<PAGE>
                                                                     Exhibit 4.4



                           BALLARD POWER SYSTEMS INC.















                             ANNUAL INFORMATION FORM















                                 APRIL 30, 2002











<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                ----
<S>                                                                                                               <C>
BALLARD...........................................................................................................1
    Our History and Recent Developments...........................................................................2
    Principal Subsidiaries and Alliances..........................................................................4
OUR BUSINESS......................................................................................................5
    Strategy......................................................................................................6
    Our Markets and Products......................................................................................7
      Market and Regulatory Overview..............................................................................7
      Product Overview............................................................................................8
      Power Generation Markets...................................................................................10
      Transportation Markets.....................................................................................13
      Carbon Products............................................................................................17
       Fuel Infrastructure Programs..............................................................................17
    Strategic Alliances..........................................................................................18
      Vehicular Alliance.........................................................................................18
      Stationary Power Alliance..................................................................................23
    Joint Development Agreements and Related Investments.........................................................25
    Research and Product Development.............................................................................27
    Intellectual Property........................................................................................31
    Manufacturing................................................................................................31
    Facilities...................................................................................................33
    Competition..................................................................................................33
    Fuel Cells...................................................................................................36
      Fuel Cell Origin and Types.................................................................................36
      How Fuel Cells Work........................................................................................37
      Fuel Cell Systems..........................................................................................38
      Fuel Cell Power Trains.....................................................................................39
HUMAN RESOURCES..................................................................................................39
SELECTED FINANCIAL INFORMATION...................................................................................40
MANAGEMENT'S DISCUSSION AND ANALYSIS.............................................................................41
SHARE CAPITAL AND MARKET FOR SECURITIES..........................................................................41
    Class A Share and Class B Share..............................................................................42
    Share Incentive Plans........................................................................................43
DIVIDEND RECORD AND POLICY.......................................................................................45
DIRECTORS AND OFFICERS...........................................................................................45
    Directors....................................................................................................45
    Senior Officers..............................................................................................49
    Shareholdings of Directors and Senior Officers...............................................................51
RISK FACTORS.....................................................................................................51
ADDITIONAL INFORMATION...........................................................................................59
GLOSSARY.........................................................................................................60
</TABLE>




<PAGE>

THIS ANNUAL INFORMATION FORM CONTAINS FORWARD-LOOKING STATEMENTS REFLECTING
BALLARD'S CURRENT EXPECTATIONS AS CONTEMPLATED UNDER THE SAFE HARBOUR PROVISIONS
OF THE US PRIVATE SECURITIES LITIGATION REFORM LAW OF 1995. INVESTORS ARE
CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,
INCLUDING, WITHOUT LIMITATION, OUR ABILITY TO DEVELOP COMMERCIALLY VIABLE PEM
FUEL CELL PRODUCTS, PRODUCT DEVELOPMENT DELAYS, CHANGING ENVIRONMENTAL
REGULATIONS, OUR ABILITY TO ATTRACT AND RETAIN BUSINESS PARTNERS, FUTURE LEVELS
OF GOVERNMENT FUNDING, COMPETITION FROM OTHER FUEL CELL MANUFACTURERS, OTHER
ADVANCED POWER TECHNOLOGIES AND FROM EXISTING POWER TECHNOLOGIES, EVOLVING
MARKETS FOR GENERATING ELECTRICITY AND POWER FOR TRANSPORTATION VEHICLES, AND
OUR ABILITY TO PROVIDE THE CAPITAL REQUIRED FOR PRODUCT DEVELOPMENT, OPERATIONS
AND MARKETING. THESE FACTORS SHOULD BE CAREFULLY CONSIDERED AND READERS SHOULD
NOT PLACE UNDUE RELIANCE ON BALLARD'S FORWARD-LOOKING STATEMENTS. IN ADDITION TO
THE DISCLOSURE CONTAINED IN THIS ANNUAL INFORMATION FORM, INVESTORS ARE
ENCOURAGED TO REVIEW THE MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION IN
BALLARD'S 2001 ANNUAL REPORT ENTITLED "OPERATING RESULTS, CAPITAL REQUIREMENTS
AND RISKS" (PAGES 44 TO 50) FOR AN ADDITIONAL DISCUSSION OF FACTORS THAT COULD
AFFECT BALLARD'S FUTURE PERFORMANCE.


                                     BALLARD

         Our principal business is the development and commercialization of
power products based on proton exchange membrane ("PEM") technology, focusing
primarily on the design, development and manufacture of complete, integrated PEM
fuel cell products for a variety of applications. A PEM fuel cell is an
environmentally clean electrochemical device which combines hydrogen fuel (which
can be obtained from natural gas, petroleum or methanol or using electricity to
electrolyze water) with oxygen (from air), to produce electricity. It produces
electricity efficiently and continuously (as long as fuel is supplied) without
combustion, with water and heat as the by-products when hydrogen is used as the
fuel source. See "Fuel Cells - How Fuel Cells Work". The Ballard(R) fuel cell
features high fuel efficiency, low operating temperature, low noise and
vibration, compact size, immediate response to changes in electrical demand,
modular design and environmental cleanliness.

         We are targeting the portable power, stationary power and
transportation markets because we believe that they represent attractive
near-term revenue opportunities with significant long-term growth potential. Our
goal is to be the first and leading manufacturer of high-quality, competitively
priced fuel cell engines, fuel cell systems, electric drives, power electronics
products, subsystems and components. Within the power generation market, we are
focused on producing portable power products and small and mid-sized stationary
power products under 250 kW. Within the transportation market, we are focused on
producing fuel cell power trains for cars, buses and light-duty trucks. As part
of our strategy to bring PEM fuel cell products to market, we are also focused
on components of our fuel cell power trains such as fuel cells, fuel cell
engines, electric drives, and power electronics for various applications,
including non-fuel cell products. Fuel cell engines and fuel cell systems have
several advantages over conventional power generation technologies, including
low or no pollution, higher fuel efficiency, quiet operation, potentially lower
maintenance costs and potentially lower capital costs. The favourable
convenience, and environmental and performance characteristics of PEM fuel cells
make them a highly attractive alternative for batteries, internal combustion
engines, and other conventional sources of power and electricity.

         In this Annual Information Form, the "Corporation" refers to Ballard
Power Systems Inc. and "Ballard", "we", "us" and "our" refer to the Corporation
and, as applicable, its subsidiaries. Certain terms used herein are defined in
the attached Glossary.


<PAGE>
                                      -2-

         As of December 31, 2001, we have adopted the U.S. dollar as our primary
currency of measurement and reporting. The U.S. dollar best reflects the primary
economic environment in which we operate.


OUR HISTORY AND RECENT DEVELOPMENTS

         OUR HISTORY

         The Corporation was founded in 1979 under the name Ballard Research
Inc. to conduct research and development on high-energy lithium batteries. In
the course of investigating environmentally clean energy systems with commercial
potential, we began to develop PEM fuel cells. The Corporation was formed on May
30, 1989 by the amalgamation of a group of affiliated companies under the Canada
Business Corporations Act (the "CBCA").

         We have been developing PEM fuel cells and PEM fuel cell systems for
over 18 years and this has been our primary business since 1989. Over the past
10 years, we have delivered fuel cells and fuel cell engines and fuel cell
systems to customers in North America, Europe and Japan. Our customers have
included DaimlerChrysler AG ("DaimlerChrysler"), Ford Motor Company ("Ford"),
General Motors Corporation ("GM"), Honda Motor Company ("Honda"), Hyundai Motor
Company ("Hyundai"), Mazda Motor Company ("Mazda"), Nissan Motor Co. Ltd.
("Nissan"), Matsushita Electric Works Limited ("MEW"), Chicago Transit Authority
("CTA"), TransLink, Volkswagen AG ("Volkswagen"), ALSTOM France S.A. ("ALSTOM"),
Ebara Corporation ("EBARA"), Cinergy Technology Inc. (an Ohio based utility),
Coleman Powermate Inc. ("Coleman Powermate"), Idatech, LLC, Yamaha Motor Co.,
Ltd., Bewag AG (a German utilities company), Elektra Birseck (a Swiss utilities
company), and Nippon Telegraph and Telephone. As of April 30, 2002, our fuel
cells have been incorporated into 25 cars and 12 buses. We have also received an
order from DaimlerChrysler for 30 PEM heavy-duty fuel cell bus engines for use
on public bus routes in 10 European cities.

         We have recently reorganized our business into four divisions to
complement our core fuel cell competencies. Our Transportation Division
develops, manufactures and markets fuel cell components and complete fuel cell
engines for the transportation market. Our Power Generation Division develops,
manufactures and markets fuel cell power generation equipment for markets
ranging from 1 kW portable power products to larger stationary generators. Our
Electric Drives and Power Conversion Division develops, manufactures and markets
electric drives for both fuel cell and battery-powered electric vehicles, and
power electronics for combustion engine generators, microturbines and other
distributed generation products. Our Material Products Division manufactures and
markets carbon fiber products to automotive manufacturers for automatic
transmissions and gas diffusion layers to the fuel cell industry.

         STRATEGIC RELATIONSHIPS

         To help us successfully transform our technology leadership into market
leadership we have formed strategic alliances with industry leaders in the
transportation and stationary markets. By doing so, we have gained access to
market knowledge, manufacturing expertise, distribution channels, customers and
funding for product development.

         In the transportation market, we formed a strategic alliance in 1998
(the "Vehicular Alliance") with DaimlerChrysler and Ford (who currently own
18.3% and 21.1%, respectively of our outstanding shares), for the development
and commercialization of PEM fuel cells, PEM fuel cell engines and electric
drives for use in cars, buses and trucks. Together with DaimlerChrysler and
Ford, we formed XCELLSIS GmbH ("XCELLSIS") (now Ballard Power Systems AG), to
develop and commercialize PEM fuel cell


<PAGE>
                                      -3-


engines for cars, buses and trucks, and Ecostar Electric Drive Systems L.L.C.
("Ecostar") (now Ballard Power Systems Corporation), to develop and
commercialize electric drives and power electronics. In November 2001, we
significantly strengthened the Vehicular Alliance through our acquisition of
DaimlerChrysler's and Ford's interests in XCELLSIS and Ecostar. As a result of
this transaction, we have been integrating the business and operations of
XCELLSIS and Ecostar into our organization. See "Strategic Alliances - Vehicular
Alliance" for details of this transaction and our integration efforts.

         In the stationary power market, through Ballard Generation Systems Inc.
("BGS"), we formed a strategic alliance (the "Stationary Power Alliance") with
FirstEnergy's predecessor, GPU Inc. in 1996, and expanded the alliance in 1998
to include ALSTOM and EBARA. FirstEnergy is an Ohio-based utility company that
has recently completed a merger with GPU Inc. ALSTOM, based in Paris, designs,
manufactures, supplies and installs equipment, systems and solutions for the
power generation and transmission industries, as well as the rail transportation
industry. EBARA, based in Tokyo, Japan, is a major developer, manufacturer and
distributor of fluid machinery and systems, precision machinery and
environmental engineering systems and is a leader in zero emission technology.
These alliances have helped us integrate our PEM fuel cells into commercial
products, provided us with customers, given us access to our partners'
engineering, manufacturing, marketing, distribution and service capabilities and
provided us with sources of funding. Together with ALSTOM, we formed ALSTOM
BALLARD GmbH ("ALSTOM BALLARD") and together with EBARA, we formed EBARA BALLARD
Corporation ("EBARA BALLARD").

         In 2001, we took major steps to streamline our Stationary Power
Alliance to increase focus on the marketing and distribution of our PEM fuel
cell stationary products. In August 2001, we announced that we would acquire the
interest of FirstEnergy in BGS in exchange for the issuance of our Common shares
to FirstEnergy. As part of this transaction, FirstEnergy will continue to have a
relationship with us as a non-exclusive distributor of stationary fuel cell
power generators in the North Central and Northeastern United States. This
transaction is currently awaiting regulatory approval with completion expected
in 2002. In December 2001, we completed the second step of our plan by acquiring
EBARA's interest in BGS in exchange for the issuance of our Common shares to
FirstEnergy. EBARA BALLARD will continue to have exclusive rights to market our
stationary fuel cell power generators in Japan. We are currently in discussions
with ALSTOM, the remaining minority shareholder in BGS, with respect to our
acquisition of ALSTOM's interests in BGS and potential ways of optimizing the
structure of the Stationary Power Alliance as it pertains to the European
market. ALSTOM BALLARD currently holds the exclusive rights to market our
stationary fuel cell power generators in Europe. See "Strategic Alliances -
Stationary Power Alliance".

         RECENT DEVELOPMENTS

         In May 2001, we acquired the carbon products division of Textron
Systems of Wilmington, Massachusetts, for U.S. $12.8 million. This division,
which was renamed Ballard Material Products Inc., ("Ballard Material Products")
is now a wholly-owned subsidiary of ours and develops and manufactures a variety
of carbon fiber products for automotive and fuel cell applications, including
gas diffusion layers for use in PEM fuel cells. This acquisition also included
intellectual property comprising 66 patents issued and pending worldwide,
covering 14 distinct inventions.

         In addition to our development of products for the transportation and
stationary markets, we continue to develop products for the portable power
market. In September 2001, we launched our first portable PEM fuel cell product,
the 1.2 kW Nexa(TM) power module to original equipment manufacturers ("OEMs").
For this market, we are developing a standard module that we are selling to OEMs
for incorporation into their products. In this manner, we can leverage a single
platform into multiple consumer and industrial markets, relying on the OEM's
knowledge of the market, its sales distribution
<PAGE>
                                      -4-


network and end user product expertise. We are currently working with 13 OEMs to
incorporate the Nexa(TM) power module into end user products. We expect that the
first OEM to launch a product containing the Nexa(TM) power module will be
Coleman Powermate.

         In September 2001, we announced a U.S. $22 million three-year agreement
to supply Ford with our Mark 900 series fuel cells as well as related
engineering and support services. This was then followed up in December 2001
with another three-year agreement with Ford valued at U.S. $43.9 million for the
supply for our fuel cell engines and related engineering and support services,
bringing the total value of the combined transactions to U.S. $65.9 million.

         We have also recently amended our bylaws, which will be presented at
our annual meeting of shareholders on May 16, 2002 for approval. Our previous
bylaws were approved by our shareholders on July 12, 1989, and predated our
initial public offering in 1993. Subsequent to 1993, an amendment to our
previous bylaws was approved by our shareholders on November 27, 2001. Given the
length of time since our previous bylaws were originally adopted and the recent
amendments to the CBCA, our board of directors adopted new bylaws on March 1,
2002. The amendments we have made to our bylaws include:

         o        the elimination of provisions that are duplicated in the CBCA;

         o        the elimination of provisions that grant authority to the
                  directors for specific acts that are within the existing
                  general scope of their authority;

         o        the provision that a quorum for a meeting of shareholders is
                  at least two individuals holding or representing by proxy not
                  less than 5% of the votes eligible to be cast at the meeting
                  rather than just two individuals with no minimum requirement
                  as to shareholding; and

         o        changes to reflect the recent amendments to the CBCA that
                  permit, for example, attendance at shareholder meetings
                  entirely by means of an electronic communications facility,
                  and the election of a greater number of directors that are not
                  Canadian residents.


PRINCIPAL SUBSIDIARIES AND ALLIANCES

         We have four principal subsidiaries:

         o        BGS, a Canadian federal corporation and part of our Power
                  Generation Division, develops and commercializes fuel cell
                  stationary products;

         o        Ballard Power Systems AG, a German corporation and part of our
                  Transportation Division, develops fuel cells, fuel cell
                  engines and fuel processors;

         o        Ballard Power Systems Corporation, a Delaware corporation and
                  part of our Electric Drives and Power Conversion Division,
                  develops and commercializes electric drives and power
                  electronics; and

         o        Ballard Material Products Inc., a Delaware corporation and
                  part of our Material Products Division, develops and markets
                  carbon fiber products for use in the automotive and fuel cell
                  markets.

BGS also holds a 49% interest in each of ALSTOM BALLARD and EBARA BALLARD.


<PAGE>
                                      -5-


         The following chart shows, as at April 30, 2002, the relationships
between the Corporation and our principal subsidiaries, our share ownership in
each subsidiary and each subsidiary's place of incorporation:


                                  [FLOW CHART]

---------------------------------
Notes:

(1)  Does not include ownership of 7,613,212 of our Common shares that will be
     issued to DaimlerChrysler on or before November 15, 2004 on the completion
     of our purchase of DaimlerChrysler's 49.9% interest in Ballard Power
     Systems AG. Assuming the issue of these shares to DaimlerChrysler, as of
     April 30, 2002 DaimlerChrysler and Ford would own 23.4% and 19.4%,
     respectively, of our Common shares.

(2)  We will acquire DaimlerChrysler's remaining 49.9% in Ballard Power Systems
     AG on or before November 15, 2004 in exchange for 7,613,212 Common shares.

(3)  Assumes our purchase of  FirstEnergy's shares in BGS has completed.

(4)  BGS also holds a 49% interest in each of EBARA BALLARD and ALSTOM BALLARD.
     The remaining 51% interest in EBARA BALLARD is held by EBARA, and the
     remaining 51% interest in ALSTOM BALLARD is held by ALSTOM.




                                  OUR BUSINESS

         We are recognized as the world leader in PEM fuel cell technology with
a formidable portfolio of intellectual property. We are focused on the design,
development and manufacture of complete, integrated PEM fuel cell products for a
variety of applications. We believe our position in the PEM fuel cell industry
is the result of innovation in product development, strong market focus, the
development of strategic relationships with industry leaders, employee
commitment and a conservative approach to financial management. Our goal is to
be the leading supplier of high quality, competitively priced fuel cell systems,
fuel cell engines, electric drives, power electronics, subsystems and
components. By doing so, we intend to set the industry standard.


<PAGE>
                                      -6-


STRATEGY

         Our goal is to convert our technology leadership into market leadership
by being the leading supplier of high quality, low cost, PEM fuel cell products,
electric drives and power electronics products, and the first to offer these
products in mass markets where they have the potential to capture a large market
share. In working to achieve this goal, we will provide PEM fuel cell engines,
PEM fuel cell systems and PEM fuel cell subsystems and components and seek to be
the "partner of choice" to leading developers, OEMs and customers. We will also
supply to customers key subsystems and components, for fuel cell applications or
otherwise, that are based on technologies developed in support of our fuel cell
systems business, including PEM fuel cells, PEM fuel cell engines, PEM fuel cell
systems, fuel processors, power electronics, motors, electric drives and carbon
fiber products. The key elements of our strategy are as follows:

          CONTINUE TO BE THE LEADER IN DEVELOPING AND LAUNCHING PEM FUEL CELL
POWER PRODUCTS. We will continue to design, develop, test and launch commercial
PEM fuel cell products in each of our target markets and seek to be the first to
offer commercial products in these markets. Our first portable PEM fuel cell
product, the 1.2 kW Nexa(TM) power module, was launched in September 2001 for
sale to OEMs, and we will aggressively bring our other initial products to
market over the next three years, including PEM fuel cell engines for buses and
automobiles, and intermittent and continuous stationary power generation
products. In doing so, we are working to develop a close association of the
Ballard(R) name with the best and highest quality products in our target markets
and have our fuel cell products accepted as the industry standard. We believe
that by being the first to introduce PEM fuel cell products in our target
markets and having those products be identified as the industry standard, we
will gain a significant marketing advantage over our competitors.

         LEVERAGE OUR TECHNOLOGY, KNOWLEDGE AND EXPERTISE ACROSS A VARIETY OF
MARKETS. We are designing PEM fuel cell products for the portable, stationary
and transportation markets as they represent attractive mass markets and provide
us with the opportunity to capture a large market share. Our focus on these
markets provides us with the best opportunities for technical and commercial
success. We will leverage our technology, knowledge and expertise across our
target markets. By using the knowledge and expertise gained from applications in
one market, we can develop PEM fuel cell power products more quickly and
efficiently for other markets. For example, we expect that fuel cell products,
power electronics, fuel processors and systems technology developed for the
transportation market can be leveraged to help advance the development of our
portable and stationary power products.

         EXPLOIT EARLY MARKET OPPORTUNITIES FOR OUR SUB-SYSTEMS AND COMPONENTS.
A key aspect of our strategy and basis for our strong competitive position is
our ability to provide complete PEM fuel cell products, including all critical
subsystems and components. These subsystems and components include fuel
processors, electric drives, power electronics, motors, and carbon fiber
products, all of which can be used in a wide variety of fuel cell and non-fuel
cell applications. We will sell these products into fuel cell and non-fuel cell
applications if the investment required to develop the subsystem or component
for the market is minimal, the product can provide early revenue to offset our
development and cash expenses and the sale of the product will benefit our fuel
cell business by assisting cost reduction and provide manufacturing and
operational expertise. Potential market opportunities include components and
products for distributed power generation and airport ground support equipment.

         CONTINUE TO BE THE LEADER IN PEM FUEL CELL POWER PRODUCTS AND RELATED
TECHNOLOGY. We will work to maintain our PEM fuel cell product industry
leadership by continuing to develop proprietary technology with respect to key
systems, subsystems, components and manufacturing processes for PEM fuel cell
products, PEM fuel cells, fuel processors, electric drives, motors, power
electronics and carbon fiber products. This research and product development
will allow us to maintain the leading position in
<PAGE>
                                      -7-


our target markets, while also assuring us the widest possible application in
other markets we may choose to enter. To protect our technology and maintain our
long-term competitive advantage, we will continue to identify and aggressively
protect our key intellectual property, primarily using patents. We will also
continue to benchmark materials, components and subsystems from external
suppliers, with the intention to use which ever component, either internally or
externally developed, that provides the most cost effective and best performing
PEM fuel cell product.

         BE A LEADING MANUFACTURER OF PEM FUEL CELL PRODUCTS IN OUR TARGET
MARKETS. We seek to be the leading manufacturer of high quality PEM fuel cell
products. We will manufacture our products when we can capture significant
value, we have significant intellectual property covering the manufacturing
process, there is no appropriate supplier who can make the component or product
more cost effectively than we can make it, and when control over final assembly
is key to ensuring product quality. While we have already begun initial
commercial production of certain of our products, we will continue to focus on
making improvements to our manufacturing capabilities in order to further
improve quality and reduce costs. These improvements include (i) simplifying the
design of our PEM fuel cell systems, subsystems and components, (ii) using lower
cost materials, (iii) improving manufacturing processes and equipment, including
increased automation, to achieve high-volume, high-quality production, (iv)
entering into long-term relationships with suppliers of key component materials
and (v) leveraging raw material cost reductions across our products for our
various target markets.

         STRENGTHEN AND DEVELOP CUSTOMER RELATIONSHIP. Customer relationships
are the foundation of our current and future success, and maintaining and
expanding these relationships will be important as we seek to continue to be the
leader in developing and commercializing products. Our ability to design and
deliver products that meet and exceed our customers' expectations is of utmost
importance. We will continue to actively pursue relationships of strategic value
in our target markets with leading companies that we believe can gain a
competitive advantage by using our products. These relationships will form the
basis for commercial supply agreements, provide valuable information on the
requirements of customers in our various markets and secure our access to end
users of our products.

         TAKE AN ACTIVE ROLE IN SHAPING FUEL SOLUTIONS. The commercial success
of PEM fuel cell vehicles depends on the development of an appropriate fuel
distribution infrastructure. We are currently well-positioned to offer products
that are compatible with the most promising fuel alternatives for our target
markets, such as hydrogen, natural gas, methanol, naphtha and other petroleum
fuels. However, we are also taking an active role in shaping the industry
standards for PEM fuel cell technology and in resolving fuel infrastructure
questions through our participation in several industry- and
government-sponsored infrastructure development programs, including the
California Fuel Cell Partnership, Fuel Cells Canada and the Canadian
Transportation Fuel Cells Alliance.


OUR MARKETS AND PRODUCTS

         MARKET AND REGULATORY OVERVIEW

         In 2001, interest increased in the development of alternative energy
technologies as energy security became the focus of the U.S government. This
concern, combined with a global interest for improved air quality and a
reduction of greenhouse gas emissions to address the threat of global warming,
is driving public policy decisions. As the industry develops and public policy
is created to address these issues, the role of government is expected to be a
positive factor in initiating market access through the creation of a supportive
environment for fuel cell products and the development of an alternative fuel
infrastructure to meet the initial demand for fuel cell products. Some of the
policy tools available to government include establishing supportive regulatory
regimes, providing tax incentives and subsidies for


<PAGE>
                                      -8-


products, purchasing fuel cell products and removing barriers to
commercialization within the industry. This includes facilitating the creation
of a fuel supply infrastructure and the development of appropriate and
consistent codes, standards and permitting required for vehicles, infrastructure
and buildings.

         The California Fuel Cell Partnership is actively pursuing industry
collaboration on fuel infrastructure development, codes and standards and the
demonstration of fuel cell vehicles, and is developing its post-2003 plans for
continuing activities. In addition, the Department of Energy is working with
industry to develop the FreedomCAR initiative (U.S. $150 million in 2003) as
well as to create hydrogen infrastructure and fuel cell commercialization
roadmaps.

         In Canada, industry associations and industry/government partnerships
are beginning to play a role in the commercialization of fuel cell technology.
Fuel Cells Canada, an association focused on promoting and developing a strategy
to commercialize fuel cells in Canada, established a U.S. $3.8 million fund for
the demonstration of various fuel cell applications. Several of Ballard's
customers have applied for funding from this organization and announcements are
expected later this year regarding the successful applicants. The Canadian
government has also established the Canadian Transportation Fuel Cell Alliance
to facilitate and fund the development of a fuel cell vehicle infrastructure in
Canada. See "Our Markets and Products -- Transportation Markets".

         PRODUCT OVERVIEW

         We are focused on the design, development and manufacture of complete,
integrated PEM fuel cell products for the power generation (portable and small
and mid-sized stationary) and transportation markets. We have developed a number
of portable and stationary fuel cell systems and fuel cell engines for
demonstration transit buses and automobiles, and are working towards producing
commercially viable versions of these products. We also design, develop and
manufacture a number of key subsystems and components used in our PEM fuel cell
products, including PEM fuel cells, electric drives, power electronics, fuel
processors and carbon fiber products. In addition to supporting the
commercialization of our PEM fuel cell engines and PEM fuel cell systems, these
subsystems and components can be used in a variety of fuel cell and non-fuel
cell applications. We are currently selling electric drives and carbon fiber
products and are marketing power electronics for fuel cell and non-fuel
applications.

         The following table lists the key PEM fuel cell and non-fuel cell
products we currently produce or have under development.
<PAGE>
                                      -9-

<TABLE>
<CAPTION>

--------------------- ------------------------- ------------------------- ---------------------------------------------

     MARKET            PRODUCT                   APPLICATION               STATUS
--------------------- ------------------------- ------------------------- ---------------------------------------------
<S>                   <C>                        <C>                      <C>
     Portable          1.2 kW Nexa(TM) power     Portable and standby      Commercially launched in September 2001
                      module                    power (intermittent
                                                power) - fuel cell
--------------------- ------------------------- ------------------------- ---------------------------------------------
     Stationary        10 kW natural gas         Intermittent power -      Engineering prototype completed
                      power generator           fuel cell
                      ------------------------- ------------------------- ---------------------------------------------
                       60 kW hydrogen power      Intermittent power -      Engineering prototype completed
                      generator                 fuel cell
                      ------------------------- ------------------------- ---------------------------------------------
                       1 kW natural gas          Residential power -       Engineering prototype completed
                      cogeneration power        fuel cell (Japan)
                      generator
                      ------------------------- ------------------------- ---------------------------------------------
                       250 kW natural gas        Distributed power         Currently in development field trials in
                      power generator           generation - fuel cell    Europe, U.S. and Japan
                      ------------------------- ------------------------- ---------------------------------------------
                       Power electronics         Microturbines             Engineering prototype completed
                      ------------------------- ------------------------- ---------------------------------------------
                       Power electronics         Spark ignition engine     Development agreement signed
                                                powered generators
--------------------- ------------------------- ------------------------- ---------------------------------------------
Transportation         Light-duty fuel cell      Automobiles               Engineering prototypes are being tested by
                      engine                                              various automobile manufacturers, including
                                                                          DaimlerChrysler, Ford, Nissan and Mazda
                      ------------------------- ------------------------- ---------------------------------------------
                       Heavy-duty fuel cell      Transit buses             In demonstration and testing programs
                      engine
                      ------------------------- ------------------------- ---------------------------------------------
                       Mark 900 series fuel      Automobiles               Engineering prototypes supplied for
                      cells                                               testing and evaluation to various
                                                                          automobile manufacturers, including
                                                                          DaimlerChrysler, Ford, Honda and Nissan
                      ------------------------- ------------------------- ---------------------------------------------
                       Electric drive system    Automobiles               Currently selling electric drives
                                                                          for battery-powered vehicles
                                                                          (Ford's Electric Ranger and, in
                                                                          2002, its TH!NK City car)
                      ------------------------- ------------------------- ---------------------------------------------
                       Electric drive system     Airport ground support    Currently selling pre-commercial units
                                                equipment
                      ------------------------- ------------------------- ---------------------------------------------
                       Friction materials        Automobile automatic      Commercial sales
                                                transmissions
--------------------- ------------------------- ------------------------- ---------------------------------------------
     Other             Carbon fiber products     Fuel cells                Currently offering commercial gas
                                                                          diffusion layers to a number of fuel cell
                                                                          companies
--------------------- ------------------------- ------------------------- ---------------------------------------------
</TABLE>
<PAGE>
                                      -10-


         The initial fuel cell products we plan to bring to market are as
follows:

         o        2001 - Nexa(TM) power module introduced in September 2001;

         o        2002 - PEM fuel cell heavy-duty bus engines;

         o        2003 - intermittent use stationary PEM fuel cell products;

         o        2004 - continuous use stationary PEM fuel cell products to be
                  sold in the Japanese residential market; and

         o        2003-2005 - automotive PEM fuel cell products, depending on
                  the roll-out plans of our automotive customers.

         To leverage our technology leadership, generate near-term revenues and
develop the operating discipline required to manufacture and sell commercial
products, we are also selling, or plan to sell, a number of subsystems and
components for both fuel cell and non-fuel cell applications. The subsystem and
component products we are currently selling include:

         o        gas diffusion layers for use in fuel cells; and


         o        carbon-based friction products for automatic transmissions
                  used in cars.

         In 2002 we also intend to market and start selling the following
subsystems and component products:

         o        power electronics for applications such as gas turbines and
                  internal combustion engine generators; and

         o        electric drives for battery-powered airport ground support
                  equipment and electric drives for Ford's Th!nk City vehicle.


         POWER GENERATION MARKETS

         We view the power generation market to encompass both portable power
and stationary power generation products.

         PORTABLE POWER GENERATION

         There is growing worldwide consumer demand for quiet, clean portable
power generators. Promising applications for these generators include their use
in areas where the high noise and high emissions of internal combustion engine
generators pose significant problems or in densely populated areas where noise
pollution is a significant concern. Unlike currently available internal
combustion engines, PEM fuel cell generators are quiet and have low emissions.
Unlike batteries, PEM fuel cells can operate continuously, as long as fuel is
supplied. We believe that portable generators powered by PEM fuel cells can
provide consumers with clean, quiet, vibration-free electric power on demand, in
a package that is small and durable.

         We believe that over the next 10 years a significant market will
develop for portable PEM fuel cell power products. In particular, we believe
there will be strong demand for portable power products


<PAGE>
                                      -11-


that produce under 25 kW for consumer and business applications. These markets
include recreational vehicles, material handling equipment, uninterruptible
power supply (UPS) systems, and generators for locations where emissions or high
noise is a concern, or in densely populated areas.

         NEXA(TM) PORTABLE POWER MODULE. Our first commercial fuel cell product,
the 1.2 kW Nexa(TM) power module, was launched in September 2001. The Nexa(TM)
power module is the world's first commercially produced PEM fuel cell system
designed for integration by OEMs into a wide variety of industrial and consumer
end-product applications. The power module consists of PEM fuel cells integrated
with other key system components into a single unit. By marketing a common
Nexa(TM) platform to multiple OEMs, we are able to reach diverse segments of the
portable power generation market, access an increased number of distribution
channels and start building manufacturing volume.

         STATIONARY POWER GENERATION

         The stationary power generation market in general, and the demand for
alternative stationary power generation technologies in particular, will
continue to be driven by several factors:

         o        standby, emergency and uninterruptible power supply
                  applications;

         o        the demand for more reliable and higher quality power sources;

         o        environmental concerns, including air pollution, noise
                  pollution and the depletion of non-renewable energy resources;
                  and

         o        continued deregulation of power markets.

         With the increased use of computers, telecommunications networks,
medical diagnostic equipment, manufacturing test equipment and instrumentation
and other sophisticated electronic devices, there is also an increased demand
for premium sources of power that are less susceptible to interruption, surges
and brown-outs than the existing public central power generation and
distribution system. This demand provides a significant opportunity for
alternative stationary power technologies, like fuel cells, as they can provide
a highly reliable, high quality source of power that works in tandem with, or
provides back-up for, the utility grid.

         In addition, some governments in industrialized nations are enacting
increasingly stringent environmental regulations and legislation requiring a
reduction in power plant pollutants, greenhouse gases and even noise emissions.
We believe such regulations and legislation in North America, Europe and Japan
will result in increased use of energy efficient, distributed power generating
equipment and, over time, a switch to alternative, clean power generation
systems, including PEM fuel cells. Because of their higher efficiency,
stationary PEM fuel cell generators, such as those we are developing, fueled by
natural gas, emit much less carbon dioxide than conventional coal and oil-fired
power plants. Furthermore, stationary PEM fuel cell generators fueled directly
by hydrogen emit no carbon dioxide or pollutants.

         Finally, the continued deregulation in the electric power industry in
North America and elsewhere is creating potential demand for alternative sources
of stationary power. In particular, distributed stationary generators (or power
generation that is sited close to an end user) may represent an economically
attractive method of augmenting the capacity of central power generation
facilities to meet the increasing demands for power generating capacity, and in
some cases replacing ageing central power generators. With fewer resulting
transmission lines, power producers can reduce (i) the cost of acquiring
rights-of-way, (ii) the costs associated with building a transmission and
distribution infrastructure, and (iii) energy loss from transmission lines.


<PAGE>
                                      -12-


         In the stationary power market, we are focused on developing
intermittent-use and continuous-use PEM fuel cell stationary generators for the
under the 250 kW stationary generator market segment. Applications in this
market segment include standby power, emergency power, UPS systems, premium
power, power for remote locations, residential power and distributed generation.
We are utilizing the experience we have gained from our extensive field-testing
programs to develop stationary power generators that will meet the requirements
of our target market segments. We intend to introduce our first commercial
stationary PEM fuel cell power generators for intermittent-use applications in
2003.

         10 KW AND 60 KW STATIONARY GENERATORS. In mid-2001, we announced the
completion of two engineering prototype generators targeted for intermittent use
- a natural gas-fueled 10 kW stationary power generator and a hydrogen-fueled 60
kW stationary power generator. The 10 kW unit is designed for backup, light
industrial and standby power applications such as telecommunications markets and
other value-added applications. The 60 kW unit is targeted at high-value light
industrial markets, standby power and grid management applications. The 60 kW
unit is based on our transportation fuel cell engines and demonstrates our
ability to leverage product development across applications. We are currently
testing and evaluating those prototypes as well as investigating the market
potential for these products.

         1 KW RESIDENTIAL POWER GENERATOR. In January 2000, BGS, Tokyo Gas Co.
Ltd., EBARA and EBARA BALLARD entered into an agreement to develop a 1 kW
natural gas-fueled stationary PEM fuel cell generator targeted at the Japanese
residential market. The unit will supply up to 1 kW of electricity, as well as
heat and hot water, while the utility grid will satisfy the electrical demand
over 1 kW. EBARA BALLARD's goal is to commence selling initial commercial units
of this product in 2004. The unit contains a Ballard(R) fuel cell and a fuel
processing system manufactured by EBARA BALLARD based on fuel processing
technology developed by Tokyo Gas. Tokyo Gas has licensed its fuel processing
technology to BGS and EBARA BALLARD for use worldwide in our PEM fuel cell
systems. BGS, EBARA and EBARA BALLARD are also working with Osaka Gas of Japan,
the country's second largest gas utility, on the development of a similar
natural gas-fueled stationary PEM fuel cell generator using Osaka Gas's fuel
processing technology. Osaka Gas and Tokyo Gas are two leading distributors of
gas and gas appliances in Japan's two largest cities and are also developers of
fuel processors.

         250 KW STATIONARY GENERATOR. Our natural gas-fueled 250 kW stationary
power generator produces enough electricity for a small apartment or commercial
building, or 50 to 60 single-family homes. These generators use our proprietary
natural gas fuel processing technology. Field trials are key to all of our fuel
cell product development and design programs. Our 250 kW stationary power
generator field trial program began in 1999 with the deployment of our first 250
kW stationary generator to Cinergy in Crane, Indiana. This unit has completed
its two-year testing program. We currently have 250 kW stationary power
generators undergoing field testing in Japan and various locations in Europe. We
expect the field trial program to continue through 2004. The units currently
being tested are operating on either natural gas or anaerobic digestor gas.
Although the 250 kW unit will not be our first commercial stationary power
generator, the field trials are providing us with manufacturing, installation,
operation and maintenance experience, performance data in real world operations,
and feedback for incorporation in the product development cycle for both our
continuous-use and intermittent-use power generators.

         POWER ELECTRONICS FOR STATIONARY POWER GENERATORS. We have adapted the
power electronics technology incorporated in our electric drives for
transportation products, for use in stationary power generation applications,
such as generators powered by microturbines, internal combustion engines, fuel
cells and renewable energy sources. Our power electronics include power
inverters, DC to DC converters, power modules, low voltage controls, and
software that allow operation in grid parallel or grid independent modes and
provide a variety of safety and power quality functions. We are marketing our
power electronics technology to microturbine manufacturers and other
manufacturers of traditional or alternative power generators.


<PAGE>
                                      -13-


         In February 2002, we announced the signing of a joint development
agreement with Ford Power Products, a subsidiary of Ford, to jointly develop
products driven by spark ignited (combustion) engines for the generator market.
We will contribute our power electronics expertise to this collaboration and
Ford Power Products will contribute its combustion engines. Other opportunities
exist for on-road hybrid applications, such as commercial trucks and buses,
where the product provides power to electric drive motors, batteries and other
equipment. We expect that the initial products from this joint development will
be developed by the end of 2002. These products will be targeted for the primary
power, standby power, and emergency power markets.

         TRANSPORTATION MARKETS

         The internal combustion engine in transportation applications is a
major source of air pollution and greenhouse gases, as a result increasingly
stringent government regulations requiring vehicle emission reductions and
increases in efficiency have been enacted or proposed on both a national and
regional level in the United States, Canada and many other industrialized
nations.

      In the U.S., recent initiatives include the FreedomCAR (Cooperative
Automotive Research) Partnership, energy legislation, proposed or expected
proposed tax incentives for fuel cell vehicles and refuelling infrastructure and
the government-initiated Fuel Cell Reports to Congress. These initiatives are
aimed at developing energy independence and fuel infrastructure and enabling
fuel storage technology, increasing energy efficiency and utilizing divergent
sources of energy (including renewable sources) while maintaining fuel
affordability, vehicle choice and refuelling convenience. In 2003, the
FreedomCAR budget was announced as U.S. $150.3 million for the demonstration and
development of hydrogen-fueled fuel cell vehicles, hydrogen production and
storage and infrastructure development. The U.S. has also proposed tax
incentives totalling approximately U.S. $3 billion through 2011 for
alternative-fueled vehicles, including between U.S. $4,000 and U.S. $40,000 for
fuel cell vehicles (light-duty and heavy-duty). As well, we expect the U.S.
Department of Energy and Department of Defense Reports to Congress will contain
proposals aimed at increasing fuel cell related research and development
activities and promoting the demonstration of fuel cell vehicles and the
creation of a hydrogen infrastructure.

      Further, the Canadian government recently announced two initiatives,
including an extra Cdn.$20 million investment in research and development (to
augment their previous Cdn.$25 million investment announced two years ago), and
the Canadian Transportation Fuel Cell Alliance Initiative (U.S. $16.3 million
over five years) to facilitate and fund the development of a fuel cell vehicle
infrastructure in Canada.

         Regulatory initiatives continue to play a role in technology
advancement and market adoption of fuel cells in Canada and the U.S. The
California Air Resources Board remains committed to reducing emissions and
continues to support and refine California's zero-emission vehicle regulations.
These regulations, which come into force in 2003, encourage the development of
battery, electric, fuel cell and advanced hybrid vehicles. In 2003, at least 2%
of the vehicles sold in California must be zero-emission vehicles (either
battery-electric vehicles or hydrogen-fueled fuel cell vehicles). Vehicles
covered by this requirement currently include light-duty trucks and cars. An
additional 8% must be a combination of zero-emission vehicles, near
zero-emission vehicles (including non-hydrogen-fueled vehicles), hybrid or ultra
clean combustion engine vehicles. The number of vehicles required increases
gradually until 2018, when at least 10% of vehicles sold in California must be
zero-emission vehicles. However, the final form that these regulations will take
is still to be determined pending decisions in the two lawsuits that have been
filed, in California State Court and U.S. District (federal) court, by several
automakers (including General Motors, Isuzu and DaimlerChrysler) and various
auto dealers.


<PAGE>
                                      -14-


         Another market driver for fuel cell products in California is the
zero-emission bus regulations requiring transit agencies in California (who
choose a diesel fuel path) to demonstrate three zero-emission buses beginning in
2003 and to adopt a number of zero-emission buses representing at least 15% of
their fleet starting in 2008.

         New York, Massachusetts and Vermont have also adopted modified versions
of California's zero-emission vehicle regulations. New York and Massachusetts
expect to implement the regulations starting in the 2007 model year. As well,
other jurisdictions are either considering initiatives or have recently
announced programs to accelerate the commercialization of fuel cell technology.
These include the recent announcement by Governor Engler in Michigan of the Next
Energy initiative to promote and commercialize hydrogen and fuel cell vehicles,
as well as other global efforts such as the Fuel Cell Commercialization Project
in Japan, a joint private industry group working with the Japanese government to
further the development and commercialization of fuel cell technology.

         While environmental considerations provided the initial impetus for
automobile manufacturers to seek alternatives to the use of the internal
combustion engine, we believe that these manufacturers are beginning to
recognize the value that PEM fuel cell systems offer and the opportunity to
deliver products that are more attractive to customers and cost less to
manufacture than those using internal combustion engines. Not only will PEM fuel
cell powered vehicles have the same performance and cost as today's internal
combustion engine vehicles, we believe PEM fuel cell-powered vehicles will be
better vehicles because they can provide consumers with higher fuel efficiency,
lower noise and vibration, enhanced passenger comfort and performance and new
vehicle design options, and have the potential to require lower capital and
maintenance expenditures.

         As a result of regulations and initiatives in the United States and the
performance characteristics of PEM fuel cells, we have focused initially on two
areas of the transportation engine market: transit buses and automobiles.
Because fuel availability is and will be an important factor in determining the
rate at which PEM fuel cell-powered vehicles are made available for sale, we
expect that the first commercial PEM fuel cell-powered vehicles will be
vehicles, such as transit buses and fleet vehicles, that operate within limited
and well-defined geographic areas and are refueled at central fuelling depots.
Based on public statements issued by our customers and other automobile
manufacturers, we anticipate that initial commercial sales of PEM fuel cells for
use in automobiles will occur between 2003 and 2005.

         AUTOMOBILES. In October 2001, we introduced our Mark 902 fuel cell
module, which is built on the architecture of the Mark 900 series fuel cells
first introduced to the market in January 2000. The Mark 902 fuel cell module is
the fourth generation of our automotive PEM fuel cells. We first demonstrated
that we could produce a PEM fuel cell that met automakers' goals for volume,
weight and power in 1995 with the introduction of the Mark 700 series fuel
cells. The Mark 900 series fuel cells enhanced the power density of the Mark 700
series fuel cells within a design that used lower cost materials and
volume-manufacturing processes. The Mark 902 fuel cell module continues the
design trend of the Mark 900 series fuel cells with a lower cost design that is
further optimized for volume-manufacturing, as well as having improved power
density and scalability. The Mark 902 fuel cell module can be used both in
transportation and power generation applications, and is scalable from 10 kW to
300 kW, which we believe will meet the expected power output requirements for
passenger vehicles and transit buses.

         Our most current versions of automobile engines are two light-duty 75kW
PEM fuel cell engines based on the Mark 900 series power module, one fueled by
hydrogen and the other by methanol. The methanol-powered PEM fuel cell engine
has an on-board fuel processor to reform the methanol into hydrogen gas. We
expect that each of these engines will be used by DaimlerChrysler and Ford in
their PEM fuel cell vehicle programs. We are also marketing these engines to
other vehicle manufacturers for


<PAGE>
                                      -15-


use in cars, vans and sport utility vehicles. We can provide our light-duty PEM
fuel cell engines with or without an electric drive, as requested by the
customer.

         The following table sets out each PEM fuel cell vehicle powered by our
PEM fuel cells that has been publicly demonstrated by our alliance partners and
customers:

<TABLE>
<CAPTION>

------------------------------ -------------------------- ------------------------------- ----------------------
COMPANY                        YEAR FIRST SHOWN           MODEL                           FUEL
------------------------------ -------------------------- ------------------------------- ----------------------
<S>                            <C>                        <C>                             <C>
DaimlerChrysler                1994                       Necar 1                         Hydrogen
                               1996                       Necar 2                         Hydrogen
                               1997                       Necar 3                         Methanol
                               1999                       Jeep Commander                  Methanol
                               1999                       Necar 4                         Liquid Hydrogen
                               2000                       Jeep Commander 2                Methanol
                               2000                       Necar 4a                        Hydrogen
                               2000                       Necar 5                         Methanol
                               2001                       Necar 5.2                       Methanol
                               2001                       Sprinter Van                    Hydrogen
                               2001                       Natrium                         Hydrogen produced
                                                                                          from Sodium
                                                                                          Borohydride
------------------------------ -------------------------- ------------------------------- ----------------------
Ford                           1999                       P2000                           Hydrogen
                               2000                       TH!NK FC5                       Methanol
                               2000                       Focus FCV                       Hydrogen
                               2002                       Focus FCV                       Hydrogen
------------------------------ -------------------------- ------------------------------- ----------------------
Mazda                          1997                       Demio FC-EV                     Hydrogen
                               2001                       Premacy FC-EV                   Methanol

------------------------------ -------------------------- ------------------------------- ----------------------
GM                             1998                       Zafira                          Methanol
------------------------------ -------------------------- ------------------------------- ----------------------
Honda                          1999                       FCX-VI                          Hydrogen
                               2000                       FCX-V3 (2 vehicles)             Hydrogen
                               2001                       FCX-V4                          Hydrogen

------------------------------ -------------------------- ------------------------------- ----------------------
Nissan                         1999                       R'nessa                         Methanol
                               2000/2001                  Xterra FCV (2 vehicles)         Hydrogen
------------------------------ -------------------------- ------------------------------- ----------------------
</TABLE>

         In addition to our partners in the Vehicular Alliance, we have supplied
and will continue to supply Ballard(R) fuel cells to a number of automobile
manufacturers for testing and evaluation. Ballard(R) fuel cells have been
supplied to GM, Honda, Hyundai, Mazda, Nissan and Volkswagen. In addition, GM,


<PAGE>
                                      -16-


Honda, Mazda and Nissan have used our PEM fuel cells to power prototype
vehicles. In April 2001, we signed a two-year, U.S. $16.5 million supply
agreement with Honda for automotive PEM fuel cells. In March 2001, we announced
the receipt of a U.S. $2.2 million order from Nissan for Mark 900 series fuel
cell power modules. In September 2001, we signed a three-year, U.S. $22 million
agreement to supply Ford with our Mark 900 series fuel cell power modules as
well as related engineering and support services. This was followed by another
three-year, U.S. $43.9 million agreement in December 2001 for the supply to Ford
of our PEM fuel cell engines and related engineering and support services.

         TRANSIT BUSES. Our transit bus programs currently use a 205 kW
heavy-duty PEM fuel cell engine that is fueled by hydrogen. This engine has two
designs, an initial design without an electric drive or a transmission, and a
second design that combines the PEM fuel cell engine with an electric drive and
a transmission together in a unified "one engine" concept. The initial design
was used in the Nebus developed by DaimlerChrysler in 1997 and the six PEM fuel
cell buses delivered to the Chicago Transit Authority and Vancouver's TransLink.
The six buses operated by the Chicago Transit Authority and TransLink carried
more than 200,000 passengers and travelled over 73,000 miles (118,000 km) during
the course of the field trial program. The "one engine" design is used in the
ZEbus (zero-emission bus) and was tested for 13 months in Palm Springs,
California, operating under desert conditions. Under this demonstration program
with the SunLine Transit Agency, the ZEbus travelled 14,913 miles (24,000 km).
The feedback we received from this demonstration and from previous trials is
being incorporated into the next generation Phase 5 bus engine, which will be
used to meet the 30-engine order we received from EvoBus, a subsidiary of
DaimlerChrysler. These engines will be incorporated into PEM fuel cell buses
which will be delivered to transit authorities in 10 European cities (Amsterdam,
Barcelona, Hamburg, London, Luxembourg, Madrid, Porto, Reykjavik, Stockholm and
Stuttgart) for use in transit service beginning in 2003. The buses are part of a
two-year program that is designed to introduce PEM fuel cell buses to the
European market and allow the participating transit agencies to understand their
use, operation and maintenance requirements.

         In 2001, we also completed a methanol-fueled PEM fuel cell bus under a
joint program with Georgetown University.

         ELECTRIC DRIVES. An electric drive is a mechanism that converts
electrical power provided by a power source, such as a PEM fuel cell engine or a
battery, into mechanical energy that is transmitted to the axle that drives the
wheels of a vehicle. Our electric drives have application in both fuel
cell-powered and battery-powered on-road and off-road vehicles. We are currently
marketing our electric drives for use in PEM fuel cell-powered vehicles as well
as non-fuel cell electric vehicles such as battery-powered cars and airport
ground support equipment.

         We have supplied electric drives to DaimlerChrysler, Ford, Mazda and
Nissan for development and testing in PEM fuel cell-powered vehicles, including
those used in prototype vehicles developed by DaimlerChrysler, Ford and Mazda.
Our electric drives are also being used in the current generation of
demonstration transit buses being produced under the Vehicular Alliance. We have
also developed electric drives for use in Ford's battery-powered Ranger pick-up
truck, which was introduced in 1998, and will be producing electric drives for
use in the next generation of Ford's battery-powered TH!NK City car, which is
expected to go into commercial production and sale in Europe and North America
in 2002. We are currently marketing our electric drives to other automotive
manufacturers for use in both their fuel cell and battery-powered vehicles.

         In addition to our automotive designs, we have developed a new 80 Volt
AC electric drive system specifically for airport ground support equipment
applications. Working with major U.S. airlines, we have developed this product
to be consistent with the standard electric drive architecture used for
medium-duty applications, such as airport ground support equipment. The
initiative to promote battery-
<PAGE>
                                      -17-


powered ground support equipment has received support from the U.S. federal
government, as evidenced by a cost matching program of up to U.S. $20 million
endorsed by the United States Congress whereby investments made by airlines in
electric or alternative fuel based ground support equipment at ten major
airports are matched dollar for dollar by the United States government, subject
to certain limits.

         PEM FUEL CELL AUXILIARY POWER UNIT. We are developing a 5 kW PEM fuel
cell power unit to provide a second, or auxiliary, source of electric power to a
vehicle. This product is currently being designed to operate separately from the
vehicle's primary source of power (the internal combustion engine) with its own
fuel supply system. The intended market for this product is vehicles, such as
trucks, recreational vehicles and luxury cars, that would benefit from the use
of a power generator, separate from the vehicle engine, to provide electrical
power for certain vehicle systems and driver amenities. The auxiliary power
unit, which is in the research and development phase, is being designed to
process hydrogen from methanol, natural gas, gasoline or ethanol. In May 2001,
we entered into an agreement with the U.S. Department of Defense, Department of
the Army under which we are conducting research and development with respect to
liquid-fueled PEM fuel cell auxiliary power units for military and commercial
use.

         CARBON PRODUCTS

         We develop, manufacture and sell carbon fiber products for automotive
applications, through our Material Products Division, which is a Tier 1 supplier
to the automotive industry. The primary products produced by our Material
Products Division are carbon fiber products for automatic transmissions, as well
as gas diffusion layers for use in PEM fuel cells. Carbon fiber products are
used to make lightweight composite materials for applications that require high
temperature resistance, great strength, controlled conductivity and excellent
friction and wear properties. In addition to automotive and fuel cell
applications, we are currently marketing our carbon fiber products in the
aerospace, electrical and sports equipment industries.

         In December 2001, we announced that we had signed a five-year contract
extension with an existing automotive customer for the supply of a carbon
material product for automotive transmissions. Over the term of the contract,
valued at U.S. $50 million, our carbon materials will go into an additional 20
million automatic transmissions for North American vehicles.

         FUEL INFRASTRUCTURE PROGRAMS

         Through our involvement in the California Fuel Cell Partnership,
headquartered in Sacramento, California, we are working to establish an
appropriate fuel distribution infrastructure for fuel cell vehicles. The
California Fuel Cell Partnership is a unique collaboration of automotive
manufacturers, energy companies, fuel cell developers and government agencies,
focused on the steps necessary to successfully introduce commercial fuel cell
vehicles in California. Co-founded by Ballard in 1999, the California Fuel Cell
Partnership is exploring the paths to commercializing fuel cell vehicles by
examining such issues as fuel infrastructure requirements, vehicle, building and
fuel safety, codes and standards, market incentives, government regulations and
policies and consumer acceptance. In addition to us, the current members of the
partnership include automobile manufacturers DaimlerChrysler, Ford, GM, Honda,
Hyundai, Nissan, Toyota Motor Company ("Toyota") and Volkswagen, fuel providers
ChevronTexaco Inc. ("ChevronTexaco"), Shell Oil Company, BP PLC and Exxon Mobil
Corporation ("Exxon Mobil"), the U.S. Departments of Energy and Transportation,
the California Air Resources Board, the South Coast Air Quality Management
District and UTC Fuel Cells (formerly International Fuel Cells), as well as a
number of associate partners. The partnership has four main goals:

         o        to demonstrate fuel cell vehicle technology;


<PAGE>
                                      -18-


         o        to demonstrate the viability of a fuel infrastructure;

         o        to explore the path to commercialization; and

         o        to increase public awareness of fuel cells and fuel cell
                  systems.

         In 2001, the number of vehicles demonstrated by the members of the
California Fuel Cell Partnership grew to 16. We anticipate that over 70 fuel
cell vehicles will be demonstrated throughout the course of this initiative.
Certain members have also worked together to design and install satellite
hydrogen fuelling stations and a methanol fuelling station.

         Through the activities of the California Fuel Cell Partnership and
other forums, it is becoming clearer that hydrogen is expected to be both the
initial and long-term fuel of choice for automotive applications by automotive
companies, energy companies and governments. There is still some debate as to
whether the intermediate-term fuel will be hydrogen, or a fuel other than
hydrogen such as methanol or clean petroleum. The choice of hydrogen as the
long-term fuel will be affected by a number of factors, including the
development of a hydrogen infrastructure, the geographic location of the
vehicles, the application being utilized, storage technology, customer demand
and government initiatives. We will continue to invest in and advance our
multi-fuel processing development activities in order to provide our customers
with a fuel solution that will meet their needs.

         We are also working with the Canadian Transportation Fuel Cell
Alliance, an initiative of the Canadian government, and the current U.S.
Department of Energy and Department of Defense Reports to Congress, which are
developing hydrogen infrastructure roadmaps, to facilitate the development of a
fuelling infrastructure for our products. See "Our Markets and Products -
Transportation Markets".

STRATEGIC ALLIANCES

         VEHICULAR ALLIANCE

         We have entered into the Vehicular Alliance with DaimlerChrysler and
Ford for the development and commercialization of PEM fuel cells, PEM fuel cell
engines and electric drives for use in vehicles. Under the Vehicular Alliance,

         o        We are responsible for the research, development,
                  commercialization, manufacture, marketing, sale and service of
                  PEM fuel cells, vehicular PEM fuel cell systems, electric
                  drives and the integration of PEM fuel cells, PEM fuel cell
                  engines and electric drives to form complete vehicular power
                  trains;

         o        We can sell PEM fuel cells, PEM fuel cell engines and electric
                  drives for any applications, including for vehicles, to
                  customers other than DaimlerChrysler and Ford;

         o        Subject to certain limited exceptions, DaimlerChrysler and
                  Ford cannot compete with us in the research, development,
                  production, distribution, sale or service of PEM fuel cells or
                  vehicular PEM fuel cell systems, and, in the case of Ford,
                  electric drives for vehicles; and

         o        Subject to certain exceptions described below, DaimlerChrysler
                  and Ford must purchase vehicular PEM fuel cells and vehicular
                  PEM fuel cell systems from us and Ford must also purchase
                  electric drive components and systems from us.

         ACQUISITION OF XCELLSIS AND ECOSTAR. On November 30, 2001, we acquired,
or received the right to acquire, from DaimlerChrysler and Ford all of their
interests in XCELLSIS (now Ballard Power Systems AG) and Ecostar (now Ballard
Power Systems Corporation) (the "Transaction"). Before the

<PAGE>
                                      -19-


Transaction, each of XCELLSIS and Ecostar was previously been jointly owned by
us, DaimlerChrysler and Ford. Under the Transaction, we

         o        acquired from DaimlerChrysler, a 1.6% interest in XCELLSIS and
                  its 17.0% interest in Ecostar in exchange for 9,405,271 of our
                  Common shares,

         o        entered into a contract to acquire from DaimlerChrysler the
                  remaining 49.9% interest in XCELLSIS on or before November 15,
                  2004 (pursuant to which DaimlerChrysler will transfer such
                  interest to us in exchange for 7,613,212 of our Common
                  shares), and

         o        acquired from Ford, its 21.8% interest in XCELLSIS and its
                  62.1% interest in Ecostar in exchange for 8,998,252 of our
                  Common shares,

such that we now control, and will ultimately own 100% of, Ballard Power Systems
AG and Ballard Power Systems Corporation. With majority control, we are entitled
to appoint all the members of the governing bodies of Ballard Power Systems AG
and its management and are able to establish the business strategy for Ballard
Power Systems AG. For the purposes of determining its rights under the Vehicular
Alliance, DaimlerChrysler will be treated as if it owns all of our Common shares
to be issued to it on the transfer of the remaining Ballard Power Systems AG
shares to us. As part of the Transaction, we also entered into a new vehicular
alliance agreement with DaimlerChrysler and Ford, which replaced the previous
alliance agreement entered into in 1998.

         As part of the Transaction, DaimlerChrysler and Ford also invested a
total of Cdn. $55 million (U.S. $34.5 million) in us at closing by way of
private placement, under which DaimlerChrysler purchased an additional 1,103,549
of our Common shares for Cdn. $30 million (U.S. $18.8 million) and Ford
purchased an additional 919,624 of our Common shares for Cdn. $25 million (U.S.
$15.7 million). DaimlerChrysler and Ford have also agreed to invest a further up
to Cdn. $55 million in us if and when we undertake any equity offerings before
November 30, 2004. Of this Cdn. $55 million, DaimlerChrysler will invest Cdn.
$30 million and Ford will invest Cdn. $25 million by participating in such
equity offerings in proportion to their approximate respective percentage
ownership in us.

         Concurrent with the Transaction, we increased the size of our board of
directors from 10 to 12. DaimlerChrysler and Ford continue to appoint directors
in accordance with their respective percentage ownership of our Common shares.
Before the Transaction, the legal mechanism that allowed DaimlerChrysler and
Ford to exercise their appointment rights were contained in our Series 2
Preferred Share and Series 3 Preferred Share. As part of the Transaction, the
Series 2 Preferred Share and Series 3 Preferred Share were exchanged for one
Class A Share and one Class B Share, respectively. See "Share Capital - Class A
Share and Class B Share". As a result of DaimlerChrysler and Ford's increased
ownership in us after the Transaction, three directors have been appointed by
DaimlerChrysler and two directors have been appointed by Ford. See "Directors
and Officers". The number of directors that may be appointed by each of
DaimlerChrysler and Ford may decrease if there is a decline in their respective
percentage ownership of our outstanding Common shares. DaimlerChrysler and Ford
may not vote their Common shares in us in connection with the election of
directors, except for the provision of a proxy to vote in favour of the election
of directors nominated by our management.

         The impact of the Transaction on our financial position is discussed in
the section of our 2001 Annual Report entitled "Management's Discussion and
Analysis".

         INTEGRATION. Since we acquired Ballard Power Systems AG and Ballard
Power Systems Corporation, we have been integrating the acquired businesses into
the Ballard organization. All of our product and technology development is now
overseen by a common management team, thereby allowing


<PAGE>
                                      -20-


us to leverage our technology across our target markets more efficiently and
respond more quickly to changes in market conditions. We have reviewed our
combined businesses and have streamlined our programs and activities to focus
our resources on our core and most promising technology. As part of our
integration efforts, we have reduced the size of our labour force in Canada, and
will be making headcount reductions in certain of our other locations in 2002 to
eliminate redundancies. We have conducted an evaluation and rationalization of
our product and technology programs, centralized our core and support functional
activities, and are consolidating certain of our facilities. Ballard Power
Systems AG is located in Nabern, Germany and is the centre of our transportation
fuel cell systems and fuel processing development efforts as well as our
Transportation Division. Ballard Power Systems Corporation is situated in
Dearborn, Michigan and is the location where our developments efforts in
electric drives and power electronics are focused.

         SUMMARY OF THE VEHICULAR ALLIANCE. The Vehicular Alliance has a fixed
term of 20 years, and is subject to early termination by DaimlerChrysler or Ford
only in the event of a fundamental breach of the agreements by Ballard. If
DaimlerChrysler or Ford commits a fundamental breach, either non-breaching party
may cause the breaching party to exit the Vehicular Alliance, in which case its
rights (but not its obligations or restrictions) are terminated and the
Vehicular Alliance continues between the non-breaching parties. In the event of
a take-over of Ballard by a third party, DaimlerChrysler and Ford may tender
into the bid and exit the Vehicular Alliance.

         DaimlerChrysler and Ford have agreed that they will not compete with us
during the term of the Vehicular Alliance with respect to the development and
sale of PEM fuel cells and vehicular PEM fuel cell engines. Ford has also agreed
to not compete with us with respect to electric drives for vehicular
applications, and DaimlerChrysler has also agreed to not compete with us with
respect to electric drives (or components thereof) that DaimlerChrysler may in
the future agree to purchase exclusively from us. These non-competition
obligations continue even if DaimlerChrysler or Ford exit or are removed from
the Vehicular Alliance by reason of its fundamental breach. However, if we
commit a fundamental breach and DaimlerChrysler or Ford elects to terminate the
Vehicular Alliance, or a third party makes a take-over bid to which
DaimlerChrysler or Ford tenders all of its Common shares in us, DaimlerChrysler
and Ford may be relieved of these restrictions.

         As an exception to the non-competition provisions, DaimlerChrysler and
Ford may conduct research independently on PEM fuel cells, vehicular PEM fuel
cell systems and, in the case of Ford, electric drives. All results of this
independent research must be made available to us and we have the right to
acquire any intellectual property resulting from it at cost. The developing
party cannot commercially exploit the results of the independent research in
areas governed by the non-competition obligations.

         Many of DaimlerChrysler and Ford's rights are linked to maintaining
ownership of certain of our Common shares owned by them (the "Ballard Base
Shares"). Ballard Base Shares for each of DaimlerChrysler and Ford are our
Common shares owned by them on November 30, 2001 (other than our Common shares
they acquired pursuant to a private placement of an aggregate of 2,023,173 of
our Common shares to DaimlerChrysler and Ford completed on November 30, 2001 as
part of the Transaction) plus (a) any Ballard Base Share of DaimlerChrysler or
Ford purchased by and transferred to the other of them, and (b) any of our
Common shares derived from, or issued as a stock dividend on, Ballard Base
Shares. DaimlerChrysler's Ballard Base Shares include our Common shares to be
issued to DaimlerChrysler on the transfer of the remaining Ballard Power Systems
AG shares to us.

         Until November 30, 2007, DaimlerChrysler and Ford may not transfer any
of their Ballard Base Shares other than to each other or in the event of a
take-over bid by a third party. Further, DaimlerChrysler and Ford may not until
November 30, 2007 transfer any other of our Common shares they own (non-Ballard
Base Shares) without our consent, which consent may not be unreasonably


<PAGE>
                                      -21-


withheld. Neither DaimlerChrysler nor Ford may dispose of any of its Ballard
Base Shares unless it first offers to sell such shares to the other and gives us
notice of its intention to sell such shares.

         Except in certain limited circumstances, we have the exclusive right to
supply DaimlerChrysler and Ford with vehicular PEM fuel cell and vehicular PEM
fuel cell systems and, in the case of Ford, electric drives for vehicles. We
will also have the first right to supply Ford with electric drives for
hybrid-powered vehicles. DaimlerChrysler is not obligated to purchase electric
drives (or components thereof) from us but if it selects us to be its exclusive
supplier, it can earn the right to obtain a licence as described below. All
sales of products by us to DaimlerChrysler or Ford must be made at arm's length
prices and terms, but in no case on less favourable terms and conditions than
sales to any other arm's-length party, taking into account cost, quality,
quantity, delivery, performance and other relevant factors.

         Under the Vehicular Alliance, certain decisions of our board of
directors are subject to voting provisions (the "Limited Voting Provisions")
which require approval by a number of directors equal to one director more than
a majority of the directors who are entitled to vote and who do vote on such
decision, including at least one of the directors appointed by DaimlerChrysler
or Ford. If any director appointed by DaimlerChrysler or Ford is absent or
abstains, a simple majority will suffice, which majority need not include one of
the directors appointed by DaimlerChrysler or Ford. See "Share Capital - Class A
Share and Class B Share" for details regarding the Limited Voting Provisions.

         Many of the decisions that are subject to the Limited Voting
Provisions, such as the sale of substantially all of our assets, an
amalgamation, or a change in our authorized share capital, would, in any event
under applicable corporate law, require the approval of our shareholders by way
of a special two-thirds majority vote. As long as DaimlerChrysler and Ford own
in the aggregate more than one-third of our outstanding Common shares, we could
not proceed with any transaction requiring a two-thirds majority vote if both
DaimlerChrysler and Ford were to vote against such transaction, even if the
Limited Voting Provisions did not exist.

         Provided DaimlerChrysler and Ford retain ownership of the Ballard Base
Shares, DaimlerChrysler and Ford may, if they both so agree, require the removal
of one or more of Ballard's Chief Technology Officer (or other officer to whom
the persons responsible for research and development report), the
Vice-President, Strategic Development (or other officer to whom the persons
responsible for intellectual property report) and the Vice-President,
Transportation.

         Under the Vehicular Alliance, DaimlerChrysler and Ford are able to earn
lead times ranging from six to nine months for pre-commercial vehicular PEM fuel
cell products upon their commitment to purchase specific volumes of those
products from us. These lead time provisions do not preclude us from developing
pre-commercial products for, or selling those products to, other automotive
manufacturers that fund separate development programs for such products. These
lead time provisions do not apply to any product once commercial sales of such
product commence.

         Under the Vehicular Alliance, each of the parties and its subsidiaries
is entitled to royalty-bearing licenses to technology developed by one or more
of the other parties in certain circumstances, including the following:


         o        DaimlerChrysler may obtain a royalty-bearing license to our
                  vehicular PEM fuel cell and vehicular PEM fuel cell systems
                  technology after November 30, 2007 and may only obtain a
                  license to specific electric drive technology if it has
                  purchased the applicable electric drive products exclusively
                  from us over a specified period of time and has committed to
                  continue to do so.
<PAGE>
                                      -22-



         o        Ford may a obtain royalty-bearing license to our vehicular PEM
                  fuel cell and vehicular PEM fuel cell systems technology: (i)
                  if Ford has exclusively purchased from us all vehicular PEM
                  fuel cell systems required by it for its commercial production
                  of fuel cell-powered vehicles and it continues to own its
                  Ballard Base Shares; (ii) after 2011 if Ford has not achieved
                  commercial production of fuel cell-powered vehicles despite
                  its reasonable efforts to do so and it continues to own its
                  Ballard Base Shares at the time the request for the license is
                  made; or (iii) after November 30, 2007 and after we have
                  achieved regular series production of vehicular PEM fuel cells
                  for commercial sales and are unable or unwilling to supply
                  Ford with such products. Ford may request a royalty-bearing
                  license to our electric drive technology after November 30,
                  2007.

         o        We have limited rights to obtain licenses for vehicular fuel
                  tanks from DaimlerChrysler and Ford and for certain electronic
                  drive systems or components from DaimlerChrysler.

         Each of the licenses to be granted to DaimlerChrysler and Ford includes
only those improvements which are made by us during the term of the Vehicular
Alliance. In addition, if DaimlerChrysler and Ford make improvements to
technology to which they have a license, such improvements must be licensed back
to us on a royalty-free basis. The licenses to DaimlerChrysler and Ford will be
perpetual, world-wide, non-exclusive, non-transferable and royalty-bearing. If
the relevant parties cannot agree on the terms and conditions of a license,
including the license form and royalty amount, such terms and conditions may be
settled by arbitration, and the royalty amount will be based on the amount that
would be negotiated by parties at arm's length.

         Under the Vehicular Alliance, if we undertake an equity offering,
DaimlerChrysler has the right to maintain a 23.32% ownership interest in us, and
Ford has the right to maintain a 19.18% ownership interest in us. If either of
DaimlerChrysler or Ford does not fully exercise its purchase rights when
entitled to do so, the other of them may purchase additional Common shares in us
provided the combined ownership interest of DaimlerChrysler and Ford following
such purchase does not exceed 42.5%. These rights can be exercised concurrently
with each equity offering or, in certain limited circumstances, within 60 days
after completion of the offering.

         Under the Vehicular Alliance, neither DaimlerChrysler nor Ford may
purchase any additional Common shares in us if, following such purchase, their
combined ownership of our outstanding Common shares would exceed 42.5% except:

         (a)      before November 30, 2005,

                  (i)      if DaimlerChrysler or Ford, or both, make a take-over
                           bid that, if fully accepted, would result in them
                           owning all of our outstanding Common shares; or

                  (ii)     if a take-over bid is made by a third party,
                           DaimlerChrysler or Ford, or both, may make a
                           competing take-over bid for at least the number of
                           our Common shares that such third party offered to
                           purchase under its take-over bid;

         (b)      after November 30, 2005 but before November 30, 2007,
                  DaimlerChrysler or Ford, or both, may make a take-over bid
                  that, if fully accepted, would result in them owning, in the
                  aggregate, at least two-thirds of all of our outstanding
                  Common shares; and
<PAGE>
                                      -23-


         (c)      after November 30, 2007, DaimlerChrysler or Ford, or both, may
                  make a take-over bid that results in

                  (i)      if DaimlerChrysler and Ford jointly make the bid,
                           them acquiring not less than the greater of:

                           (A)      20% of all of our outstanding Common shares;
                                    and

                           (B)      the number of our Common shares so that they
                                    own more than 50% of all of our outstanding
                                    Common shares; or

                  (ii)     under certain circumstances, if only one of
                           DaimlerChrysler or Ford holds its Ballard Base
                           Shares, that party acquiring more than 10% of all of
                           our outstanding Common shares through a take-over
                           bid.


         STATIONARY POWER ALLIANCE

         To advance the development of our stationary power generators, we
formed BGS in late 1996 to develop and commercialize PEM fuel cell stationary
power products using Ballard(R) fuel cells. At that time we transferred our
stationary power generation system assets, and agreed to sell Ballard(R) fuel
cells for stationary power applications, exclusively to BGS. After its
formation, BGS formed the Stationary Power Alliance with GPU (now FirstEnergy),
ALSTOM and EBARA.

         FirstEnergy is an Ohio-based utility company comprising seven electric
utility operations in Ohio, Pennsylvania and New Jersey. ALSTOM, based in Paris,
France, designs, manufactures, supplies and installs equipment, systems and
solutions for the power generation and transmission industries, as well as the
rail transportation industry. EBARA, based in Tokyo, Japan, is a major
developer, manufacturer and distributor of fluid machinery and systems,
precision machinery and environmental engineering systems and a leader in zero
emission technology. Together with ALSTOM, we formed ALSTOM BALLARD and together
with EBARA, we formed EBARA BALLARD. The Stationary Power Alliance has helped us
integrate our PEM fuel cells into prototype products, provided us with
customers, given us access to our partners' engineering, manufacturing,
marketing, distribution and service capabilities and provided us with sources of
funding.

         Over the past year, we have been evolving our relationships with each
of FirstEnergy, ALSTOM and EBARA to increase the focus on the marketing and
distribution aspects of the commercialization of our stationary fuel cell
products. In August 2001, we announced the first step in this process with the
restructuring of our relationship with FirstEnergy. In exchange for its 13.3%
ownership interest in BGS, we will issue 1,366,063 of our Common shares to
FirstEnergy. As part of this transaction, we also appointed FirstEnergy as a
non-exclusive distributor of our stationary products in the North Central and
Northeastern United States. This transaction is currently awaiting regulatory
approval with closing expected in 2002. In December 2001, we acquired EBARA's
10.6% interest in BGS in exchange for the issuance to EBARA of 1,233,566 million
of our Common shares. We will also continue to collaborate with EBARA through
EBARA BALLARD, on products targeted for the particular needs of the Japanese
market. We are currently in discussions with ALSTOM, the remaining minority
shareholder in BGS, with respect to potential ways of optimizing the structure
of the Stationary Power Alliance as it pertains to the European market.

<PAGE>
                                      -24-



Currently,

         o        Research and development on PEM fuel cells is carried out by
                  us and research and development on PEM fuel cell systems for
                  stationary power applications is carried out by BGS;

         o        Marketing, distribution, selling and servicing activities for
                  stationary PEM fuel cell generators, except in the European
                  and Japanese markets, are carried out by BGS;

         o        Marketing, distribution, selling and servicing activities for
                  stationary PEM fuel cell generators in most of our European
                  markets are carried out by ALSTOM BALLARD, a German company
                  owned 51% by ALSTOM and 49% by BGS;

         o        Marketing, distribution, selling and servicing activities for
                  stationary PEM fuel cell generators in the Japanese market are
                  carried out by EBARA BALLARD, a Japanese company owned 51% by
                  EBARA and 49% by BGS; and

         o        ALSTOM BALLARD and EBARA BALLARD are obligated to purchase PEM
                  fuel cells from BGS.

         ALSTOM and BGS have invested US$7.94 million and US$7.63 million,
respectively in ALSTOM BALLARD. Under our agreement with ALSTOM, ALSTOM was to
make a further investment in ALSTOM BALLARD of US$11 million (US $6 million in
cash and US$5 million in cash or assets) and BGS was to make a further
contribution of US$10.57 million (payable by the grant of a manufacturing
license) on the earlier of the date ALSTOM BALLARD began activities in relation
to the manufacturing of stationary power generators and December 31, 2001. To
date, such contributions have not been made and as part of our ongoing
discussions with ALSTOM, we are currently considering various options relating
to the activities of ALSTOM BALLARD.

         ALSTOM has granted to ALSTOM BALLARD a non-exclusive, royalty-free
license to use any relevant ALSTOM intellectual property. BGS has granted to
ALSTOM BALLARD an exclusive, royalty-free license (the "ALSTOM BALLARD License")
to use BGS's intellectual property to market, distribute, sell and service PEM
fuel cell stationary power generators in most of Europe. After ALSTOM has made
its full investment in ALSTOM BALLARD, ALSTOM BALLARD will, under the ALSTOM
BALLARD License, be entitled to manufacture PEM fuel cell stationary power
generators in most of Europe.

         While ALSTOM BALLARD holds the ALSTOM BALLARD License, (i) we must
supply Ballard(R) fuel cells to ALSTOM BALLARD, (ii) ALSTOM BALLARD must acquire
PEM fuel cells only from us, (iii) BGS will not compete with ALSTOM BALLARD in
the manufacture, marketing, distribution, sale and servicing of PEM fuel cell
stationary power generators in Europe, (iv) ALSTOM and ALSTOM BALLARD will not
compete with us in the field of PEM fuel cells, and (v) ALSTOM will not compete
with BGS and ALSTOM BALLARD in the field of PEM fuel cell stationary power
generators.

         EBARA has granted to EBARA BALLARD a right to use EBARA's technology to
market, distribute, sell and service PEM fuel cell stationary power generators.
BGS has granted to EBARA BALLARD an exclusive, royalty-free license (the "BGS
EBARA License") to manufacture, market, distribute, sell and service PEM fuel
cell stationary power generators in Japan.

         While EBARA BALLARD holds the BGS EBARA License, (i) we must supply
Ballard(R) fuel cells to EBARA BALLARD, (ii) EBARA BALLARD must acquire PEM fuel
cells only from us, (iii)

<PAGE>
                                      -25-


BGS will not compete with EBARA BALLARD in the manufacture, marketing,
distribution, sale and servicing of PEM fuel cell stationary power generators in
Japan, (iv) EBARA and EBARA BALLARD will not compete with us in the field of PEM
fuel cells, and (v) EBARA will not compete with BGS and EBARA BALLARD in the
field of PEM fuel cell stationary power generators.

         The affairs of BGS are governed by a shareholders agreement (the "BGS
Shareholders' Agreement") dated December 1, 1998 entered into by all the
shareholders of BGS. Under the terms of the BGS Shareholders' Agreement, each
shareholder is entitled to such representation on BGS's board of directors as is
proportionate to its holding of common shares of BGS (with a minimum of one
director each). The BGS Shareholders' Agreement grants to the shareholders
certain put/call rights in respect of their shareholdings. Such rights may only
be exercised in cases of default or by a shareholder where certain significant
corporate actions are not approved by the shareholder.


JOINT DEVELOPMENT AGREEMENTS AND RELATED INVESTMENTS

         To expand our strength in the fuel cell industry we have established
external relationships to further advance our product development efforts. We
are always looking for opportunities to improve the speed of commercialization
of our products and to enhance our intellectual property position. In addition,
we continually strive to add to our manufacturing base, accelerate cost
reduction, add value to our product offerings and access new markets for our
products. We have entered into numerous external relationships over recent years
to advance this strategy.

         In September 2000, we entered into a joint development agreement with
QuestAir Technologies Inc. ("QuestAir") to develop and commercialize QuestAir's
hydrogen purification and oxygen enrichment technology for use with Ballard(R)
fuel cells. In conjunction with this agreement, we also acquired a 10% ownership
stake (on a fully diluted basis) in QuestAir, at a price of U.S. $11.2 million
(Cdn. $16.7 million). Under the agreement, which covers a defined period, we
have the exclusive right to QuestAir's technology for use in PEM fuel cell
applications. We are also funding a portion of QuestAir's related development
costs.

         In October 2000, we entered into a joint development agreement with
Millennium Cell Inc. ("Millennium Cell") to further develop Millennium Cell's
proprietary hydrogen generation system for use with our portable power products.
Under the terms of the agreement, we have received the right to purchase up to
400,000 common shares of Millennium Cell stock at a predetermined price. Upon
successful completion of the joint development and product prototype agreement,
we will have the right to license Millennium Cell's technology for use in our
portable products on an exclusive basis for a defined period of time. We have
paid U.S. $2.4 million as an advance for prospective royalties payable under the
license. If the technology does not become commercial, we have the right to get
the U.S. $2.4 million refunded.

         In January 2001, we entered into an exclusive agreement with Victrex
PLC to develop and manufacture ionomers for use in our proton exchange
membranes. Under this agreement, we will work together to develop the
manufacturing processes for our proprietary BAM(R) Ionomer and collaborate on
the development of Victrex's proprietary ionomer. An ionomer is a
proton-conducting polymer which is a key element of the proton exchange
membrane. Upon the successful completion of the development phase for each
ionomer, including the development of volume manufacturing processes and
qualification of the ionomer for commercial applications, Victrex will operate
pilot facilities to manufacture these ionomers for use in Ballard(R) fuel cells.


<PAGE>
                                      -26-


         In May 2001, we entered into an exclusive agreement with MicroCoating
Technologies, Inc. of Atlanta, Georgia, to evaluate and develop its proprietary
Combustion Chemical Vapor Deposition process for use in the manufacture of MEAs.
CCVD technology is an open-atmosphere, flame-based technique for depositing high
quality thin films of advanced materials. CCVD technology, if successfully
developed, has the potential to decrease catalyst loading, thereby further
reducing costs and improving fuel cell performance. As part of this transaction,
we acquired shares in MCT representing 3% of its equity at a price of U.S. $7
million. We also acquired rights, for a defined period, to exclusively license
MCT's CCVD technology and we will fund a portion of MCT's development costs
related to fuel cells. We are currently in discussions with MCT regarding
potential ways to evolve our relationship to increase focus on our near term
goals.

         In June 2001, we entered into a joint development and supply agreement
with Graftech Inc., a wholly owned subsidiary of UCAR, for the development of
graphitic materials and components for use in fuel cells, including flow field
plates. This joint development agreement, which is effective until 2011, expands
on an initial collaboration we established with Graftech Inc. in 1999 regarding
the use of flexible graphite materials in flow field plates for PEM fuel cells.
We also extended our previous supply agreement with Graftech to 2015, whereby
Graftech will be our exclusive manufacturer and supplier of natural
graphite-based material for our fuel cells, including GRAFCELL(TM) advanced
flexible graphite for use in flow field plates of our Mark 900 series fuel
cells. We also became an investor in Graftech, by investing U.S. $5 million for
a 2.5% ownership interest, to support fuel cell development and
commercialization.

         In October 2001, BGS, EBARA and EBARA BALLARD entered into a
collaboration agreement with Osaka Gas for the development of a natural gas fuel
processor for a 1 kW natural gas cogeneration stationary generator for
residential use in Japan. Similar to the stationary generator being developed in
conjunction with Tokyo Gas Co. Ltd. ("Tokyo Gas"), this generator will provide 1
kW of electricity, as well as heat and hot water, while the utility grid will
satisfy the electrical demand over 1 kW.

         BGS and EBARA BALLARD are also working with Tokyo Gas to develop a
natural gas fuel processor for a residential 1 kW cogeneration stationary
generator for use in Japan. The second generation engineering prototype of this
stationary power generator was unveiled in January 2002. This latest prototype,
which includes an electrical inverter (converting DC power to useable AC power),
has a total electrical and heat efficiency of over 81% and is 40% smaller than
the first prototype. The unit contains a fuel processing system manufactured by
EBARA BALLARD based on fuel processing technology developed by Tokyo Gas. Tokyo
Gas has licensed its fuel processing technology to BGS and EBARA BALLARD for use
worldwide in our PEM fuel cell systems.

         In February 2002 we announced the signing of a joint development
agreement with Ford Power Products, a subsidiary of Ford, to jointly develop
products driven by spark ignited (combustion) engines for the generator market.
We will contribute our power electronics expertise to this collaboration and
Ford Power Products will contribute its combustion engines. Other opportunities
exist for on-road hybrid applications, such as commercial trucks and buses,
where the product provides power to electric drive motors, batteries and other
equipment. We expect that the initial products from this joint development will
be developed by the end of 2002. These products will be targeted for the primary
power, standby power, and emergency power markets.

         CHRYSALIX

         In July 2001, we announced the formation of Chrysalix Energy Limited
Partnership ("Chrysalix"). We and our partners Shell Hydrogen, the BOC Group,
BASF Venture Capital GmbH and Westcoast Energy (now Duke Energy), formed
Chrysalix to promote and fund early stage companies with


<PAGE>
                                      -27-


high growth potential in fuel cells and related systems, hydrogen
infrastructure, maintenance and support services. Chrysalix operates
independently of us and our partners and offers support in the form of
technology knowledge, expert services and management. We have committed to
invest Cdn. $5.6 million in Chrysalix and have to date contributed approximately
Cdn. $1.3 million.

RESEARCH AND PRODUCT DEVELOPMENT

         Our research and product development strategy is to develop critical
proprietary technology and technology to support our product roadmap, with
respect to key components, subsystems, systems and processes for PEM fuel cell
products, including (a) PEM fuel cells, (b) PEM fuel cell systems (c) fuel
processors, (d) direct methanol PEM fuel cells, (e) electric drives, (f) power
conversion systems (including inverters), and (g) carbon fiber products. Cost
reduction and reliability are fundamental requirements for our products to be
successful in all markets. To meet customer requirements and deliver shareholder
value, we have implemented an improved technology management and approval
process that is based on technology industry best practices, increasing the
focus and speed of our research and product development efforts. To achieve our
cost reduction goals, we have concentrated on reducing material and component
costs (including membrane, catalyst, gas diffusion layers and flow-field
plates), developing low cost volume-manufacturing processes and designing PEM
fuel cell components, subsystems and systems that utilize low cost materials and
high-yielding, high volume manufacturing processes while continuing to meet the
performance and reliability requirements of the targeted application. We have
also formed relationships with external development partners to develop specific
components and technologies for integration into fuel cells, fuel cell engines,
fuel cell systems, electric drives and power conversion systems. In conjunction
with our technology management process, we are continually evaluating these
relationships and where necessary, will amend and evolve our existing external
relationships to reflect our increased focus on our core, near term technology.

         PEM FUEL CELLS

         MEMBRANES. The Ballard(R) fuel cell uses commercially available proton
exchange membranes that presently represent a substantial cost component. We
actively benchmark commercially available membrane and focus on the development
of novel polymers and the fabrication of a series of improved membranes for PEM
fuel cell applications to achieve performance that is equivalent to, or better
than, commercially available membranes, but at lower cost. We have developed a
series of membranes that have demonstrated longevity appropriate for use in
commercial applications. In testing these membranes we have demonstrated over
14,000 hours of continuous operation. In addition, we are working with other
suppliers of ionomers, polymers, and membranes to further reduce cost and
improve performance. In 1994, we demonstrated a proprietary membrane with
performance which was then superior to commercially available membranes while
achieving projected cost savings of over 90%. In 1995, we further improved this
membrane and developed manufacturing processes for it. We have had patents
issued to us covering key chemical compositions and applications of the
membrane. In 1996, we achieved pilot scale manufacturing capacity for the
polymer used in the membrane and we began the qualification process required
before the membrane can be used in our commercial PEM fuel cells. Testing of our
membrane began in our commercial prototype PEM fuel cell hardware in 1997. In
1998-99, we developed a modified membrane using our proprietary BAM(R) Ionomer
with superior performance and with further reduced cost, increased power density
and more efficient utilization of materials. By 2000, we had developed a pilot
process to manufacture the membrane and expanded its evaluation across our line
of product applications. Development and evaluation of the membrane continues
with the goal of introducing a Ballard membrane into our PEM fuel cell products
at the earliest practical opportunity. Further to our development agreement with
Victrex PLC (see "Joint Development Agreements and Related Investments"), the
manufacturing process and related costs associated with BAM(R) Ionomer is
<PAGE>
                                      -28-


still under evaluation. We are also evaluating certain Nafion(R) membrane
products produced by DuPont, and other commercially available membrane products.

         GAS DIFFUSION LAYERS. Through our Material Products Division, we have
significantly enhanced our internal capability to develop, design and
manufacture low-cost, continuous gas diffusion layers. This capability, in
combination with our competence in membrane materials, further establishes our
ability to provide solutions to increase power density, enhance reliability and
reduce the cost of our fuel cell products. Our Material Products Division is
developing and manufacturing gas diffusion layers for use in fuel cell products.

         MEMBRANE ELECTRODE ASSEMBLY (MEA). We are focused on the (i) evaluation
of new processing methods, materials and technologies in an endeavour to reduce
the cost, improve the performance and increase the reliability of our MEAs, and
(ii) benchmarking of commercially available MEAs. One of the key reliability
indicators is cell-to-cell-variability and we have made a significant effort to
reduce this variability across the different product platforms in collaboration
with our manufacturing efforts. This has resulted in a net gain in performance
and a simplification of the MEA technology. We continue to develop our MEAs, by
focusing on simplification in design and improving the manufacturing by reducing
processing steps.

         CATALYSTS. We have a long-term supply agreement with Johnson Matthey
PLC for catalysts used in PEM fuel cells. In addition, there is an active
collaboration between the two parties for the joint development of improved
catalysts for enhanced activity and durability. This collaboration has led to
the submission and issue of several key patents. In addition, we continue to
benchmark other catalyst materials to ensure that we have access to the best,
most cost-effective components for our PEM fuel cell products.

         FUEL CELL PLATES. We have developed proprietary fuel cell plate and
flow field technology for improved performance and cost reduction. In June 2001,
we entered into a joint development and supply agreement with Graftech Inc., a
wholly owned subsidiary of UCAR, for the development of graphitic materials and
components for use in fuel cells, including flow field plates. See "Joint
Development Agreements and Related Investments".

         FUEL CELL SYSTEMS

         FUEL CELL SYSTEM DESIGN. One of our core competencies involves the
designing of PEM fuel cell engines and systems. We utilize modular designs for
our fuel cell engines in order to maximize the use of common components and
subsystems, to simplify manufacturing and to maximize cost reduction across our
products. Certain components such as air supply subsystems and cooling
subsystems are developed in close collaboration with our qualified suppliers.

         MONITORING AND CONTROL SYSTEMS. We have designed and manufactured
monitoring and control systems for PEM fuel cell systems that provide users with
push button automatic operation and incorporate appropriate safety features.
These systems allow the fuel cell to meet the desired functions of our customer.
These systems also automatically record performance data and flow monitoring
information, which we then use for PEM fuel cell testing and system design. To
test PEM fuel cells, we have designed and fabricated specialized instrumentation
and test equipment that is not commercially available.

<PAGE>
                                      -29-

         FUEL PROCESSORS

         We have developed proprietary fuel processor technology to process
natural gas, methanol and petroleum to produce hydrogen specifically for use in
PEM fuel cells. Continuing development work includes the integration of these
fuel processors with our PEM fuel cells and other system components to improve
system efficiency in natural gas and methanol PEM fuel cell systems.

         If a liquid fuel is used in our PEM fuel cell powered vehicles, it is
likely that it will be either methanol or a gasoline-like petroleum fuel.
Methanol is a liquid that is easy to transport and dispense, and offers a
relatively high energy density that can provide vehicles with the operating
range which the market requires. Methanol is a globally available industrial
commodity and can also be produced from renewable resources such as bio-mass. We
have developed a methanol fuel processor and related PEM fuel cell systems for
automotive applications which have demonstrated the power density and dynamic
behaviour as required for that application. While the first fuel for fuel cell
vehicles is expected to be hydrogen, methanol may still play a role in certain
geographic regions. As a result, we will continue to develop our proprietary
methanol fuel processing technology, but will not develop a product until we
receive further indication from our customers that it is a fuel they will be
using.

         Our proprietary natural gas reforming technology is key to the
commercialization of stationary power products. In stationary power
applications, BGS is currently focused on developing fuel processors that are
suitable for natural gas, due to the extensive natural gas supply
infrastructure. In January 2002, we expanded and strengthened our collaboration
with EBARA and Tokyo Gas regarding the development of a residential 1 kW PEM
fuel cell cogeneration unit for the Japanese market, using Tokyo Gas's
proprietary fuel processing technology. We are also working with Osaka Gas on
the development of a similar natural gas-fueled PEM fuel cell stationary power
generator using Osaka Gas's fuel processing technology. See "Joint Development
Agreements and Related Investments".

         We have also developed multi-fuel processing technology, through which
we are able to convert hydrocarbons such as natural gas, LPG, gasoline and
ethanol into hydrogen-rich gas streams. Our multi-fuel processing technology
enables us to develop products that use a wide variety of fuels to meet customer
requirements.

         Gasoline is widely available in the current fuel infrastructure and
offers a high energy density, but it is more challenging technically to develop
fuel processors that would enable gasoline to be used in PEM fuel cell powered
vehicles. Several oil and auto companies are actively developing fuel processors
for PEM fuel cell vehicles that would use gasoline. However, the technology is
still too large for on-board vehicle reforming, cannot start up quickly and is
too costly to integrate into a commercial vehicle. In addition, producing a
refined petroleum fuel appropriate for use in PEM fuel cell powered vehicles
would require significant and expensive changes in the existing refinery
infrastructure. However, such changes may be required in any case for advanced
internal combustion engines.

         Research into fuel reforming will be expanded to include other fuels
when it becomes likely that customers will request this fuel flexibility. Our
acquisition of Ballard Power Systems AG has allowed us to better integrate its
fuel processing technology and expertise into our product development efforts.
We will also continue to evaluate fuel processors from other suppliers for their
potential use in our fuel cell power generators.

         DIRECT METHANOL FUEL CELLS

         For the past several years, we have been developing and testing a type
of PEM fuel cell, called a direct methanol fuel cell (a "DMFC"), in which
methanol fuel is fed directly into the PEM fuel cell as the

<PAGE>
                                      -30-


fuel, without the use of a fuel processor. In a DMFC, the methanol reformation
and the electrochemical reactions of the PEM fuel cell occur simultaneously.
Because of the elimination of the fuel processor, a DMFC system results in
potentially lower weight, volume and cost, and a simpler system. Our initial
research and development in this area started in 1994 and since then has grown
into a more structured research program, with significant resulting proprietary
technology. In November 2000, DaimlerChrysler drew attention to our advanced
technology with the unveiling of a go-kart powered by a three-kilowatt
Ballard(R) Direct Methanol Fuel Cell. In December 2001, we successfully
demonstrated a portable fuel cell engineering prototype using direct methanol
fuel cell technology. The system demonstrates a stack power density of over 500
watts per liter and includes components to enable fuel mixing and
re-circulation. At this stage, DMFCs require additional product and market
research before we will initiate a specific product development program.

         ELECTRIC DRIVES AND POWER CONVERSION

         In our Electric Drives and Power Conversion Division, we are focused on
advanced system design, electric motor technology and power semiconductor
packaging technology. Our goal is to achieve the most efficient transfer of
energy from a range of power sources for both vehicle propulsion and distributed
power generation, and to do so at reduced cost. Advanced system design involves
an understanding of the variables and constraints that determine optimal
performance of electric drive systems. These include (i) dependent variables,
such as the peak current required for torque and speed performance, system
weight, and software control, (ii) independent variables, such as voltage
variation from the power source and coolant temperature fluctuations, and (iii)
constraints, such as vehicle packaging and environmental conditions. We have
achieved significant system design developments in advanced power trains for
both Ford and DaimlerChrysler.

         We are making significant design advances, including using
computational fluid dynamics for new cooling jacket designs, developing improved
motor control systems, and using finite element analysis for improved motor
designs. These efforts are resulting in new drive systems with reduced system
power requirements and lower system losses, resulting in higher efficiency
energy transfer.

         In March 2002, a Class 10,000-cleanroom facility opened in our Dearborn
facility to produce customized integrated power semiconductors for power
conversion. Research goals focus on achieving cost reduction, increasing power
density, increasing energy efficiency, and reducing electrical noise production
from improvements in the architecture of power semiconductor layout.

         CARBON PRODUCTS

         We are actively developing woven and non-woven carbon-based substrate
materials for fuel cells and other commercial applications. The design of these
new materials allows higher performance in systems and lower cost. For example,
continuous rolls of gas diffusion layer material enable MEAs to be manufactured
using high speed automated assembly techniques. We are also developing highly
engineered friction materials (i) for use in automotive drive trains which allow
the automatic transmission to operate more smoothly and the vehicle to achieve
better fuel economy and (ii) as components in launch systems for commercial
satellites.

         TECHNOLOGY PARTNERSHIPS CANADA ("TPC")

         Under an agreement entered into in October 1997, the Government of
Canada, through TPC, has contributed $29.4 million (the "Contribution") to us
for the development of Ballard(R) fuel cells and PEM fuel cell stationary power
generators. The Contribution represents approximately 32% of the cost of a
three-year program conducted by us to develop PEM fuel cell stationary
generators. In consideration for


<PAGE>
                                      -31-

the Contribution, the Government of Canada has received certain of our Common
share purchase warrants (see "Share Capital and Market for our Securities") and
an entitlement to a royalty of 4% of BGS's gross world-wide sales of stationary
fuel cell power generators utilizing technologies developed under the agreement,
to a maximum of $38.3 million. The royalty obligation is shared between the
Corporation and BGS in proportion to the total funds received by each.

INTELLECTUAL PROPERTY

         Our intellectual property strategy is to identify and protect key
intellectual property developed by us, and to use and assert such intellectual
property to our competitive advantage. We believe such a strategy will assist us
to be first to market with superior technology and to sustain a long-term
competitive advantage in our target markets. We rely on a combination of
patents, trade secrets, trademarks, copyrights and contracts to protect our
proprietary technology.

         We use patents as the primary means of protecting our technological
advances and innovations. Our patent portfolio expanded significantly in 2001
with the addition of patents and patent applications covering inventions
developed by our newly acquired divisions. We have patented intensively on all
aspects of the technology we are developing, and we believe that the depth and
breadth of Ballard's expanded patent portfolio is unrivalled in the PEM fuel
cell industry. The portfolio now includes patents related to our PEM fuel cell
designs, fuel processing, electric drives, power electronics, inverters,
components, materials, manufacturing processes, operating techniques and
systems.

         As of April 30, 2002, we had obtained approximately 175 U.S. and
approximately 275 non-U.S. patents. The non-U.S. patents include European
patents registered in various individual countries in Europe. In addition, as of
April 30, 2002, we had filed approximately 325 U.S. and approximately 625
non-U.S. patent applications, and held exclusive and non-exclusive licence
rights to additional intellectual property from a number of third parties.

         We will continue to take a strategic approach to the development and
maintenance of the patent portfolio, ensuring that our patent portfolio is
carefully aligned with our business strategy. Patent applications are filed in
various jurisdictions internationally, which are carefully chosen based on the
likely value and enforceability of intellectual property rights in those
jurisdictions, and to strategically reflect our anticipated major geographic
markets. We also use patents, along with publications and, where appropriate,
licensing-in of third party technology, to provide us with the flexibility to
adopt preferred technologies. Our intellectual property program also includes a
strong competitor monitoring element. We actively monitor the patent position,
technical developments and market activities of our competitors. Our patent
estate continues to be one of our most important assets, which we intend to use
to protect our lead in the market and to support our business objectives

MANUFACTURING

         We must develop high-volume manufacturing capabilities in order to
achieve commercialization of our PEM fuel cell products. Construction of Plant
1, our initial commercial manufacturing facility, was completed in October 1999
and equipment was installed throughout 2000. Plant 1 is located adjacent to our
corporate headquarters in Burnaby, British Columbia, and is designed to provide
the manufacturing capacity necessary to meet expected customer demand through
our initial market introduction phase for our transportation, stationary and
portable products. We expect demand for our PEM fuel cells to increase following
the commercial introduction of fuel cell products, and as a result will require
increased manufacturing capacity. We will build that capacity as required to
meet the increased demand.


<PAGE>
                                      -32-


         In 2001, we strengthened our manufacturing capability through the
addition of our newly acquired businesses. Each of the acquired businesses uses
a combination of in-house manufacturing expertise and third party suppliers,
allowing us the flexibility we require to meet our manufacturing needs. In
limited circumstances, we may choose to license some or all of the manufacturing
for a particular PEM fuel cell application or customer on a royalty-bearing
basis.

         We currently operate an ISO 9001 certified facility to manufacture our
PEM fuel cells that incorporates the quality control procedures required to meet
stringent product specifications. We have also developed expertise in the
testing of all aspects of PEM fuel cells and their components. For ease of
manufacture, product development and design take place concurrently to ensure
that new designs can be more rapidly introduced in prototype form. We
subcontract some process steps or assemblies to minimize investment in
equipment, particularly in the case of processes that will eventually be
replaced by new manufacturing methods or materials, and non-core technology
processes. We are developing relationships with key suppliers to ensure that, as
we move from laboratory-scale manufacturing to full-scale high-volume
manufacturing, we will have a timely supply of key materials. Additionally, we
have established relationships with key material suppliers to enhance the
quality and suitability of materials supplied and to assist in the development
of our PEM fuel cell products. An important aspect of our Vehicular Alliance is,
and will continue to be, our partners' contribution of advanced, low cost and
high-volume manufacturing expertise. We have developed, and will continue to
develop with DaimlerChrysler and Ford, appropriate manufacturing processes for
PEM fuel cells.

         Many of the components we use to manufacture our PEM fuel cell systems
are unique to these products and may require long lead times to order. Certain
of the components used in our PEM fuel cell systems have been developed to our
specifications under development and supply contracts entered into with BASF AG
and Johnson Matthey PLC for catalyst materials, Robert Bosch GmbH for electrical
controls, Opcon Autorotor AB and Modine Manufacturing Company for air
compressors and heat exchangers, Tyco Electronics for electrical components
(such as high voltage connectors and power diffusion units) and DaimlerChrysler
for transmissions. These development and supply agreements provide that the
intellectual property created by the design of these components is owned
exclusively by us, jointly by us and the supplier, or solely by the supplier,
depending upon whether we have any of the development costs.

         We have in-house capability to do low-volume final assembly and testing
of our electric drives and power electronics products. Our electric drives are
produced using materials and components that are available from a variety of
international sources. However, power silicon is a primary material used in the
manufacture of our electric drives and power electronics products and its price,
availability and functional suitability fluctuate with market conditions. We
have component supply contracts with Enova Systems for specific power
electronics components, Solectria Corporation for motors and gearboxes, Agile
Systems for custom inverters, eupec Inc. for power modules, Reuland Electric for
electric motors and Unique Mobility for auxiliary motors for air compressors.
Ballard Power Systems Corporation also maintains development and supply
agreements with Dynex Power for power modules and Carraro SpA for axles. Our
electric drive and power electronics assembly facility is QS 9000, ISO 9001 and
ISO 14000 certified.

         As part of the integration of Ballard Power Systems AG and Ballard
Power Systems Corporation into Ballard, we intend to review our manufacturing
strategies to determine the appropriate balance between the use of in-house and
third-party manufacturing capabilities and the most appropriate facilities to
undertake final assembly and testing of our PEM fuel cell engines and electric
drives. To date, we have added prototype manufacturing for PEM fuel cell engines
in Nabern, Germany and prototype manufacturing of electric drives and power
electronics devices in Dearborn, Michigan. With respect to our current level of
manufacturing, we have not faced any material problems with our sources of
supply.


<PAGE>
                                      -33-


         Our facility in Lowell, Massachussetts, where we produce our carbon
fiber products, is also ISO 9001 and QS 9000 certified. The experience of our
operations in Lowell as a Tier 1 automotive supplier will be invaluable to us as
we move into commercial production in our other manufacturing centers and as we
leverage off the established quality and manufacturing practices.

FACILITIES

         We have the following principal facilities:

         o        a 117,000 square foot (10,870 square meter) facility in
                  Burnaby, British Columbia, owned by us, that houses our
                  corporate headquarters, our PEM fuel cell development and our
                  laboratory-scale manufacturing facilities;

         o        a leased 110,000 square foot (10,219 square meter) facility in
                  Burnaby, British Columbia that houses Plant 1 and certain of
                  our executive and administrative offices;

         o        a leased 177,000 square foot (16,500 square meter) facility in
                  Kirchheim/Nabern, Germany that is used for PEM fuel cell
                  engine and fuel processing development, assembly and testing
                  and for PEM fuel cell stack development;

         o        a 137,000 square foot (12,728 square meter) facility in
                  Lowell, Massachusetts, owned by us, that is used for the
                  development and manufacture of carbon materials;

         o        a leased 23,900 square foot (2,200 square meter) facility in
                  Burnaby, British Columbia that is used for the development of
                  heavy-duty, PEM fuel cell engines; and

         o        two leased facilities totaling 60,000 square feet (5,574
                  square meters) in Dearborn, Michigan that are used for the
                  development, assembly and testing of electric drives and power
                  electronics.

         We believe that these facilities are sufficient to meet our current
manufacturing and product development needs. As our business expands beyond the
initial introduction of our products into full commercial production, we will
require the construction of additional, larger scale, higher volume
manufacturing facilities.

         We are committed to developing and manufacturing products and operating
all of our facilities in full compliance with all applicable local, regional,
national and international environment, health and safety regulatory standards.
Our commitment is reflected in our corporate Quality, Safety and Environmental
Policy and Guiding Principles and our underlying programs and initiatives.

COMPETITION

         OVERVIEW

         As the PEM fuel cell has the potential to replace existing power
sources, competition for our products will come from current power technologies,
improvements to current power technologies and new alternative power
technologies, including other types of fuel cells. Each of our target markets is
currently served by existing manufacturers that use proven and widely accepted
technologies and have established customers and suppliers. Additionally, in each
of our target markets there are other competitors working on developing power
technologies other than PEM fuel cells.


<PAGE>
                                      -34-


         A number of corporations, national laboratories and universities in the
United States, Canada, Europe and Japan possess PEM fuel cell technology. Some
have financial, technological and personnel resources greater than ours and
could be significant competitors. We believe that our technology is more
advanced than the demonstrated technology of our potential PEM fuel cell
competitors, and we plan to maintain our lead by diligently prosecuting patents,
improving PEM fuel cell designs, using less and lower cost materials, developing
volume manufacturing processes and forming strategic relationships with
suppliers and leading companies within our target markets.

         We are aware of over 50 other companies in North America, Europe and
Japan developing PEM fuel cells and PEM fuel cell systems. Some of the companies
involved in PEM fuel cell development include Aisin Seiki Co. Ltd., Dais
Analytic, DCH Technology, GM, Honda, H Power Corp., Honeywell International
Inc., Hydrogenics Corporation, Matsushita Electric Industrial Co. Ltd.,
Mitsubishi Electric Company, Mitsubishi Heavy Industries, Ltd., Motorola, Inc.,
Nissan, NoVArs, Nuvera Fuel Cells, Plug Power Inc., Sanyo Electric Company Ltd.,
Siemens AG, Toshiba Corporation, Toyota and UTC Fuel Cells. Companies with
programs for fuel cells other than PEM fuel cells include FuelCell Energy, Inc.,
Fuji Electric Co., Ltd., Global Thermoelectric Inc., Hitachi Corporation,
Mitsubishi Electric Company, SiemensWestinghouse Electric Company, Toshiba and
UTC Fuel Cells. Companies that have indicated a plan to develop membrane
electrode assemblies or components thereof include BASF, Dow, DuPont, W.L. Gore
& Associates, Inc., 3M, OMG Corporation and Johnson Matthey.

         PORTABLE POWER GENERATION

         EXISTING TECHNOLOGY. The portable power generation market is currently
dominated by small internal combustion engines and batteries. We believe PEM
fuel cell systems are superior to internal combustion engines because of their
ability to operate quietly and without pollution, and to batteries because of
their ability to provide extended run time without frequent or lengthy
recharging.

         EMERGING TECHNOLOGY. Advanced battery technology continues to make
modest progress in the portable power generation market, where internal
combustion engines cannot be used due to their emissions, vibrations and noise
profiles. Batteries still require frequent or lengthy recharging and in many
cases cannot meet the desired runtimes.

         PEM FUEL CELLS. Other companies developing PEM fuel cell systems for
portable generation applications include H Power, Hydrogenics, Motorola,
Manhattan Scientific, Sanyo and Energy Related Devices. Many of the applications
for portable power generation are consumer products and as such, are highly
price sensitive. We will seek to gain a pricing advantage over our competitors
by leveraging the higher production volumes we expect to achieve as we
manufacture products for all of our target markets.

         STATIONARY POWER GENERATION

         For the stationary power generation market, we are focusing on systems
of less than 250 kW. We believe this represents a market segment in which our
PEM fuel cell technology will be superior to alternative fuel cell technologies
in terms of power density, simplicity of system design and construction,
lifetime, ease of maintenance and cost. We believe that PEM fuel cells have a
competitive advantage over other technologies in the small and mid-sized
stationary power generation market where noise, vibration, emission standards,
permit and variable operation requirements have to be met. For applications that
require more baseload operation and are greater than 1MW, combined cycle gas
turbines and higher temperature fuel cells, such as molten carbonate and solid
oxide fuel cells, are more appropriate to address these markets. Our initial
products are targeted at emergency or back-up power applications and a
continuous power 1 kW cogeneration stationary fuel cell power generator for the
Japanese residential market.


<PAGE>
                                      -35-


         EXISTING TECHNOLOGY. In our targeted stationary power generation
market, we compete with established technologies such as diesel and
natural-gas-fueled internal combustion engines and phosphoric acid fuel cell
systems. Major competitors using these technologies include Caterpillar Inc. and
Onan Corporation in the case of internal combustion engines and UTC Fuel Cells
in the case of phosphoric acid fuel cells.

         EMERGING TECHNOLOGY. Emerging technologies in our target stationary
power generation market include smaller gas turbines, molten carbonate fuel
cells and, potentially, solid oxide fuel cells. Major competitors using or
developing these technologies include Capstone Turbine Corporation, Turbo
Genset, Ingersol Rand and Pratt Whitney in the case of gas turbines, FuelCell
Energy, Hitachi and Mitsubishi Electric in the case of molten carbonate fuel
cells, and Mitsubishi Heavy Industries and SiemensWestinghouse in the case of
solid oxide fuel cells.

         PEM FUEL CELLS. There are a number of other companies actively involved
in the manufacture of PEM fuel cells and PEM fuel cell systems for the
stationary power generation market. These companies include GM, H Power,
Hydrogenics, Matsushita Electric, Mitsubishi Heavy, Plug Power, Sanyo, Toshiba,
Toyota and UTC Fuel Cells, which are primarily focused on stationary power
generation systems under 35kW. We may also face competition from companies
developing fuel processors for the stationary power generation market, including
Exxon Mobil, ChevronTexaco, GM, Hydrogen Source LLC and Nuvera.

         POWER ELECTRONICS. Our competitors in the power electronics market
include the ABB Group, American Superconductor Corporation, Capstone Turbine
Corporation, General Electric Company, Xantrex Technology Inc. and Satcon
Technology Corporation.

         TRANSPORTATION

         In transportation applications, we expect advanced internal combustion
engines, battery/internal combustion engine hybrids and advanced batteries to be
the principal competitors of PEM fuel cell engines.

         EXISTING TECHNOLOGY. Almost all motorized vehicles sold today are
powered by internal combustion engines. PEM fuel cell engines have a number of
advantages over internal combustion engines, including the ability to operate
without harmful emissions and with higher efficiency. In addition, PEM fuel cell
engines operate with very little noise and vibration, have fewer moving parts
and provide equivalent or better performance. However, unlike PEM fuel cell
engines, internal combustion engines currently enjoy widespread consumer
acceptance and are produced at commercially viable prices. Automobile
manufacturers and fuel companies have heavily invested in the use of the
internal combustion engine and the accompanying infrastructure.

         Significant advances are being made in internal combustion engine
technology. Current internal combustion engines pollute far less than past
internal combustion engines. Vehicles made with certain low polluting internal
combustion engines may receive partial ZEV credit under California regulations.
Automobile manufacturers and others are devoting significant resources to the
continued development of efficient, low polluting internal combustion engines.

         EMERGING TECHNOLOGY. Among emerging technologies in the transportation
market, PEM fuel cell engines face competition primarily from batteries and
battery/internal combustion engine hybrids. Vehicles using these technologies
have been produced and sold by major automobile manufacturers.


<PAGE>
                                      -36-


         Research and development in battery technology is being conducted to
improve performance, reduce weight, lower cost and decrease recharging time.
Although battery-powered vehicles will meet the strict requirements for ZEV's,
battery/internal combustion engine hybrids will not meet these requirements due
to their emissions, though they may receive partial credit. Advanced batteries
developed to date cannot provide an electric vehicle with the performance and
consumer convenience of an internal combustion engine powered vehicle.
Ballard(R) fuel cells can complement the use of batteries in combined battery
and PEM fuel cell-powered systems for ZEVs.

         PEM FUEL CELLS. Our primary competition for PEM fuel cell engines comes
from automotive manufacturing companies, such as Toyota, GM and Honda, and UTC
Fuel Cells, which has supplied fuel cells to Hyundai. These companies have
devoted significant development efforts on their PEM fuel cell technology and
have produced and demonstrated PEM fuel cell prototype vehicles. We may also
face competition from companies selling components for fuel cell engines. These
competitors may include other established automotive suppliers and companies
that are developing fuel processors for the stationary power generation market
such as Exxon Mobil, ChevronTexaco, GM, Hydrogen Source LLC and Nuvera Fuel
Cells.

         ELECTRIC DRIVES. The principal application for electric drive
technology is to provide traction power for vehicles. Given the nature of this
technology, and its need to be incorporated into the overall vehicle design, it
is unlikely that electric drive train technology will be developed and produced
on a large scale without the co-operation and backing of an OEM. Our competitors
in the electric drive market include automobile manufacturers (in particular
Honda and Toyota), Mannesmann Sachs AG, Solectria Corporation and Aisin Seiki
Co. Ltd. in the automobile market, and Curtis Instruments Inc., General Electric
Company and ZAPI Inc. in the airport ground support equipment market.


FUEL CELLS

         FUEL CELL ORIGIN AND TYPES

         Fuel cells were invented in 1839, and were first used in practical
applications in the 1960s in the Gemini and Apollo space programs to provide
electricity on spacecraft. During the 1970s, fuel cell technology was developed
for terrestrial systems and, during the 1980s, it began to be tested by
utilities and automobile manufacturers.

         There are several types of fuel cells, distinguished by the type of
electrolyte material used. Certain types of fuel cells are better suited for use
in particular applications based on their performance characteristics. The
following is a description of the most common types of fuel cells.

         ALKALINE FUEL CELLS have been used since the mid-1960s by NASA in the
Apollo and space shuttle programs to power electrical systems on spacecraft.
They are considered appropriate for small-scale aerospace and defence
applications, but their use in commercial applications is limited because they
must operate with pure hydrogen and with pure oxygen, or air from which the
carbon dioxide has been removed.

         PHOSPHORIC ACID FUEL CELLS have been field tested since the 1970s and
are the most mature fuel cell technology for stationary applications, with
existing installations in buildings, hotels, hospitals and electric utilities in
Japan, Europe and the United States. The world's largest fuel cell system is an
11 MW phosphoric acid fuel cell system operated by an electric utility in Japan.
Many of these systems are currently on order for delivery throughout the world.
The principal use of these systems is expected to be mid-to-large stationary
power generation applications. However, the corrosive liquid electrolyte and
high


<PAGE>
                                      -37-


operating temperature (200(Degree)C) require complex system designs and
negatively impact operating life and cost.

         MOLTEN CARBONATE FUEL CELLS operate at very high temperatures
(650(Degree)C) which allows them to operate without a fuel processor. Their
system design is more complex than phosphoric acid fuel cells due to their
higher operating temperature and utilization of a molten electrolyte. They
require significant time to reach operating temperature and to respond to
changes in electricity demand, and therefore are best suited for the provision
of constant power in large utility applications. They have been built in small
numbers in the United States and Japan, and a prototype 1.8 MW power plant has
been demonstrated in the U.S.

         SOLID OXIDE FUEL CELLS operate at extremely high temperatures
(600(Degree)C to 1,000(Degree)C) and as a result can tolerate relatively impure
fuels, such as that obtained from the gasification of coal. Their relatively
simple design (because of the solid electrolyte and fuel versatility), combined
with the significant time required to reach operating temperature and respond to
changes in electricity demand, make them suitable for large to very large
stationary applications.

         PEM FUEL CELLS use a solid polymer membrane (a thin plastic film) as an
electrolyte. They are compact and produce a powerful electric current relative
to their size. An immobilized electrolyte simplifies the production process,
reduces corrosion and provides for longer cell and stack life. PEM fuel cells
operate at low temperatures (less than 100(Degree)C) which allows faster
start-ups and immediate response to changes in the demand for power. They are
ideally suited to transportation and smaller stationary applications.

         HOW FUEL CELLS WORK

         A fuel cell is an electrochemical device that produces electricity from
hydrogen and without combustion. Hydrogen fuel, which can be obtained from
methanol, natural gas or petroleum, and oxygen from the air, are combined in a
fuel cell to produce electricity, with usable heat and water vapour as the
by-products. This is the reverse of the process of electrolysis by which water
can be split into hydrogen and oxygen by passing an electric current through the
water. A fuel cell, by nature of its operating principles, is efficient,
extracting more electricity from a fuel than combustion based technologies.
Internal combustion engines operate by converting fuel into heat, heat into
mechanical energy and mechanical energy into electric power. The efficiency of
this multi-step conversion process is affected by heat and friction losses. By
contrast, fuel cells convert fuel directly into electricity, thus minimising
energy losses and reductions in operating efficiency. In addition, because fuel
cells do not use combustion, they do not produce the air pollutants which are
by-products of combustion. Unlike a battery, a fuel cell does not require
recharging. It will provide power as long as fuel is supplied.

         The following diagram illustrates how a Ballard(R) fuel cell produces
electricity. The core of the Ballard(R) fuel cell consists of two electrodes,
the anode and the cathode, separated by a polymer membrane electrolyte. Between
the polymer and each electrode is a thin layer of platinum catalyst. Hydrogen
fuel dissociates into free electrons and protons (positive hydrogen ions) in the
presence of the platinum catalyst at the anode. The free electrons are conducted
in the form of usable electric current through an external circuit. The protons
migrate through the membrane electrolyte to the cathode. At the cathode, oxygen
from air, electrons from the external circuit and the protons combine to form
water and heat. The membrane and two electrodes are sandwiched between two
flowfield plates that funnel the hydrogen and air to the electrodes and form a
single PEM fuel cell. Single fuel cells can be combined into a fuel cell stack,
with the number of fuel cells in the stack determining the amount of voltage and
the surface area of the cells determining the current. Fuel cells are modular
and can be designed to provide the required voltage and power the customer
requires.


<PAGE>
                                      -38-


                             [GRAPHIC OF FUEL CELL]

         FUEL CELL SYSTEMS

         To generate usable electrical power, a complete fuel cell system, like
a complete automobile engine or power generator, includes subsystems for the
fuel supply, air supply, cooling and control. In addition, for certain
applications, a fuel cell system may require an inverter and/or power
conditioner to convert the direct current produced by the fuel cell into the
alternating current required by some electrical equipment and transmission
systems.

         If hydrogen is not the raw fuel, it can be obtained by reforming, in a
device called a fuel processor, where hydrocarbon fuels such as methanol,
natural gas or petroleum are converted into a gas mixture principally containing
hydrogen and carbon dioxide. While methanol is the easiest fuel to reform and
requires less complex systems, it is not widely available in the current fuel
distribution infrastructure other than as an industrial commodity. Natural gas
can also be easily reformed, yet it is not easily stored in vehicles or widely
available in the current fuel distribution infrastructure for automobiles, but
can be used in stationary applications. Gasoline is widely available, and easy
to store, but it is difficult to reform and requires very complex systems that
reduce efficiencies and increase the pollutants produced by the fuel processor.
Additionally, the gasoline used in a PEM fuel cell powered vehicle will have to
be cleaner than the gasoline used in today's vehicles and may require
significant changes in the refining process.

         The following diagram illustrates the main subsystems which may be
present in a fuel cell system.


<PAGE>
                                      -39-



                         [GRAPHIC OF FUEL CELL PROCESS]



         PEM FUEL CELL POWER TRAINS

         A PEM fuel cell power train combines a PEM fuel cell engine and an
electric drive that converts electrical power into mechanical energy that is
transmitted to the axle that drives the wheels. The PEM fuel cell power train
provides the same functions in a PEM fuel cell vehicle as those provided by an
engine and transmission in an internal combustion engine powered vehicle.

         COMPARISON TO BATTERIES AND INTERNAL COMBUSTION ENGINES

         PEM fuel cells and PEM fuel cell systems combine certain of the
benefits of batteries and internal combustion engines without many of their
negative attributes. While PEM fuel cells and batteries share similar operating
characteristics, a key distinguishing feature is that a PEM fuel cell relies on
an external fuel supply while batteries are energy storage devices. As a result,
PEM fuel cells are more convenient to operate because they produce power as long
as fuel is supplied (unlike a battery which only operates as a power storage
device) and the external fuel tank can be refilled relatively quickly (unlike a
battery which has a long recharging process).

         PEM fuel cell systems are similar to internal combustion engines in
that both use fuel from an external source to produce energy. However, when pure
hydrogen is used as a fuel, PEM fuel cell systems do not produce air pollutants,
and, irrespective of the type of fuel used, power is produced quietly, more
efficiently and with less vibration than an internal combustion engine.


                                 HUMAN RESOURCES

         As at December 31, 2001, we had a total of approximately 1670 employees
(and as at April 30, 2002, approximately 1500 employees) in Canada, U.S. and
Germany, representing such diverse disciplines as electrochemistry, polymer
chemistry, chemical, mechanical, electronic and electrical


<PAGE>
                                      -40-


engineering, manufacturing, marketing, finance and business management. As part
of our integration activities, we have reduced the size of our labour force in
Canada and plan on making reductions in the size of our labour force in certain
of our other locations during 2002 to eliminate redundancies. Our employees are
not represented by any labour union (although non-management employees of
Ballard Power Systems AG are represented by a workers' council) and we believe
our relationships with our employees are excellent. Each employee must agree to
confidentiality provisions as part of the terms of his or her employment. A
majority of our employees own our Common shares or options to purchase our
Common shares. To continue to foster an entrepreneurial spirit amongst our
employee and to encourage them to achieve our medium- and long-term goals, we
will continue to grant them opportunities to increase their ownership in us
through our share incentive plans.


                         SELECTED FINANCIAL INFORMATION

Selected consolidated financial information for each of the last five years is
as follows:

<TABLE>
<CAPTION>
                                                            SELECTED ANNUAL INFORMATION
                               -------------------------------------------------------------------------------------
                                                              YEARS ENDED DECEMBER 31

                                    2001            2000              1999              1998             1997
                                    ----            ----              ----              ----             ----
                                        (expressed in thousands of U.S. dollars, except per share amounts(2))
<S>                             <C>               <C>               <C>               <C>              <C>
 REVENUES ..............        $  36,204         $  25,797         $  20,815         $  15,747        $  15,190


 NET EARNINGS (LOSS) ...        $ (96,161)        $ (53,832)        $ (46,584)        $     480        $   1,286

 NET EARNINGS (LOSS) PER
SHARE(1) ...............        $   (1.05)        $   (0.61)        $   (0.56)        $    0.01        $    0.03


 TOTAL ASSETS ..........        $ 959,319         $ 665,347         $ 388,126         $ 433,472        $ 213,943


 LONG-TERM DEBT ........        $   2,727         $     120         $     210         $     278        $     340


 SHAREHOLDERS' EQUITY ..        $ 837,206         $ 615,957         $ 351,184         $ 394,130        $ 193,866

</TABLE>



Selected consolidated financial information for the last nine quarters is as
follows:

<TABLE>
<CAPTION>
                                                             SELECTED QUARTERLY INFORMATION
                           ---------------------------------------------------------------------------------------------------

                   2002                           2001                                              2000
                           ------------------------------------------------    -----------------------------------------------

               Mar. 31       Dec. 31     Sept. 30    June 30     Mar. 31        Dec. 31    Sept. 30     June 30     Mar. 31
               -------       -------     --------    -------     -------        -------    --------     -------     -------
                                           (expressed in thousands of U.S. dollars, except per share amounts(2))
<S>              <C>       <C>         <C>         <C>         <C>            <C>         <C>         <C>         <C>
REVENUES         $ 12,112  $  13,321   $   9,666   $   9,376   $  3,841       $  12,035   $  8,566    $   2,671   $  2,525

NET LOSS         $(50,717) $ (36,025)   $(20,352)  $ (25,721)  $(14,063)      $ (29,301)  $ (3,584)   $ (11,690)  $ (9,257)

NET LOSS PER
SHARE            $ (0.48)  $   (0.37)   $  (0.22)  $   (0.28)  $  (0.16)      $   (0.33)  $  (0.04)   $   (0.13)   $ (0.11)

</TABLE>

Notes:

(1)      Earnings per share have been adjusted for a three-for-one stock split
         in June 1998.


<PAGE>
                                      -41-


(2)      As at December 31, 2001, the Company adopted the U.S. dollar as its
         primary currency of measurement and reporting. In accordance with
         Canadian generally accepted accounting principles, all financial
         statement amounts for 2001 and prior years have been translated into
         U.S. dollars using the exchange rate in effect on December 31, 2001
         which was U.S. $1.00 equals Cdn. $1.5926.

         During 2001, we operated under three segments: Fuel cells, Fuel cell
and other systems, and Carbon products. Revenues from our Fuel cells segment in
2001 represented 61.7% (2000 - 55.4%) of our total product and service revenues,
comprising 49.8% (2000 - 44.5%) from sales to customers, other than investees,
and 11.9% (2000 - 10.9%) from sales to investees. Revenues from our Fuel cell
and other systems segment in 2001 represented 16.6% (2000 - 44.6%) of our total
product and service revenues, comprising 12.1% (2000 - 4.4%) from sales to
customers, other than investees, and 4.5% (2000 - 40.2%) from sales to
investees. Revenues from our Carbon products segment represented 21.7% of our
total product and service revenues in 2001, all of which were derived from sales
to customers other than investees. As our Carbon products segment represents a
business acquired during 2001, this segment did not produce revenues in 2000. As
a result of the Transaction (see "Strategic Alliances - Acquisition of XCELLSIS
and Ecostar"), for 2002 we have changed our segmented disclosure into five
reportable segments: Technology and Corporate, Power Generation, Transportation,
Electric Drives and Power Conversion, and Material Products.


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

         Reference is made to the section of our 2001 Annual Report entitled
"Management's Discussion and Analysis" and our financial statements for the year
ended December 31, 2001, both of which are incorporated herein by reference.


                     SHARE CAPITAL AND MARKET FOR SECURITIES

         Our authorized share capital consists of an unlimited number of Common
shares, an unlimited number of Preferred shares, one Class A share and one Class
B share. As at April 30, 2002, our issued share capital consisted of 105,251,000
Common shares, one Class A share, and one Class B share. In addition, we had
employee share options to purchase a total of 6,791,976 of our Common shares.
Our Common shares are listed and trade on the TSE under the symbol BLD and on
the Nasdaq National Market under the symbol BLDP. In addition to our outstanding
shares and our employee share options, we have issued and outstanding 450,000
warrants, issued to the Government of Canada (subsequently transferred to
Merrill Lynch International on March 30, 1999), for the contribution by
Technology Partnerships Canada to the Corporation. Each warrant entitles the
holder to acquire one Common share at a price of Cdn. $26.03 until October 29,
2002.

         The holders of our Common shares are entitled to one vote for each
share held on all matters to be voted on by such shareholders and, subject to
the rights and priorities of the holders of Preferred shares, are entitled to
receive such dividends as may be declared by our board of directors out of funds
legally available therefor and to receive our remaining property, after
satisfaction of all outstanding liabilities, on liquidation, winding-up or
dissolution.

         Our preferred shares are issuable in series and our board of directors
are entitled to determine the designation, preferences, rights, conditions,
restrictions, limitations and prohibitions to be attached to each series of such
shares. Currently there are no preferred shares outstanding.

<PAGE>
                                      -42-


CLASS A SHARE AND CLASS B SHARE

         Our Class A share and our Class B share are held by DBF Pref Share
Holdings Inc. ("DBF"), a corporation owned by Ballard (50%), DaimlerChrysler
(25%) and Ford (25%). The rights attached to these shares permit DaimlerChrysler
and Ford to exercise their rights to appoint directors to our board and permit
DaimlerChrysler and Ford nominees to exercise rights pursuant to the Limited
Voting Provisions.

         The Limited Voting Provisions provide that certain decisions of our
board of directors may not be undertaken without approval by a number of
directors equal to one director more than a majority of the directors who are
entitled to vote and who do vote on such decision, including at least one of the
directors appointed by DaimlerChrysler or Ford. As a result, the decisions of
our board of directors which are subject to the Limited Voting Provisions cannot
be undertaken if all DaimlerChrysler and Ford nominees to our board of directors
attend the meeting and vote against the matter under consideration. If any
director appointed by DaimlerChrysler or Ford is absent or abstains, a simple
majority will suffice to effect a decision, which majority need not include any
of the directors appointed by DaimlerChrysler or Ford.

         The decisions of the board that are subject to the Limited Voting
Provisions are as follows:

(a)      the reduction in the size of our board of directors below 12 directors;

(b)      the sale of substantially all of our business, or the assets, property
         or intellectual property owned by us or our subsidiaries;

(c)      any mortgage, grant of security interest, pledge or encumbrance on all
         or substantially all of the assets, property or intellectual property
         of us and our subsidiaries;

(d)      any amalgamation, arrangement or statutory reorganization of us with
         another entity other than a subsidiary of ours;

(e)      any amendment or restatement of our articles or those amendments to our
         by-laws that are inconsistent with the terms of an agreement to which
         DaimlerChrysler, Ford, DBF Pref Share Holdings Inc. and Ballard are
         parties dated the date of the issuance of the Class A and Class B
         Shares;

(f)      the voluntary commencement of bankruptcy or similar proceedings by us
         or any of our subsidiaries;

(g)      a reduction in our stated capital;

(h)      any change in our name;

(i)      a consolidation (reverse split) of our Common shares;

(j)      the approval of our annual business plan or budget and any changes
         thereto, the approval of, or any material change to, our strategic
         plan;

(k)      any capital investment (or sale) by us or a wholly-owned subsidiary of
         ours that are not included in an approved budget if the amount of such
         investment (or sale) together with all other such unbudgeted
         investments (or sales) made in the same calendar year would exceed the
         greater of (i) Cdn. $15 million before January 1, 2008, and Cdn. $30
         million after December 31, 2007, and
<PAGE>
                                      -43-


         (ii) the lesser of 25% of our total capital budget (including those of
         our wholly-owned subsidiaries) for such calendar year and Cdn. $100
         million;

(l)       any investment by way of cash, property or securities (or sale of an
          investment) by us or any of our wholly-owned subsidiaries in another
          person (other than a wholly-owned subsidiary of ours) or a sale of a
          wholly-owned subsidiary, other than investments (or sales) provided
          for in an approved budget, that exceeds the greater of (i) Cdn. $25
          million, and (ii) the lesser of 25% of our total budget for
          investments in persons (other than wholly-owned subsidiaries) for such
          calendar year and Cdn. $100 million; and

(m)       other than as provided in an approved business plan or budget and
          subject to the requirements dealing with capital investment (or sale)
          or other investments (or sale) described above, (i) the borrowing of
          money, granting of security, guarantying of liabilities and
          obligations of another person (other than liabilities or obligations
          of wholly-owned subsidiaries) in excess of Cdn. $50 million in any
          calendar year, or (ii) the incurrence of liabilities and other
          obligations, other than in the ordinary course of business, in excess
          of Cdn. $25 million in any calendar year.

         The Limited Voting Provisions will cease to apply to DaimlerChrysler
and Ford collectively if they do not own in the aggregate at least (a) one-third
of our outstanding Common shares, not including shares we issue in connection
with an acquisition or investment in a third party that is subject to the
Limited Voting Provisions, and (b) 20% of all of our outstanding Common shares.
In addition, the Limited Voting Provisions will cease to apply to
DaimlerChrysler and Ford collectively if either of them (a) sells their Ballard
Base Shares to a third party, (b) no longer owns a sufficient number of our
Common shares to elect a director, or (c) fails to elect a director when
entitled to do so.

         If the Limited Voting Provisions cease to apply to DaimlerChrysler and
Ford collectively, it will be possible for the Limited Voting Provisions to
apply to either of them individually if either DaimlerChrysler or Ford first
owns at least 37.92% of our outstanding Common shares or all of the Ballard Base
Shares of the other party, and then retains ownership of their Ballard Base
Shares and at least (a) one-third of our outstanding Common shares, not
including shares we issue in connection with an acquisition or investment in a
third party that is subject to the Limited Voting Provisions, and (b) 20% of all
of our outstanding Common shares.

SHARE INCENTIVE PLANS

      Our share incentive plans include share option plans and share
distribution plans. As at April 30, 2002, a total of 14,328,933 options have
been granted under our current and previous option plans (of which 6,527,046
have been exercised and 1,027,672 have been cancelled). Of the 6,791,976 options
outstanding, 1,388,656 were in-the-money as at April 30, 2002. In addition, as
at April 30, 2002, we have issued 231,262 Common shares under our current share
distribution plan. Our proposed 2002 Share Option Plan is pending shareholder
approval at our annual meeting of shareholders on May 16, 2002. The maximum
number of Common shares which may be subject to option under the proposed 2002
Share Option Plan is 4,000,000.

         The key provisions of our current and proposed share incentive plans
are as follows:

         o        All grants of options under our option plans are made by our
                  board of directors, on the recommendation of our Chief
                  Executive Officer. All of the Corporation's directors, along
                  with our officers, employees and consultants are eligible to
                  participate in the 2000 Option Plan and all of the
                  Corporation's directors, along with our officers and employees
                  will continue to remain eligible to participate in the 2002
                  Option Plan.
<PAGE>
                                      -44-


         o        The exercise price of an option is determined by our board and
                  is to be the closing price per share of our Common shares on
                  the TSE on the last trading day before the day the option is
                  granted.

         o        Options may have a term of up to 10 years from the date of
                  grant, and unless otherwise determined by our board of
                  directors, vest in equal amounts on the first, second and
                  third anniversaries of the date of grant. Vesting of options
                  may be accelerated in certain cases. The 2000 Option Plan
                  provides that if an "accelerated vesting event" occurs, any
                  outstanding option may be exercised at any time before its
                  expiry. Under the 2002 Option Plan, if an "accelerated vesting
                  event" occurs, any outstanding option may be exercised at any
                  time before the 60th day after such event. Under both plans,
                  an accelerated vesting event occurs when

                  (a)      a person makes a take-over bid that could result in
                           that person acquiring at least two-thirds of our
                           voting shares,

                  (b)      any person or persons acting in concert acquire at
                           least two-thirds of our voting shares,

                  (c)      a person purchases all or substantially all of our
                           assets, or

                  (d)      when we join in any business combination that results
                           in our shareholders owning one-third or less of the
                           voting shares of the combined entity.

         o        Under the 2000 Option Plan, the maximum number of our Common
                  shares which can ever be subject to options to the
                  Corporation's outside directors, as a group, is 295,000. Under
                  the 2002 Option Plan, the maximum number of our Common shares
                  which can ever be subject to options to the Corporation's
                  outside directors, as a group, is 150,000 and to each director
                  individually on an annual basis, is 10,000.

         o        The number of Common shares reserved for issue to any person
                  under all of our stock option plans may not exceed 5% of the
                  Outstanding Issue (as defined in the plans).

         o        No options may be repriced after they are granted.

         o        Generally, with regards to the exercise of an option, no
                  director, officer or employee can exercise any option more
                  than 30 days after the last day on which the director ceased
                  to be a director of the Corporation or the officer or employee
                  ceased to work for us, except in the case of death, retirement
                  or disability.

         o        Our 2000 Share Distribution Plan permits our Common shares to
                  be issued on a discretionary basis, without cash
                  consideration, to our employees and directors. All issuances
                  of shares under our Share Distribution Plan are made by our
                  board of directors, on the recommendation of our Chief
                  Executive Officer and our Chief Operating Officer. The purpose
                  of grants under this plan is to recognize the past
                  contributions of the recipients to us and to encourage their
                  future contribution to us.

         o        The number of our Common shares that may be issued under our
                  share incentive plans

                  o        to insiders of Ballard, may not exceed 10% of the
                           Outstanding Issue (as defined in the plans) at that
                           time, and

                  o        to any one insider and his or her associates, within
                           a one-year period, may not exceed 5% of the
                           Outstanding Issue (as defined in the plans) at that
                           time.
<PAGE>
                                      -45-


         o        The number of our Common shares subject to an option, the
                  exercise price per share and the total number of our Common
                  shares that may be made subject to option or issued under the
                  2000 Option Plan and 2002 Option Plan will be adjusted in the
                  event of any subdivision or consolidation of our Common shares
                  or any dividend payable in our Common shares and in the event
                  of certain other reorganizations or other events affecting the
                  our Common shares, as determined by our board of directors.

         BPS/BGS SHARE EXCHANGE PLAN

         We have established the BPS/BGS Share Exchange Plan to provide officers
and employees of BGS with a right to exchange the shares of BGS they may acquire
on the exercise of BGS options for Common shares of the Corporation. The number
of our Common shares they will receive is determined according to an exchange
ratio under which they will receive Common shares as if they had received an
option from the Corporation at the time of, and instead of, the option they
received from BGS. The exchange ratio is based upon the ratio between the
exercise price of the BGS share option that was granted and the closing price of
our Common shares on the date the BGS share option was granted. BGS is no longer
issuing options, and as a result, as long as BGS is a subsidiary of the
Corporation, we intend to issue options to eligible directors, officers and
employees of BGS under our share option plans in the same manner as would be the
case for the Corporation's directors, officers and employees. The maximum number
of Common shares which may be issued under the BPS/BGS Share Exchange Plan is
500,000 and as at April 30, 2002, we have issued 344,732 Common shares under
this plan.


                           DIVIDEND RECORD AND POLICY

         To date, we have not paid any dividends on our shares and, since it is
anticipated that all available cash will be needed to implement our
commercialization plan, we have no plans to pay dividends in the immediate
future.


                             DIRECTORS AND OFFICERS

DIRECTORS

         The following chart sets out the name and municipality of residence of
each of our directors as at April 30, 2002, each such person's principal
occupation during the past five years, the period of time each has served as a
director or officer and shares beneficially owned or controlled by each of them.
The term of office of each director expires at the conclusion of our next annual
meeting of shareholders.

<TABLE>
<CAPTION>

                                                                                                              SHARES
                                                                                                           BENEFICIALLY
NAME AND MUNICIPALITY OF                                                          PERIOD HAS SERVED          OWNED OR
RESIDENCE(1)                      PRINCIPAL OCCUPATION(1)                           AS A DIRECTOR         CONTROLLED(1)
-----------------------------     -----------------------------------------      --------------------    -----------------
<S>                               <C>                                            <C>                     <C>
Firoz Rasul                       Chairman of the Board & Chief Executive            Since 1989              306,800
Vancouver, British Columbia       Officer of the Corporation

</TABLE>

<PAGE>
                                      -46-

<TABLE>
<CAPTION>

                                                                                                              SHARES
                                                                                                           BENEFICIALLY
NAME AND MUNICIPALITY OF                                                          PERIOD HAS SERVED          OWNED OR
RESIDENCE(1)                      PRINCIPAL OCCUPATION(1)                           AS A DIRECTOR         CONTROLLED(1)
-----------------------------     -----------------------------------------      --------------------    -----------------
<S>                               <C>                                            <C>                     <C>
Stephen Bellringer                Chairman, Anthem Properties Corp. (real            Since 1998               2,000
Vancouver, British Columbia       estate investment and development).
                                  Formerly, President & Chief Executive Officer,
                                  Canadian Hotel Income Properties REIT (hotel
                                  ownership) (1999-2002); President and Chief
                                  Executive Officer, Orca Bay Sports &
                                  Entertainment Inc. (professional sports)
                                  (1997-1999); President & Chief Executive
                                  Officer of BC Gas Inc.
                                  (1996-1997)

James D. Donlon III(2)            Senior Vice-President, Controlling                 Since 2001               Nil
Auburn Hills,                     Chrysler, DaimlerChrysler
Michigan                          (automotive manufacturer).
                                  Formerly, Senior Vice-President
                                  and Corporate Controller,
                                  DaimlerChrysler (1998-2000);
                                  Vice-President and Controller,
                                  Chrysler Corporation (1984-1998)


Prof. Jurgen                      Member of the Board of                             Since 2001               Nil
Hubbert(2)                        Management, DaimlerChrysler
Sindelfingen (Baden-              (automotive manufacturer),
Wurttemberg),                     responsible for Mercedes-Benz and
Germany                           Smart (since 1983); Member of the
                                  Board of Management of Mercedes-
                                  Benz (1989-1998)


James Leva                        Retired in 1997.                                   Since 1997               10,139
Marco Island, Florida             Formerly, Chairman, President and
                                  Chief Executive Officer, General
                                  Public Utilities Corporation
                                 (utilities)(1991-1997)

</TABLE>

<PAGE>
                                      -47-


<TABLE>
<CAPTION>

                                                                                                              SHARES
                                                                                                           BENEFICIALLY
NAME AND MUNICIPALITY OF                                                          PERIOD HAS SERVED          OWNED OR
RESIDENCE(1)                      PRINCIPAL OCCUPATION(1)                           AS A DIRECTOR         CONTROLLED(1)
-----------------------------     -----------------------------------------      --------------------    -----------------
<S>                               <C>                                            <C>                     <C>

John Rintamaki(3)                 Chief of Staff and Corporate Secretary,            Since 2001                Nil
Ann Arbor, Michigan               Ford (automotive manufacturer).
                                  Formerly, Group Vice-President, Chief of Staff
                                  and Corporate Secretary, Ford (2000 - 2001);
                                  Vice-President, General Counsel and Corporate
                                  Secretary, Ford (1999-2000); Assistant General
                                  Counsel and Corporate Secretary, Ford
                                  (1993-1999)

Raymond Royer                     President & Chief Executive Officer,               Since 1998              3,115
Ile Bizard, Quebec                Domtar Inc. (manufacturing and forest
                                  products)(since 1996)

Dr. Gerhard Schmidt(3)            Vice-President, Research, Ford                     Since 2001                Nil
Dearborn, Michigan                (automotive manufacturer).  Formerly,
                                  Senior Vice-President, Powertrain
                                  Development, BMW AG (1996-2000)

Dr. -Ing. Hans-Joachim            Senior Vice-President, Development,                Since 2001                Nil
Schopf(2)                         Mercedes-Benz, Passenger Cars and Smart
Stuttgart, Germany                DaimlerChrysler (automotive
                                  manufacturer). Formerly, Senior
                                  Vice-President, Plant Manager,
                                  Sindelfingen, DaimlerBenz (1995-1998)

John Sheridan                     President, Bell Canada                             Since 2001                142
Toronto, Ontario                  (telecommunication service company).
                                  Formerly, Vice-Chairman, Market Groups
                                  of Bell Canada (1998-2000); Group
                                  Vice-President, Product & Solutions,
                                  Bell Canada (1997-1998)

</TABLE>
<PAGE>

                                      -48-
<TABLE>
<CAPTION>

                                                                                                              SHARES
                                                                                                           BENEFICIALLY
NAME AND MUNICIPALITY OF                                                          PERIOD HAS SERVED          OWNED OR
RESIDENCE(1)                      PRINCIPAL OCCUPATION(1)                           AS A DIRECTOR         CONTROLLED(1)
-----------------------------     -----------------------------------------      --------------------    -----------------
<S>                               <C>                                            <C>                     <C>

Douglas Whitehead                 President & Chief Executive Officer,               Since 1998               1,142
Coquitlam, British Columbia       Finning International Inc. (heavy
                                  equipment reseller) Formerly, President
                                  & Chief Operating Officer, Finning
                                  International Inc. (1998-2000);
                                  President & Chief Executive Officer,
                                  Fletcher Challenge Canada  Ltd.
                                  (1992-1998)
</TABLE>


Notes:

(1)      The information as to municipality of residence, principal occupation,
         business or employment of, and shares beneficially owned or controlled
         by, a director is not within the knowledge of our management and has
         been furnished by the director.

(2)      Nominee director appointed by DaimlerChrysler in accordance with the
         terms of the Third Alliance Agreement. See "Strategic Alliances -
         Vehicular Alliance".

(3)      Nominee director appointed by Ford in accordance with the terms of the
         Third Alliance Agreement. See "Strategic Alliances - Vehicular
         Alliance".

         In accordance with the terms of the Vehicular Alliance, each of
DaimlerChrysler and Ford has been granted the right to elect that number of
directors equal to its percentage ownership interest in us. These rights are
exercised through two classes of our Preferred shares which have been issued to
a company jointly owned by us, DaimlerChrysler, and Ford. Under the Vehicular
Alliance, representatives of DaimlerChrysler and Ford may direct the voting of
these Preferred shares on the appointment of their respective nominees to our
board of directors. Each of DaimlerChrysler and Ford has also agreed to not
otherwise vote its Common shares on the election of directors. Based on current
shareholdings, DaimlerChrysler is entitled to appoint three persons, and Ford is
entitled to appoint two persons, to the board of directors. The representatives
of DaimlerChrysler are James D. Donlon III, Prof. Jurgen Hubbert and Dr.
Hans-Joachim Schopf. Ford's representatives are John Rintamaki and Dr. Gerhard
Schmidt.

         At our next annual meeting of shareholders which will take place on May
16, 2002, one of our current directors, James Leva, will be retiring from the
board of directors and therefore will not be standing for re-election. At the
annual meeting of shareholders, two new nominees will stand for election to our
board of directors - Charles Baillie, who is currently the Chairman and Chief
Executive Officer of The Toronto Dominion Bank, and Ed Kilroy, who is currently
the President of IBM Canada Ltd.

BOARD COMMITTEES

         The Corporation's Audit Committee assists the board of directors in
fulfilling its responsibilities by reviewing financial information, the systems
of corporate controls and the audit process. The Audit Committee operates under
terms of reference that are approved by the board of directors and which
mandates the responsibilities of the Audit Committee. The Audit Committee meets
with our financial officers and our independent auditors to review matters
affecting financial reporting, the system of internal accounting and financial
controls and procedures and the audit procedures and audit plans. The Audit
Committee also recommends to the board of directors the auditors to be
appointed. In addition, the Audit Committee is mandated to monitor the audit of
the Corporation and the preparation of financial statements, to review and
recommend to the board of directors for approval all financial disclosure
contained in prospectuses, annual reports, annual information forms, management
proxy circulars, and


<PAGE>
                                      -49-

other similar documents, and to meet with our outside auditors independently of
management. The Audit Committee also reviews and approves quarterly financial
statements and related financial disclosure. The committee is composed of Mr.
Douglas Whitehead (Chairman), Mr. Stephen Bellringer and Mr. James D. Donlon
III.

         The Corporation's Management Development & Compensation Committee is
responsible for considering and authorizing terms of employment of executive
officers, matters of compensation, and reviewing awards under share incentive
plans. The committee is also responsible for ensuring appropriate senior
management succession planning, recruitment, development, training and
evaluation. The committee is composed of Raymond Royer (Chairman), Dr. Gerhard
Schmidt and Mr. John Sheridan.

         The Corporation's Corporate Governance & Nominating Committee is
responsible for recommending to the board of directors the size of the board and
nominees for election to the board of directors, for monitoring corporate
governance issues, including the formation of committees of the board of
directors, and determining the compensation of the board of directors. The
Corporate Governance & Nominating Committee provides input to the Chairman of
the Management Development & Compensation Committee with respect to the
evaluation of the performance of the Chief Executive Officer in his role as
Chairman of the board of directors. The committee is composed of Stephen
Bellringer (Chairman), Dr. Jurgen Hubbert, Mr. John Rintamaki, Mr. Raymond Royer
and Mr. Douglas Whitehead.

         Since the Chairman of the board of directors also holds a senior
executive position, the Chairman of the Corporate Governance & Nominating
Committee also acts as Lead Director of the board of directors. The Lead
Director is responsible for ensuring the appropriate organization, content and
flow of information to the board of directors and that all concerns of the
directors are addressed.

SENIOR OFFICERS

         As at April 30, 2002, we had eight senior officers. The name and
municipality of residence of each senior officer, the offices held by each
officer and each officer's principal occupation during the last five years is as
follows:

<TABLE>
<CAPTION>

 NAME AND MUNICIPALITY OF RESIDENCE                   POSITION                                  PRINCIPAL OCCUPATION
-------------------------------------     ----------------------------------              ----------------------------------
<S>                                       <C>                                             <C>
Firoz Rasul                               Chairman of the Board and Chief                 Executive of the Corporation.
Vancouver, B.C.                           Executive Officer

Paul Lancaster                            Vice President, Finance                         Executive of the Corporation.
Vancouver, B.C.                                                                           Formerly, Treasurer of the
                                                                                          Corporation (1993-1998).

Michael Murry                             Vice President, Power Generation                Executive of the Corporation.
Surrey, B.C.                                                                              Formerly, Vice President,
                                                                                          Marketing, American Natural Soda
                                                                                          Ash Corp. (1996-2000).
</TABLE>

<PAGE>
                                      -50-


<TABLE>
<CAPTION>

 NAME AND MUNICIPALITY OF RESIDENCE                   POSITION                                  PRINCIPAL OCCUPATION
-------------------------------------     ----------------------------------              ----------------------------------
<S>                                       <C>                                             <C>

Noordin Nanji                             Vice President, Strategic                       Executive of the Corporation.
West Vancouver, B.C.                      Development and Corporate                       Formerly, Partner, Lang Michener
                                          Secretary                                       Lawrence & Shaw (barristers &
                                                                                          solicitors) (1989-1998).

David Smith                               Vice President, Controller                      Executive of the Corporation.
West Vancouver, B.C.                                                                      Formerly, Vice President,
                                                                                          Corporate Relations, Placer Dome
                                                                                          Inc. (1999-2000);
                                                                                          Vice-President, Business
                                                                                          Development, Placer Dome Inc.
                                                                                          (1997-1999).

Andreas Truckenbrodt                      Vice President, Transportation                  Executive of the Corporation.
Schondorf, Germany                                                                        Formerly, Director, Advanced
                                                                                          Vehicle Engineering, Passenger
                                                                                          Cars, DaimlerChrysler
                                                                                          (1999-2001); Managing Director,
                                                                                          Daewoo Motor Co., Germany
                                                                                          (Technical Centre for Automotive
                                                                                          Engineering) (1994-1998).

Fred Vasconcelos                          Vice President and Chief                        Executive of the Corporation.
Custer, Washington                        Technology Officer                              Formerly, Vice-President,
                                                                                          Operations, Enterprise Systems,
                                                                                          Seagate Technology, Inc. (2000);
                                                                                          Vice-President, Engineering,
                                                                                          Twin Cities Operations Group,
                                                                                          Seagate Technology, Inc.
                                                                                          (1998-2000); Vice President,
                                                                                          Operations, Mobile Products
                                                                                          Division, Seagate Technology,
                                                                                          Inc. (1996-1998).
</TABLE>
<PAGE>
                                      -51-


<TABLE>
<CAPTION>

 NAME AND MUNICIPALITY OF RESIDENCE                   POSITION                                  PRINCIPAL OCCUPATION
-------------------------------------     ----------------------------------              ----------------------------------
<S>                                       <C>                                             <C>

Ross Witschonke                           Vice President, Electric Drives                 Executive of the Corporation.
Superior Township, Michigan               and Power Conversion                            Formerly, President and Chief
                                                                                          Executive Officer, Ecostar
                                                                                          Electric Drive Systems LLC
                                                                                          (1998-2001); Director,
                                                                                          New Generation Vehicles,
                                                                                          Ford (1997-1998); Senior
                                                                                          Managing Director, Product
                                                                                          Development, Mazda (1994-1997).
</TABLE>

In addition, we have recently hired Mr. Lee Craft as our Vice-President,
Manufacturing. He commenced work in this position in early May. Before joining
us, Mr. Craft was Vice-President and Director of Manufacturing Operations at
Motorola Computer Group in Tempe, Arizona. He has been with Motorola in various
manufacturing and operations roles since 1986.

SHAREHOLDINGS OF DIRECTORS AND SENIOR OFFICERS

         As at April 30, 2002, our directors and senior officers, as a group,
beneficially owned, directly or indirectly, or exercised control or direction
over, 378,457 of our Common shares, being 0.36% of our outstanding Common
shares.


                                  RISK FACTORS

         An investment in our Common shares involves risk. Investors should
carefully consider the risks described below and the other information contained
in, and incorporated into, this Annual Information Form, including "Management's
Discussion and Analysis" and our financial statements for the year ended
December 31, 2001. The risks and uncertainties described below 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, also may adversely affect
our business.

WE MAY NOT BE ABLE TO ACHIEVE COMMERCIALIZATION OF OUR PEM FUEL CELLS, PEM FUEL
CELL SYSTEMS, PEM FUEL CELL PRODUCTS OR ELECTRIC DRIVES ON THE TIMETABLE WE
ANTICIPATE, OR AT ALL.

         We cannot guarantee that we will be able to develop commercially viable
PEM fuel cell products, PEM fuel cells, power electronics or electric drives on
the timetable we anticipate, or at all. The commercialization of our PEM fuel
cell products, PEM fuel cells, power electronics and electric drives requires
substantial technological advances to improve the efficiency of these systems
and products and to develop commercial volume manufacturing processes for these
systems and products. We cannot guarantee that we will be able to internally
develop the technology necessary for commercialization of our PEM fuel cell
products, PEM fuel cells, power electronics and electric drives, or that we will
be able to acquire or license the required technology from third parties.
Developing the technology for commercially viable systems and products requires
substantial capital, and we cannot assure you that we will be able to generate
or secure sufficient funding on terms acceptable to us to pursue our
commercialization plans. In addition, before we release any product to market,
we subject it to numerous field tests. These field tests may encounter problems
and delays for a number of reasons, many of which
<PAGE>
                                      -52-


are beyond our control. If these field tests reveal technical defects or reveal
that our products do not meet performance goals, including useful life and
reliability, our commercialization schedule could be delayed, and potential
purchasers may decline to purchase our systems and products.

      The commercialization of our PEM fuel cell products, PEM fuel cells, power
electronics and electric drives also depends upon our ability to significantly
reduce the costs of these systems and products, since they are currently
substantially more expensive than systems and products based on existing
technologies, such as the internal combustion engine. We cannot assure you that
we will be able to sufficiently reduce the cost of these systems and products
without reducing their performance, reliability and longevity, which would
adversely affect consumers' willingness to buy our systems and products.

WE HAVE INCURRED, AND EXPECT TO CONTINUE TO INCUR, SUBSTANTIAL LOSSES.

         We have incurred substantial losses since we were founded, and we
expect our losses and cash expenditures to increase significantly over the next
several years as a result of our expanded business activities following our
acquisition of XCELLSIS and Ecostar. In 2002, we estimate that our cash
requirements for operations and capital expenditures will be between U.S. $122
and U.S. $142 million; however, if we are unable to efficiently coordinate our
expanded business activities and consolidate complementary programs, our cash
requirements and capital expenditures may exceed our estimates. We cannot
predict when we will operate profitably, if ever.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE OUR RECENTLY ACQUIRED BUSINESS
UNITS INTO OUR BUSINESS, AND THE INTEGRATION PROCESS IS PLACING SIGNIFICANT
DEMANDS ON OUR MANAGERIAL RESOURCES.

         The integration of our recently acquired business units into our
business poses many challenges, including implementing a unified business plan,
consolidating complementary programs, co-ordinating expanded business
operations, reducing our work force to eliminate duplicative personnel without
disrupting our business, and retaining key employees.

         We cannot assure you that we will be able to successfully integrate the
operations of Ballard Power Systems AG and Ballard Power Systems Corporation in
a timely or cost-effective manner and achieve the anticipated benefits of these
acquisitions. The integration is also diverting the attention of, and placing
significant demands on, our managerial resources, which may disrupt our current
business operations. Consequently, our results of operations may be adversely
affected, and we may fail to meet our current product development and
commercialization schedules.

A MASS MARKET FOR PEM FUEL CELLS, PEM FUEL CELL SYSTEMS, PEM FUEL CELL PRODUCTS
OR ELECTRIC DRIVES MAY NEVER DEVELOP OR MAY TAKE LONGER TO DEVELOP THAN WE
ANTICIPATE.

         Our PEM fuel cell products, PEM fuel cells, power electronics and
electric drives represent emerging markets, and we do not know whether end-users
will want to use them. The development of a mass market for our PEM fuel cell
products, PEM fuel cells, power electronics and electric drives may be affected
by many factors, some of which are beyond our control, including the emergence
of newer, more competitive technologies and products, the future cost of fuels
used by our systems, regulatory requirements, consumer perceptions of the safety
of our products and related fuels, and consumer reluctance to buy a new product.

         If a mass market fails to develop or develops more slowly than we
anticipate, we may be unable to recover the losses we will have incurred in the
development of our products and may never achieve profitability.


<PAGE>
                                      -53-


WE HAVE LIMITED EXPERIENCE MANUFACTURING PEM FUEL CELL PRODUCTS, PEM FUEL CELLS,
POWER ELECTRONICS AND ELECTRIC DRIVES ON A COMMERCIAL BASIS.

         To date, we have focused primarily on research and development and have
limited experience manufacturing PEM fuel cell products, PEM fuel cells, power
electronics or electric drives on a commercial basis. To meet the quality,
price, engineering, design and production standards or production volumes
required to successfully mass market our systems and products, we will have to
produce our PEM fuel cell products, PEM fuel cells, power electronics and
electric drives through high volume automated processes. These large scale,
automated processes will require significant advances in manufacturing
technology. We do not know whether or when we will be able to develop the
manufacturing technology necessary to achieve efficient, high-volume, low-cost
manufacturing capability and processes. Moreover, developing these large scale,
high volume, manufacturing processes will require substantial capital, and we do
not know whether we will be able to secure sufficient funding on terms
acceptable to us to complete their development. Our failure to develop such
manufacturing processes and capabilities could have a material adverse effect on
our business and financial results.

WE ARE DEPENDENT ON THIRD PARTY SUPPLIERS FOR THE SUPPLY OF KEY MATERIALS AND
COMPONENTS FOR OUR PRODUCTS.

         We have established relationships with third party suppliers, upon whom
we rely to provide materials and components for our PEM fuel cell products, PEM
fuel cells, power electronics and electric drives. A supplier's failure to
supply materials or components in a timely manner, or to supply materials and
components that meet our quality, quantity or cost requirements, or our
inability to obtain substitute sources for these materials and components in a
timely manner or on terms acceptable to us, could harm our ability to
manufacture our PEM fuel cell products, PEM fuel cells, power electronics and
electric drives. Through our collaborations with certain suppliers, we are in
the process of developing and patenting technology that will enable us to be
less reliant on outside suppliers. But to the extent that we are unable to do so
successfully, and to the extent that the processes which our suppliers use to
manufacture the materials and components are proprietary, we may be unable to
obtain comparable materials or components from alternative suppliers, and that
could adversely affect our ability to produce viable PEM fuel cell products, PEM
fuel cells, power electronics and electric drives or significantly raise our
cost of producing such systems and products. In addition, platinum is a key
component of our PEM fuel cells. Platinum is a scarce natural resource, and we
are dependent upon a sufficient supply of this commodity. While we do not
anticipate significant near or long term shortages in the supply of platinum,
such shortages could adversely affect our ability to produce commercially viable
PEM fuel cell products and PEM fuel cells, or significantly raise our cost of
producing such products.

WE ARE DEPENDENT UPON EXTERNAL OEM'S TO PURCHASE CERTAIN OF OUR PEM FUEL CELL
PRODUCTS.

         To be commercially useful, certain of our PEM fuel cell products, PEM
fuel cells, power electronics and electric drives must be integrated into
products manufactured by OEMs. We can offer no guarantee that OEMs will
manufacture appropriate products or, if they do manufacture such products, that
they will choose to use our PEM fuel cell products, PEM fuel cells, power
electronics and electric drives. Any integration, design, manufacturing or
marketing problems encountered by OEMs could adversely affect the market for our
PEM fuel cell products, PEM fuel cells, power electronics and electric drives
and our financial results.


<PAGE>
                                      -54-


WE ARE DEPENDENT ON VEHICLE MANUFACTURERS TO PURCHASE CERTAIN OF OUR PEM FUEL
CELL PRODUCTS, PEM FUEL CELLS, AND ELECTRIC DRIVES.

         Our ability to penetrate the transportation market is critical to our
future growth. Although we have developed applications for our technologies in
the portable power generation and small and mid-sized stationary power
generation markets, these markets are much smaller than the transportation
market. For us to reach our target results of operations and sales volumes, our
systems and products must be accepted and purchased by car, bus and other
vehicle manufacturers. While many vehicle manufacturers, especially
DaimlerChrysler and Ford, have expressed interest in our PEM fuel cell products,
PEM fuel cells and electric drives, we cannot guarantee that this interest will
continue or be acted upon. Each of these manufacturers has a strong investment
in and commitment to the use of the internal combustion engine and also has
invested in alternative technologies that may compete with our PEM fuel cell
products, PEM fuel cells and electric drives.

         The integration of new technologies into production automobile is a
lengthy process. Based on discussions with automobile manufacturers, we
anticipate that it will take two to four years between a decision by an
automobile manufacturer to produce commercial vehicles that are powered by PEM
fuel cells or use electric drives and the actual production of such vehicles.
The length of this process will affect any demand for our PEM fuel cell
products, PEM fuel cells and electric drives by automobile manufacturers and,
consequently, our financial position.

WE ARE DEPENDENT ON OUR RELATIONSHIPS WITH OUR STRATEGIC PARTNERS.

         While, subject to certain limitations, DaimlerChrysler must exclusively
buy all vehicular PEM fuel cells and vehicular PEM fuel cell systems they
require from us and Ford must exclusively buy all vehicular PEM fuel cells,
vehicular PEM fuel cell systems and electric drives they require from us, there
is no assurance that either of them will require or ever buy any PEM fuel cells,
PEM fuel cell systems or electric drive products in the future. In addition,
after twelve years, or after DaimlerChrysler, Ford or a competitor achieves
commercial production of such products or systems, and if we cannot meet their
reasonable commercial product quantity and performance requirements, each of
DaimlerChrysler or Ford is permitted to buy such products or systems from any of
our competitors.

         DaimlerChrysler has the right to request licenses, for use in its
vehicles, of our vehicular PEM fuel cell intellectual property and vehicular PEM
fuel cell systems intellectual property as of November 30, 2007. Ford has the
right to request licenses, for use in its vehicles, of our vehicular PEM fuel
cell intellectual property and vehicular PEM fuel cell systems intellectual
property if Ford satisfies certain product purchase obligations and does not
achieve commercial production of PEM fuel cell-powered vehicles before December
31, 2011. Ford also has the right to request a license, for use in its vehicles,
of all of our electric drive intellectual property as of November 30, 2007.
Depending upon the amount of the fee and royalty to be paid to us, a decision by
either or both of DaimlerChrysler and Ford to manufacture under a license could
have a material adverse effect on our business and financial results as they
would no longer be required to purchase that product or system from us.

FUEL FOR PEM FUEL CELL VEHICLES MAY NOT BE AVAILABLE OR MAY COST TOO MUCH,
CAUSING LIMITED OR REDUCED SALES OF OUR PRODUCTS.

         Vehicles powered by PEM fuel cells run on a different fuel than the
currently available gasoline. Gasoline requires the development of additional
technologies for its use with PEM fuel cells. The construction of a system to
deliver hydrogen, or a suitable fuel containing hydrogen, requires significant
investment by third parties. There can be no guarantee that an adequate fuel
distribution infrastructure will be built. We are relying on third parties, most
of whom are heavily committed to the existing gasoline

<PAGE>
                                      -55-


infrastructure, to build such an infrastructure. If a fuel distribution
infrastructure is built, the fuel delivered through it, both due to the cost of
the delivery system and the cost of the fuel itself, may have a higher price
than drivers are willing to pay. If drivers are unable to obtain fuel
conveniently and affordably, a mass market for vehicles powered by PEM fuel
cells is unlikely to develop.

         Advances in technology or vehicle design must occur before sufficient
quantities of hydrogen can be affordably stored aboard vehicles. Consumers may
be unwilling to use hydrogen due to the popular perception that it is dangerous.
Using today's technology, if a fuel other than pure hydrogen is adopted, PEM
fuel cell-powered vehicles will only receive a partial credit as zero emission
vehicles and PEM fuel cell-powered vehicles will require onboard fuel
processors.

REGULATORY CHANGES COULD HURT THE MARKET FOR OUR SYSTEMS AND PRODUCTS.

         Changes in existing government regulations and the emergence of new
regulations with respect to PEM fuel cell products, PEM fuel cells, power
electronics and electric drives may hurt the market for our products.
Environmental laws and regulations in the U.S. (particularly in California) and
other countries have driven interest in vehicular PEM fuel cell systems and
electric drives; and the deregulation of the electric utility industry in the
U.S. and elsewhere has created market opportunities for our PEM fuel cell
products in the small and mid-sized stationary power generation market. We
cannot guarantee that these laws and policies will not change. Changes in these
laws and policies or the failure of these laws and policies to become more
widespread could result in manufacturers abandoning their interest in PEM fuel
cell products, PEM fuel cells, power electronics and electric drives or
favouring alternative technologies. In addition, as PEM fuel cell products, PEM
fuel cells, power electronics and electric drives are introduced into our target
markets, the U.S. and other governments may impose burdensome requirements and
restrictions on the use of PEM fuel cells or the batteries used in some electric
drives that could reduce or eliminate demand for our PEM fuel cell products, PEM
fuel cells, power electronics and electric drives.

OUR RELATIONSHIP WITH DAIMLERCHRYSLER AND FORD RESTRICTS OUR ABILITY TO CONTROL
OUR BUSINESS.

         As a result of DaimlerChrysler and Ford's substantial ownership
interests in us and our agreements with them, they have special rights with
respect to the operation of our business. Because DaimlerChrysler and Ford
collectively own over one-third of our outstanding common shares, they can
collectively block any corporate action requiring a two-thirds majority vote,
such as the creation of a new class of shares, our amalgamation with another
company or a sale of all or substantially all of our assets.

         Under the vehicular alliance, DaimlerChrysler and Ford, acting jointly,
can also require the removal of any of the following officers: our Chief
Technology Officer (or other officer to whom the persons responsible for
research and development report), our Vice President, Strategic Development (or
other officer to whom the persons responsible for intellectual property report)
and our Vice President, Transportation. In addition, as long as DaimlerChrysler
and Ford maintain certain ownership levels in us, certain decisions of our board
of directors, such as approval of our annual budget and approval of our annual
business plan, must be approved by a number of directors equal to one director
more than a majority of the directors who are entitled to vote and who do vote
on such decision, including at least one of the directors appointed by
DaimlerChrysler and Ford. If any director appointed by DaimlerChrysler or Ford
is absent or abstains, a simple majority vote is sufficient. If DaimlerChrysler
and Ford collectively cease to maintain the specified ownership levels in us, it
is possible for either of them individually to acquire such voting provisions
upon attaining and then maintaining certain ownership levels in us. By
exercising these rights, DaimlerChrysler and/or Ford may prevent us from taking
certain actions, such as a change in our business plans, a strategic
acquisition, or disposal of certain assets or equity in our subsidiaries, even
if such action would be in the best interests of certain of our other
shareholders.


<PAGE>
                                      -56-


WE DEPEND ON OUR INTELLECTUAL PROPERTY AND OUR FAILURE TO PROTECT THAT
INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR FUTURE GROWTH AND SUCCESS.

         Failure to protect our existing intellectual property rights could
seriously harm our business and prospects because we believe that developing new
systems and products that are unique to us is critical to our success. We rely
on patent, trade secret, trademark and copyright law to protect our intellectual
property. However, some of our intellectual property is not covered by any
patent or patent application, and the patents that we do have expire between
2009 and 2021. Moreover, our patent position is subject to complex factual and
legal issues that may give rise to uncertainty as to the validity, scope and
enforceability of a particular patent. Accordingly, we cannot assure you that:

         o        any of the U.S. patents or foreign patents owned by us or
                  other patents that third parties license to us will not be
                  invalidated, circumvented, challenged, rendered unenforceable,
                  or licensed to others; or

         o        any of our pending or future patent applications will be
                  issued with the breadth of claim coverage sought by us, if
                  issued at all.

         In addition, effective patent, trademark, copyright and trade secret
protection may be unavailable, limited or not applied for in certain foreign
countries.

         We also seek to protect our proprietary intellectual property,
including intellectual property that may not be patented or patentable, in part
by confidentiality agreements and, if applicable, inventors' rights agreements
with our strategic partners and employees. We cannot assure you that these
agreements will not be breached, that we will have adequate remedies for any
breach or that such persons or institutions will not assert rights to
intellectual property arising out of these relationships.

         Certain of our intellectual property has been licensed to us on a
non-exclusive basis from third parties who may also license such intellectual
property to others, including our competitors. If necessary or desirable, we may
seek further licenses under the patents or other intellectual property rights of
others. However, we can give no assurances that we will obtain such licenses or
that the terms of any offered licenses will be acceptable to us. The failure to
obtain a license from a third party for intellectual property we use at present
could cause us to incur substantial liabilities and to suspend the manufacture
or shipment of products or our use of processes requiring the use of such
intellectual property.

WE MAY BE INVOLVED IN INTELLECTUAL PROPERTY LITIGATION THAT CAUSES US TO INCUR
SIGNIFICANT EXPENSES OR PREVENTS US FROM SELLING OUR PRODUCTS.

         We may become subject to lawsuits in which it is alleged that we have
infringed the intellectual property rights of others or commence lawsuits
against others who we believe are infringing upon our rights. Our involvement in
intellectual property litigation could result in significant expense to us,
adversely affecting the development of sales of the challenged product or
intellectual property and diverting the efforts of our technical and management
personnel, whether or not such litigation is resolved in our favour. In the
event of an adverse outcome as a defendant in any such litigation, we may, among
other things, be required to:

         o        pay substantial damages;

         o        cease the development, manufacture, use, sale or importation
                  of products that infringe upon other patented intellectual
                  property;


<PAGE>
                                      -57-

         o        expend significant resources to develop or acquire
                  non-infringing intellectual property;

         o        discontinue processes incorporating infringing technology; or

         o        obtain licenses to the infringing intellectual property.

         We cannot assure you that we would be successful in such development or
acquisition or that such licenses would be available upon reasonable terms. Any
such development, acquisition or license could require the expenditure of
substantial time and other resources and could have a material adverse effect on
our business and financial results.

WE CURRENTLY FACE AND WILL CONTINUE TO FACE SIGNIFICANT COMPETITION.

         As PEM fuel cell products, PEM fuel cells, power electronics and
electric drives have the potential to replace existing power products,
competition for our products will come from current power technologies, from
improvements to current power technologies and from new alternative power
technologies, including other types of fuel cells. Each of our target markets is
currently serviced by existing manufacturers with existing customers and
suppliers. These manufacturers use proven and widely accepted technologies such
as internal combustion engines and turbines as well as coal, oil and nuclear
powered generators.

         Additionally, there are competitors working on developing technologies
other than PEM fuel cells (such as other types of fuel cells, advanced batteries
and hybrid battery/internal combustion engines) in each of our targeted markets.
Some of these technologies are as capable of fulfilling existing and proposed
regulatory requirements as the PEM fuel cell. For example, vehicles powered by
batteries can meet the zero emission vehicle requirements imposed by California
and certain U.S. north-eastern states, and vehicles powered by certain low
emission internal combustion engines and hybrid internal combustion/battery
engines can receive partial credit toward the zero emission vehicle requirement.

         Within each of the PEM fuel cell products, PEM fuel cells, power
electronics and electric drives markets, we also have a large number of
competitors. Across the United States, Canada, Europe and Japan, corporations,
national laboratories and universities are actively engaged in the development
and manufacture of PEM fuel cell products, PEM fuel cells, power electronics and
electric drives. Each of these competitors has the potential to capture market
share in each of our target markets.

         Many of our competitors have financial resources, customer bases,
businesses or other resources, which give them significant competitive
advantages.

WE COULD LOSE OR FAIL TO ATTRACT THE PERSONNEL NECESSARY TO RUN OUR BUSINESS.

         Our success depends in large part on our ability to attract and retain
key management, engineering, scientific, manufacturing and operating personnel.
As we develop additional manufacturing capabilities and expand the scope of our
operations, we will require more skilled personnel. Recruiting personnel for the
PEM fuel cell, power electronics and electric drive industries is highly
competitive. We cannot guarantee that we will be able to continue to attract and
retain qualified executive, managerial and technical personnel needed for our
business. Our failure to attract or retain qualified personnel could have a
material adverse effect on our business.


<PAGE>
                                      -58-


CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION AND THE VEHICULAR ALLIANCE
COULD HAVE EFFECTS THAT CONFLICT WITH THE INTERESTS OF OUR SHAREHOLDERS.

         Certain provisions of our articles of incorporation could make it more
difficult for a third party to acquire control of us, even if such change in
control would be beneficial to our shareholders. For example, our articles of
incorporation permit our board of directors to issue series of preferred shares
without the need for shareholder approval. In addition, certain provisions of
the vehicular alliance, together with DaimlerChrysler and Ford's ownership of
us, may discourage third parties from attempting to acquire control of us. Other
provisions, including the standstill provisions, may discourage DaimlerChrysler
and/or Ford from acquiring control of us. These provisions may not be in our
other shareholders' best interests.

WE COULD BE LIABLE FOR ENVIRONMENTAL DAMAGES RESULTING FROM OUR RESEARCH,
DEVELOPMENT OR MANUFACTURING OPERATIONS.

         Our business exposes us to the risk of harmful substances escaping into
the environment, resulting in personal injury or loss of life, damage to or
destruction of property and natural resource damage. Depending on the nature of
the claim, our current insurance policies may not adequately reimburse us for
costs incurred in settling environmental damage claims, and in some instances,
we may not be reimbursed at all. Our business is subject to numerous laws and
regulations that govern environmental protection and human health and safety.
These laws and regulations have changed frequently in the past and it is
reasonable to expect additional and more stringent changes in the future. Our
operations may not comply with future laws and regulations, and we may be
required to make significant unanticipated capital and operating expenditures.
If we fail to comply with applicable environmental laws and regulations,
governmental authorities may seek to impose fines and penalties on us or to
revoke or deny the issuance or renewal of operating permits and private parties
may seek damages from us. Under those circumstances, we might be required to
curtail or cease operations, conduct site remediation or other corrective
action, or pay substantial damage claims.

OUR PRODUCTS USE INHERENTLY DANGEROUS, FLAMMABLE FUELS, WHICH COULD SUBJECT OUR
BUSINESS TO PRODUCT LIABILITY CLAIMS.

         Our business exposes us to potential product liability claims that are
inherent in hydrogen and products that use hydrogen. Hydrogen is a flammable gas
and therefore a potentially dangerous product. We also produce fuel processors
that generate hydrogen from certain raw fuels, such as natural gas or methanol,
which are also flammable. Any accidents involving our products or other
hydrogen-based products could materially impede widespread market acceptance and
demand for our PEM fuel cells, PEM fuel cell systems or PEM fuel cell products.
In addition, we may be held responsible for damages beyond the scope of our
insurance coverage. We also cannot predict whether we will be able to maintain
our insurance coverage on acceptable terms.

UNTIL WE ACQUIRE 100% OF BALLARD POWER SYSTEMS AG, WE WILL BE PROHIBITED FROM
TAKING CERTAIN ACTIONS WITH RESPECT TO BALLARD POWER SYSTEMS AG WITHOUT THE
CONSENT OF THE OTHER SHAREHOLDER OF BALLARD POWER SYSTEMS AG.

         Until DaimlerChrysler transfers its remaining 49.9% interest in Ballard
Power Systems AG to us, which under contract is required to occur on or before
November 15, 2004, we will be unable to take certain actions with respect to
Ballard Power Systems AG without the consent of the other holder of the Ballard
Power Systems AG shares. For example, without such consent, we may be unable to
sell substantially all the assets of, or any material asset of, Ballard Power
Systems AG or merge Ballard Power Systems AG with another company.

<PAGE>
                                      -59-


POTENTIAL FLUCTUATIONS IN OUR FINANCIAL AND BUSINESS RESULTS MAKES FORECASTING
DIFFICULT AND MAY RESTRICT OUR ACCESS TO FUNDING FOR OUR COMMERCIALIZATION PLAN.

         We expect our revenues and operating results to vary significantly from
quarter to quarter. As a result, quarter to quarter comparisons of our revenues
and operating results is not meaningful. Due to our stage of development, we
cannot predict our future revenues or results of operations accurately. It is
likely that in one or more future quarters our operating results will fall below
the expectations of investors and securities analysts. In addition, investors
and security analysts many misunderstand our business decisions or have
expectations that are inconsistent with our business plan. This may result in
our business activities not meeting their expectations. Not meeting investor and
security analyst expectations may materially and adversely impact the trading
price of our Common shares, increase the cost and restrict our ability to secure
required funding to pursue our commercialization plans.


                             ADDITIONAL INFORMATION

         When our securities are in the course of distribution pursuant to a
short form prospectus or a preliminary short form prospectus has been filed in
respect of a distribution of our securities, we will, upon request, provide to
any person

         (a)      one copy of this Annual Information Form, together with one
                  copy of any document, or the pertinent pages of any document,
                  incorporated by reference in this Annual Information Form,

         (b)      one copy of our comparative financial statements for the year
                  ended December 31, 2001 together with the accompanying report
                  of the auditors, and one copy of each of our interim financial
                  statements prepared after December 31, 2001,

         (c)      one copy of the management proxy circular (the "Proxy
                  Circular") for our annual meeting to be held on May 16, 2002,
                  and

         (d)      one copy of any other document that is incorporated by
                  reference into the preliminary short form prospectus or the
                  short form prospectus and is not described above.

         Additional information, including directors' and officers' remuneration
and indebtedness, principal holders our securities and options to purchase
securities, is contained in the Proxy Circular. Additional financial information
is contained in our Annual Report for the year ended December 31, 2001, which
includes our comparative financial statements for such year and Management's
Discussion and Analysis.

         Copies of this Annual Information Form and the documents incorporated
by reference therein, our comparative financial statements (including the
auditors' report) for the year ended December 31, 2001, each interim financial
statement issued after December 31, 2001, the Proxy Circular and the Annual
Report may be obtained upon request from our Corporate Secretary, 9000 Glenlyon
Parkway, Burnaby, British Columbia, V5J 5J9.



<PAGE>
                                      -60-


                                    GLOSSARY

In this Annual Information Form, the following terms have the meanings set forth
herein:

<TABLE>
<S>                                <C>
ANODE........................      the negative electrode in a fuel cell. In a PEM fuel cell, the anode is a
                                   catalyzed structure which converts hydrogen fuel into electrons that are
                                   released to the external circuit and positively charged hydrogen ions
                                   (protons), which are drawn into the electrolyte.

BALLARD(R) FUEL CELL.........      the PEM fuel cell developed by Ballard.

CATALYST.....................      a material, such as platinum, which promotes or increases the rate of a
                                   chemical reaction without itself undergoing any permanent chemical change.

CATHODE......................      the positive electrode in a fuel cell. In a PEM fuel cell, the cathode is a
                                   catalyzed structure which converts oxygen, usually from the air, electrons
                                   received from the external circuit and protons from the electrolyte into water.

CURRENT......................      the movement of electrical charge (electrons or ions) through a circuit.

EFFICIENCY...................      the proportion of energy contained in a fuel which is converted by an energy
                                   conversion device into useful work, such as electricity. In a fuel cell,
                                   efficiency describes the amount of chemical energy from the fuel which is
                                   converted into electrical energy as a result of the electrochemical process of
                                   combining hydrogen and oxygen gases to form water.

ELECTROCHEMICAL..............      refers to a process or a device in which chemical reactions take place at
                                   electrodes, resulting in the transfer of electrons to or from the reactants
                                   which, in a fuel cell, are hydrogen and oxygen gases.

ELECTRODE....................      an electrically conductive structure in an electrochemical device which
                                   transfers electrons to or from reactant atoms or molecules.

ELECTROLYTE..................      the medium in a fuel cell which provides the ion transport mechanism between
                                   the anode and cathode necessary to sustain the electrochemical process. In a
                                   PEM fuel cell, the electrolyte allows the transport of positively charged
                                   hydrogen ions (protons) from the anode, where they are produced, to the cathode
                                   where they react with oxygen molecules and electrons to produce water.

ELECTRON.....................      the negatively charged component of an atom and the unit of negative
                                   electrical charge.

FUEL CELL....................      an electrochemical device which, without combustion, converts the chemical
                                   energy of a fuel, usually hydrogen or a hydrogen-containing mixture, and
                                   oxygen, usually from the air, directly into electricity.
</TABLE>
<PAGE>

                                      -61-
<TABLE>
<S>                                     <C>
FUEL CELL STACK..................       a stack comprised of multiple single fuel cells and two end plates.

FUEL PROCESSOR...................       a device which converts a hydrocarbon fuel, such as methanol, natural gas or
                                        petroleum, into a mixture of hydrogen and other gases.

ION..............................       an atom or a molecule that has acquired an electrical charge by the loss or
                                        gain of electrons.

KILOWATT ("KW")..................       1,000 Watts, which is equivalent to approximately 1.34 horsepower.

MEMBRANE ELECTRODE ASSEMBLY             the core of a PEM fuel cell, consisting of two electrodes, the anode and
("MEA")..........................       cathode, bonded on either side of the proton exchange membrane electrolyte to
                                        form a single structure.

MEGAWATT ("MW")..................       1,000,000 Watts.

ORIGINAL EQUIPMENT MANUFACTURER         an original equipment manufacturer of products.
("OEM")..........................

POWER DENSITY....................       the ratio of power output to weight or volume.

PROTON...........................       the positively charged component of the nucleus of an atom. The positively
                                        charged hydrogen ion which remains when an electron is removed from a hydrogen
                                        atom is a proton. The proton's positive charge is equal in magnitude to that of
                                        the electron's negative charge.

PROTON EXCHANGE MEMBRANE ("PEM").       a solid polymer membrane (a thin plastic film) which serves as the electrolyte in
                                        a PEM fuel cell.


WATT.............................       a basic measure of electrical power.

ZERO EMISSION VEHICLE............       a vehicle as defined by regulations set by the California Air Resources Board
                                        that does not produce any air pollutants such as carbon monoxide, oxides of
                                        nitrogen, unburned hydrocarbons and particulates, but may produce carbon
                                        dioxide.
</TABLE>