Form 6-K HYDROGENICS CORP For: Nov 10

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 8/16/2026

6. SNDK
7. WDAY
8. ADYEN:NA
9. DVLT
10. ADYYF

Hydrogenics Reports Third Quarter 2014 Results

Revenue Growth of 20%, Gross Profit Growth of 12% and on Track for Fourth Quarter and Full Year 2014

MISSISSAUGA, Ontario, Nov. 10, 2014 (GLOBE NEWSWIRE) -- Hydrogenics Corporation (Nasdaq: HYGS) (TSX:HYG) ("Hydrogenics" or "the Company"), a leading developer and manufacturer of hydrogen generation and hydrogen-based power modules, today reported third quarter 2014 financial results. Results are reported in US dollars and are prepared in accordance with International Financial Reporting Standards (IFRS).

"The third quarter, as anticipated, showed steady upward momentum and positive order trends, positioning the Company for much stronger growth in the fourth quarter and 2015," said Daryl Wilson, President and Chief Executive Officer. "We booked our first North American energy storage award with the Ontario IESO, won a number of fueling station contracts in Europe and the U.S., and continued to bid on an active pipeline of opportunities across the globe.

"Prior to the end of 2014 we expect to ship our first PEM megawatt electrolyzer to E.ON's future energy storage location in Hamburg, Germany. Additionally, we expect to deliver our initial PEM megawatt fuel cell power product for Kolon in Korea. These breakthrough offerings lay the foundation for planned multi-megawatt installations already in the sales pipeline. Upon confirmation of performance within the next two quarters, we anticipate follow-on installations of significant size. For Hydrogenics, this represents the consummation of many years work in product design, cost reduction, and market development. Our strategy based on innovation, uniquely differentiated technology architecture, and a deep engagement with strong partners is paying off.

"We expect the fourth quarter's top line improvement to carry Hydrogenics over $50 million in revenue for the year, as previously forecast, on the back of higher electrolyzer and fuel cell shipments. With these anticipated deliveries we look forward to achieving positive Adjusted EBITDA² for the year. In addition, we see further substantial growth in 2015 due to our strong backlog, increasing energy storage demand, and expansion of our work in utility-scale fuel cell power generation."

Highlights for the Quarter Ended September 30, 2014

Revenue for the three months ended September 30, 2014 increased by $1.9 million, or 20%, to $11.1 million versus the prior-year period.
�
Gross profit was $3.1 million for the quarter, up $0.3 million, or 12%, from the third quarter of 2013.�
�
Cash operating costs¹ were $3.9 million compared to $3.1 million for the same period in 2013.�Virtually all of the year-over-year increase was related to higher R&D expenditures in the third quarter of 2014.�
�
The Adjusted EBITDA² loss was $0.7 million.��
�
Net loss for the third quarter was $1.3 million, or $(0.13) per share.�
�
Cash, cash equivalents and restricted cash were $14.3 million at the end of the quarter.�
�

Hydrogenics secured $13.0 million for renewable energy storage, industrial gas, and power system applications during the quarter, resulting in an order backlog of $66.9 million as of September 30, 2014.�Order backlog movement during the third quarter (in $ millions) was as follows:

�
�	�	�	�	�	�	Expected Revenue Recognition
�	June 30, 2014 backlog	Orders Received	FX	Orders Delivered/ Revenue Recognized	September 30, 2014 backlog	During next 12 months	Beyond next 12 months
OnSite Generation	22.6	12.1	(0.3)	7.4	27.0	22.2	4.8
Power Systems	44.5	0.9	(1.8)	3.7	39.9	16.7	23.2
Total	67.1	13.0	(2.1)	11.1	66.9	38.9	28.0

Highlights for the Nine Months ended September 30, 2014 compared to the Nine Months ended September 30, 2013

Revenue was $29.9 million.��
�
Gross profit was $8.2 million, or 28% of revenue.�
�
Cash operating costs¹ were $11.2 million compared to $10.6 for the same period a year ago.�
�
Hydrogenics' Adjusted EBITDA² loss�was $2.7 million.

Notes

1.�� Cash operating costs are defined as the sum of SG&A and R&D, less amortization and depreciation, and stock-based compensation expense inclusive of compensation costs indexed to our share price. This is a non-IFRS measure and may not be comparable to similar measures used by other companies. Management uses this measure as a rough estimate of the amount of normal costs to operate the Corporation and believes this is a useful measure for investors for the same purpose.

2.�� Adjusted EBITDA is defined as net loss excluding stock based compensation (both cash settled long term compensation indexed to share price and share based compensation), other finance income and expenses, depreciation and amortization. These items are considered by management to be outside of Hydrogenics' ongoing operational results.�Adjusted EBITDA is a non-IFRS measure and may not be comparable to similar measures used by other companies.

Conference Call Details

Hydrogenics will hold a conference call at 10:00 a.m. ET today, November 10, 2014 to review the third quarter results. The telephone number for the conference call is (877) 307-1373 or, for international callers, (678) 224-7873.�A live webcast of the call will also be available on the company's website, www.hydrogenics.com.

An archived copy of the conference call and webcast will be available on the company's website, www.hydrogenics.com, approximately nine hours following the call.

About Hydrogenics

Hydrogenics Corporation is a world leader in engineering and building the technologies required to enable the acceleration of a global power shift. Headquartered in Mississauga, Ontario, Hydrogenics provides hydrogen generation, energy storage and hydrogen power modules to its customers and partners around the world. Hydrogenics has manufacturing sites in �Germany, Belgium and Canada and service centers in Russia, Europe, the US and Canada.

Forward-looking Statements

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995, and under applicable Canadian securities law. These statements are based on management's current expectations and actual results may differ from these forward-looking statements due to numerous factors, including: our inability to increase our revenues or raise additional funding to continue operations, execute our business plan, or to grow our business; inability to address a slow return to economic growth, and its impact on our business, results of operations and consolidated financial condition; our limited operating history; inability to implement our business strategy; �fluctuations in our quarterly results; failure to maintain our customer base that generates the majority of our revenues; currency fluctuations; failure to maintain sufficient insurance coverage; changes in value of our�goodwill; failure of a significant market to develop for our products; failure of hydrogen being readily available on a cost-effective basis; changes in government policies and regulations; failure of uniform codes and standards for hydrogen fuelled vehicles and related infrastructure to develop; liability for environmental damages resulting from our research, development or manufacturing operations; failure to compete with other developers and manufacturers of products in our industry; failure to compete with developers and manufacturers of traditional and alternative technologies; failure to develop partnerships with original equipment manufacturers, governments, systems integrators and other third parties; inability to obtain sufficient materials and components for our products from suppliers; failure to manage expansion of our operations; failure to manage foreign sales and operations; failure to recruit, train and retain key management personnel; inability to integrate acquisitions; failure to develop adequate manufacturing processes and capabilities; failure to complete the development of commercially viable products; failure to produce cost-competitive products; failure or delay in field testing of our products; failure to produce products free of defects or errors; inability to adapt to technological advances or new codes and standards; failure to protect our intellectual property; our involvement in intellectual property litigation; exposure to product liability claims; �failure to meet rules regarding passive foreign investment companies; actions of our significant and principal shareholders; dilution as a result of significant issuances of our common shares and preferred shares; inability of US investors to enforce US civil liability judgments against us; volatility of our common share price; and dilution as a result of the exercise of options. Readers should not place undue reliance on Hydrogenics' forward-looking statements. Investors are encouraged to review the section captioned "Risk Factors" in Hydrogenics' regulatory filings with the Canadian securities regulatory authorities and the US Securities and Exchange Commission for a more complete discussion of factors that could affect Hydrogenics' future performance. Furthermore, the forward-looking statements contained herein are made as of the date of this release, and Hydrogenics undertakes no obligations to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release, unless otherwise required by law. The forward-looking statements contained in this release are expressly qualified by this.

�
Reconciliation of Cash Operating Costs to Operating Costs and Adjusted EBITDA to Net Loss
(in thousands of US dollars)
(unaudited)
�
Cash operating costs	�		�
�
�	Three months ended September 30		Nine months ended September 30
�	2014	2013	2014	2013
Selling, general and administrative expenses	$ 2,846	$ 2,830	$ 9,392	$ 11,327
Research and product development expenses	1,160	550	2,991	2,336
Total operating costs	$ 4,006	$ 3,380	$ 12,383	$ 13,663
Less: Depreciation of property, plant and equipment�and intangibles	(81)	(120)	(235)	(348)
�	�	�	�	�
Less: Compensation costs indexed to share price	120	10	(473)	(2,202)
Less: Stock-based compensation expense	(170)	(145)	(462)	(486)
Cash operating costs	$ 3,875�	$ 3,125	$ 11,213	$ 10,627

�
Adjusted EBITDA
�
�	Three months ended September 30		Nine months ended September 30
�	2014	2013	2014	2013
Net loss	$ (1,262)�	$ (491)�	$ (5,135)	$ (5,808)�
Finance loss (income)	323	(159)	977	1,501
Depreciation of property, plant and equipment and intangible assets	206	165	524	567
Compensation indexed to share price	(120)	(10)	473	2,202
Stock-based compensation expense	170	145	462	486
Adjusted EBITDA	$ (683)	$ (350)	$ (2,699)	$ (1,052)

�
Hydrogenics Corporation
Consolidated Interim Balance Sheets
(in thousands of US dollars)
(unaudited)�
�	�	�
�	September 30 2014	December 31 2013
�	�	�
Assets	�	�
Current assets	�	�
Cash and cash equivalents	$ 10,700	$ 11,823
Restricted cash	2,780	635
Trade and other receivables	10,661	5,391
Inventories	16,738	12,821
Prepaid expenses	980	979
�	41,859	31,649
Non-current assets	�	�
Restricted cash	860	1,389
Investment in joint venture	885	--
Property, plant and equipment	1,810	1,684
Intangible assets	149	100
Goodwill	4,813�	�5,248�
�	8,517	8,421
Total assets	$ 50,376�	$ 40,070�
�	�	�
Liabilities	�	�
Current liabilities	�	�
Trade and other payables	$ 11,404	$ 13,193
Warranty provisions	1,693	1,912
Deferred revenue	10,788	6,348�
Warrants	--	1,075
�	23,885	22,528
Non-current liabilities	�	�
Other non-current liabilities	3,750	3,095
Non-current warranty provisions	1,072	981
Non-current deferred revenue	6,353	7,305
Total liabilities	35,060	33,909
Equity	�	�
Share capital	348,256�	�333,312�
Contributed surplus	18,847�	18,449�
Accumulated other comprehensive loss	(1,301)�	(249)�
Deficit	(350,486)	(345,351)
Total equity	15,316	�6,161
Total equity and liabilities	$ 50,376	$ 40,070�

�
Hydrogenics Corporation
Consolidated Interim Statements of Operations and Comprehensive Loss
(in thousands of US dollars, except share and per share amounts)
(unaudited)
�	�		�
�	Three Months Ended		Nine Months Ended
�	September 30		September 30
�	2014	2013	2014	2013
Revenues	$ 11,093�	$ 9,236�	$ 29,875�	$ 31,413�
Cost of sales	8,026	6,506	21,650	22,057
Gross profit	3,067	2,730	8,225	9,356
�	�	�	�	�
Operating expenses	�	�	�	�
Selling, general & administrative expenses	2,846	2,830	9,392	11,327
Research and product development expenses	1,160	550	2,991	2,336
�	4,006	3,380	12,383	13,663
�	�	�	�	�
Income (Loss) from operations	(939)	(650)	(4,158)	(4,307)
�	�	�	�	�
Finance income (expenses)	�	�	�	�
Interest income	1	18	4	25
Interest expense	(106)	(121)	(373)	(307)
Foreign currency gains	455	163	603	517
Foreign currency losses	(611)	(61)	(968)	(360)
(Loss) from joint venture	(62)	--	(62)	--
Other finance gains (losses), net	--	160	�(181)�	�(1,376)�
Finance income (loss), net	(323)	159	(977)	(1,501)
�	�	�	�	�
Loss before income taxes	(1,262)	(491)	(5,135)	(5,808)
Income tax expense	--	--	--	--
Net loss for the period	(1,262)	(491)	(5,135)	(5,808)
�	�	�	�	�
Items that may be reclassified subsequently to net loss:	�	�	�	�
Exchange differences on translating foreign operations	(985)	379	(1,052)	277
Comprehensive loss for the period	$ (2,247)	$ (112)	$ (6,187)�	$ (5,531)�
�	�	�	�	�
Net loss per share	�	�	�	�
Basic and diluted	$ (0.13)�	$ (0.05)�	$ (0.54)�	$ (0.69)�
�	�	�	�	�
Weighted average number of common shares outstanding	10,089,508	8,963,599	9,593,140	8,453,973

�
Hydrogenics Corporation
Consolidated Interim Statements of Cash Flows
(in thousands of US dollars)
(unaudited)�
�
�	Three months ended September 30		Nine months ended September 30
�	2014	2013	2014	2013
Cash and cash equivalents provided by��(used in):	�	�	�	�
Operating activities	�	�	�	�
Net loss for the period	$ (1,262)	$ (491)	$ (5,135)	$(5,808)
Increase (decrease) in restricted cash	(1,425)	1,673	(1,616)	1,788
Items not affecting cash:	�	�	�	�
Amortization and depreciation	206	165	524	567
Other finance losses (gains), net	--	(160)	181	1,376
Unrealized foreign exchange (gains)	(230)	(196)	(140)	(116)
Unrealized loss on joint venture	62	--	62	--
Stock-based compensation	170	145	462	486
Portion of borrowings recorded as a reduction of research and development expenses	--	(289)	(118)	(289)
Accreted non-cash interest	133	87	366	258
Payment of post-retirement benefit liability	(25)	(26)	(70)	(75)
Liabilities for compensation indexed to share price	(120)	(10)	473	2,202
Net change in non-cash working capital	(1,790)	(1,189)	(7,887)	(7,612)
�Cash used in operating activities	(4,281)	(291)	(12,898)	(7,223)
�	�	�	�	�
Investing activities	�	�	�	�
Proceeds from disposals	--	--	9	--
Investment in joint venture	(947)	�--	(947)	�--
Purchase of property, plant and equipment	(20)	(187)	(545)	(725)
Purchase of intangible assets	(3)	(32)	(83)	(32)
Cash used in investing activities	(970)	(219)	(1,566)	(757)
�	�	�	�	�
Financing activities	�	�	�	�
�	�	�	�	�
Repayment of repayable government contributions	(50)	(88)	(439)	(338)
�	�	�	�	�
Proceeds of borrowings, net of transaction costs	--	--	--	--
Proceeds of operating borrowings	�	525	854	1,937
Repayment of operating borrowings	--	--	--	(1,412)
Common shares issued and warrants exercised, net of issuance costs	5	5	13,666	7,239
Cash provided by financing activities	(45)	442	14,081	7,426
�	�	�	�	�
Effect of exchange rate fluctuations on cash and cash equivalents held	(663)	373	(740)	184
Increase (Decrease) in cash and cash equivalents �during the period	(5,959)	305	(1,123)	(370)
Cash and cash equivalents - Beginning of period	16,659	12,345	11,823	13,020
Cash and cash equivalents End of period	$ 10,700	$ 12,650	$ 10,700	$ 12,650

CONTACT: Hydrogenics Contacts:
         
         Bob Motz, Chief Financial Officer
         Hydrogenics Corporation
         (905) 361-3660
         [email protected]
         
         Chris Witty
         Hydrogenics Investor Relations
         (646) 438-9385
         [email protected]

EXHIBIT 99.2

�

Hydrogenics Corporation

�

Third Quarter 2014

Management’s Discussion and Analysis

�

Hydrogenics Corporation

This Management’s Discussion and Analysis (“MD&A”) of the results of operations and the financial condition of Hydrogenics Corporation (“Hydrogenics” or the “Corporation”), describes the operating and financial results for the three and nine months ended September 30, 2014.

This MD&A should be read in conjunction with the Consolidated Financial Statements and Auditors’ Report for fiscal 2013 and the Consolidated Interim Financial Statements for the three and nine months ended September 30, 2014. The Corporation prepares its consolidated interim financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The Corporation uses certain non-IFRS financial performance measures in this MD&A. For a detailed reconciliation of each of the non-IFRS measures used in this MD&A, please see the discussion under “Non-IFRS Measures” below.

In this MD&A, all currency amounts (except per unit amounts) are in thousands and, unless otherwise stated, they are in thousands of United States dollars (“US Dollars”). The information presented in this MD&A is as of November 7, 2014, unless otherwise stated.

Additional information about Hydrogenics, including our 2013 Consolidated Financial Statements and our Annual Report on Form 40-F, which is filed in Canada as our annual information form, is available on our website at www.hydrogenics.com, on the SEDAR website at www.sedar.com, and on the EDGAR filers section of the U.S. Securities and Exchange Commission website at www.sec.gov.

This document contains forward-looking statements, which are qualified by reference to, and should be read together with the “Forward-looking Statements” cautionary notice on page 20 of this MD&A.

“Hydrogenics,” the “Corporation,” or the “Company” or the words “our,” “us” or “we” refer to Hydrogenics Corporation and its subsidiaries.

For additional information, please use www.hydrogenics.com/investor.

Third Quarter 2014 Management's Discussion and Analysis

Page 2

Hydrogenics Corporation

�

�			�
Management’s Discussion and Analysis – Contents Section			Page
1	Operating Results A detailed discussion of our operating results for the three and nine months ended September 30, 2014		4
2	Financial Condition A discussion of the significant changes in our consolidated interim balance sheets		9
3	Summary of Quarterly Results A summary view of our quarterly financial performance		10
4	Liquidity and Capital Resources A discussion of our cash flow, liquidity, credit facilities and other disclosures		10
5	Critical Accounting Policies and Estimates A description of our accounting estimates that are critical to determining our financial results and changes to accounting policies		13
6	Recent Accounting Pronouncements A discussion of IFRS developments that have, will or might affect the Corporation		14
7	Outlook The outlook for our business		14
8	Internal Control Over Financial Reporting A statement of responsibilities regarding internal controls over financial reporting		15
9	Reconciliation and Definition of Non-IFRS Measures A description, calculation and reconciliation of certain measures used by management		15
10	Risk Factors Risk factors		17
11	Forward-looking Statements Caution regarding forward-looking statements		20
�	�	�	�

�

Third Quarter 2014 Management's Discussion and Analysis

Page 3

Hydrogenics Corporation

�

Operating Results

�

All references to per share amounts pertain to net loss per share and are presented on a consolidated basis. Certain of the prior year’s figures have been revised to conform with current presentation

�

Selected Financial information

�

�	�	�										�	�	�										�
�	�	Three months ended September 30										�	�	Nine months ended September 30										�
�	�	2014		�	�	2013		�	�	% Favourable (Unfavourable)		�	�	2014		�	�	2013		�	�	% Favourable (Unfavourable)		�
OnSite Generation	�	$	7,435	�	�	$	5,820	�	�	�	28	%	�	$	20,912	�	�	$	17,130	�	�	�	22	%
Power Systems	�	�	3,658	�	�	�	3,416	�	�	�	7	%	�	�	8,963	�	�	�	14,283	�	�	�	(37	%)
Total Revenue	�	�	11,093	�	�	�	9,236	�	�	�	20	%	�	�	29,875	�	�	�	31,413	�	�	�	(5	%)
Gross profit	�	�	3,067	�	�	�	2,730	�	�	�	12	%	�	�	8,225	�	�	�	9,356	�	�	�	(12	%)
Gross Margin %	�	�	28	%	�	�	30	%	�	�	(2	%)	�	�	28	%	�	�	30	%	�	�	(2	%)
Selling, General and Administrative Expenses	�	�	2,846	�	�	�	2,830	�	�	�	(1	%)	�	�	9,392	�	�	�	11,327	�	�	�	17	%
Research and Product Development Expenses	�	�	1,160	�	�	�	550	�	�	�	(111	%)	�	�	2,991	�	�	�	2,336	�	�	�	(28	%)
Income (Loss) from Operations	�	�	(939	)	�	�	(650	)	�	�	(44	%)	�	�	(4,158	)	�	�	(4,307	)	�	�	3	%
Net Loss	�	$	(1,262	)	�	�	(491	)	�	�	(157	%)	�	$	(5,135	)	�	$	(5,808	)	�	�	12	%
Net Loss Per Share	�	$	(0.13	)	�	$	(0.05	)	�	�	(160	%)	�	$	(0.54	)	�	$	(0.69	)	�	�	22	%
Cash Operating Costs¹	�	$	3,875	�	�	$	3,125	�	�	�	(24	%)	�	$	11,213	�	�	$	10,627	�	�	�	(6	%)
Adjusted EBITDA¹	�	�	(683	)	�	�	(350	)	�	�	(95	%)	�	�	(2,699	)	�	�	(1,052	)	�	�	(157	%)
Cash used in Operating Activities	�	�	(4,281	)	�	�	(291	)	�	�	(1,371	%)	�	�	(12,898	)	�	�	(7,223	)	�	�	(79	%)
Cash & Cash Equivalents (including Restricted Cash)	�	�	14,340	�	�	�	14,644	�	�	�	(2	%)	�	�	14,340	�	�	�	14,644	�	�	�	(2	%)
Total Assets	�	�	50,376	�	�	�	40,419	�	�	�	25	%	�	�	50,376	�	�	�	40,419	�	�	�	25	%
Total Non-Current Liabilities (excluding Deferred Revenue)	�	$	4,822	�	�	$	3,543	�	�	�	(36	%)	�	$	4,822	�	�	$	3,543	�	�	�	(36	%)

�_______________

Cash operating costs and Adjusted EBITDA are Non-IFRS measures. Please refer to Section 9 of this MD&A.

�

Third Quarter 2014 Management's Discussion and Analysis

Page 4

Hydrogenics Corporation

Highlights for the three months ended September 30, 2014 compared to the three months ended September 30, 2013

�

Total Revenues increased by 20% or $1.9 million, primarily due to growth in revenue from our OnSite Generation business segment. During the third quarter of 2014, the OnSite Generation and the Power Systems business segments received new orders totaling $12.1 million (September 30, 2013 - $9.7 million) and $0.9 million (September 30, 2013 - $2.4 million), respectively. Backlog was $66.9 million at September 30, 2014, of which $38.9 million is expected to be recognized as revenue in the next twelve months.

�

Expected Revenue Recognition

�

June 30, 2014 backlog

�

Orders Received

�

Orders Delivered/ Revenue Recognized

�

September 30, 2014 backlog

�

During next 12 months

�

Beyond next 12 months

�

OnSite Generation

�

22.6

�

12.1

�

(0.3

)

�

7.4

�

27.0

�

22.2

�

4.8

�

Power Systems

�

44.5

�

0.9

�

(1.8

)

�

3.7

�

39.9

�

16.7

�

23.2

�

Total

�

67.1

�

13.0

�

(2.1

)

�

11.1

�

66.9

�

38.9

�

28.0

�

Cash operating costs increased by $0.8 million or 24% to $3.9 million from $3.1 million when compared to the same period in 2013, with these costs as a percent of revenue increasing by 1%. The increase resulted principally from an increase in R&D expenditures of $0.6 million in the quarter related to development work for the Celerity™ fuel cell module as well as related power systems R&D.

�

Adjusted EBITDA loss increased $0.3 million or 95% in the current quarter to $0.7 million from $0.4 million in the third quarter of 2013. The decline resulted principally from an increase in R&D expenditures as noted above, offset by the increase in gross profit of $0.4 million noted above.

�

Net loss increased by 157% in the three months ended September 30, 2014 to a loss of $1.3 million from a loss of $0.5 million in the third quarter of 2013. The higher loss was due to the variance in Adjusted EBITDA noted above as well as a $0.6 million decrease in other finance expenses (principally, interest, foreign currency translation and expenses related to warrant revaluation in the third quarter of 2013 (all warrants were exercised by January 2014)).

�

The strengthening in the United States dollar compared to both the Euro and the Canadian dollar in the third quarter of 2014 had an impact on revenue, margin and cash operating costs. The weakness in the Euro had a negative impact on revenue and gross margin but a positive impact on cash operating costs. The weakness in the Canadian dollar had minimal impact on revenue and gross margin but a positive impact on cash operating costs.

�

Cash and cash equivalents and restricted cash were $14.3 million at September 30, 2014 compared to $14.6 million at September 30, 2013.

�

Third Quarter 2014 Management's Discussion and Analysis

Page 5

Hydrogenics Corporation

Highlights for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013

�

Revenues decreased by $1.5 million or 5% to $29.9 million in the nine months ended September 30, 2014 compared to $31.4 million in the same period of the prior year. The decrease in Power Systems revenue in the period was due to the orders from Commscope in Q1 and Q2 of 2013 with no comparable orders during the same period in 2014, offset by increases in Onsite Generation revenues. During the first nine months of 2014, the OnSite Generation and the Power Systems business segments received orders totaling $25.8 million (September 30, 2013 - $15.3 million) and $16.0 million (September 30, 2013 - $8.8 million), respectively.

�

Expected Revenue Recognition

�

Dec 31, 2013 backlog

�

Orders Received

�

Orders Delivered/ Revenue Recognized

�

September 30, 2014 backlog

�

During next 12 months

�

Beyond next 12 months

�

OnSite Generation

�

22.5

�

25.8

�

(0.4

)

�

20.9

�

27.0

�

22.2

�

4.8

�

Power Systems

�

34.5

�

16.1

�

(1.7

)

�

9.0

�

39.9

�

16.7

�

23.2

�

Total

�

57.0

�

41.9

�

(2.1

)

�

29.9

�

66.9

�

38.9

�

28.0

�

Cash operating costs were $11.2 million in the current period compared to $10.6 million in the nine months ended September 30, 2013 with costs as a percent of revenue increasing by 4%.

�

Adjusted EBITDA loss increased to $2.7 million for the nine months ended September 30, 2014 from $1.1 million for the same period last year. The decline reflects the decrease in gross profit of $1.1 million partially due to lower revenues and lower margins.

�

Net loss was $5.1 million in the current period compared to $5.8 for nine months ended September 2013. The 12% improvement in the net loss reflects the impact of a $1.7 million decrease attributable to the lower mark-to-market adjustment on the value of restricted share units (“RSUs”) and deferred share units (“DSUs”) offset by a decrease in revenue and related margin in the current year when compared to the same period of the prior year.

�

Business Segment Review

We report our results in two business segments, being OnSite Generation and Power Systems. These segments are differentiated by the products developed and end-customer markets. Our reporting structure reflects the way we manage our business and how we classify our operations for planning and measuring performance. The corporate office and administrative support is reported under Corporate and Other.

OnSite Generation

Selected Financial Information

�

Three months ended
September 30

�

Nine months ended
September 30

�

2014

�

2013

�

% Favourable (Unfavourable)

�

2014

�

2013

�

% Favourable (Unfavourable)

�

Revenues

�

7,435

�

5,820

�

20,912

�

17,130

�

Gross profit

�

1,817

�

492

�

269

�

4,730

�

2,455

�

Gross margin %

�

189

�

Selling, General and Administrative Expenses

�

855

�

637

�

(34

�

2,520

�

2,250

�

(12

Research and Product Development Expenses

�

250

�

187

�

(34

�

1,024

�

601

�

(70

Segment Income (Loss)

�

712

�

(332

)

�

314

�

1,186

�

(396

)

�

399

�

Third Quarter 2014 Management's Discussion and Analysis

Page 6

Hydrogenics Corporation

Revenues increased 28% and 22% for the three and nine months ended September 30, 2014, respectively due to an increase in the execution of sales orders in the period. Sales through September 30, 2014 consisted primarily of the sale of electrolyzer products to customers in industrial gas markets. Orders awarded for the nine months ended September 30, 2014 were $25.8 million (September 30, 2013 – $5.6 million). At September 30, 2014 we had $27.0 million of confirmed orders (September 30, 2013 – $13.3 million), the majority of which are anticipated to be delivered and recognized as revenue in 2014.

Gross Margin improved to 24% and 23%, respectively for the three and nine months ended September 30, 2014 compared to 9% and 14% for the three and nine months ended September 30, 2013. The increase of revenue for the three months ended September 30, 2014 brought production capacity up to normal levels, and no additional costs were required relating to the warranty costs incurred in the first three months of 2014.

Selling, General and Administrative (“SG&A”) Expenses were $0.8 million and $2.5 million, respectively for the three and nine months ended September 30, 2014 compared to $0.6 million and $2.3 million for the same periods in 2013.

Research and Product Development (“R&D”) Expenses were $0.3 and $1.0 million respectively, for the three and nine months ended September 30, 2014 resulting from increased research and development spending attributable to further prototype development costs.

Segment Income (Loss) increased $1.0 million to income of $0.7 for the three months ended September 30, 2014 compared to a loss of $0.3 for the same period of the prior year. Segment income was $1.2 million for the nine months ended September 30, 2014 compared to a segment loss of $0.4 for the nine months ended September 30, 2013.

Power Systems

Selected Financial Information

�

Three months ended
September 30

�

Nine months ended
September 30

�

2014

�

2013

�

% Favourable (Unfavourable)

�

2014

�

2013

�

% Favourable (Unfavourable)

�

Revenues

�

3,658

�

3,416

�

8,963

�

14,283

�

(37

Gross Profit

�

1,250

�

2,238

�

(44

�

3,495

�

6,901

�

(49

Gross margin %

�

(44

�

(19

Selling, General and Administrative Expenses

�

1,016

�

1,091

�

3,131

�

3,427

�

Research and Product Development Expenses

�

902

�

356

�

(153

�

1,952

�

1,710

�

(14

Segment Income (Loss)

�

(668

)

�

791

�

(184

�

(1,588

)

�

1,764

�

(190

�

Revenues increased 7% and decreased 37% respectively for the three and nine months ended September 30, 2014 when compared to the same periods of 2013. The decrease in the nine months of the current year resulted from Commscope orders in Q1 and Q2 of 2013 with no comparable orders during the same period in 2014. Orders awarded for the nine months ended September 30, 2014 were $16.0 million (September 30, 2013 - $6.4 million), with orders received from Kolon Water & Energy contributing $10.9 million to the backlog. At September 30, 2014, backlog was $41.6 million of confirmed orders for Power Systems’ products and services (September 30, 2013 - $36.6 million). We expect to recognize $16.7 million of this backlog as revenue in the next twelve months.

Third Quarter 2014 Management's Discussion and Analysis

Page 7

Hydrogenics Corporation

Gross Margin declined to 34% and 39%, respectively for the three and nine months ended September 30, 2013, compared to 66% and 48% respectively for the comparative periods of the prior year, with the decline in the current periods due to product mix with a larger percentage of higher margin engineering services in the prior year.

SG&A Expenses decreased by 7% and 9% respectively for the three and nine months ended September 30, 2014 compared to the same period a year ago. Expenses were lower due to lower marketing expenses and lower compensation costs in the current period.

R&D Expenses were higher by $0.5 million for the three months ended September 30. 2014, compared to the same period of the prior year due to more R&D project activity specifically related to the Celerity™ fuel power system for medium and heavy duty vehicles and power to gas projects.

Segment Income declined $1.5 million and $3.4 million, respectively for the three and nine months ended September 30, 2014, resulting from the lower gross profit and margin.

Corporate and Other

�

Selected Financial Information

�

Three months ended
September 30

�

Nine months ended
September 30

�

2014

�

2013

�

% Favourable (Unfavourable)

�

2014

�

2013

�

% Favourable (Unfavourable)

�

Selling, General and Administrative Expenses

�

975

�

1,102

�

3,741

�

5,650

�

Research and Product Development Expenses

�

(14

�

Net Other Finance Gains (Losses)

�

160

�

(100

�

(181

)

�

(1,376

)

�

(87

Interest income (expense)and loss on joint venture

�

(167

)

�

(103

)

�

(62

�

(431

)

�

(282

)

�

(53

Foreign exchange gains (losses) net

�

(156

)

�

102

�

(253

�

(365

)

�

157

�

(132

Total

�

(1,306

)

�

(950

)

�

(37

�

(4,733

)

�

(7,176

)

�

SG&A Expenses decreased 12% and 34% respectively for the three and nine months ended September 30, 2014 primarily due to impact of the mark-to-market adjustment on RSUs and DSUs as a result of the decline of our share price in the current period.

R&D Expenses for the three and nine months of 2014 were consistent with the prior periods, and reflect the cost of maintaining our intellectual property.

Other Finance Gains (Losses) decreased $0.2 and $1.2 million respectively for the three and nine months ended September 30, 2014 primarily the result of a $1.6 million fair value revaluation loss recorded in the nine months ended September 30, 2013 on the exercised and outstanding warrants and the higher price for our common shares in 2013. There are no outstanding warrants at September 30, 2014.

Loss before income taxes increased to $1.3 and $4.7 million respectively for the three and nine months ended September 30, 2014 primarily the result of the gains recorded in 2013 related to the exercise of warrants at higher common share prices in 2013 as indicated above.

Third Quarter 2014 Management's Discussion and Analysis

Page 8

Hydrogenics Corporation

�

Financial Condition

�

September 30

�

December 31

�

Favourable/(Unfavourable)

�

2014

�

2013

�

Cash, cash equivalents, restricted cash and short-term investments

�

14,340

�

13,847

�

493

�

Trade and other receivables

�

10,661

�

5,391

�

(5,270

)

�

(98

Inventories

�

16,738

�

12,821

�

(3,917

)

�

(31

Trade and other payables

�

11,404

�

13,193

�

(1,789

)

�

(14

Warranty provisions (current and non-current)

�

2,765

�

2,893

�

128

�

Deferred revenue (current and non-current)

�

17,141

�

13,653

�

3,488

�

Warrants

�

1,075

�

1,075

�

100

Other non-current liabilities

�

3,750

�

3,095

�

655

�

Cash, cash equivalents, restricted cash and short-term investments were $14.3 million, an increase of $0.5 million or 4%. Refer to Section 4 - Liquidity and Capital Resources, for a discussion of the change in cash, cash equivalents, restricted cash and short-term investments.

Trade and other receivables were $10.7 million, an increase of $5.3 million or 98% due to the timing of deliveries taking place at the end of the quarter resulting in lower cash collections by September 30, 2014. Additionally, the increase in accrued receivables relating to the contract for integrated power propulsion systems for an OEM as revenue is recognized using the percentage of completion method which does not correspond with the cash collection of outstanding receivables.

Inventories were $16.7 million, an increase of $3.9 million or 31% compared to the same period of the prior year and was consistent with our growth targets and our significant increase in business expected in the fourth quarter of 2014.

Trade and other payables were $11.4 million, an increase of $1.8 million, reflecting increases in inventory purchases and the strengthening of the Canadian dollar relative to the US dollar, partially offset by a decrease in liabilities for share based compensation due to a decrease in our share price.

Warranty provisions were $2.8 million, an increase of $0.1 million or 4% consistent with the increase in our revenues in the period.

Deferred revenues were $17.1 million, an increase of $3.4 million or 26% reflecting deposits received on increased order bookings.

Warrants were nil at September 30, 2014 due to the exercise of 69,072 Series B warrants during the year. There were no outstanding warrants as at September 30, 2014.

Other non-current liabilities were $3.8 million at September 30, 2014, an increase of $0.7 million or 21%. The increase primarily reflects a $0.7 million increase in long-term debt related to the loan agreement with the Province of Ontario’s Ministry of Economic Development, Strategic Jobs and Investment Fund.

Third Quarter 2014 Management's Discussion and Analysis

Page 9

Hydrogenics Corporation

�

Summary of Quarterly Results

�

The following table highlights selected financial information for the eight consecutive quarters ended September 30, 2014.

�

2014
Q3

�

2014
Q2

�

2014
�Q1

�

2013
�Q4

�

2013
�Q3

�

2013
Q2

�

2013
�Q1

�

2012
�Q4

�

As Revised¹

�

Revenues

�

11,093

�

10,723

�

8,059

�

11,000

�

9,236

�

9,786

�

12,391

�

9,817

�

Gross Profit

�

3,067

�

3,240

�

1,917

�

2,705

�

2,730

�

2,749

�

3,877

�

1,328

�

Gross Margin %

�

Adjusted EBITDA²

�

(683

)

�

(288

)

�

(1,729

)

�

(162

)

�

(350

)

�

(873

)

�

170

�

(2,200

)

Net Loss

�

(1,262

)

�

(125

)

�

(3,749

)

�

(3,100

)

�

(491

)

�

(4,178

)

�

(1,139

)

�

(3,388

)

Net Loss Per Share (Basic and Fully Diluted)

�

(0.13

)

�

(0.01

)

�

(0.40

)

�

(0.35

)

�

(0.05

)

�

(0.49

)

�

(0.15

)

�

(0.44

)

Weighted Average Common Shares Outstanding

�

10,089,508

�

9,605,220

�

9,073,527

�

9,003,960

�

8,963,599

�

8,542,637

�

7,843,373

�

7,724,427

�

The accounting changes were effective January 1, 2013 with retroactive adjustments to January 1, 2012.

Adjusted EBITDA is a Non-IFRS measure, see Section 9.

Third Quarter 2014 Management's Discussion and Analysis

Page 10

Hydrogenics Corporation

�

Liquidity and Capital Resources

The following section explains how we manage our cash and capital resources.

Cash Provided By (Used in) Operating Activities

�	�	�										�	�	�										�
�	�	Three months ended September 30										�	�	Nine months ended September 30										�
�	�	2014		�	�	2013		�	�	$ Change		�	�	2014		�	�	2013		�	�	$ Change		�
Net loss for the period	�	$	(1,262	)	�	$	(491	)	�	$	(771	)	�	$	(5,135	)	�	$	(5,808	)	�	$	673	�
(Increase) decrease in restricted cash	�	�	(1,425	)	�	�	1,673	�	�	�	(3,098	)	�	�	(1,616	)	�	�	1,788	�	�	�	(3,404	)
Changes in non-cash working capital	�	�	(1,790	)	�	�	(1,189	)	�	�	(601	)	�	�	(7,887	)	�	�	(7,612	)	�	�	(275	)
Other items not affecting cash	�	�	196	�	�	�	(284	)	�	�	480	�	�	�	1,740	�	�	�	4,409	�	�	�	(2,669	)
Cash provided by (used in) operating activities	�	$	(4,281	)	�	$	(291	)	�	$	(3,990	)	�	$	(12,898	)	�	$	(7,223	)	�	$	(5,675	)

�

Changes in cash used in operating activities for the three months ended September 30, 2014, compared to the three months ended September 30, 2013 are discussed below.

�

Net loss is analyzed above in Section 1 - Operating Results.

�

Non-cash working capital decreased $0.6 million as detailed above Section 2 - Financial Condition.

�

Restricted cash decreased by $3.1 million as a result of these funds being released from unrestricted cash on certain bank guarantees on customer deposits.

�

Other items not affecting cash increased by $0.5 million, primarily as a result of the mark-to-market adjustment on DSU’s and RSU’s due to the lower price of the Corporation’s common shares.

Changes in cash used in operating activities for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013 are as follows:

�

Net loss is analyzed above in Section 1 - Operating Results.

�

Non-cash working capital decreased by $0.3 million as detailed above Section 2 - Financial Condition.

�

Other items not affecting cash decreased by $2.7 million, primarily due to lower mark-to-market adjustment on DSUs and RSUs of $1.7 million as a result of the decline in the price of our common shares and the $1.0 million other finance loss in 2013 for the fair value of exercised and outstanding warrants and the higher share price for our common shares in 2013.

As noted in our 2013 MD&A, we continue to anticipate using between $6.0 million and $8.0 million in 2014 to fund our anticipated net losses, non-cash working capital requirements and capital expenditures for the year. While our first half of 2014 required significant non-cash working capital injections, we anticipate the fourth quarter of 2014 to be cash flow positive. These estimates are based on our actual results for the nine months ended September 30, 2014 and our outlook for the three months ending December 31, 2014.

Third Quarter 2014 Management's Discussion and Analysis

Page 11

Hydrogenics Corporation

�

In the first quarter of 2014, we filed a final short form base shelf prospectus with certain Canadian and US securities regulatory authorities. The shelf prospectus will allow us to offer, from time to time over a 25-month period, up to $100 million of debt, equity and other securities. On May 13, 2014 the Corporation 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. The underwriters also retained an overallotment of 225,000 shares that could be issued at any time during the 30 days following the closing of the offering. 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.

Cash Used in Investing Activities

�	�	�										�	�	�										�
�	�	Three months ended September 30										�	�	Nine months ended September 30										�
�	�	2014		�	�	2013		�	�	$ Change		�	�	2014		�	�	2013		�	�	$ Change		�
Proceeds on disposals	�	$	-	�	�	$	-	�	�	$	-	�	�	$	9	�	�	$	-	�	�	$	9	�
Purchases of property plant and equipment	�	�	(20	)	�	�	(187	)	�	�	167	�	�	�	(545	)	�	�	(725	)	�	�	180	�
Purchase of intangibles	�	�	(3	)	�	�	(32	)	�	�	29	�	�	�	(83	)	�	�	(32	)	�	�	(51	)
Investment in joint venture	�	�	(947	)	�	�	-	�	�	�	(947	)	�	�	(947	)	�	�	-	�	�	�	(947	)
Cash used in investing activities	�	$	(970	)	�	$	(219	)	�	$	(751	)	�	$	(1,566	)	�	$	(757	)	�	$	(809	)

�

Cash used in investing activities was $ 1.0 million for the three months ended September 30, 2014, an increase of $0.7 million primarily due the investment in the Kolon Hydrogenics joint venture in the third quarter of 2014.

Cash Provided By Financing Activities

�

Three months ended
September 30

�

Nine months ended
September 30

�

2014

�

2013

�

$ Change

�

2014

�

2013

�

$ Change

�

(Repayment) proceeds of borrowings and operating borrowings

�

525

�

(525

)

�

854

�

525

�

329

�

Common shares issued, warrants and options exercised

�

13,666

�

7,239

�

6,427

�

Other financing��items

�

(50

)

�

(88

)

�

(439

)

�

(338

)

�

(101

)

Cash provided by (used in) operating activities

�

(45

)

�

442

�

(487

)

�

14,081

�

7,426

�

6,655

�

Changes in cash provided by financing activities for the three months ended September 30, 2014, compared to the three months ended September 30, 2013 are as follows:

�

Operating borrowings decreased by $0.5 million over the comparative prior period reflecting proceeds from debt received in 2013.

Changes in cash used in operating activities for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013 are as follows:

�

Proceeds from common shares issued, warrants and options exercised increased $6.4 million over the same period a year ago. Proceeds during the nine months ended September 30, 2014 included $13.5 million from the common share issuance and $0.1 from the exercise of warrants and stock options.

Third Quarter 2014 Management's Discussion and Analysis

Page 12

Hydrogenics Corporation

�

Proceeds net of repayments from operating borrowings increased by $0.3 million over the same period in the previous year.

Credit Facilities

�

We utilize a credit facility with a Belgian based financial institution, to better manage our short-term cash requirements and to support standby letters of credit and letters of guarantee provided to customers. At September 30, 2014, we had operating lines of credit for up to €7.0 million or approximately $8.8 million (December 31, 2013 - $12.0 million).

Pursuant to the terms of our credit facility, Hydrogenics Europe NV (the “Borrower”), a wholly owned Belgium based subsidiary, may utilize the facility for the issuance of standby letters of credit and letters of guarantee up to €7.0 million. The Borrower may also borrow a maximum of 75% of the value of awarded sales contracts, approved by the Belgian financial institution, to a maximum of €0.75 million and a further €1.25 million for general business purposes, provided sufficient room exists under the overall facility limit of €7.0 million. At September 30, 2014, the amount outstanding of standby letters of credit and letters of guarantee issued under the facility amounted to €2.5 million. At September 30, 2014, we had availability of €4.5 million or approximately $5.7 million (December 31, 2013 - $4.4 million).

The credit facility bears interest at a rate of EURIBOR plus 1.45% per annum and is secured by a €1 million secured first charge covering all assets of the Borrower. The credit facility contains a negative pledge precluding our subsidiary from providing security over its assets. Additionally, our subsidiary is required to maintain a solvency covenant of not less than 25% and ensure that its intercompany accounts with us do not fall below a defined level. At September 30, 2014, the Borrower was in compliance with these covenants.

On July 15, 2014, the Corporation’s Power Systems business segment entered into an agreement for additional operating lines of credit of C$6.2 million (December 31, 2013 - $2.4 million) or approximately $5.6 million of which $3.7 million were outstanding as standby letters of credit and letters of guarantee at September 30, 2014. The Corporation had $1.9 million (December 31, 2013 – nil) available under this credit facility at September 30, 2014.

Other Loan Facilities

�

On September 28, 2011, we entered into a loan agreement with the Province of Ontario’s Ministry of Economic Development, Strategic Jobs and Investment Fund for funding up to CA$6.0 million. Eligible costs must be incurred between October 1, 2010 and September 30, 2015.

We drew C$1.0 million on the loan during 2014. There was no availability remaining under this facility at September 30, 2014. The loan is collateralized by a general security agreement covering assets of Hydrogenics Corporation. Additionally, we are required to maintain a minimum balance of cash in Canadian dollars or, alternatively, obtain permission from the lender to maintain equivalent balances in other currencies.

�

Contingent Off-Balance Sheet Arrangements

Third Quarter 2014 Management's Discussion and Analysis

Page 13

Hydrogenics Corporation

�

We do not have any material obligations under forward foreign exchange contracts, guarantee contracts, retained or contingent interests in transferred assets, outstanding derivative instruments or non-consolidated variable interests.

We have entered into indemnification agreements with our current and former directors and officers to indemnify them, to the extent permitted by law, against any and all charges, costs, expenses, and amounts paid in settlement and damages incurred as a result of any lawsuit or any other judicial, administrative or investigative proceeding in which they are involved as a result of their services. Any such indemnification claims will be subject to any statutory or other legal limitation periods. The nature of the indemnification agreements prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay to counterparties. We have purchased directors’ and officers’ liability insurance. We are not aware of any claims and no amount has been recorded in the consolidated interim financial statements with respect to these indemnification agreements.

In the normal course of operations, we occasionally provide indemnification agreements, other than those listed above, to counterparties that would require us 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. The nature of the indemnification agreements prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay to counterparties. No amount has been recorded in the consolidated interim financial statements with respect to these indemnification agreements as we are not aware of any claims.

�

Critical Accounting Policies and Estimates

Our consolidated interim financial statements are prepared in accordance with IFRS, which require us to make estimates and assumptions that affect the amounts reported in our consolidated interim financial statements. We have identified several policies as critical to our business operations and essential for an understanding of our results of operations. The application of these and other accounting policies are described in note 2 of our 2013 annual consolidated financial statements. We believe there have been no significant changes in our critical accounting estimates from what was previously disclosed in our MD&A for the year ended December 31, 2013. These policies are incorporated herein by reference. Preparation of our consolidated interim financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated interim financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could vary significantly from those estimates.

�

Recent Accounting Pronouncements

Recently Issued Accounting Standards

�

Our accounting policies are described in note 2 of our consolidated interim financial statements. Information on the adoption and impact of new and revised accounting standards that the Corporation was required to adopt effective January 1, 2014 is disclosed in our consolidated interim unaudited financial statements and related notes and as described in our 2013 MD&A dated March 6, 2014. There have been no material changes to our accounting policies from what was disclosed at that time other than what is disclosed in our consolidated interim financial statements.

The IASB has issued accounting standards that have not yet been adopted by the Corporation. The accounting standards are the same accounting standards issued but not yet applied as noted in the consolidated financial statements for the year ended December 31, 2013, except for those not adopted effective January 1, 2014 as disclosed in our consolidated interim financial statements.

Third Quarter 2014 Management's Discussion and Analysis

Page 14

Hydrogenics Corporation

�

Outlook

Current Market Environment

�

We are experiencing a willingness on the part of utilities and regulatory agencies to increase spending in the growing problem areas related to energy storage and grid stabilization. We are also seeing a gradual maturation around the regulatory framework needed to integrate energy storage into an overall energy framework to permit its cost effective rollout. In addition, we continue to witness governments in many jurisdictions showing a willingness to increase spending on alternative energy projects for the same purpose. We believe we are well positioned to benefit from government initiatives in Canada, the European Union (particularly in Germany) and the United States (particularly in California), which we expect will positively impact our business. Recently, an increase in interest in our power-to-gas application and orders for energy storage and fueling stations in Europe and other geographies has signaled what we believe could be a significant increase in opportunities in the markets we serve.

Our joint venture with Kolon Water and Energy also provides for a unique application of fuel cell power modules to provide stationary primary power at the megawatt class. The Korean government regulatory catalyst for fuel cell technology provides an avenue for significant growth in this area. While we have 1MW currently announced and in backlog we do have visibility to significant growth above this level in 2015 and beyond.

The traditional on-site industrial hydrogen market has seen solid growth in recent months. The growth in this market is correlated to the economies of regions which do not have ready access to hydrogen delivery by truck or pipeline. As costs of truck transport rise the competitiveness of the onsite solution improves. This growth is reflected in the improved OnSite Generation backlog.

Over the past few years, we have taken significant steps to reduce operating and product costs, streamline our operations and consolidated financial position. At September 30, 2014, our order backlog was $66.9 million (December 31, 2013 - $57.0 million) spread across numerous geographical regions, of which $39.2 million is expected to be recorded as revenue in the next twelve months. We are on track for our initial target announced at the beginning of the year, of positive adjusted EBITDA and revenue exceeding $50.0 million for the 2014 year. Approximately $22 million of our contracted backlog is scheduled for delivery in the fourth quarter of 2014.

However, as a global corporation, we are subject to the risks arising from adverse changes in global economic and political conditions. Economic conditions in leading and emerging economies have been, and remain, unpredictable. In particular, currency fluctuations could have the impact of significantly reducing revenue and gross margin as well as the competitive positioning of our product portfolio. These macroeconomic changes could result in our current or potential customers delaying or reducing purchases. As we have witnessed in recent years, there is a threat of reduced sales of our products, longer sales cycles, slower adoption of new technologies and increased price competition.

Delivery Outlook

�

Our delivery outlook is segmented by relevant market and is subject to a number of factors that are within our control, such as product development and market engagement initiatives, as well as a number of factors beyond our control, such as macro economic conditions. As part of our annual business planning cycle, we make a number of assumptions regarding delivery outlook in each of our relevant markets in order to best allocate our resources. As we continue to win these large projects our revenue and income could have significant swings quarter to quarter coinciding with the shipment of these orders.

Third Quarter 2014 Management's Discussion and Analysis

Page 15

Hydrogenics Corporation

�

A detailed analysis of delivery outlook by relevant market is contained in the 2013 Annual MD&A. We believe that this analysis remains valid. However, the timing of delivery and ultimate revenue recognition will be such that delivery will accelerate in the fourth quarter of 2014. Delivery delays in backlog caused by factors such as (but not limited to), supply chain delivery delays, delays caused by shipping carrier, customer credit risk issues, and local country customs entry delays could cause revenue recognition on these products to shift from the fourth quarter of 2014 to the first quarter of 2015.

�

Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the interim period ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

�

Reconciliation and Definition of Non-IFRS Measures

Non-IFRS financial measures, including earnings before interest, taxes, depreciation and amortization (“EBITDA”), “Adjusted EBITDA” and “cash operating costs” are used by management to provide additional insight into our performance and financial condition. We believe these non-IFRS measures are an important part of the financial reporting process and are useful in communicating information that complements and supplements the consolidated interim financial statements. Accordingly, we are presenting Adjusted EBITDA and cash operating costs in this MD&A to enhance the usefulness of our MD&A. In accordance with Canadian Securities Administration Staff Notice 52-306, we have provided reconciliations of our non-IFRS financial measures to the most directly comparable IFRS number, disclosure of the purposes of the non-IFRS measure, and how the non-IFRS measure is used in managing the business.

�

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

�

We report Adjusted EBITDA because it is a key measure used by management to evaluate the performance of business units and the Corporation. EBITDA or Adjusted EBITDA is a measure commonly reported and widely used by investors as an indicator of a company’s operating performance and ability to incur and service debt, and as a valuation metric. The Corporation believes Adjusted EBITDA assists investors in comparing a company’s performance on a consistent basis excluding depreciation and amortization, which are non-cash in nature and can vary significantly depending on accounting methods or non-operating factors, such as historical cost. Adjusted EBITDA is regularly reported to the chief operating decision maker.

Beginning with the year ended December 31, 2013 we have also changed our definition of Adjusted EBITDA to exclude stock-based compensation (both share settled and cash settled stock-based compensation). We believe that removing this expense allows for a better focus and measurement on operational performance.

Adjusted EBITDA is not a calculation based on IFRS and should not be considered an alternative to loss from operations or net income (loss) in measuring the Corporation’s performance, nor should it be used as an exclusive measure of cash flow, because it does not consider the impact of working capital growth, capital expenditures, debt principal reductions and other sources and uses of cash, which are disclosed in the consolidated interim statements of cash flows. Investors should carefully consider the specific items included in our computation of Adjusted EBITDA. While Adjusted EBITDA has been disclosed herein to permit a more complete comparative analysis of the Corporation’s operating performance relative to other companies, investors should be cautioned that Adjusted EBITDA, as reported by us, may not be comparable in all instances to Adjusted EBITDA, as reported by other companies.

�

Third Quarter 2014 Management's Discussion and Analysis

Page 16

Hydrogenics Corporation

�

The following table provides a reconciliation of Adjusted EBITDA with net loss:

�

Three months ended
September 30

�

Nine months ended
September 30

�

2014

�

2013

�

2014

�

2013

�

Net loss

�

(1,262

)

�

(491

)

�

(5,135

)

�

(5,808

)

Finance loss (income)

�

323

�

(159

)

�

977

�

1,501

�

Depreciation of property, plant and equipment and intangible assets

�

206

�

165

�

524

�

567

�

Compensation indexed to share price

�

(120

)

�

(10

)

�

473

�

2,202

�

Stock-based compensation expense

�

170

�

145

�

462

�

486

�

Adjusted EBITDA

�

(683

)

�

(350

)

�

(2,699

)

�

(1,052

)

�

Cash Operating Costs

�

We report cash operating costs because it is a key measure used by management to measure the normal operating costs required to operate the ongoing business units of the Corporation. The Corporation believes cash operating costs are a useful measure in assessing our normal operating costs. Cash operating costs are regularly reported to the chief operating decision maker and correspond to the definition used in our historical quarterly discussions.

Cash operating costs are not based on IFRS and should not be considered an alternative to loss from operations in measuring the Corporation’s performance, nor should it be used as an exclusive measure of our operating costs because it does not consider certain stock-based compensation expenses, which are disclosed in the consolidated interim statements of operations. Investors should carefully consider the specific items included in our computation of cash operating costs. While cash operating costs were disclosed herein to permit a more complete comparative analysis of the Corporation’s cost structure relative to other companies, investors should be cautioned that cash operating costs as reported by us may not be comparable in all instances to cash operating costs as reported by other companies.

The following table provides a reconciliation of cash operating costs with total operating costs consisting of Selling, general and administrative expenses and Research and product development expenses:

Cash operating costs

�

Three months ended
September 30

�

Nine months ended
September 30

�

2014

�

2013

�

2014

�

2013

�

Selling, general and administrative expenses

�

2,846

�

2,830

�

9,392

�

11,327

�

Research and product development expenses

�

1,160

�

550

�

2,991

�

2,336

�

Total operating costs

�

4,006

�

3,380

�

12,383

�

13,663

�

Less: Depreciation of property, plant and equipment��and intangibles

�

(81

)

�

(120

)

�

(235

)

�

(348

)

Less: Compensation costs indexed to share price

�

120

�

(473

)

�

(2,202

)

Less: Stock-based compensation expense

�

(170

)

�

(145

)

�

(462

)

�

(486

)

Cash operating costs

�

3,875

�

3,125

�

11,213

�

10,627

�

Third Quarter 2014 Management's Discussion and Analysis

Page 17

Hydrogenics Corporation

�

Risk Factors

An investment in our common shares involves risk. Investors should carefully consider the risks and uncertainties described below and in our Annual Information Form. The risks and uncertainties described below and in our Annual Information Form are not the only ones we face. Additional risks and uncertainties, including those that we do not know about now or that we currently deem immaterial, may also adversely affect our business. For a more complete discussion of the risks and uncertainties which apply to our business and our operating results (which are summarized below), please see our Annual Information Form and other filings with Canadian (www.sedar.com) and U.S. securities regulatory authorities (www.sec.gov).

�

Our business entails risks and uncertainties that affect our outlook and eventual results of our business and commercialization plans. The primary risks relate to meeting our product development and commercialization milestones, which require that our products exhibit the functionality, cost and performance required to be commercially viable against competing technologies and that we have sufficient access to capital to fund these activities. There is also a risk that key markets for certain of our products may never develop, or that market acceptance might take longer to develop than anticipated – in particular for applications such as energy storage which require leadership at a government and regulatory level.

�

A summary of our identified risks and uncertainties are as follows:

�

Our inability to generate sufficient cash flows, raise additional capital and actively manage our liquidity may impair our ability to execute our business plan, and result in our reducing or eliminating product development and commercialization efforts, reducing our sales and marketing efforts, and having to forego attractive business opportunities.

�

The uncertain and unpredictable condition of the global economy could have a negative impact on our business, results of operations and consolidated financial condition, or our ability to accurately forecast our results, and it may cause a number of the risks that we currently face to increase in likelihood, magnitude and duration.

�

Our mix of revenues in the recent past does not reflect our current business strategy; it may be difficult to assess our business and future prospects.

�

We may not be able to implement our business strategy and the price of our common shares may decline.

�

Our quarterly operating results are likely to fluctuate significantly and may fail to meet the expectations of securities analysts and investors and may cause the price of our common shares to decline.

�

We currently depend on a relatively limited number of customers for a majority of our revenues and a decrease in revenue from these customers could materially adversely affect our business, consolidated financial condition and results of operations.

Third Quarter 2014 Management's Discussion and Analysis

Page 18

Hydrogenics Corporation

�

Our operating results may be impacted by currency fluctuation.

�

Our insurance may not be sufficient.

�

Certain external factors may affect the value of goodwill, which may require us to recognize an impairment charge.

�

Significant markets for fuel cell and other hydrogen energy products may never develop or may develop more slowly than we anticipate. This would significantly harm our revenues and may cause us to be unable to recover the losses we have incurred and expect to incur in the development of our products.

�

Hydrogen may not be readily available on a cost-effective basis, in which case our fuel cell products may be unable to compete with existing power sources and our revenues and results of operations would be materially adversely affected.

�

Changes in government policies and regulations could hurt the market for our products.

�

Lack of new government policies and regulations for the energy storage technologies could hurt the development of the Power-to-Gas market for our hydrogen energy storage products.

�

Development of uniform codes and standards for hydrogen powered vehicles and related hydrogen refueling infrastructure may not develop in a timely fashion, if at all.

�

We could be liable for environmental damages resulting from our research, development or manufacturing operations.

�

We currently face and will continue to face significant competition from other developers and manufacturers of fuel cell power products and hydrogen generation systems. If we are unable to compete successfully, we could experience a loss of market share, reduced gross margins for our existing products and a failure to achieve acceptance of our proposed products.

�

We face competition for fuel cell power products from developers and manufacturers of traditional technologies and other alternative technologies.

�

Our strategy for the sale of fuel cell power products depends on developing partnerships with original equipment manufacturers (“OEMs”), governments, systems integrators, suppliers and other market channel partners who will incorporate our products into theirs.

�

We are dependent on third party suppliers for key materials and components for our products. If these suppliers become unable or unwilling to provide us with sufficient materials and components on a timely and cost-effective basis, we may be unable to manufacture our products cost-effectively or at all, and our revenues and gross margins would suffer.

�

We may not be able to manage successfully the anticipated expansion of our operations.

�

If we do not properly manage foreign sales and operations, our business could suffer.

�

We will need to recruit, train and retain key management and other qualified personnel to successfully expand our business.

�

We may acquire technologies or companies in the future, and these acquisitions could disrupt our business and dilute our shareholders’ interests.

�

We have no experience manufacturing our fuel cell products on a large scale basis and if we do not develop adequate manufacturing processes and capabilities to do so in a timely manner, we will be unable to achieve our growth and profitability objectives.

�

We may never complete the development of commercially viable fuel cell power products and/or commercially viable hydrogen generation systems for new hydrogen energy applications, and if we fail to do so, we will not be able to meet our business and growth objectives.

�

We must lower the cost of our fuel cell and hydrogen generation products and demonstrate their reliability or consumers will be unlikely to purchase our products and we will therefore not generate sufficient revenues to achieve and sustain profitability.

Third Quarter 2014 Management's Discussion and Analysis

Page 19

Hydrogenics Corporation

�

Any failures or delays in field tests of our products could negatively affect our customer relationships and increase our manufacturing costs.

�

The components of our products may contain defects or errors that could negatively affect our customer relationships and increase our development, service and warranty costs.

�

Rapid technological advances or the adoption of new codes and standards could impair our ability to deliver our products in a timely manner and, as a result, our revenues would suffer.

�

We depend on intellectual property and our failure to protect that intellectual property could adversely affect our future growth and success.

�

Our involvement in intellectual property litigation could negatively affect our business.

�

Our products use flammable fuels that are inherently dangerous substances and could subject us to product liabilities.

�

If at any time we are classified as a passive foreign investment company under United State tax laws, our US shareholders may be subject to adverse tax consequences.

�

As a result of the strategic alliances entered into with CommScope and Enbridge, they own a significant portion of our common shares and may act, or prevent corporate actions, to the detriment of other shareholders.

�

A limited number of shareholders collectively own a significant portion of our common shares and may act, or prevent corporate actions, to the detriment of other shareholders.

�

If we fail to maintain the requirements for continued listing on NASDAQ, our common shares could be delisted from trading on NASDAQ, which would materially adversely affect the liquidity of our common shares, the price of our common shares, and our ability to raise additional capital. Future sales of common shares by our principal shareholders could cause our share price to fall and reduce the value of a shareholder’s investment.

�

Our articles of incorporation authorize us to issue an unlimited number of common and preferred shares. Significant issuances of common or preferred shares could dilute the share ownership of our shareholders, deter or delay a takeover of us that our shareholders may consider beneficial or depress the trading price of our common shares.

�

US investors may not be able to enforce US civil liability judgments against us or our directors and officers.

�

Our share price is volatile and we may continue to experience significant share price and volume fluctuations.

�

As at September 30, 2014 there were 483,766 stock options and 85,766 DSUs outstanding to purchase our common shares and there were no Series A and Series B warrants outstanding, if these securities are exercised, our shareholders could incur substantial dilution.

�

Forward Looking Statements

This MD&A constitutes “forward-looking information,” within the meaning of applicable Canadian securities laws and “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 (collectively referred to herein as “forward-looking statements”). Forward-looking statements can be identified by the use of words, such as “plans,” “expects,” or “is expected,” “budget,” “scheduled,” “estimates,” “forecasts,” “intends,” “anticipates,” or “believes” or variations of such words and phrases or state that certain actions, events or results “may,” “could,” “would,” “might” or “will” be taken, occur or be achieved. These forward-looking statements relate to, among other things, our future results, levels of activity, performance, goals or achievements or other future events. These forward-looking statements are based on current expectations and various assumptions and analyses made by us in light of our experience and our perceptions of historical trends, current conditions and expected future developments and other factors that we believe are appropriate in the circumstances. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in our forward-looking statements.

Third Quarter 2014 Management's Discussion and Analysis

Page 20

Hydrogenics Corporation

These risks, uncertainties and factors include, but are not limited to: our inability to execute our business plan, or to grow our business; inability to address a slow return to economic growth, and its impact on our business, results of operations and consolidated financial condition; our limited operating history; inability to implement our business strategy; fluctuations in our quarterly results; failure to maintain our customer base that generates the majority of our revenues; currency fluctuations; failure to maintain sufficient insurance coverage; changes in value of our goodwill; failure of a significant market to develop for our products; failure of hydrogen being readily available on a cost-effective basis; changes in government policies and regulations; lack of new government policies and regulations for the energy storage technologies; failure of uniform codes and standards for hydrogen fuelled vehicles and related infrastructure to develop; liability for environmental damages resulting from our research, development or manufacturing operations; failure to compete with other developers and manufacturers of products in our industry; failure to compete with developers and manufacturers of traditional and alternative technologies; failure to develop partnerships with original equipment manufacturers, governments, systems integrators and other third parties; inability to obtain sufficient materials and components for our products from suppliers; failure to manage expansion of our operations; failure to manage foreign sales and operations; failure to recruit, train and retain key management personnel; inability to integrate acquisitions; failure to develop adequate manufacturing processes and capabilities; failure to complete the development of commercially viable products; failure to produce cost-competitive products; failure or delay in field testing of our products; failure to produce products free of defects or errors; inability to adapt to technological advances or new codes and standards; failure to protect our intellectual property; our involvement in intellectual property litigation; exposure to product liability claims; failure to meet rules regarding passive foreign investment companies; actions of our significant and principal shareholders; failure to maintain the requirements for continued listing on Nasdaq; dilution as a result of significant issuances of our common shares and preferred shares; inability of US investors to enforce US civil liability judgments against us; volatility of our common share price; and dilution as a result of the exercise of options.

These factors may cause the Corporation’s actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. Forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made have on the Corporation’s business. For example, they do not include the effect of business dispositions, acquisitions, other business transactions, asset writedowns or other charges announced or occurring after forward-looking statements are made. The financial impact of such transactions and non-recurring and other special items can be complex and necessarily depends on the facts particular to each of them.

We believe the expectations represented by our forward-looking statements are reasonable, yet there can be no assurance that such expectations will prove to be correct. The purpose of the forward-looking statements is to provide the reader with a description of management’s expectations regarding the Corporation’s fiscal 2014 financial performance and may not be appropriate for other purposes. Furthermore, unless otherwise stated, the forward-looking statements contained in this report are made as of the date of this report and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise unless required by applicable legislation or regulation. The forward-looking statements contained in this report are expressly qualified by this cautionary statement.

�

�	�
Third Quarter 2014 Management’s Discussion and Analysis	Page 21

EXHIBIT 99.3

�

Hydrogenics Corporation

�

Third Quarter 2014

�

Consolidated Interim Financial Statements

�

Hydrogenics Corporation

Hydrogenics Corporation

Consolidated Interim Balance Sheets

(in thousands of US dollars)

(unaudited)

�	�	�		�	�	�		�
�	�	September 30 2014		�	�	December 31 2013		�
�	�	�	�	�	�	�	�	�
Assets	�	�	�	�	�	�	�	�
Current assets	�	�	�	�	�	�	�	�
Cash and cash equivalents	�	$	10,700	�	�	$	11,823	�
Restricted cash (note 4)	�	�	2,780	�	�	�	635	�
Trade and other receivables	�	�	10,661	�	�	�	5,391	�
Inventories (note 5)	�	�	16,738	�	�	�	12,821	�
Prepaid expenses	�	�	980	�	�	�	979	�
�	�	�	41,859	�	�	�	31,649	�
Non-current assets	�	�	�	�	�	�	�	�
Restricted cash (note 4)	�	�	860	�	�	�	1,389	�
Investment in joint venture (note 6)	�	�	885	�	�	�	-	�
Property, plant and equipment	�	�	1,810	�	�	�	1,684	�
Intangible assets	�	�	149	�	�	�	100	�
Goodwill �(note 20)	�	�	4,813	�	�	�	5,248	�
�	�	�	8,517	�	�	�	8,421	�
Total assets	�	$	50,376	�	�	$	40,070	�
�	�	�	�	�	�	�	�	�
Liabilities	�	�	�	�	�	�	�	�
Current liabilities	�	�	�	�	�	�	�	�
Trade and other payables (note 7)	�	$	11,404	�	�	$	13,193	�
Warranty provisions (note 8)	�	�	1,693	�	�	�	1,912	�
Deferred revenue	�	�	10,788	�	�	�	6,348	�
Warrants (note 10)	�	�	-	�	�	�	1,075	�
�	�	�	23,885	�	�	�	22,528	�
Non-current liabilities	�	�	�	�	�	�	�	�
Other non-current liabilities (note 9)	�	�	3,750	�	�	�	3,095	�
Non-current warranty provisions (note 8)	�	�	1,072	�	�	�	981	�
Non-current deferred revenue	�	�	6,353	�	�	�	7,305	�
Total liabilities	�	�	35,060	�	�	�	33,909	�
Equity	�	�	�	�	�	�	�	�
Share capital (note 10)	�	�	348,256	�	�	�	333,312	�
Contributed surplus	�	�	18,847	�	�	�	18,449	�
Accumulated other comprehensive loss	�	�	(1,301	)	�	�	(249	)
Deficit	�	�	(350,486	)	�	�	(345,351	)
Total equity	�	�	15,316	�	�	�	6,161	�
Total equity and liabilities	�	$	50,376	�	�	$	40,070	�

Guarantees and Contingencies (notes 4 and 17)

Douglas Alexander

Chairman

Don Lowry

Director

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

Third Quarter 2014 Consolidated Interim Financial Statements

Page 2

Hydrogenics Corporation

Hydrogenics Corporation

Consolidated Interim Statements of Operations and Comprehensive Loss

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

(unaudited)

�

Three Months Ended

�

Nine Months Ended

�

September 30

�

September 30

�

2014

�

2013

�

2014

�

2013

�

Revenues

�

11,093

�

9,236

�

29,875

�

31,413

�

Cost of sales

�

8,026

�

6,506

�

21,650

�

22,057

�

Gross profit

�

3,067

�

2,730

�

8,225

�

9,356

�

Operating expenses

�

Selling, general & administrative expenses (note 11)

�

2,846

�

2,830

�

9,392

�

11,327

�

Research and product development expenses �(note 12)

�

1,160

�

550

�

2,991

�

2,336

�

4,006

�

3,380

�

12,383

�

13,663

�

Income (Loss) from operations

�

(939

)

�

(650

)

�

(4,158

)

�

(4,307

)

�

Finance income (expenses)

�

Interest income

�

Interest expense

�

(106

)

�

(121

)

�

(373

)

�

(307

)

Foreign currency gains

�

455

�

163

�

603

�

517

�

Foreign currency losses

�

(611

)

�

(61

)

�

(968

)

�

(360

)

(Loss) from joint venture (note 6)

�

(62

)

�

(62

)

�

Other finance gains (losses), net (note 13)

�

160

�

(181

)

�

(1,376

)

Finance income (loss), net

�

(323

)

�

159

�

(977

)

�

(1,501

)

�

Loss before income taxes

�

(1,262

)

�

(491

)

�

(5,135

)

�

(5,808

)

Income tax expense

�

Net loss for the period

�

(1,262

)

�

(491

)

�

(5,135

)

�

(5,808

)

�

Items that may �be reclassified subsequently to net loss:

�

Exchange differences on translating foreign operations

�

(985

)

�

379

�

(1,052

)

�

277

�

Comprehensive loss for the period

�

(2,247

)

�

(112

)

�

(6,187

)

�

(5,531

)

�

Net loss per share

�

Basic and diluted (note 14)

�

(0.13

)

�

(0.05

)

�

(0.54

)

�

(0.69

)

�

Weighted average number of common shares outstanding (note 14)

�

10,089,508

�

8,963,599

�

9,593,140

�

8,453,973

�

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

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 3

Hydrogenics Corporation

Hydrogenics Corporation

Consolidated Interim Statements of Changes in Equity

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

(unaudited)

�

Common shares

�

Contributed surplus

�

Deficit

�

Accumulated other
comprehensive loss

�

Total equity

�

Number

�

Amount

�

Balance at December 31, 2013

�

9,017,617

�

333,312

�

18,449

�

(345,351

)

�

(249

)

�

6,161

�

Net loss

�

(5,135

)

�

(5,135

)

Other comprehensive loss

�

(1,052

)

�

(1,052

)

Total comprehensive loss

�

(5,135

)

�

(1,052

)

�

(6,187

)

Issuance of common shares (note 10)

�

1,057,144

�

14,768

�

14,768

�

Issuance of common shares on exercise of stock options (note 11)

�

15,089

�

176

�

(64

)

�

112

�

Stock-based compensation expense (note 11)

�

462

�

462

�

Balance at September 30, 2014

�

10,089,850

�

348,256

�

18,847

�

(350,486

)

�

(1,301

)

�

15,316

�

Common shares

�

Contributed surplus

�

Deficit

�

Accumulated other
comprehensive loss

�

Total equity

�

Number

�

Amount

�

Balance at December 31, 2012
As Revised

�

7,775,540

�

323,513

�

17,995

�

(336,443

)

�

(758

)

�

4,307

�

Net loss

�

(5,808

)

�

(5,808

)

Other comprehensive loss

�

277

�

277

�

Total comprehensive loss

�

(5,808

)

�

277

�

(5,531

)

Issuance of common shares (note 10)

�

1,161,713

�

8,904

�

8,904

�

Issuance of common shares on exercise of stock options (note 11)

�

41,271

�

416

�

(150

)

�

266

�

Stock-based compensation expense (note 11)

�

486

�

486

�

Balance at September 30, 2013

�

8,978,524

�

332,833

�

18,331

�

(342,251

)

�

(481

)

�

8,432

�

The authorized share capital of the Corporation 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 interim financial statements.

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 4

Hydrogenics Corporation

Consolidated Interim Statements of Cash Flows

(in thousands of US dollars)

(unaudited)

�

Three months ended
September 30

�

Nine months ended
September 30

�

2014

�

2013

�

2014

�

2013

�

Cash and cash equivalents provided by (used in):

�

Operating activities

�

Net loss for the period

�

(1,262

)

�

(491

)

�

(5,135

)

�

(5,808

)

Increase (decrease) in restricted cash

�

(1,425

)

�

1,673

�

(1,616

)

�

1,788

�

Items not affecting cash:

�

Amortization and depreciation

�

206

�

165

�

524

�

567

�

Other finance losses (gains), net (note 13)

�

(160

)

�

181

�

1,376

�

Unrealized foreign exchange (gains)

�

(230

)

�

(196

)

�

(140

)

�

(116

)

Unrealized loss on joint venture

�

Stock-based compensation (note 11)

�

170

�

145

�

462

�

486

�

Portion of borrowings recorded as a reduction of research and development expenses (note 9(i))

�

(289

)

�

(118

)

�

(289

)

Accreted non-cash interest��(note 9)

�

133

�

366

�

258

�

Payment of post-retirement benefit liability (note 7)

�

(25

)

�

(26

)

�

(70

)

�

(75

)

Liabilities for compensation indexed to share price

�

(120

)

�

(10

)

�

473

�

2,202

�

Net change in non-cash working capital (note 18)

�

(1,790

)

�

(1,189

)

�

(7,887

)

�

(7,612

)

Cash used in operating activities

�

(4,281

)

�

(291

)

�

(12,898

)

�

(7,223

)

�

Investing activities

�

Proceeds from disposals

�

Investment in joint venture

�

(947

)

�

(947

)

�

Purchase of property, plant and equipment

�

(20

)

�

(187

)

�

(545

)

�

(725

)

Purchase of intangible assets

�

)

�

(32

)

�

(83

)

�

(32

)

Cash used in investing activities

�

(970

)

�

(219

)

�

(1,566

)

�

(757

)

�

Financing activities

�

Repayment of repayable government contributions (note 9)

�

(50

)

�

(88

)

�

(439

)

�

(338

)

Proceeds of borrowings, net of transaction costs (note 9(i))

�

Proceeds of operating borrowings

�

525

�

854

�

1,937

�

Repayment of operating borrowings

�

(1,412

)

Common shares issued and warrants exercised, net of issuance costs (note 10)

�

13,666

�

7,239

�

Cash provided by financing activities

�

(45

)

�

442

�

14,081

�

7,426

�

Effect of exchange rate fluctuations on cash and cash equivalents held

�

(663

)

�

373

�

(740

)

�

184

�

Increase (Decrease) in cash and cash equivalents �during the period

�

(5,959

)

�

305

�

(1,123

)

�

(370

)

Cash and cash equivalents - Beginning of period

�

16,659

�

12,345

�

11,823

�

13,020

�

Cash and cash equivalents - End of period

�

10,700

�

12,650

�

10,700

�

12,650

�

Supplemental disclosure

�

Income taxes paid

�

Interest paid

�

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

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 5

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

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 Corporation 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.

�

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

Note 2. Basis of Preparation, Summary of Significant Accounting Policies, Judgments and Estimation Uncertainty

These consolidated interim financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of consolidated interim financial statements, including International Accounting Standard (“IAS”) 34.

�

These consolidated interim financial statements were approved for issue by the Board of Directors of the Corporation on November 7, 2014.

�

The accounting policies applied in these consolidated interim financial statements are consistent with those disclosed in Note 2 to the annual consolidated financial statements for the year ended December 31, 2013.

�

There were no standards adopted by the Corporation for the first time for the financial year beginning on or after January 1, 2014 that have a material impact on the Corporation.

�

The preparation of consolidated interim financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated interim financial statements and notes to the consolidated interim 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 Corporation to make estimates include revenue and gross profit recognition, warranty provisions, and the long-term debt.

�

The significant accounting judgments and estimation uncertainties used in the preparation of these consolidated interim financial statements should be read in conjunction with the consolidated annual financial statements for the year ended December 31, 2013 and the notes thereto.

Note 3. Accounting Standards Issued But Not Yet Applied

IFRS 9, Financial Instruments, was issued in November 2009 and addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model with only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments. Such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income (“OCI”). Where equity instruments are measured at fair value through OCI, dividends are recognized in profit or loss to the extent they do not clearly represent a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated OCI indefinitely.

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 6

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments – Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss are generally recorded in OCI. In January 2012, the effective date was revised to January 1, 2015 with earlier application permitted.

�

IFRS 9 was amended In November 2013, to (i) include guidance on hedge accounting, (ii) allow entities to early adopt the requirement to recognize changes in fair value attributable to changes in an entity’s own credit risk, from financial liabilities designated under the fair value option, in OCI (without having to adopt the remainder of IFRS 9) and (iii) remove the previous mandatory effective date of January 1, 2015, although the standard is available for early adoption. The Corporation has not yet assessed the impact of this standard and amendments or determined whether it will early adopt them.

�

On May 28, 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 will be mandatorily effective for fiscal years beginning on or after January 1, 2017, and interim periods within that year. Earlier application is permitted. The Corporation is assessing the new standard to determine its impact on the Corporation’s Financial Statements.

Note 4. Restricted Cash and Guarantees

At September 30, 2014, the Corporation had outstanding standby letters of credit and letters of guarantee issued by several financial institutions of $6,958 (December 31, 2013 - $7,614), with expiry dates extending to August 2017. The Corporation has restricted cash of $3,640 (December 31, 2013 - $2,024) as partial security for these standby letters of credit and letters of guarantee, with $1,522 restricted in Hydrogenics Europe NV, $2,065 restricted in Hydrogenics Corporation, and $53 restricted in the German entity. These instruments relate primarily to obligations in connection with the terms and conditions of the Corporation’s sales contracts. The standby letters of credit and letters of guarantee may be drawn on by the customer if the Corporation fails to perform its obligations under the sales contracts and the Corporation would be liable to the financial institution for the amount of the standby letter of credit or letter of guarantee in the event the instruments are drawn on.

Note 5. Inventories

�	�	�		�	�	�		�
�	�	September 30, �2014		�	�	December 31, �2013		�
Raw materials	�	$	7,647	�	�	$	8,036	�
Work-in-progress	�	�	8,710	�	�	�	4,533	�
Finished goods	�	�	381	�	�	�	252	�
Total inventory	�	$	16,738	�	�	$	12,821	�

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 7

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

As at September 30, 2014, the inventory obsolescence provisions was as follows:

�

�	�	�		�	�	�		�
�	�	2014		�	�	2013		�
At January 1	�	$	1,011	�	�	$	1,266	�
Write downs during the period, net of recoveries	�	�	54	�	�	�	(72	)
Foreign exchange revaluation	�	�	(47	)	�	�	19	�
As at September 30,	�	$	1,018	�	�	$	1,213	�

�

Previously recorded inventory obsolescence provisions were reversed as a result of subsequent recoveries in net realizable value.

Note 6. Investment in Joint Venture

On May 28, 2014, the Corporation entered into a joint arrangement with a South Korean corporation, whereby the parties formed Kolon Hydrogenics to produce potential businesses based on products and technologies produced by Hydrogenics for the Korean market. The Corporation has 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 Corporation accounts for this joint venture using the equity method in accordance with IFRS 11 “Joint Arrangements”.

�	�	�		�
�	�	September 30, �2014		�
Equity investment in joint venture	�	$	947	�
Share in loss of the joint venture	�	�	(62	)
Investment in joint venture	�	$	885	�

Summarized balance sheet information of Kolon Hydrogenics is as follows:

�	�	�		�
�	�	September 30, �2014		�
Assets	�	�	�	�
Current assets	�	$	1,771	�
Non-current assets	�	�	41	�
Total Assets	�	$	1,812	�
Liabilities	�	�	�	�
Current liabilities	�	�	6	�
Net assets	�	$	1,806	�
Cash (included in current assets)	�	$	679	�

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 8

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Summarized loss from continuing operations and total comprehensive loss from May 28, 2014 through September 30, 2014 for Kolon Hydrogenics is as follows:

�	�	�		�
�	�	September 30, �2014		�
Joint venture loss from continuing operations	�	$	(126	)

�

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

�

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

�	�	�		�
�	�	September 30, �2014		�
Net assets of Kolon Hydrogenics	�	$	1,806	�
Net assets at 49%	�	�	885	�
Equity investment in joint venture	�	$	947	�
Corporation’s share of net losses at 49%	�	�	(62	)
Investment in joint venture	�	$	885	�

Note 7. Trade and Other Payables

Accounts payable and accrued liabilities are as follows:

�

�	�	�		�	�	�		�
�	�	September 30, 2014		�	�	December 31, 2013		�
Trade accounts payable	�	$	3,999	�	�	$	3,115	�
Accrued payroll and related compensation	�	�	2,497	�	�	�	3,871	�
Liabilities for compensation plans indexed to share price	�	�	1,681	�	�	�	1,402	�
Supplier accruals	�	�	2,260	�	�	�	3,182	�
Current portion of repayable government contributions	�	�	225	�	�	�	465	�
Accrued professional fees	�	�	117	�	�	�	270	�
Other	�	�	625	�	�	�	888	�
Total accounts payable and accrued liabilities	�	$	11,404	�	�	$	13,193	�

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 9

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Note 8. Warranty Provisions

Changes in the Corporation’s aggregate warranty provision are as follows:

�

�	�	�		�	�	�		�
�	�	2014		�	�	2013		�
At January 1,	�	$	2,893	�	�	$	1,808	�
Additional provisions	�	�	1,702	�	�	�	1,297	�
Utilized during the period	�	�	(1,187	)	�	�	(498	)
Unused amounts reversed	�	�	(451	)	�	�	(442	)
Foreign exchange differences	�	�	(192	)	�	�	36	�
As at September 30,	�	$	2,765	�	�	$	2,201	�

�

The current and long term warranty provisions are as follows:

�

�	�	�		�	�	�		�
�	�	September 30, 2014		�	�	December 31, 2013		�
Current provision	�	$	1,693	�	�	$	1,912	�
Long term provision	�	�	1,072	�	�	�	981	�
Total warranty provision	�	$	2,765	�	�	$	2,893	�

�

9. Other Non-current Liabilities

Other non-current liabilities are as follows:

�

�	�	�		�	�	�		�
�	�	September 30, 2014		�	�	December 31, 2013		�
Long-term debt (i)	�	$	3,149	�	�	$	2,260	�
Non-current post-retirement benefit liability (ii)	�	�	214	�	�	�	309	�
Non-current repayable government contributions (iii)	�	�	387	�	�	�	526	�
Total other non-current liabilities	�	$	3,750	�	�	$	3,095	�

�

(i)

Long-term debt

In 2011, the Corporation 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 must be incurred between October 1, 2010 and September 30, 2015.

�

The maturity date of the loan is ten years from the date of the first disbursement. The loan will be interest free for the first five years, commencing on the first day of the month following the date of the first disbursement, if certain criteria are met, such as the retention and creation of a specified number of jobs. After this five-year period, the loan will bear interest at a rate of 3.67%, if all criteria have been met, and will require repayment at a rate of 20% per year of the outstanding balance for the next five years. If the criteria are not met, the loan will bear interest at a rate of 5.67% per annum for the entire term of the loan commencing from the first disbursement. At the project completion date of September 30, 2015, the outstanding amount of the loan is subject to accelerated repayment in an amount based on the percentage shortfall of actual expenditures incurred to date compared to the contractual minimum. Such amount will be immediately repayable with interest calculated from the date of the last disbursement at a rate of 5.67%.

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 10

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

The Corporation drew C$972 on the loan during the nine months ended September 30, 2014. There is no availability remaining under this facility at September 30, 2014. 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 change in carrying value of this liability as at September 30 was as follows:

�

�	�	�		�	�	�		�
�	�	2014		�	�	2013		�
At January 1,	�	$	2,260	�	�	$	1,288	�
Draw downs during the period	�	�	735	�	�	�	236	�
Interest accretion during the period	�	�	282	�	�	�	157	�
Foreign exchange revaluation	�	�	(128	)	�	�	(42	)
As at September 30,	�	$	3,149	�	�	$	1,639	�

�

(ii)

Post-retirement benefit liability

The liability, which is unfunded and payable in Canadian dollars, is a defined benefit plan to be paid to a beneficiary.

�

The present value of the unfunded obligation at September 30, 2014 was $303 (December 31, 2013 - $392), including the current portion of $89 (December 31, 2013 - $83).

�

(iii)

Repayable government contributions:

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

�

In January 2011, with respect to the TPC Agreement, the Corporation entered into an amended agreement (the “Amendment”) with Industry Canada. Under the terms of the Amendment, C$1,500 will be paid to Industry Canada in quarterly installments which commenced in January 2011 and will continue until September 2017. An additional payment (“the Contingent Amount) of 3% of the net proceeds of all equity instrument financing transactions completed by the Corporation on or before September 30, 2017 or the sum of C$800, whichever is the lesser amount, will be paid to Industry Canada. The Corporation has paid C$800 to date under the 3% contingent payment provisions described above, which is the maximum under the agreement.

�

The present value of this obligation at September 30, 2014 was $613 (December 31, 2013 - $990), including the current portion of $226 (December 31, 2013 - $464), which were included in trade and other payables.

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 11

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

The change in carrying value of this liability at September 30 was as follows:

�	�	�		�	�	�		�
�	�	2014		�	�	2013		�
As at January 1,	�	$	990	�	�	$	1,130	�
Repayments during the period	�	�	(439	)	�	�	(338	)
Interest accretion during the period	�	�	84	�	�	�	101	�
Foreign exchange revaluation	�	�	(61	)	�	�	(52	)
Fair value (gain) loss	�	�	39	�	�	�	(64	)
As at September 30,	�	$	613	�	�	$	777	�

�

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

Note 10. Share Capital

Common Shares

�

2014

�

2013

�

Number

�

Amount

�

Number

�

Amount

�

Balance at January 1

�

9,017,617

�

333,312

�

7,775,540

�

323,513

�

Share offering

�

1,000,000

�

13,545

�

891,250

�

6,145

�

Warrants exercised

�

57,144

�

1,223

�

270,463

�

2,759

�

Stock options exercised (note 9)

�

15,089

�

176

�

41,271

�

416

�

As at September 30,

�

10,089,850

�

348,256

�

8,978,524

�

332,833

�

Common Share issuance

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. The underwriters also retained an overallotment of 225,000 shares that could be issued at any time during the 30 days following the closing of the offering. 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.

�

On April 30, 2013 the Company entered into an underwriting agreement to issue 775,000 common shares of the Company at an issue price of $7.75 per share. The underwriter also retained an overallotment of 116,250 shares that could be issued at any time on the ensuing 30 days. On May 3, 2013 the Company issued 891,250 shares for gross proceeds of $6,907 inclusive of the overallotment. Net proceeds after underwriting fees and expenses were $6,145.

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 12

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Note 11. Stock-based Compensation

�

Stock option plan

�

Under the Hydrogenics Omnibus Incentive Plan adopted in 2012, the Corporation may issue stock options 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.

�

A summary of the Corporation’s employee stock option plan activity at September 30, 2014 and 2013 is as follows:

�

2014

�

2013

�

Number of shares

�

Weighted average exercise price C$

�

Number of shares

�

Weighted average exercise price C$

�

Outstanding, beginning of period

�

503,907

�

8.63

�

526,519

�

9.71

�

Granted

�

30,000

�

8.10

�

Exercised

�

(14,135

)

�

8.66

�

(41,271

)

�

6.73

�

Expired

�

(5,052

)

�

160.11

�

(2,583

)

�

142.52

�

Outstanding, end of period

�

484,720

�

7.05

�

512,665

�

8.17

�

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 granted in the period is determined using the Black-Scholes option pricing model with the following weighted average assumptions:

�	�	�		�	�	�		�
�	�	2014		�	�	2013		�
Risk-free interest rate (%)	�	�	-	�	�	�	1.39	%
Expected volatility (%)	�	�	-	�	�	�	69	%
Expected life (in years)	�	�	-	�	�	�	5.5	�
Expected dividends	�	�	-	�	�	�	-	�
Expected dividends	�	�	-	�	�	$	4.71	�

�

Expected volatility during the nine months ended September 30, 2013 was determined using the stock historical volatility for the 5.5 years prior to the date of grant, as this is the expected life of the stock option.

�

Stock-based compensation expense for the three and nine months ended September 30, 2014, related to stock options was $61 and $226, respectively was included in selling, general and administrative expenses (three and nine months ended September 2013 - $57 and $224, respectively).

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 13

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Performance Share Units (“PSUs”)

�

�	�	�		�	�	�		�
�	�	2014		�	�	2013		�
Balance at January 1,	�	�	154,493	�	�	�	148,320	�
PSUs issued	�	�	37,827	�	�	�	6,173	�
As at September 30	�	�	192,320	�	�	�	154,493	�

�

For the three and nine months ended September 30, 2014, stock-based compensation expense for PSUs issued under the Hydrogenics Omnibus Incentive Plan was $109 and $236, respectively (three and nine months ended September 30, 2013 - $44 and $131, respectively), with an offsetting increase to contributed surplus.

�

Deferred Share Units (“DSUs”)

�

2014

�

2013

�

Number

�

Amount

�

Number

�

Amount

�

Balance at January 1,

�

131,320

�

2,521

�

124,085

�

842

�

DSU redemptions

�

(49,442

)

�

(1,472

)

�

(805

)

�

DSU compensation expense

�

3,888

�

6,235

�

DSU fair value adjustments

�

318

�

813

�

As at September 30,

�

85,766

�

1,445

�

129,515

�

1,722

�

For the three months ended September 30, 2014, the Corporation recognized a net recovery for DSUs of $109 (September 30, 2013 - $68), consisting of expense of $26 (September 30, 2013 - $20) for the issue of new DSUs offset by a recovery $135 (September 30, 2013 – a recovery $88) for the mark-to-market adjustment to the liability for the three month period.

�

The DSU expense for the nine months ended September 30, 2014 was $396 (September 30, 2013 - $880) with $78 (September 30, 2013 - $67) for the issue of new DSUs and $318 (September 30, 2013 - $813) for the mark-to-market adjustment to the liability.

�

The DSU liability at September 30, 2014 of $1,445 (December 31, 2013 - $2,521) was included in trade and other payables. DSUs vest immediately on the date of issuance.

�

Restricted Share Units (“RSUs”)

�

2014

�

2013

�

Number

�

Amount

�

Number

�

Amount

�

Balance at January 1,

�

46,885

�

660

�

189,694

�

859

�

RSU compensation expense

�

194

�

445

�

RSU fair value adjustments

�

(117

)

�

883

�

As at September 30,

�

46,885

�

737

�

189,694

�

2,187

�

For the three months ended September 30, 2014, the Corporation recognized a net recovery for RSU’s of $11 (September 30, 2013 – expense of $66), consisting of amortization expense of $53 (September 30, 2013 - $29) associated with RSUs issued under the Hydrogenics Omnibus Incentive Plan and the former RSU plan offset by a recovery $64 (September 30, 2013 – expense of $37) for the mark-to-market adjustment to the liability for the three month period.

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 14

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

The RSU expense for the nine months ended September 30, 2014 was $77 (September 30, 2013 - $1,328) with $194 (September 30, 2013 $445) for amortization expense and a recovery of $117 (September 30, 2013 – an expense of $883) for the mark-to-market adjustment to the liability.

�

The RSU liability at September 30, 2014 of $737 (December 31, 2013 - $2,187) was included in trade and other payables.

Note 12. 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 three and nine months ended September 30, 2014 and 2013, research and product development expenses and non-repayable program funding, which have been received, or receivable, are as follows:

�

�	�	�		�	�	�		�
Three months ended September 30,	�	2014		�	�	2013		�
Research and product development expenses	�	$	1,790	�	�	$	1,251	�
Government research and product development funding	�	�	(630	)	�	�	(701	)
Total	�	$	1,160	�	�	$	550	�

�	�	�		�	�	�		�
Nine months ended September 30,	�	2014		�	�	2013		�
Research and product development expenses	�	$	5,354	�	�	$	3,880	�
Government research and product development funding	�	�	(2,363	)	�	�	(1,544	)
Total	�	$	2,991	�	�	$	2,336	�

Note 13. Other Finance Gains and Losses, Net

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

�	�	�		�	�	�		�
Three months ended September 30,	�	2014		�	�	2013		�
Gain from change in fair value of exercised warrants (note 8)	�	$	-	�	�	$	34	�
Gain from change in fair value of outstanding warrants (note 8)	�	�	-	�	�	�	142	�
(Loss) from change in net present value of repayable government contribution (note 7)	�	�	-	�	�	�	(16	)
�	�	$	-	�	�	$	160	�

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 15

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

�	�	�		�	�	�		�
Nine months ended: September 30,	�	2014		�	�	2013		�
(Loss) from change in fair value of exercised warrants (note 8)	�	$	(142	)	�	$	(566	)
(Loss) from change in fair value of outstanding warrants (note 8)	�	�	-	�	�	�	(875	)
(Loss) gain from change in net present value of repayable government contribution (note 7)	�	�	(39	)	�	�	65	�
�	�	$	(181	)	�	$	(1,376	)

Note 14. Net Loss Per Share

The loss per share for the periods ended September 30, 2014 and 2013 were as follows

�

Three months ended
September 30,

�

Nine months ended
September 30,

�

2014

�

2013

�

2014

�

2013

�

Net loss

�

(1,262

)

�

(491

)

�

(5,135

)

�

(5,808

)

�

Weighted average number of common shares outstanding – basic

�

10,089,508

�

8,963,599

�

9,593,140

�

8,453,973

�

Dilutive effect of stock options

�

Dilutive effect of warrants

�

Weighted average number of shares outstanding – diluted

�

10,089,508

�

8,963,599

�

9,593,140

�

8,453,973

�

Net loss per share – basic and diluted

�

(0.13

)

�

(0.05

)

�

(0.54

)

�

(0.69

)

�

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 15. Lines of Credit

On June 30, 2014, the Corporation entered into operating line of credit for up to €7,000 or approximately $8,846 (December 31, 2013 - $12,019).

�

Pursuant to the terms of the credit facility, Hydrogenics Europe NV (the “Borrower”), a wholly owned Belgium based subsidiary, may utilize the facility for the issuance of standby letters of credit and letters of guarantee up to €7,000. The Borrower may also borrow a maximum of 75% of the value of awarded sales contracts, approved by the Belgian financial institution, to a maximum of €750, provided that sufficient room exists under the overall facility limit of €7,000. The Borrower may also borrow up to €1,250 for general business purposes, provided sufficient limit exists under the overall facility limit of €7,000. At September 30, 2014, €2,516 of standby letters of credit and letters of guarantee are outstanding and nil Euros have been drawn against the operating line of credit. At September 30, 2014, the Corporation had availability of €4,484 or approximately $5,666 (December 31, 2013 - $4,405).

�

The credit facility bears interest at a rate of 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 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 September 30, 2014, the Borrower was in compliance with these covenants.

�

On July 15, 2014, the Corporation’s Power Systems business segment entered into agreement for additional operating lines of credit of C$6,248 (December 31, 2013 - $2,374) or approximately $5,579 of which $3,726 were outstanding, as standby letters of credit and letters of guarantee issued at September 30, 2014. The Corporation had $1,853 (December 31, 2013 - $nil) available under this credit facility at September 30, 2014.

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 16

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Note 16. Contingencies

The Corporation 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 Corporation from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. The Corporation has purchased directors’ and officers’ liability insurance. No amount has been recorded in the consolidated interim financial statements with respect to these indemnification agreements, as the Corporation is not aware of any claims.

�

In the normal course of operations, the Corporation may provide indemnification agreements, other than those listed above, to counterparties that requires the Corporation 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 Corporation 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 interim financial statements with respect to these indemnification agreements, as the Corporation is not aware of any claims.

Note 17. Related Party Transactions

In the normal course of operations, the Corporation subcontracts certain manufacturing functions to a corporation owned by a relative of one of the shareholders of the Corporation. Billings by this related corporation for material was $72 and $153, respectively, for the three and nine months ended September 30, 2014 (three and nine months ended September 30, 2013 - $24 and $190, respectively). At September 30, 2014, the Corporation has an accounts payable balance due to this related party of $12 (December 31, 2013 - $12).

�

As a result of CommScope’s investments in the Corporation, CommScope is also a related party. Revenues from this related party for product were $36 and $52 in the three and nine months ended September 30, 2014 (September 30, 2013 - $62 and $3,957). At September 30, 2014, the Corporation has no accounts receivable from this related party (December 31, 2013 - $94). The Corporation had no accounts payable balances with this related party for the three and nine months ended September 30, 2014 and 2013.

�

On May 28, 2014, the Corporation entered into a joint arrangement with Kolon Water & Energy to form the joint venture Kolon Hydrogenics and the Corporation holds an equity investment in this joint venture.

�

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

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 17

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Note 18. Consolidated Interim Statements of Cash Flows

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

�	�	�		�	�	�		�
Three months ended:��September 30,	�	2014		�	�	2013		�
Decrease (increase) in current assets	�	�	�	�	�	�	�	�
Trade and other receivables	�	$	(2,608	)	�	$	(1,036	)
Inventories	�	�	1,457	�	�	�	(1,259	)
Prepaid expenses	�	�	136	�	�	�	150	�
Increase (decrease) in current liabilities	�	�	�	�	�	�	�	�
Trade and other payables, including warranty provision	�	�	(2,875	)	�	�	421	�
Deferred revenue	�	�	2,100	�	�	�	535	�
Subtotal	�	$	(1,790	)	�	$	(1,189	)
Liabilities for compensation indexed to share price	�	�	(120	)	�	�	(10	)
�	�	$	(1,910	)	�	$	(1,199	)

�	�	�		�	�	�		�
Nine months ended:��September 30,	�	2014		�	�	2013		�
Decrease (increase) in current assets	�	�	�	�	�	�	�	�
Trade and other receivables	�	$	(5,222	)	�	$	638	�
Grants receivable	�	�	-	�	�	�	17	�
Inventories	�	�	(3,917	)	�	�	(1,693	)
Prepaid expenses	�	�	-	�	�	�	376	�
Increase (decrease) in current liabilities	�	�	�	�	�	�	�	�
Trade and other payables, including warranty provision	�	�	(2,236	)	�	�	(1,696	)
Deferred revenue	�	�	3,488	�	�	�	(5,254	)
Subtotal	�	$	(7,887	)	�	$	(7,612	)
Liabilities for compensation indexed to share price	�	�	473	�	�	�	2,202	�
�	�	$	(7,414	)	�	$	(5,410	)

Note 19. Segmented Financial Information

The Corporation’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 Corporation. 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.

�

Financial information by reportable segment for the three and nine months ended September 30, 2014 and September 30, 2013 is as follows:

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 18

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Three months ended:��September 30, 2014

�

On-Site Generation

�

Power Systems

�

Corporate
and Other

�

Total

�

Consolidated Interim Statement of Operations and Comprehensive Loss:

�

Revenues from external customers

�

7,435

�

3,658

�

11,093

�

Gross profit

�

1,817

�

1,250

�

3,067

�

Selling, general and administrative expenses

�

855

�

1,016

�

975

�

2,846

�

Research and product development expenses

�

250

�

902

�

1,160

�

Segment gain (loss)

�

712

�

(668

)

�

(983

)

�

(939

)

Interest income

�

Interest (expense)

�

(106

)

�

(106

)

Foreign currency gains

�

455

�

455

�

Foreign currency (losses)

�

(611

)

�

(611

)

(Loss) in joint venture

�

(62

)

�

(62

)

Other finance losses, net

�

Income (loss) before income tax

�

712

�

(668

)

�

(1,306

)

�

(1,262

)

Consolidated Interim Balance Sheet:

�

Total segment assets

�

23,528

�

17,323

�

9,525

�

50,376

�

Total segment liabilities (current and non-current)

�

13,404

�

19,424

�

2,232

�

35,060

�

Three months ended:��September 30, 2013

�

On-Site Generation

�

Power Systems

�

Corporate
and Other

�

Total

�

Consolidated Interim Statement of Operations and Comprehensive Loss:

�

Revenues from external customers

�

5,820

�

3,416

�

9,236

�

Gross profit

�

492

�

2,238

�

2,730

�

Selling, general and administrative expenses

�

637

�

1,091

�

1,102

�

2,830

�

Research and product development expenses

�

187

�

356

�

550

�

Segment gain (loss)

�

(332

)

�

791

�

(1,109

)

�

(650

)

Interest income

�

Interest( expense)

�

(121

)

�

(121

)

Foreign currency gains

�

163

�

163

�

Foreign currency (losses)

�

(61

)

�

(61

)

Other finance gains, net

�

160

�

160

�

Income (loss) before income taxes

�

(332

)

�

791

�

(950

)

�

(491

)

Consolidated Interim Balance Sheet:

�

Total segment assets

�

22,235

�

9,657

�

8,527

�

40,419

�

Total segment liabilities (current and non-current)

�

11,435

�

16,823

�

3,953

�

31,987

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 19

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Nine months ended:��September 30, 2014

�

On-Site Generation

�

Power Systems

�

Corporate
and Other

�

Total

�

Consolidated Interim Statement of Operations and Comprehensive Loss:

�

Revenues from external customers

�

20,912

�

8,963

�

29,875

�

Intersegment revenue

�

246

�

339

�

Gross profit

�

4,730

�

3,495

�

8,225

�

Selling, general and administrative expenses

�

2,520

�

3,131

�

3,741

�

9,392

�

Research and product development expenses

�

1,024

�

1,952

�

2,991

�

Segment gain (loss)

�

1,186

�

(1,588

)

�

(3,756

)

�

(4,158

)

Interest income

�

Interest (expense)

�

(373

)

�

(373

)

Foreign currency gains

�

603

�

603

�

Foreign currency (losses)

�

(968

)

�

(968

)

(Loss) in joint venture

�

(62

)

�

(62

)

Other finance (losses), net

�

(181

)

�

(181

)

Income (loss) before income taxes

�

1,186

�

(1,588

)

�

(4,733

)

�

(5,135

)

�

Nine months ended:��September 30, 2013

�

On-Site Generation

�

Power Systems

�

Corporate
and Other

�

Total

�

Consolidated Interim Statement of Operations and Comprehensive Loss:

�

Revenues from external customers

�

17,130

�

14,283

�

31,413

�

Intersegment revenue

�

Gross profit

�

2,455

�

6,901

�

9,356

�

Selling, general and administrative expenses

�

2,250

�

3,427

�

5,650

�

11,327

�

Research and product development expenses

�

601

�

1,710

�

2,336

�

Segment gain (loss)

�

(396

)

�

1,764

�

(5,675

)

�

(4,307

)

Interest income

�

Interest (expense)

�

(307

)

�

(307

)

Foreign currency gains

�

517

�

517

�

Foreign currency (losses)

�

(360

)

�

(360

)

Other finance (losses), net

�

(1,376

)

�

(1,376

)

Income (loss) before income taxes

�

(396

)

�

1,764

�

(7,176

)

�

(5,808

)

Note 20. Goodwill

Goodwill relating to the Corporation’s OnSite Generation segment at September 30, 2014 was $4,813 (December 31, 2013 - $5,248). OnSite Generation consists of the Corporation’s subsidiary primarily located in Belgium with a functional currency of the Euro. The changes in goodwill are a result of currency fluctuations between the US dollar and the Euro.

�

Third Quarter 2014 Consolidated Interim Financial Statements

Page 20

Hydrogenics Corporation

Hydrogenics Corporation

Notes to Consolidated Interim Financial Statements

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

(unaudited)

�

Note 21. Risk Management Arising From Financial Instruments – Fair Value

Fair value

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued liabilities (excluding the liabilities relating to the RSUs and DSUs) approximate 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 balance sheets must be categorized in accordance with the following levels:

�

(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);

(iii)

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

�

The Corporation has not transferred any financial instruments between Level 1, 2, or 3 of the fair value hierarchy during the nine months ended September 30, 2014.

�

�	�
Third Quarter 2014 Consolidated Interim Financial Statements	Page 21

EXHIBIT 99.4

�

EXHIBIT 99.5

�

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Daryl Wilson, President and Chief Executive Officer of Hydrogenics Corporation, certify the following:

Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Hydrogenics Corporation (the “issuer”) for the interim period ended September 30, 2014.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1

Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2

N/A

5.3

N/A

Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2014 and ended on September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 10, 2014.

/s/ Daryl Wilson

Daryl Wilson

President and Chief Executive Officer

�

EXHIBIT 99.6

�

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Robert Motz, Chief Financial Officer of Hydrogenics Corporation, certify the following:

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

(b)

5.1

5.2

N/A

5.3

N/A

Date: November 10, 2014.

/s/ Robert Motz

Robert Motz

Chief Financial Officer

�

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

Create E-mail Alert Related Categories

SEC Filings

Sign up for StreetInsider Free!

Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!

Form 6-K HYDROGENICS CORP For: Nov 10

Hydrogenics Reports Third Quarter 2014 Results

Revenue Growth of 20%, Gross Profit Growth of 12% and on Track for Fourth Quarter and Full Year 2014

You May Also Be Interested In

Create E-mail Alert Related Categories

Sign up for StreetInsider Free!

Free News Feed

Exhibit	�	Description
�	�	�
99.1	�	Press Release dated November 10, 2014 titled "Hydrogenics Reports Third Quarter 2014 Results"
99.2	�	Third Quarter 2014 Management's Discussion and Analysis of Financial Condition and Results of Operations
99.3	�	Third Quarter 2014 Consolidated Financial Statements and Results of Operations
99.4	�	PowerPoint Presentation titled "Q3 2014 Investor Presentation"
99.5	�	Form 52-109F2 -�Certification of�Interim Filings Full Certificate - Chief Executive Officer
99.6	�	Form 52-109F2 -�Certification of Interim Filings Full Certificate - Chief Financial Officer