end of December 31, 2015
the Company had a receivable of $359 (2014 - $935) owing from the joint venture.



All related party transactions involve the parent company. There
are no related party transactions to disclose for the Company’s subsidiaries.



Note 30 - Consolidated Statements of Cash Flows



Components of the net change in non-cash working capital are as
follows:



|December 31,                                           |  | 2015 |        |   | 2014 |  
|------------------------------------------------------ |  | ---- | ------ | - | ---- | -
|Decrease (increase) in current assets                  |  |      |        |   |      |  
|Trade and other receivables                            |  | $    | 2,177  |   |      | $
|Inventories                                            |  |      | (314   | ) |      |  
|Prepaid expenses                                       |  |      | 312    |   |      |  
|Increase (decrease) in current liabilities             |  |      |        |   |      |  
|Trade and other payables, including warranty provision |  |      | (2,878 | ) |      |  
|Deferred revenue                                       |  |      | 2,301  |   |      |  
|Total                                                  |  | $    | 1,598  |   |      | $



Note 31 - Segmented Financial Information



The Company’s two reportable segments include OnSite Generation
and Power Systems. Segmentation is based on the internal reporting and organizational structure, taking into account the different
risk and income structures of the key products and production processes of the Company. Where applicable, corporate and other
activities are reported separately as Corporate and Other. OnSite Generation includes the design, development, manufacture and
sale of hydrogen generation products. Power Systems includes the design, development, manufacture and sale of fuel cell products





2015 Consolidated Financial StatementsPage 42


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Financial information by reportable segment for the years ended
December 31, 2015 and 2014 was as follows:



|Year ended December 31, 2015                 |  | OnSite Generation |        |   | Power Systems |   |        | Corporate  and Other |  |   | Total  |  
|-------------------------------------------- |  | ----------------- | ------ | - | ------------- | - | ------ | -------------------- |  | - | ------ | -
|Revenues from external customers             |  | $                 | 23,556 |   |               | $ | 12,308 |                      |  | $ | -      |  
|Gross profit                                 |  |                   | 3,391  |   |               |   | 2,580  |                      |  |   | -      |  
|Selling, general and administrative expenses |  |                   | 2,665  |   |               |   | 3,920  |                      |  |   | 3,630  |  
|Research and product development expenses    |  |                   | 1,917  |   |               |   | 2,126  |                      |  |   | 27     |  
|Segment loss                                 |  |                   | (1,191 | ) |               |   | (3,466 | )                    |  |   | (3,657 | )
|Interest expense, net                        |  |                   | -      |   |               |   | -      |                      |  |   | (1,322 | )
|Foreign currency losses, net                 |  |                   | -      |   |               |   | -      |                      |  |   | (428   | )
|Loss in joint venture                        |  |                   | -      |   |               |   | -      |                      |  |   | (40    | )
|Other finance losses, net                    |  |                   | -      |   |               |   | -      |                      |  |   | (1,338 | )
|Loss before income taxes                     |  | $                 | (1,191 | ) |               | $ | (3,466 | )                    |  | $ | (6,785 | )



|Year ended December 31, 2014                 |  | OnSite Generation |        |  | Power Systems |   |        | Corporate  and Other |  |   | Total  |  
|-------------------------------------------- |  | ----------------- | ------ |  | ------------- | - | ------ | -------------------- |  | - | ------ | -
|Revenues from external customers             |  | $                 | 30,192 |  |               | $ | 15,356 |                      |  | $ | -      |  
|Gross profit                                 |  |                   | 6,102  |  |               |   | 5,112  |                      |  |   | -      |  
|Selling, general and administrative expenses |  |                   | 3,293  |  |               |   | 4,143  |                      |  |   | 4,320  |  
|Research and product development expenses    |  |                   | 1,070  |  |               |   | 2,194  |                      |  |   | 20     |  
|Segment gain (loss)                          |  |                   | 1,739  |  |               |   | (1,225 | )                    |  |   | (4,340 | )
|Interest expense, net                        |  |                   | -      |  |               |   | -      |                      |  |   | (540   | )
|Foreign currency gains (losses), net         |  |                   | -      |  |               |   | -      |                      |  |   | 117    |  
|Loss in joint venture                        |  |                   | -      |  |               |   | -      |                      |  |   | (94    | )
|Other finance losses, net                    |  |                   | -      |  |               |   | -      |                      |  |   | (180   | )
|Income (loss) before income taxes            |  | $                 | 1,739  |  |               | $ | (1,225 | )                    |  | $ | (5,037 | )





2015 Consolidated Financial StatementsPage 43


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Balance sheet information by reportable segment at December 31,
2015 and 2014 was as follows:



|At December 31, 2015                          |  | OnSite Generation |        |  | Power Systems |   |        | Corporate  and Other |  |   | Total  | 
|--------------------------------------------- |  | ----------------- | ------ |  | ------------- | - | ------ | -------------------- |  | - | ------ | 
|Cash and cash equivalents and restricted cash |  | $                 | 6,120  |  |               | $ | 456    |                      |  | $ | 18,325 | 
|Trade and other receivables                   |  |                   | 3,109  |  |               |   | 7,310  |                      |  |   | -      | 
|Inventories                                   |  |                   | 9,824  |  |               |   | 4,446  |                      |  |   | -      | 
|Investment in joint venture                   |  |                   | -      |  |               |   | -      |                      |  |   | 1,951  | 
|Property, plant and equipment                 |  |                   | 410    |  |               |   | 2,639  |                      |  |   | -      | 
|Goodwill and intangibles                      |  |                   | 4,257  |  |               |   | -      |                      |  |   | 93     | 
|Other assets                                  |  |                   | 106    |  |               |   | 207    |                      |  |   | 115    | 
|Total Assets                                  |  | $                 | 23,826 |  |               | $ | 15,058 |                      |  | $ | 20,484 | 
|Current liabilities                           |  | $                 | 13,434 |  |               | $ | 7,567  |                      |  | $ | 9,296  | 
|Non-current liabilities                       |  |                   | 1,124  |  |               |   | 7,569  |                      |  |   | 130    | 
|Total Liabilities                             |  | $                 | 14,558 |  |               | $ | 15,136 |                      |  | $ | 9,426  | 



|At December 31, 2014                          |  | OnSite Generation |        |  | Power Systems |   |        | Corporate  and Other |  |   | Total | 
|--------------------------------------------- |  | ----------------- | ------ |  | ------------- | - | ------ | -------------------- |  | - | ----- | 
|Cash and cash equivalents and restricted cash |  | $                 | 3,354  |  |               | $ | 245    |                      |  | $ | 6,822 | 
|Trade and other receivables                   |  |                   | 4,614  |  |               |   | 8,286  |                      |  |   | -     | 
|Inventories                                   |  |                   | 9,714  |  |               |   | 4,984  |                      |  |   | -     | 
|Investment in joint venture                   |  |                   | -      |  |               |   | -      |                      |  |   | 2,150 | 
|Property, plant and equipment                 |  |                   | 454    |  |               |   | 1,419  |                      |  |   | -     | 
|Goodwill and intangibles                      |  |                   | 4,633  |  |               |   | -      |                      |  |   | 133   | 
|Other assets                                  |  |                   | 219    |  |               |   | 449    |                      |  |   | 79    | 
|Total Assets                                  |  | $                 | 22,988 |  |               | $ | 15,383 |                      |  | $ | 9,184 | 
|Current liabilities                           |  | $                 | 9,358  |  |               | $ | 10,060 |                      |  | $ | 1,901 | 
|Non-current liabilities                       |  |                   | 1,109  |  |               |   | 9,318  |                      |  |   | 333   | 
|Total Liabilities                             |  | $                 | 10,467 |  |               | $ | 19,378 |                      |  | $ | 2,234 | 



The Company’s derivative financial instruments are considered
to be segment liabilities and are included in OnSite Generation.



Property, plant and equipment are located in the following countries:



|Year ended December 31, |  | 2015 |       |  | 2014 |  
|----------------------- |  | ---- | ----- |  | ---- | -
|Canada                  |  | $    | 2,374 |  |      | $
|Belgium                 |  |      | 410   |  |      |  
|Germany                 |  |      | 265   |  |      |  
|Total                   |  | $    | 3,049 |  |      | $





2015 Consolidated Financial StatementsPage 44


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Revenue from external customers by region was as follows:



|Year ended December 31,   |  | 2015 |        |  | 2014 |  
|------------------------- |  | ---- | ------ |  | ---- | -
|European Union            |  | $    | 15,106 |  |      | $
|Eastern Europe            |  |      | 7,695  |  |      |  
|North America             |  |      | 6,288  |  |      |  
|Asia                      |  |      | 4,300  |  |      |  
|Africa                    |  |      | 927    |  |      |  
|South and Central America |  |      | 1,051  |  |      |  
|Middle East               |  |      | 389    |  |      |  
|Oceania and Carribbean    |  |      | 108    |  |      |  
|Total                     |  | $    | 35,864 |  |      | $



Revenue for the largest customers as a percentage of the total
revenue was as follows:



|Year ended December 31,                                |  | 2015 |     |   | 2014 | 
|------------------------------------------------------ |  | ---- | --- | - | ---- | 
|First largest (Power segment)                          |  |      | 13  | % |      | 
|Second largest (2015 Power, 2014 Generation)           |  |      | 6   | % |      | 
|Third largest (2015 Generation, 2014 Power/Generation) |  |      | 5   | % |      | 
|Fourth largest (2015 Generation, 2014 Power)           |  |      | 5   | % |      | 
|All other customers                                    |  |      | 71  | % |      | 
|Total                                                  |  |      | 100 | % |      | 



Note 32 - Risk Management Arising From Financial Instruments



Fair value



The carrying value of cash and cash equivalents, restricted cash,
trade and other receivables, and trade and other payables approximates their fair value given their short-term nature. The carrying
value of the non-current liabilities approximates their fair value given the difference between the discount rates used to recognize
the liabilities in the consolidated balance sheets and the market rates of interest is insignificant.



Fair value measurements recognized in the consolidated balance
sheets must be categorized in accordance with the following levels:





2015 Consolidated Financial StatementsPage 45


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






| | (i) | Level
                                         1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Level
                                         2: inputs other than quoted prices included in Level 1 that are observable for the asset
                                         or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
                                         and
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Level
                                         3: inputs for the asset or liability that are not based on observable market data (unobservable
                                         inputs).
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fair value of the liabilities relating to the RSUs and DSUs
is classified as Level 1. The fair value of the derivative assets/liabilities and warrants are classified as Level 2.



The Company has not transferred any financial instruments between
Levels 1, 2, or 3 of the fair value hierarchy during the year ended December 31, 2015.



Financial instruments are classified into one of the following
categories: fair value through profit and loss; held-to-maturity; available-for-sale; loans and receivables; and other financial
liabilities. The following table summarizes information regarding the carrying value of the Company’s financial instruments:



|                                                                        |  | 2015 |        |  | 2014 |  
|----------------------------------------------------------------------- |  | ---- | ------ |  | ---- | -
|Cash and cash equivalents                                               |  | $    | 23,398 |  |      | $
|Restricted cash                                                         |  |      | 971    |  |      |  
|Restricted cash – non-current                                           |  |      | 532    |  |      |  
|Trade and other receivables                                             |  |      | 10,419 |  |      |  
|Loans and receivables                                                   |  | $    | 35,320 |  |      | $
|Trade and other payables                                                |  | $    | 7,776  |  |      | $
|Current portion of long-term debt and repayable government contribution |  |      | 7,494  |  |      |  
|Deferred share unit liability                                           |  |      | 746    |  |      |  
|Operating borrowings                                                    |  |      | 1,086  |  |      |  
|Warrants                                                                |  |      | 752    |  |      |  
|Non-current portion of long-term debt                                   |  |      | 2,702  |  |      |  
|Non-current portion of repayable government contributions               |  |      | 130    |  |      |  
|Post-retirement benefit liabilities                                     |  |      | 288    |  |      |  
|Derivative liability                                                    |  |      | 42     |  |      |  
|Other financial liabilities                                             |  | $    | 21,016 |  |      | $



Liquidity risk



The Company has sustained losses and negative cash flows from operations
since its inception. At December 31, 2015, the Company had $23,398 (2014 - $6,572) of current unrestricted cash and cash equivalents.
Liquidity risk is the risk the Company will encounter difficulty in meeting its financial obligations associated with financial
liabilities that are settled by delivering cash or another financial asset. The Company is exposed to liquidity risk as it continues
to have net cash outflows to support its operations. The Company’s objective for liquidity risk management is to maintain
sufficient liquid financial resources to fund the consolidated balance sheets, pursue growth and development strategies, and to
meet commitments and obligations in the most cost-effective manner possible. The Company achieves this by maintaining sufficient
cash and cash equivalents and short-term investments and managing working capital. The Company monitors its financial position
on a monthly basis at minimum, and updates its expected use of cash resources based on the latest available data. Such forecasting
takes into consideration the Company’s financing plans and compliance with internal targets. A significant portion of the
Company’s financial liabilities is classified as current liabilities, as settlement is expected within one year.



The following table details the Company’s contractual maturity
for its net financial liabilities. The information presented is based on the earliest date on which the Company can be required
to pay and represents the undiscounted cash flow including principal and interest.





2015 Consolidated Financial StatementsPage 46


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






|At December 31, 2015                                                      |  | Due in less than 1 year |        |  | Due in 1-3 years |   |       | Due in 4-5 years |  |   | Due in 6-10 years | 
|------------------------------------------------------------------------- |  | ----------------------- | ------ |  | ---------------- | - | ----- | ---------------- |  | - | ----------------- | 
|Trade and other payables                                                  |  | $                       | 7,776  |  |                  | $ | -     |                  |  | $ | -                 | 
|Deferred share unit liability                                             |  |                         | 746    |  |                  |   | -     |                  |  |   | -                 | 
|Operating borrowings                                                      |  |                         | 1,086  |  |                  |   | -     |                  |  |   | -                 | 
|Warrants                                                                  |  |                         | 752    |  |                  |   | -     |                  |  |   | -                 | 
|Current portion of long-term debt - Province of Ontario and institutional |  |                         | 7,663  |  |                  |   | -     |                  |  |   | -                 | 
|Repayable government contributions                                        |  |                         | 208    |  |                  |   | 160   |                  |  |   | -                 | 
|Derivative liability                                                      |  |                         | 42     |  |                  |   | -     |                  |  |   | -                 | 
|Long-term debt                                                            |  |                         | -      |  |                  |   | 1,939 |                  |  |   | 1,817             | 
|Total                                                                     |  | $                       | 18,273 |  |                  | $ | 2,099 |                  |  | $ | 1,817             | 



|At December 31, 2014                                                      |  | Due in less than 1 year |        |  | Due in 1-3 years |   |       | Due in 4-5 years |  |   | Due in 6-10 years | 
|------------------------------------------------------------------------- |  | ----------------------- | ------ |  | ---------------- | - | ----- | ---------------- |  | - | ----------------- | 
|Trade and other payables                                                  |  | $                       | 11,769 |  |                  | $ | -     |                  |  | $ | -                 | 
|Deferred share unit liability                                             |  |                         | 1,168  |  |                  |   | -     |                  |  |   | -                 | 
|Current portion of long-term debt - Province of Ontario and institutional |  |                         | -      |  |                  |   | -     |                  |  |   | -                 | 
|Repayable government contributions                                        |  |                         | 239    |  |                  |   | 439   |                  |  |   | -                 | 
|Long-term debt                                                            |  |                         | -      |  |                  |   | 1,221 |                  |  |   | 2,328             | 
|Total                                                                     |  | $                       | 13,176 |  |                  | $ | 1,660 |                  |  | $ | 2,328             | 



|Derivatives                |  | Due in less than 1 year |      
|-------------------------- |  | ----------------------- | -----
|Notional Amount Receivable |  |                         |      
|Euro                       |  | $                       | 1,910
|Notional Amount Payable    |  |                         |      
|USD                        |  |                         | 1,750
|GBP                        |  | $                       | 221  



Credit risk



Credit risk arises from the risk one party to a financial instrument
will cause a financial loss for the other party by failing to discharge an obligation. The Company is exposed to credit risk from
customers. At December 31, 2015, the Company’s two largest customers accounted for 19% of revenue (24% at December 31, 2014)
and 61% of accounts receivable (2014 – 58%). In order to minimize the risk of loss for trade receivables, the Company’s
extension of credit to customers involves a review and approval by senior management as well as progress payments as contracts
are executed and in some cases, irrevocable letters of credit. The majority of the Company’s sales are invoiced with payment
terms between 30 and 60 days. The Company’s objective is to minimize its exposure to credit risk from customers in order
to prevent losses on financial assets by performing regular monitoring of overdue balances and to provide an allowance for potentially
uncollectible accounts receivable.





2015 Consolidated Financial StatementsPage 47


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






The Company’s trade receivables have a carrying value of
$8,764 at December 31, 2015 (2014 - $10,518), representing the maximum exposure to credit risk of those financial assets, exclusive
of the allowance for doubtful accounts.



The aging of these receivables is as follows:



|At December 31,                                        |  | 2015 |     |   | 2014 | 
|------------------------------------------------------ |  | ---- | --- | - | ---- | 
|Not due                                                |  |      | 89  | % |      | 
|Less than 30 days past due                             |  |      | 7   | % |      | 
|Less than 60 days past due, more than 30 days past due |  |      | 2   | % |      | 
|More than 60 days past due                             |  |      | 2   | % |      | 
|Total                                                  |  |      | 100 | % |      | 



The Company’s gross exposure to credit risk for trade receivables
by geographic area at December 31 was as follows:



|At December 31, |  | 2015 |     |   | 2014 | 
|--------------- |  | ---- | --- | - | ---- | 
|Europe          |  |      | 72  | % |      | 
|North America   |  |      | 9   | % |      | 
|Asia            |  |      | 4   | % |      | 
|Rest of world   |  |      | 15  | % |      | 
|Total           |  |      | 100 | % |      | 



The activity of the allowance for doubtful accounts for the year
is as follows:



|                                                   |  | 2015 |     |   | 2014 |  
|-------------------------------------------------- |  | ---- | --- | - | ---- | -
|Allowance for doubtful accounts, beginning of year |  | $    | 133 |   |      | $
|Bad debt expense                                   |  |      | -   |   |      |  
|Reversal of bad debt expense                       |  |      | (6  | ) |      |  
|Writeoff of bad debts                              |  |      | -   |   |      |  
|December 31,                                       |  | $    | 127 |   |      | $



The Company believes the credit quality is high for the accounts
receivable, which are neither past due nor impaired based on prior experience of collections of accounts within 60 days of the
payment term on the invoice.



The Company may also have credit risk relating to cash and cash
equivalents and restricted cash, which it manages by dealing with chartered Canadian, chartered Belgian and German banks. The
credit risk is limited because the counterparties are chartered banks with high credit ratings assigned by international credit
rating agencies. In addition, the Company minimizes exposure to credit risk by strategically managing cash balances at individual
banks. As well, the Company may also fund working capital by leveraging credit facilities that are not 100% secured by cash, resulting
in a mitigation of credit risk at the corresponding bank.



The Company’s objective is to minimize its exposure to credit
risk in order to prevent losses on financial assets by placing its investments in lower risk bank acceptances of these banks.
The Company’s cash and cash equivalents and restricted cash was $24,901 at December 31, 2015 (2014 - $10,421), representing
the maximum exposure to credit risk of these financial assets. Approximately 99% (2014 - 99%) of the Company’s cash and
cash equivalents and restricted cash at December 31, 2015 was held by four financial institutions.





2015 Consolidated Financial StatementsPage 48


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






The Company’s exposure to credit risk relating to cash and
cash equivalents and restricted cash on deposit segmented by geographic area at December 31, 2015 and 2014 was as follows:



|        |  | 2015 |     |   | 2014 | 
|------- |  | ---- | --- | - | ---- | 
|Canada  |  |      | 74  | % |      | 
|Belgium |  |      | 25  | % |      | 
|Germany |  |      | 1   | % |      | 
|        |  |      | 100 | % |      | 



Foreign currency risk



Foreign currency risk arises because of fluctuations in exchange
rates. The Company conducts a significant portion of its business activities in currencies other than the Company’s functional
currency of US dollars and the functional currency of its Belgium subsidiary in euros. This primarily includes Canadian dollar
transactions at the parent company and US dollar transactions at the Company’s subsidiaries in Belgium and Germany.



The Company’s objective in managing its foreign currency
risk is to minimize its net exposure to foreign currency cash flows by converting foreign denominated financial assets into the
applicable currency of the subsidiary to the extent practicable to match the obligations of its financial liabilities. The Company
also periodically enters into foreign exchange forward contracts to limit its exposure to foreign currency rate fluctuations.
All of the foreign exchange forward contracts expire within the following 12 months.



Financial assets and financial liabilities denominated in foreign
currencies will be affected by changes in the exchange rate between the functional currency and these foreign currencies. This
primarily includes cash and cash equivalents; trade and other receivables; trade and other payables and other long-term liabilities,
which are denominated in foreign currencies.



The Company recognized a net foreign exchange loss of $428 (2014
- a net gain of $117) for the year ended December 31, 2015.



As at December 31, 2015, the Company had foreign exchange forward
contracts totalling $1,750 in notional USD and £150 in notional GBP, all due within one year.



At December 31, 2015, if the Canadian dollar had strengthened/weakened
by 10% against the US dollar, with all other variables held constant, the net loss would have been lower/higher by $613 as a result
of foreign exchange on the translation of Canadian dollar denominated balances.



At December 31, 2015, if the euro had strengthened/weakened by
10% against the US dollar, with all other variables held constant, the net loss would have been lower by $287 or higher by $318
as a result of foreign exchange on the translation of euro denominated balances.



Interest rate risk



Cash flow interest rate risk arises because of the fluctuation
in market interest rates. The Company’s objective in managing interest rate risk is to maximize the return on its cash and
cash equivalents and restricted cash. The Company is subject to interest rate risk on its short-term borrowings offset by cash
and cash equivalents. The Company’s borrowings are at a fixed interest rate. Given the prevailing interest rates earned
by the Company’s short-term investments, a 10% increase or decrease would have minimal impact on the Company’s results.





2015 Consolidated Financial StatementsPage 49


Hydrogenics Corporation


Hydrogenics Corporation

Notes to Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(in thousands of US dollars, except share and per share amounts)






Note 33 – Capital Management



The Company’s objective in managing capital is to ensure
sufficient liquidity to pursue its growth strategy, fund research and product development, while at the same time, taking a conservative
approach toward financial leverage and management of financial risk.



The Company’s primary uses of capital are to finance operations,
increase non-cash working capital and capital expenditures. The Company currently funds these requirements from existing cash
resources, cash raised through share issuances and long-term debt. The Company’s objectives when managing capital are to
ensure the Company will continue to have enough liquidity so it can provide its products and services to its customers and returns
to its shareholders. The Company monitors its capital on the basis of the adequacy of its cash resources to fund its business
plan. In order to maximize the capacity to finance the Company’s ongoing growth, the Company does not currently pay a dividend
to holders of its common shares.



The Company’s capital is composed of debt and shareholders’
equity as follows:



|                                                      |  | December 31, 2015 |        |  | December 31,  2014 |  
|----------------------------------------------------- |  | ----------------- | ------ |  | ------------------ | -
|Shareholders’ equity                                  |  | $                 | 20,248 |  |                    | $
|Operating borrowings                                  |  |                   | 1,086  |  |                    |  
|Long-term debt and repayable government contributions |  |                   | 10,326 |  |                    |  
|Total                                                 |  |                   | 31,660 |  |                    |  
|Less Cash and cash equivalents and restricted cash    |  |                   | 24,901 |  |                    |  
|Total capital employed                                |  | $                 | 6,759  |  |                    | $











|2015 Consolidated Financial Statements | Page 50
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