MANAGEMENTS DISCUSSION AND
ANALYSIS

This discussion and analysis of
financial condition and results of operations of Ballard Power Systems Inc.
(Ballard, the Company, we, us or our) is prepared as at February 20,
2013 and should be read in conjunction with the audited consolidated financial
statements and accompanying notes for the year ended December 31, 2012. The
results reported herein are presented in U.S. dollars unless otherwise stated
and have been prepared in accordance with International Financial Reporting
Standards (IFRS). Additional information relating to the Company, including
our Annual Information Form, are filed with Canadian (www.sedar.com) and
U.S. securities regulatory authorities (www.sec.gov) and are also available
on our website atwww.ballard.com.

BUSINESS OVERVIEW

At Ballard, we are building a
clean energy growth company. We are recognized as a world leader in proton
exchange membrane (PEM) fuel cell development and commercialization. Our
principal business is the design, development, manufacture, sale and service of
fuel cell products for a variety of applications, focusing on motive power
(material handling and buses) and stationary power (backup power and distributed
generation) markets. We also provide engineering services for a variety of fuel
cell applications.

A fuel cell is an environmentally
clean electrochemical device that combines hydrogen fuel with oxygen (from the
air) to produce electricity. The hydrogen fuel can be obtained from natural gas,
kerosene, methanol or other hydrocarbon fuels, or from water through
electrolysis. Ballard fuel cell products feature high fuel efficiency, low
operating temperature, low noise and vibration, compact size, quick response to
changes in electrical demand, modular design and environmental cleanliness.
Embedded in each Ballard PEM fuel cell product lies a stack of unit cells
designed with our proprietary esenciaTM technology which draws on
intellectual property from our patent portfolio together with our extensive
experience in key areas of fuel cell stack operation, system integration, and
fuel processing.

We provide our customers with the
positive economic and environmental benefits unique to fuel cell power. We plan
to build value for our shareholders by developing, manufacturing, selling and
servicing industry-leading fuel cell products to meet the needs of our customers
in select target markets. Our focus is on leveraging the inherent reliability
and durability derived from our legacy automotive technology into non-automotive
markets where demand is near term and on our core competencies of PEM fuel cell
design, development, manufacture, sales and service.

Our business strategy is to
establish a sharp focus on key growth opportunities with near-term commercial
prospects in our core fuel cell markets, enhanced by our engineering services
operating unit to leverage our expertise in fuel cell design, prototyping,
manufacturing and servicing. To support our business strategy and our capability
to execute on our clean energy growth priorities, we have also focused our
efforts on both product cost reduction and managing our operating expense base
including overall expense reductions, the pursuit of government funding for our
research and product development efforts, and the redirection of engineering
resources to revenue bearing engineering service projects.

We are based in Canada, with head
office, research and development, testing and manufacturing facilities in
Burnaby, British Columbia. We also utilize a manufacturing facility in Tijuana,
Mexico (as of January 1, 2013), research and development facilities in Oregon and Maryland, and sales, manufacturing, and
research and development facilities in Hobro, Denmark and Lowell, Massachusetts
(disposed of on January 31, 2013).

Page 1 of 35

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RECENT DEVELOPMENTS

On January 31, 2013, we completed
an agreement to sell substantially all of the assets in our Lowell,
Massachusetts based Material Products division for gross cash proceeds of $10.5
million and additional potential proceeds of up to $1.5 million. The additional
proceeds of up to $1.5 million are payable in 2014 and 2015 (through a GDL
product credit) if the former Material Products division attains certain
financial results in 2013. As we were committed to the disposition of the
Material Products segment as of December 31, 2012, the Material Products segment
has been classified as a discontinued operation in our 2012 consolidated
financial statements. As such, the assets of the Material Products segment have
been classified as assets held for sale and have been measured at the lower of
(i) carrying amount and (ii) fair value less costs to sell. Furthermore, the
annual operating results of the Material Products segment for both 2012 and 2011
have been removed from continuing operating results and are instead presented
separately in the statement of comprehensive income as income from discontinued
operations.

On August 1, 2012 (announced on
July 24, 2012), we completed an agreement to acquire key assets and product
lines from IdaTech LLC (Idatech), a customer of Ballard for the past several
years. In exchange for $7.5 million of Ballard shares issued from treasury (7.1
million Ballard shares valued at $1.05 per share based on our share price as of
the acquisition date), we acquired Idatechs key assets including fuel cell
systems inventory, prepaid rights to inventory, product lines for backup power
applications, distributor and customer relationships, a license to intellectual
property, the right to assume control of a manufacturing facility in Tijuana,
Mexico, and certain property, plant and equipment. Acquired fuel cell systems
inventory, prepaid rights to inventory, product lines and intellectual property
consist of both direct hydrogen units as well as methanol fuelled units and are
designed for deployment as emergency backup power in the networks of wireless
telecom service providers. The methanol systems incorporate a fuel reformer to
extract hydrogen from a mixture of methanol and water which is then used as
feedstock for the fuel cells.

In July 2012, we completed a 7%
workforce reduction and an overall curtailment of discretionary spending
designed to have a minimal impact on key product development initiatives and our
manufacturing capabilities. Total restructuring and related costs of $1.6
million has been recorded in general and administration expense in our third
quarter of 2012 financial results.

In June 2011, we obtained an $7.0
million Canadian (revised to $7.3 million Canadian in December 2012) award
agreement from Sustainable Development Technology Canada (SDTC) for the period
from 2011 to 2013 (extended to 2014) to be used to extend the operating life and
lower the product cost of FCgen-1300, the fuel cell product that powers
Ballards CLEARgen distributed generation system. This award is in addition to
a $4.8 million Canadian (revised to $6.9 million Canadian in June 2012) award
agreement from SDTC announced in 2010 for the period from 2010 to 2012 (extended
to November 2013) to be used to further develop fuel cell power module
technology for the transit bus market.These awards are recorded primarily as a
cost offset against our research and product development expenses as the
expenses are incurred on these programs.

In March 2011, we completed a
sub-lease agreement with Mercedes-Benz Canada Inc. (MBC) for the rental of
21,000 square feet of previously used consolidated production space in our specialized fuel cell
manufacturing facility located in Burnaby, British Columbia. This sub-lease is
effective from August 1, 2011 until July 31, 2019 and is expected to result in
annual savings of approximately $1 million in real estate and related overhead
costs.

Page 2 of 35

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OPERATING SEGMENTS

We report our results in the
following operating segments:

1.Fuel Cell Products: fuel cell products and services for motive power (material handling and
bus markets) and stationary power (backup power and distributed generation
markets) applications, and engineering services for a variety of fuel cell
applications; and

2.Contract Automotive: contract manufacturing services (consisting of light-duty automotive
FCvelocity 1100 fuel cell products) provided primarily for Daimler AGs
(Daimler) Hyway 2/3 programs. With the completion of our manufacturing supply
agreement with Daimler in October 2011, this segment ceased to be an ongoing
operating segment as of the fourth quarter of 2011 and is now presented for
comparative purposes only.

3.Material Products (Discontinued Operation):carbon fiber products primarily for automotive
transmissions and gas diffusion layers (GDLs) for fuel cells. As a result of
the disposition of this segment on January 31, 2013, the Material Products
segment has been classified as a discontinued operation as of December 31, 2012.

Page 3 of 35

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SELECTED ANNUAL FINANCIAL
INFORMATION


|Results of Operations                                               | Year
  ended,        
|------------------------------------------------------------------- | ---------------------
|                                                                    |                      
|(Expressed in thousands of U.S.
      dollars, except per share     |                      
|amounts and gross margin
%)                                         |                      
|From continuing
      operations                                    |                      
|Revenues                                                            | $                    
|Gross
      margin                                                  | $                    
|Gross margin %                                                      |                      
|Cash Operating
      Costs (1)                                      | $                    
|Adjusted EBITDA
      (1)                                           | $                    
|Normalized Net
      Loss (1)                                       | $                    
|Normalized Net Loss per
      share                                 | $                    
|Net loss from
      continuing operations attributable to Ballard   | $                    
|Net loss per share attributable to Ballard, basic and
      diluted | $                    
|From discontinued
      operations                                  |                      
|Revenues                                                            | $                    
|Gross
      margin                                                  | $                    
|Gross margin %                                                      |                      
|Cash Operating
      Costs (1)                                      | $                    
|Adjusted EBITDA
      (1)                                           | $                    
|Net earnings (loss) from discontinued
      operations              | $                    
|Total                                                               |                      
|Revenues                                                            | $                    
|Gross margin                                                        | $                    
|Gross margin
      %                                                |                      
|Cash Operating Costs
      (1)                                      | $                    
|Adjusted EBITDA
      (1)                                           | $                    
|Net loss attributable to
      Ballard                              | $                    
|Net loss per share attributable to
      Ballard, basic and diluted | $                    
|Financial Position                                                  | At
      December 31,
|                                                                    |                      
|(expressed in thousands of U.S. dollars)                            |                      
|Assets from
      continuing operations                             | $                    
|Assets from discontinued operations                                 | $                    
|Total assets                                                        | $                    
|Cash and cash
    equivalents                                       | $                    
|Short-term
      investments                                        | $                    
|Bank operating line                                                 | $                    
|Net cash reserves                                                   | $                    

|1 |  | Cash Operating Costs,
      Adjusted EBITDA, Normalized Net Loss and Normalized Net Loss per share are
      non-GAAP measures. We use certain Non-GAAP measures to assist in assessing
      our financial performance. Non-GAAP measures do not have any standardized
      meaning prescribed by GAAP and are therefore unlikely to be comparable to
      similar measures presented by other companies. See reconciliation to GAAP
      in the Supplemental Non-GAAP Measures section.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 4 of 35

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2012 Performance compared to
2012 Revised Business Outlook

- Revenues from continuing and discontinued
  operations in 2012 of $59.2 million, was consistent with our revised outlook
  from October 9, 2012 of revenues in 2012 of approximately $60 million.
- Adjusted EBITDA from continuing and
  discontinued operations in 2012 of ($18.5) million, was consistent with our
  revised outlook from October 9, 2012 of Adjusted EBITDA in 2012 of
  approximately ($18) million.

RESULTS OF CONTINUING
OPERATIONS  Fourth Quarter of 2012

|Revenue and gross margin (from continuing
      operations) |                                       |            |  | 
|----------------------------------------------------------- | ------------------------------------- | ---------- |  | 
|                                                           
|(Expressed in thousands of U.S.
    dollars)                | Three months
      ended December 31,
|                                                            |                                       | 2012       |  | 
|Fuel Cell
      Products                                    | $                                     | 16,476     |  | 
|Contract Automotive                                         |                                       | -          |  | 
|**Revenues**                                                |                                       | 16,476     |  | 
|Cost of goods sold                                          |                                       | **12,789** |  | 
|Gross Margin                                                | $                                     | 3,687      |  | 
|Gross Margin %                                              |                                       | 22%        |  | 

Revenues from continuing
operations of $16.5 million for the fourth quarter of 2012 declined (3%), or
($0.5) million, compared to the fourth quarter of 2011 primarily as a result of
slight declines in our Fuel Cell Products segment.

In our core Fuel Cell Products
segment, fourth quarter of 2012 revenues were down slightly as declines in
Motive power and distributed generation revenues were only partially offset by
higher backup power and engineering services revenues. The decline in Motive
power revenues was driven by lower fuel cell bus revenues as new fourth quarter
of 2012 heavy-duty bus shipments to Van Hool NV and others were significantly
lower than 2011 shipments to Van Hool NV and UNDP-EMTU Brazil and were also
negatively impacted by the completion of our fuel cell bus manufacturing supply
agreement with a Daimler subsidiary in October 2011 ($0.4 million impact),
combined with lower material handling market revenues as a result of a decline
in shipments in support of Plug Power Inc.s GenDrive systems. These declines
were partially offset by significantly higher backup power market revenues and
higher engineering services revenues. The increase in backup power revenues is
as a result of new shipments of hydrogen-based and methanol-based backup power
systems due to our recent acquisition of Idatechs key assets (impact of
approximately $3.0 million) combined with an increase in shipments of
hydrogen-based backup power stacks. The increase in engineering services
revenues is a result of our increased focus on building our engineering services
business including ongoing projects with Anglo American Platinum Limited and
others.

Gross margins from continuing
operations increased to $3.7 million, or 22% of revenues, for the fourth quarter
of 2012, compared to $2.9 million, or 17% of revenues, for the fourth quarter of
2011. The overall increase and improvement in gross margin was driven primarily
by increased work performed on higher margin engineering services projects at
both Ballard and Dantherm Power, by significant sales of hydrogen-based and
methanol-based backup power systems acquired from Idatech, and by our ongoing
product cost reduction efforts across all of our platforms.

Page 5 of 35

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The following table provides a
summary of our fourth quarter fuel cell stack and system shipments:

|                                 | Three months ended December 31,
|-------------------------------- | -------------------------------
|                                 | 2012                           
|Material
      handling          | **468**                        
|Backup
      power               | 313                            
|Other                            | 3                              
|Fuel Cell Stack Shipments        | 784                            
|Fuel Cell System
      Shipments | 204                            

Cash Operating Costs (from
continuing operations)


|(Expressed in
      thousands of U.S. dollars) | Three months
      ended December 31,
|---------------------------------------------- | -------------------------------------
|                                               |                                      
|Research and
      Product                     | $                                    
|Development (operating
      cost)             |                                      
|General and
    Administrative                 |                                      
|(operating cost)                               |                                      
|Sales and Marketing expense                    |                                      
|Operating costs                                |                                      
|Less:
      Stock-based compensation           |                                      
|(expense) recovery                             |                                      
|Cash Operating Costs                           | $                                    

Cash Operating Costs is a
non-GAAP measure. We use certain Non-GAAP measures to assist in assessing our
financial performance. Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other companies. See reconciliation to GAAP in the
Supplemental Non-GAAP Measures section. Cash Operating Costs adjusts operating
expenses for stock-based compensation expense, depreciation and amortization,
restructuring charges, acquisition costs and financing charges.


Cash Operating Costs (see
Supplemental Non-GAAP Measures) from continuing operations for the fourth
quarter of 2012 were $7.3 million, a decline of ($0.9) million, or (11%),
compared to the fourth quarter of 2011. The 11% reduction in the fourth quarter
of 2012 was driven by lower operating costs across the business as a result of
our continued cost reduction efforts including a 7% workforce reduction
initiated in July 2012, and by lower research and product development expense
due to the redirection of engineering resources to revenue bearing engineering
service projects. Labour and material costs incurred on revenue producing
engineering services projects are reallocated from research and product
development expenses to cost of goods sold.

As the Canadian dollar relative to
the U.S. dollar was relatively consistent for the fourth quarter of 2012
compared to the fourth quarter of 2011, foreign exchange impacts on our Canadian
operating cost base were relatively insignificant. A 1% increase in the Canadian
dollar, relative to the U.S. dollar, negatively impacts annual Cash Operating
Costs and Adjusted EBITDA by approximately $0.3 million to $0.4 million.

While
excluded from Cash Operating Costs, stock-based compensation expense declined
significantly in the fourth quarter of 2011 to a recovery position, as a result
of a downward adjustment to accrued share-based compensation expense as certain
outstanding restricted share units failed to meet the vesting criteria and were
cancelled.

Adjusted EBITDA (from
continuing operations)


|(Expressed in thousands of U.S.
      dollars) | Threemonths ended December 31,
|---------------------------------------------- | ------------------------------
|                                               |                               
|Adjusted
    EBITDA                            | $                             

EBITDA and  Adjusted EBITDA are
non-GAAP measures. We use certain Non-GAAP measures to assist in assessing our
financial performance. Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other companies. See reconciliation to GAAP in the
Supplemental Non-GAAP Measures section. Adjusted EBITDA adjusts EBITDA for
stock-based compensation expense, transactional gains and losses, finance and
other income, and acquisition costs.


Page 6 of 35

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Adjusted EBITDA (see Supplemental
Non-GAAP Measures) from continuing operations for the fourth quarter of 2012 was
($3.2) million, an improvement of $1.7 million, or 34%, compared to the fourth
quarter of 2011.

The $1.7 million reduction in
Adjusted EBITDA loss in the fourth quarter of 2012 was driven by gross margin
improvements of $0.7 million as margins improved on a percentage of revenue
basis from 17% to 22% primarily as a result of increased work performed on
higher margin engineering services projects, combined with lower Cash Operating
Costs of $0.9 million primarily as a result of the redirection of engineering
resources to revenue bearing engineering service projects and our continued cost
optimization efforts across the business.

Net loss attributable to
Ballard (from continuing operations)

|(Expressed in thousands of U.S.
      dollars)                   |  | Three months ended December
      31,
|---------------------------------------------------------------- |  | -------------------------------------
|                                                                 |  | 2012                                 
|Net loss
      attributable to Ballard fromcontinuing operations |  | $                                    

Net loss attributable to Ballard
from continuing operations for the fourth quarter of 2012 was ($16.8) million,
or ($0.18) per share, compared to a net loss of ($8.0) million, or ($0.09) per
share, in the fourth quarter of 2011. The ($8.8) million increase in net loss
for the fourth quarter of 2012 was driven by a Fuel Cell Products goodwill
impairment charge of ($10.0) million. Net loss from continuing operations in the
fourth quarters of 2012 and 2011 also include impairment charges related to a
write-down of manufacturing equipment of ($0.6) million and ($1.7) million,
respectively.

Excluding the impact of these
impairment charges in continuing operations of ($10.6) million in the fourth
quarter of 2012 and ($1.7) million in the fourth quarter of 2011, Normalized Net
Loss (see Supplemental Non-GAAP Measures) in the fourth quarter of 2012 would
have been comparable to the fourth quarter of 2011.

Net loss attributable to Ballard
from continuing operations excludes the net loss attributed to the
non-controlling interest of Dantherm A/S and Danfoss A/S in the losses of
Dantherm Power as a result of their 48% total equity interest in 2012 and 2011,
and the results of discontinued operations. Net loss attributed to
non-controllinginterests for the fourth quarter of 2012 was ($0.5)
million, as compared to ($0.3) million for the fourth quarter of 2011. Net loss
from discontinued operations for the fourth quarter of 2012 was ($1.3) million,
as compared to net income for the fourth quarter of 2011 of $0.7 million. Net
loss from discontinued operations in the fourth quarter of 2012 includes a
goodwill impairment charge of ($1.8) million and a write-down of property, plant
and equipment of ($0.5) million.

Cash used in operating
activities

|(Expressed in thousands of U.S.
      dollars)       |  | Three months ended December
      31,
|---------------------------------------------------- |  | -------------------------------------
|                                                     |  | 2012                                 
|Cash (used in)
      provided by operatingactivities |  | $                                    

Cash used in operating activities
in the fourth quarter of 2012 was ($0.5) million, consisting of cash operating
losses of ($2.4) million partially offset by net working capital inflows of $1.9
million. Cash provided by operating activities in the fourth quarter of 2011 was
$4.1 million, consisting of cash operating losses of ($4.7) million and net
working capital inflows of $8.8 million.

Page 7 of 35

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The ($4.6) million increase in
cash used by operating activities in the fourth quarter of 2012, as compared to
the fourth quarter of 2011, was driven by reduced working capital inflows of
($6.9) million partially offset by an decrease in cash operating losses of $2.3
million. The reduction in cash operating losses of $2.3 million is primarily a
result of a $1.8 million improvement in Adjusted EBITDA loss from both
continuing and discontinued operations. In the fourth quarter of 2012, net
working capital cash inflows of $1.9 million were driven by lower inventory of
$5.4 million as we consumed previously built-up or acquired inventory in order
to fulfill the higher product shipments in the fourth quarter, and by higher
deferred revenue and cost recovery of $0.9 million as we received the next
tranches of SDTC government funding for our distributed generation and bus
projects in advance of incurring the related research and product development
expenditures. These fourth quarter of 2012 working capital inflows were
partially offset by higher accounts receivable of ($2.5) million due primarily
to the timing of shipment versus collection of our fuel cell product and service
revenues, and by lower accounts payable and accrued liabilities of ($2.6)
million due to increased supplier payments made for higher first three quarter
of 2012 inventory purchases.

RESULTS OF CONTINUING
OPERATIONS  Year ended December 31, 2012

Revenue and gross margin
(from continuing operations)

|*(Expressed in thousands of U.S. dollars)* |  | Years ended December
  31,
|------------------------------------------ |  | --------------------------
|                                           |  |                           
|Fuel Cell
      Products                   |  | $                         
|Contract Automotive                        |  |                           
|Revenues                                   |  |                           
|Cost of goods sold                         |  |                           
|Gross Margin                               |  | $                         
|Gross Margin %                             |  |                           

Revenues from continuing
operations of $43.7 million for 2012 declined (22%), or ($12.1) million,
compared to 2011. The ($12.1) million decline was driven by the absence of
Contract Automotive segment revenues ($9.3 million impact) as a result of the
completion of our light-duty automotive manufacturing supply agreement with
Daimler in October 2011 and by lower revenues of $(2.8) million in our core Fuel
Cell Products segment.

In our core Fuel Cell Products
segment, 2012 revenues declined (6%), or ($2.8) million, to $43.7 million
compared to 2011, primarily as a result of significantly lower fuel cell bus
revenues combined with slightly lower material handling and distributed
generation revenues. The significant decline in fuel cell bus revenues was
driven by the completion of our fuel cell bus manufacturing supply agreement
with a Daimler subsidiary in October 2011 ($8.7 million impact), combined with
lower shipments of heavy-duty fuel cell bus modules primarily as a result of a
lack of shipments in 2012 to Brazil. This decline was partially offset by
significant increases in both our backup power and engineering services
revenues. The significant increase in backup power revenues is as a result of
new shipments of hydrogen-based and methanol-based backup power systems due to
our recent acquisition of Idatechs key assets (impact of approximately $5.1
million), combined with an increase in shipments of hydrogen-based backup power
systems at Dantherm Power, and by relatively stable shipments of hydrogen-based
backup power stacks. The increase in engineering services revenues is a result
of our increased focus on building our engineering services business including
ongoing projects with Anglo American Platinum Limited and others.

Page 8 of 35

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Gross margins from continuing
operations increased to $7.4 million, or 17% of revenues, for 2012, compared to
$7.3 million, or 13% of revenues, for 2011. The overall increase and improvement
in gross margin was driven primarily by increased work performed on higher
margin engineering services projects at both Ballard and Dantherm Power, by
significant sales of hydrogen-based and methanol-based backup power systems
acquired from Idatech, and by our ongoing product cost reduction efforts across
all of our platforms.

The following table provides a
summary of our fuel cell stack and system shipments for the year:

|                                 |  | Years ended December 31,
|-------------------------------- |  | ------------------------
|                                 |  | 2012                    
|Material
      handling          |  | 2,022                   
|Backup
    power                 |  | 667                     
|Other                            |  | 12                      
|Fuel Cell Stack Shipments        |  | 2,701                   
|Fuel Cell System
      Shipments |  | 399                     

Cash Operating Costs (from
continuing operations)

|(Expressed in
      thousands of U.S. dollars)                      |  | Years ended
      December 31,
|------------------------------------------------------------------- |  | ------------------------------
|                                                                    |  |                               
|Research and
      Product       Development
      (operating cost) |  | $                             
|General and
      Administrative(operating cost)                    |  |                               
|Sales and Marketing expense                                         |  |                               
|Operating costs                                                     |  |                               
|Less: Stock-based
      compensationexpense                         |  |                               
|Cash Operating
      Costs                                          |  | $                             

|Cash Operating Costs is a
      non-GAAP measure. We use certain Non-GAAP measures to assist in assessing
      our financial performance. Non-GAAP measures do not have any standardized
      meaning prescribed by GAAP and are therefore unlikely to be comparable to
      similar measures presented by other companies. See reconciliation to GAAP
      in the Supplemental Non-GAAP Measures section. Cash Operating Costs
      adjusts operating expenses for stock-based compensation expense,
      depreciation and amortization, restructuring charges, acquisition costs
      and financing charges.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Operating Costs (see
Supplemental Non-GAAP Measures) from continuing operations for 2012 were $30.3
million, a decline of $6.7 million, or 18%, compared to 2011. The 18% reduction
in 2012 was driven by lower operating costs across the business as a result of
our continued cost reduction efforts including a 7% workforce reduction
initiated in July 2012, lower research and product development expense due to
the redirection of engineering resources to revenue bearing engineering service
projects, the receipt of government funding for certain of our research and
product development efforts, and by lower sales and marketing expense due to a
corporate leadership restructuring initiated in September 2011. Government
research funding is reflected as a cost offset to research and product
development expenses, whereas labour and material costs incurred on revenue
producing engineering services projects are reallocated from research and
product development expenses to cost of goods sold.

As the Canadian dollar relative to
the U.S. dollar was relatively consistent for 2012 compared to 2011, foreign
exchange impacts on our Canadian operating cost base were relatively
insignificant. A 1% increase in the Canadian dollar, relative to the U.S.
dollar, negatively impacts annual Cash Operating Costs and Adjusted EBITDA by
approximately $0.3 million to $0.4 million.

Page 9 of 35

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Adjusted EBITDA (from
continuing operations)

|(Expressed in thousands of U.S.
      dollars) |  | Years ended December
      31,
|---------------------------------------------- |  | ------------------------------
|                                               |  | 2012                          
|Adjusted EBITDA                                |  | $                             

|EBITDA andAdjusted
      EBITDA are non-GAAP measures. We use certain Non-GAAP measures to assist
      in assessing our financial performance. Non-GAAP measures do not have any
      standardized meaning prescribed by GAAP and are therefore unlikely to be
      comparable to similar measures presented by other companies. See
      reconciliation to GAAP in the Supplemental Non-GAAP Measures section.
      Adjusted EBITDA adjusts EBITDA for stock-based compensation expense,
      transactional gains and losses, finance and other income, and acquisition
      costs.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Adjusted EBITDA (see Supplemental
Non-GAAP Measures) from continuing operations for 2012 was ($22.1) million, an
improvement of $5.8 million, or 21%, compared to 2011. The $5.8 million
reduction in Adjusted EBITDA loss in 2012 was driven by lower Cash Operating
Costs of $6.7 million due primarily to lower operating costs across the business
as a result of our continued cost reduction efforts including a 7% workforce
reduction initiated in July 2012, and by lower research and product development
expense primarily due to the redirection of engineering resources to revenue
bearing engineering service projects. Total gross margin was consistent year
over year despite the 22% decline in revenues from continuing operations as
margins improved on a percentage of revenue basis from 13% to 17% primarily as a
result of increased work performed on higher margin engineering services
projects, and by our ongoing product cost reduction efforts across all of our
platforms. These improvements in Adjusted EBITDA were partially offset by an
increase in restructuring charges of ($0.5) million from ($1.4) million in 2011
to ($1.9) million in 2012.

As part of our focus on cost
optimization, we have taken steps to reduce our cost base in both 2012 and 2011.
In addition to the measures taken in April 2012 to reduce our manufacturing
overhead cost pool, we completed a 7% workforce reduction in July 2012 along
with other cost reduction activities. During 2011, we completed a corporate
leadership restructuring in September 2011 and a Dantherm Power leadership
restructuring in March 2011. These actions have resulted in the above noted
restructuring charges of ($1.9) million in 2012 and ($1.4) million in 2011.

Net loss attributable to
Ballard (from continuing operations)

|(Expressed in thousands of U.S.
      dollars) |  | Twelve months ended
      December 31,
|---------------------------------------------- |  | --------------------------------------
|                                               |  | 2012                                  
|Net loss attributable to
      Ballard         |  | $                                     

Net loss from continuing
operations attributable to Ballard for 2012 was ($42.1) million, or ($0.48) per
share, compared to net loss of ($37.2) million, or ($0.44) per share, in 2011.
The ($5.0) million increase in net loss for 2012 was driven by a Fuel Cell
Products goodwill impairment charge of ($10.0) million which more than offset
improvements in Adjusted EBITDA loss of $5.8 million. Net loss from continuing
operations in 2012 and 2011 also includes impairment charges related to a
write-down of manufacturing equipment of ($0.6) million and ($1.7) million,
respectively.

Excluding the impact of these
impairment charges in continuing operations of ($10.6) million in 2012 and
($1.7) million in 2011, Normalized Net Loss (see Supplemental Non-GAAP Measures)
in 2012 would have improved by $4.0 million, or 11%, as compared to
2011.

Page 10 of 35

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Net loss from continuing
operations attributable to Ballard excludes the net loss attributed to the
non-controlling interest of Dantherm A/S and Danfoss A/S in the losses of
Dantherm Power as a result of their 48% total equity interest in 2012 and 2011,
and the results of discontinued operations. Net loss attributed to
non-controlling interests for 2012 was ($1.3) million, as compared to ($2.7)
million for 2011. The reduced loss in 2012 at Dantherm Power is primarily a
result of improved gross margins combined with lower operating costs as a result
of our continued cost reduction efforts. Net loss from discontinued operations
in 2012 was ($0.1) million, as compared to net income in 2011 of $3.8 million.
Net loss from discontinued operations in 2012 includes a goodwill impairment
charge of ($1.8) million and a write-down of property, plant and equipment of
($0.5) million.

Cash used in operating
activities

|(Expressed in thousands of U.S.
      dollars) |  | Twelve months ended
      December 31,
|---------------------------------------------- |  | --------------------------------------
|                                               |  | 2012                                  
|Cash used in operating
      activities        |  | $                                     

Cash used in operating activities
in 2012 was ($28.1) million, consisting of cash operating losses of ($22.2)
million and working capital requirements of ($5.9) million. Cash used in
operating activities in 2011 was ($33.2) million, consisting of cash operating
losses of ($26.5) million and working capital requirements of ($6.7) million.
The $5.1 million, or 15%, decline in cash used by operating activities in 2012
as compared to 2011 was driven by reductions in cash operating losses of $4.3
million combined with lower working capital requirements of $0.8 million.

The reduction in cash operating
losses of $4.3 million is primarily a result of the 17%, or $3.8 million,
improvement in Adjusted EBITDA from both continuing and discontinued operations.
Total working capital requirements of ($5.9) million in 2012 were driven by
lower accounts payable and accrued liabilities of ($10.5) million due to
increased supplier payments made for higher fourth quarter of 2011 and first
three quarter of 2012 inventory purchases combined with the payment of accrued
2011 annual employee bonuses, partially offset by lower inventory of $4.4
million as we consumed previously built-up or acquired inventory in order to
fulfill the higher product shipments in the fourth quarter of 2012.

RESULTS OF DISCONTINUED
OPERATIONS  Fourth Quarter of 2012

|*(Expressed in thousands of U.S. dollars)*             |  | Three months ended December
      31,
|------------------------------------------------------ |  | -------------------------------------
|                                                       |  |                                      
|Revenues                                               |  | $                                    
|Cost of goods sold                                     |  |                                      
|Gross
      margin                                     |  |                                      
|Operating
      expenses                               |  |                                      
|Impairment charge onproperty, plant
      andequipment |  |                                      
|Impairment
      charge ongoodwill                     |  |                                      
|Income taxes                                           |  |                                      
|Net earnings (loss)from
      discontinuedoperations   |  | $                                    

Revenues from the discontinued
Material Products segment in the fourth quarter of 2012 of $4.8 million
increased 19%, or $0.8 million, as a result of higher shipments of fuel cell GDL
products and relatively stable shipments of carbon friction material
products.

Impairment charges in 2012 were
determined based on a fair value less costs to sell assessment which compared
the segments carrying value at December 31, 2012 to the actual net proceeds
received on disposition on January 31, 2013. As a result of this assessment, we
recorded a ($1.8) million write-off of Material Products goodwill and a ($0.5)
million write-down of property, plant and equipment in the fourth quarter of
2012.

Page 11 of 35

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RESULTS OF DISCONTINUED
OPERATIONS  Year ended December 31, 2012

|*(Expressed in thousands of U.S. dollars)*                 |  | Years ended December
  31,
|---------------------------------------------------------- |  | --------------------------
|                                                           |  |                           
|Revenues                                                   |  | $                         
|Cost of goods sold                                         |  |                           
|Gross
      margin                                         |  |                           
|Operating
      expenses                                   |  |                           
|Impairment charge onproperty, plant andequipment           |  |                           
|Impairment
      charge ongoodwill                         |  |                           
|Income taxes                                               |  |                           
|Net earnings
      (loss)from
      discontinuedoperations |  | $                         

Revenues from the discontinued
Material Products segment in 2012 of $15.5 million were down (23%), or ($4.7)
million as a result of lower shipments of both fuel cell GDL products and carbon
friction material products. Fuel cell GDL product shipments were negatively
impacted by ongoing technical issues experienced by a third party fuel cell
customer unrelated to our GDL products, whereas carbon friction material product
shipments were negatively impacted by the timing of customer programs and
inventory levels.

Impairment charges in 2012 were
determined based on a fair value less costs to sell assessment which compared
the segments carrying value at December 31, 2012 to the actual net proceeds
received on disposition on January 31, 2013. As a result of this assessment, we
recorded a ($1.8) million write-off of Material Products goodwill and a ($0.5)
million write-down of property, plant and equipment in the fourth quarter of
2012.

OPERATING EXPENSES AND OTHER
ITEMS FROM CONTINUING OPERATIONS

Research and product
development expenses

|(Expressed in thousands of U.S.
      dollars)         |  | Three months ended December
    31,
|------------------------------------------------------ |  | -----------------------------------
|Research and product
      development                 |  |                                    
|Research and product development expense               |  | $                                  
|Less: depreciation and amortization
      expense      |  | $                                  
|Research and product development
      (operatingcost) |  | $                                  
|                                                      
|(Expressed in thousands of U.S.
      dollars)         |  | Years ended December 31,           
|Research and product
      development                 |  |                                    
|Research and product development expense               |  | $                                  
|Less: depreciation and amortization
      expense      |  | $                                  
|Research and product development
      (operatingcost) |  | $                                  

Page 12 of 35

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Research and product
developmentexpenses for the three
months ended December 31, 2012 were $4.7 million, a decrease of ($0.4) million,
or 7%, compared to the corresponding period of 2011. Excluding depreciation and
amortization expense of ($0.4) million and ($1.0) million, respectively,
research and product development expense was effectively flat compared to the
fourth quarter of 2011. Reductions in 2012 as a result of the redirection of
engineering resources to revenue bearing engineering service projects were
offset by higher share-based compensation expense due to a downward adjustment
to accrued share-based compensation expense for 2011 that was recorded in the
fourth quarter of 2011.

Research and product development
expenses for the year ended December 31, 2012 were $19.3 million, a decrease of
($5.6) million, or 23%, compared to 2011. Excluding depreciation and
amortization expense of ($2.6) million and ($3.9) million, respectively,
research and product development expense declined ($4.4) million, or 21%,
compared to 2011. The 21% reduction in 2012 was primarily as a result of the
redirection of engineering resources to revenue bearing engineering service
projects, by the receipt of government funding for certain of our research and
product development efforts, and by lower operating costs across the business
due to our continued cost reduction efforts including a 7% workforce reduction
initiated in July 2012, partially offset by higher share-based compensation
expense in 2012.

Government research funding is
reflected as a cost offset to research and product development expenses, whereas
labour and material costs incurred on revenue producing engineering services
projects are reallocated from research and product development expenses to cost
of goods sold.

General and administrative
expenses

|(Expressed in thousands of U.S.
      dollars)    |  | Three months ended December
    31,
|------------------------------------------------- |  | -----------------------------------
|General and administrative                        |  |                                    
|General and
      administrative expense          |  | $                                  
|Less: Depreciation and
      amortization expense |  | $                                  
|Less:
      Restructuring charges                 |  | $                                  
|Less: Acquisition and
      integration costs     |  | $                                  
|Less: Financing charges                           |  | $                                  
|General and administrative (operating cost)       |  | $                                  
|                                                 
|(Expressed in thousands of U.S.
      dollars)    |  | Years ended December 31,           
|General and administrative                        |  |                                    
|General and
      administrative expense          |  | $                                  
|Less: Depreciation and
      amortization expense |  | $                                  
|Less:
      Restructuring charges                 |  | $                                  
|Less: Acquisition and
      integration costs     |  | $                                  
|Less: Financing charges                           |  | $                                  
|General and administrative (operating cost)       |  | $                                  

General and
administrativeexpenses for the three months ended December 31, 2012
were $3.4 million, an increase of $1.2 million, or 52%, compared to the
corresponding period of 2011. Excluding acquisition and integration costs
related to the Idatech acquisition of ($0.1) million and financing charges of
($0.6) million related to withdrawn financing efforts, general and
administrative expense was $2.7 million, an increase of $0.6 million, or 29%,
compared to the fourth quarter of 2011. The 29% increase in the fourth quarter
of 2012 was due primarily to higher share-based compensation expense as a result
of a downward adjustment to accrued share-based compensation expense for 2011
that was recorded in the fourth quarter of 2011. General and administrative
expenses also include impairment losses on trade receivables of ($0.2) million
and ($0.3) million, respectively, in the fourth quarters of 2012 and
2011.

Page 13 of 35

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General and
administrativeexpenses for the year ended December 31, 2012 were $12.3
million, an increase of $0.9 million, or 7%, compared to 2011. Excluding
restructuring charges of ($1.9) million and ($1.4) million, respectively,
depreciation and amortization expense of ($0.2) million and ($0.3) million,
respectively, and 2012 acquisition and integration costs related to the Idatech
acquisition of ($0.3) million and financing charges of ($0.6) million related to
withdrawn financing efforts, general and administrative expense, general and
administrative expense was $9.3 million, a decrease of ($0.5) million, or 5%,
compared to 2011. The 5% reduction in 2012 was primarily as result of our
continued cost reduction efforts including a 7% workforce reduction initiated in
July 2012, partially offset by higher share-based compensation expense in 2012.
General and administrative expenses also include impairment losses on trade
receivables of ($0.2) million and ($0.3) million, respectively, in 2012 and
2011.

Restructuringcharges of
($1.9) million in 2012 relate primarily to the 7% workforce reduction initiated
in July 2012 and a minor restructuring focused on manufacturing overhead cost
reduction initiated in April 2012. Restructuringcharges of
($1.4) million in 2011 relate primarily to a corporate leadership restructuring
initiated in September 2011 and a Dantherm Power leadership restructuring
initiated in March 2011.

Sales and marketing expenses

|(Expressed in thousands of U.S.
      dollars) |  | Three months ended December
      31,
|---------------------------------------------- |  | -------------------------------------
|**Sales and
      marketing**                  |  | 2012                                 
|Sales and marketing
      expense              |  | $                                    

|(Expressed in thousands of U.S.
      dollars) |  | Years ended December
      31,
|---------------------------------------------- |  | ------------------------------
|**Sales and
      marketing**                  |  | 2012                          
|Sales and marketing
      expense              |  | $                             

Sales and
marketingexpenses for the three months ended December 31, 2012
were $2.0 million, an increase of $0.3 million, or 15% compared to the
corresponding period of 2011. The 15% increase in the fourth quarter of 2012 is
as a result of increased investment in sales and marketing capacity in the
backup power market due to our acquisition of the Idatech assets in August 2012,
combined with higher share-based compensation expense due to a downward
adjustment to accrued share-based compensation expense for 2011 that was
recorded in the fourth quarter of 2011.

Sales and
marketingexpenses for the year ended December 31, 2012 were $6.9
million, a decrease of $1.6 million, or 19% compared to 2011. The 19% reduction
in 2012 was primarily as a result of our continued cost reduction efforts across
the business which included a 7% workforce reduction initiated in July 2012 and
a corporate leadership restructuring initiated in September 2011, partially
offset by increased investment in sales and marketing capacity in the backup
power market due to our acquisition of the Idatech assets in August 2012.

Page 14 of 35

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Finance income (loss) and
otherfor the three months and year ended December 31, 2012 was
$0.2 million and $0.1 million, respectively, compared to $0.1 million and $0.2
million, respectively, for the corresponding periods of 2011. The following
tables provide a breakdown of our finance and other income (loss) for the
reported periods:

|(Expressed in thousands of U.S.
      dollars) |  | Three months ended December
    31,
|---------------------------------------------- |  | -----------------------------------
|                                               |  |                                    
|Employee future
      benefit plan expense     |  | $                                  
|Investment and other
      income              |  |                                    
|Foreign exchange gain (loss)                   |  |                                    
|Finance income (loss) and other                |  | $                                  
|                                              
|(Expressed in thousands of U.S.
      dollars) |  | Years ended December 31,           
|                                               |  |                                    
|Employee future
      benefit plan expense     |  | $                                  
|Investment and other
      income              |  |                                    
|Foreign exchange gain (loss)                   |  |                                    
|Finance income (loss) and other                |  | $                                  

Employee future benefit plan
expense for the three months and years ended December 31, 2012 and 2011 were
nominal. Employee future benefit plan expense primarily represents the excess of
interest cost over the expected return on plan assets on a curtailed defined
benefit pension plan for our current and former United States employees

Foreign exchange gains and losses
are attributable primarily to the effect of the changes in the value of the
Canadian dollar, relative to the U.S. dollar, on our Canadian dollar-denominated
net monetary position. Foreign exchange gains and losses are also impacted by
the conversion of Dantherm Powers assets and liabilities from the Danish Kroner
to the U.S. dollar at exchange rates in effect at each reporting date.

Investment and other income of
$0.2 million and $0.3 million, respectively, for the years ended December 31,
2012 and 2011 was earned primarily on our cash, cash equivalents and short-term
investments.

Finance
expensefor the three months and
year ended December 31, 2012 was ($0.5) million and ($1.7) million,
respectively, compared to ($0.5) million and ($1.4) million, respectively, for
the corresponding periods of 2011. Finance expense relates primarily to the sale
and leaseback of our head office building in Burnaby, British Columbia which was
completed on March 9, 2010. Due to the long term nature of the lease, the
leaseback of the building qualifies as a finance (or capital) lease.

Gain (loss) on sale of
property, plant and equipmentfor
the three months and year ended December 31, 2012 was ($0.1) million, compared
to $0.7 million for the three months and year ended December 31, 2011. The gain
in 2011 relates primarily to a gain on sale of certain property, plant and
equipment to Mercedes-Benz Canada Inc. in conjunction with the sub-lease of
21,000 square feet of production space in Burnaby, B.C, effective in August
2011.

Impairment loss on property,
plant and equipmentfor the three
months and year ended December 31, 2012 was ($0.6) million, compared to ($1.7)
million for the three months and year ended December 31, 2011, and relate to a
write-down of manufacturing equipment never put into use.

Impairment loss on goodwillfor the three months and year ended
December 31, 2012 was ($10.0) million and consists of an impairment charge
related to our Fuel Cell Products segment.

Page 15 of 35

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Net loss attributed to
non-controlling interestsfor the
three months and year ended December 31, 2012 was ($0.5)
million and ($1.3) million, respectively, compared to ($0.3) million and ($2.7)
million, respectively, for the corresponding periods of 2011. Amounts represent
the non-controlling interest of Dantherm A/S and Danfoss A/S in the losses of
Dantherm Power as a result of their 48% total equity interest during 2012 and
2011. The improved performance in 2012 at Dantherm Power is primarily a result
of improved gross margins as a result of increased higher margin engineering
services revenues and increased shipments of backup power systems, combined with
lower operating costs due to our continued cost reduction efforts which included
a leadership restructuring in the first quarter of 2011. These benefits were
partially offset by a restructuring charge recorded in the first quarter of 2011
related to the above noted Dantherm Power leadership restructuring.

SUMMARY OF QUARTERLY RESULTS
FROM CONTINUING OPERATIONS

The following table provides
summary financial data for our last eight quarters from continuing operations:

|(Expressed in thousands of U.S.
      dollars, except per share amounts |  | Quarter ended,
|----------------------------------------------------------------------- |  | --------------
|and weighted average shares outstanding which are
      expressed in    |  |               
|thousands)                                                              |  |               
|                                                                        |  |               
|                                                                        |  |               
|Revenues from
      continuing operations                               |  | $             
|Net income (loss) attributable
      to Ballard from                    |  | $             
|continuing operations                                                   |  |               
|Net income
      (loss) per share attributable to                       |  | $             
|Ballard from
      continuing operations, basic and                     |  |               
|diluted                                                                 |  |               
|Weighted average common shares outstanding                              |  |               
|                                                                        |  |               
|                                                                        |  |               
|                                                                        |  |               
|Revenues from
      continuing operations                               |  | $             
|Net income (loss) attributable
      to Ballard from                    |  | $             
|continuing operations                                                   |  |               
|Net income
      (loss) per share attributable to                       |  | $             
|Ballard from
      continuing operations, basic and                     |  |               
|diluted                                                                 |  |               
|Weighted average
      common shares outstanding                        |  |               

Summary of Quarterly
Results: There were no significant
seasonal variations in our quarterly results from continuing operations.
Variations in our net loss for the above periods were affected primarily by the
following factors:

- Revenues: Variations in fuel
cell revenues reflect the demand and timing of our customers fuel cell vehicle,
bus and fuel cell product deployments as well as the demand and timing of their
engineering services projects. Variations in fuel cell revenues also reflect the
timing of work performed and the achievements of milestones under long-term
fixed price contracts. Revenues were positively impacted in the third and fourth
quarters of 2012 by $2.1 million and $3.0 million, respectively, as a result of
our acquisition of Idatechs key assets and product lines as of August 1, 2012.
Revenues were positively impacted in 2011 by a manufacturing supply agreement
with Daimler and a Daimler subsidiary which was completed in October 2011.
Contract Automotive revenues of $9.3 million (Q1-11: $2.9 million, Q2-11: $4.6
million, Q3-11: $1.8 million, and Q4-11: $0.1 million) and Fuel Cell Products
revenues of $8.7 million (Q1-11: $2.4 million, Q2-11: $3.3 million, Q3-11: $2.6
million, Q4-11: $0.4 million) in 2011 were derived from this contract
manufacturing agreement.

Page 16 of 35

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- Operating expenditures:
  Operating expenses were negatively impacted by restructuring charges of ($1.6)
  million in the third quarter of 2012 as a result of a 7% workforce reduction,
  restructuring charges of ($0.4) million in the third quarter of 2011 due to a
  corporate leadership restructuring, and by restructuring charges of ($0.9)
  million in the first quarter of 2011 due to a leadership restructuring in
  Dantherm Power.Restructuring charges are
  recognized in general and administrative expense.
  Operating expenses also include
  the impact of changes in the value of the Canadian dollar, versus the U.S.
  dollar, on our Canadian dollar denominated expenditures.
- Impairment loss on property,
  plant and equipment: The net loss for
  the fourth quarter of 2012 and the fourth quarter of 2011 was negatively
  impacted by an impairment charge of ($0.6) million and ($1.7) million,
  respectively, related to the write-down of manufacturing equipment never put
  into use.
- Impairment loss on
  goodwill: The net loss for the fourth
  quarter of 2012 was negatively impacted by an impairment charge of ($10.0)
  million related to a write-down of goodwill in our Fuel Cell Products segment.

CASH FLOWS

Cash, cash equivalents and
short-term investments were $21.8 million (or $12.5 million net of Operating
Facility draws of $9.3 million) at December 31, 2012, compared to $46.2 million
(or $41.6 million net of Operating Facility draws of $4.6 million) at December
31, 2011. The decrease in cash, cash equivalents and short-term investments of
($24.4) million in 2012 was driven by a net loss (excluding non-cash items) of
($22.2) million, and by net working capital requirements of ($5.9) million.
These outflows were partially offset by net cash advances on our Operating
Facility of $4.8 million and by convertible debt financing of $0.9 million to
Dantherm Power by a non-controlling partner.

For the three months ended December
31, 2012, cash used by operating activities was ($0.5) million, consisting of
cash operating losses of ($2.4) million partially offset by net working capital
inflows of $1.9 million. For the three months ended December 31, 2011, cash from
operating activities was $4.1 million, consisting of cash operating losses of
($4.7) million and net working capital inflows of $8.8 million. The ($4.6)
million increase in cash used by operating activities in the fourth quarter of
2012, as compared to the fourth quarter of 2011, was driven by reduced working
capital inflows of ($6.9) million partially offset by a reduction in cash
operating losses of $2.3 million. The reduction in cash operating losses of $2.3
million is primarily a result of a $1.8 million improvement in total Adjusted
EBITDA loss. In the fourth quarter of 2012, net working capital cash inflows of
$1.9 million were driven by lower inventory of $5.4 million as we consumed
previously built-up or acquired inventory in order to fulfill the higher product
shipments in the fourth quarter, and by higher deferred revenue and cost
recovery of $0.9 million as we received the next tranches of SDTC government
funding for our distributed generation and bus projects in advance of incurring
the related research and product development expenditures. These fourth quarter
of 2012 working capital inflows were partially offset by higher accounts
receivable of ($2.5) million due primarily to the timing of shipment versus
collection of our fuel cell product and service revenues, and by lower accounts
payable and accrued liabilities of ($2.6) million due to increased supplier
payments made for higher first three quarter of 2012 inventory purchases.
Working capital inflows of $8.8 million in the fourth quarter of 2011 were
driven by lower accounts receivable of $3.3 million due primarily to the timing
of collections of our fuel cell product and service revenues, lower inventory of
$1.9 million as we consumed previously built-up inventory in order to fulfill
the higher product shipments in the fourth quarter, and higher deferred revenue
and cost recovery of $2.0 million as we received the next tranches of SDTC
government funding for our distributed generation and bus projects in advance of
incurring the related research and product development expenditures.

Page 17 of 35

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For the year ended December 31,
2012, cash used by operating activities was ($28.1) million, consisting of cash
operating losses of ($22.2) million and working capital requirements of ($5.9)
million. For the year ended December 31, 2011, cash used by operating activities
was ($33.2) million, consisting of cash operating losses of ($26.5) million and
working capital requirements of ($6.7) million. The $5.1 million, or 15%,
decline in cash used by operating activities in 2012, as compared to 2011, was
driven by reductions in cash operating losses of $4.3 million combined with
lower working capital requirements of $0.8 million. The reduction in cash
operating losses of $4.3 million is primarily a result of the 17%, or $3.8
million, improvement in Adjusted EBITDA from both continuing and discontinued
operations. In 2012, net working capital outflows of ($5.9) million were driven
by lower accounts payable and accrued liabilities of ($10.5) million due to
increased supplier payments made for higher fourth quarter of 2011 and first
three quarter of 2012 inventory purchases combined with the payment of accrued
2011 annual employee bonuses, partially offset by lower inventory of $4.4
million as we consumed previously built-up or acquired inventory in order to
fulfill the higher product shipments in the fourth quarter. Working capital
outflows of ($6.7) million in 2011 were driven by higher accounts receivable of
($4.3) million due primarily to the timing of collections of our fuel cell
product and service revenues, higher inventory of ($1.3) million due primarily
to the buildup of inventory to support expected higher product shipments 2012,
and by lower accounts payable and accrued liabilities of ($1.7) million due
primarily to the timing of supplier payments.

Investing activities resulted in
cash inflows of $0.4 million and $13.0 million, respectively, for the three
months and year ended December 31, 2012, compared to cash outflows of ($15.5)
million ($3.8) million, respectively, for the corresponding periods of 2011.
Changes in short-term investments resulted in cash inflows of $0.6 million and
$13.8 million, respectively, for the three month and year ended December 31,
2012, compared to cash outflows of ($15.6) million and ($3.4) million,
respectively, for the corresponding periods of 2011. Balances changed between
cash equivalents and short-term investments as we make investment decisions with
regards to the term of investments and our future cash requirements.

Other investing activities in 2012
consist primarily of proceeds on sale of $0.4 million for previously impaired
manufacturing equipment, less capital expenditures of ($1.2) million. Other
investing activities in 2011 consist primarily of proceeds on sale of $1.7
million received primarily from Daimler on the closing of the facilities
sub-lease agreement, proceeds on sale and leaseback of capital equipment of $1.9
million, and capital expenditures of ($4.1) million primarily for manufacturing
equipment in order to build production capacity.

Financing activities resulted in
cash outflows of ($0.4) million and inflows of $4.6 million, respectively, for
the three months and year ended December 31, 2012, compared to cash outflows of
($3.2) million and inflows of $5.1 million, respectively, for the corresponding
periods of 2011. Financing activities in 2012 primarily represent advances, net
of repayments, of $4.8 million on our Operating Facility which is used to assist
with the financing of our working capital requirements. Financing activities in
2012 also include proceeds on convertible debenture financing from the Dantherm
Power non-controlling interests to Dantherm Power of $0.9 million and finance
lease payments of ($1.0) million. Financing activities in 2011 consist primarily
of net cash advances on our Operating Facility of $4.6 million, proceeds on
convertible debenture financing from the Dantherm Power non-controlling
interests to Dantherm Power of $1.7 million, less finance lease payments of
($0.8) million.

Page 18 of 35

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LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2012, we had total
Liquidity of $12.5 million. We measure Liquidity as our net cash position,
consisting of the sum of our cash, cash equivalents and short-term investments
of $21.8 million, net of amounts drawn on our $10 million Canadian demand
revolving facility (Operating Facility) of $9.3 million. The Operating
Facility is used to assist in financing our short term working capital
requirements and is secured by a hypothecation of our cash, cash equivalents and
short-term investments.

We also have a $3.3 million
Canadian capital leasing facility (Leasing Facility) which is used to finance
the acquisition and / or lease of operating equipment and is secured by a
hypothecation of our cash, cash equivalents and short-term investments. At
December 31, 2012, $2.5 million was outstanding on the Leasing
Facility.

Our Liquidity objective is to
maintain cash balances sufficient to fund at least six quarters of forecasted
cash used by operating activities at all times. Our strategy to attain this
objective is to continue our drive to attain profitable operations that are
sustainable by executing a business plan aimed at continued focus on Fuel Cell
Products revenue growth, improving overall gross margins, minimizing Cash
Operating Costs, managing working capital requirements, and securing additional
financing to fund our operations as needed until we do achieve profitable
operations that are sustainable. While we believe that we have adequate
liquidity in cash, working capital and non-core asset monetization opportunities
(consisting primarily of the subsequent disposition of our Materials Product
segment for gross cash proceeds of $10.5 million on January 31, 2013) to finance
our operations, we may also choose to pursue additional liquidity through the
issuance of debt or equity in private or public market financings. To facilitate
such an action, we filed a short form base shelf prospectus (Prospectus) in
April 2012 in each of the provinces and territories of Canada, except Quebec,
and a corresponding shelf registration statement on Form F-10 (Registration
Statement) with the United States Securities and Exchange Commission, which has
been declared effective. These filings will enable offerings of equity
securities during the effective period of the Prospectus and Registration
Statements. However, no assurance can be given that any such additional
liquidity will be available or that, if available, it can be obtained on terms
favorable to the Company.

Failure to achieve this Liquidity
objective will have a material adverse effect on our financial condition and
results of operations including our ability to continue as a going concern.
There are also various risks and uncertainties affecting our ability to achieve
this Liquidity objective including, but not limited to, the market acceptance
and rate of commercialization of our products, the ability to successfully
execute our business plan, and general global economic conditions, certain of
which are beyond our control. While we continue to make significant investments
in product development and market development activities necessary to
commercialize our products, and make increased investments in working capital as
we grow our business, our actual liquidity requirements will also vary and will
be impacted by our relationships with our lead customers and strategic partners,
our success in developing new channels to market and relationships with
customers, our success in generating revenue growth from near-term product
opportunities, our success in managing our operating expense and working capital
requirements, foreign exchange fluctuations, and the progress and results of our
research, development and demonstration programs.

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2013 BUSINESS
OUTLOOK

On a continuing operations basis,
we expect:

- Revenue
  growth in 2013 in excess of 30% over 2012 (or at least $56.8 million from
  $43.7 million in 2012);and
- Adjusted EBITDA improvement in 2013 in excess
  of 50% from 2012 (or lower than ($11.1) million from ($22.1) million in
  2012).

Consistent with the past couple of
years, we expect a majority of our 2013 revenue to be realized in the second
half of the year. Our business revenue outlook for 2013 is based on our internal
revenue forecast which reflects an assessment of overall business conditions and
takes into account actual sales in the first month of 2013, sales orders
received for units and services to be delivered in 2013, and an estimate with
respect to the generation of new sales in each of our markets. Our 2013 business
revenue outlook is also supported by our 12-month order book of $36.8 million at
December 31, 2012 ($32.0 million at December 31, 2011). The primary risk factors
that could cause us to miss our revenue guidance for 2013 are potential
disruptions in the material handling market as a result of our reliance on a
single customer in this market, and delays from forecast in terms of closing and
shipping expected sales orders primarily in our backup power and engineering
services markets.

The key drivers for the expected
improvement in Adjusted EBITDA for 2013 are expected increases in gross margins
driven primarily by the above noted overall increase in expected revenues,
supported by continued operating expense optimization and a resulting reduction
in Cash Operating Costs to the mid-$20 million range from $30.3 million in 2012.
Consistent with the expectation that a majority of our 2013 revenue will fall in
the last half of the year, Adjusted EBITDA is expected to be materially improved
in the last half of 2013, as compared to the first half of 2013.

Our Adjusted EBITDA outlook for
2013 is based on our internal Adjusted EBITDA forecast and takes into account
our forecasted gross margin related to the above revenue forecast, the costs of
our current and forecasted Cash Operating Costs, and assumes an average U.S.
dollar exchange rate of 1.00 in relation to the Canadian dollar. The primary
risk factor that could cause us to miss our target Adjusted EBITDA outlook for
2013 are lower than expected gross margins due to (i) lower revenues from
forecast due to potential disruptions in the material handling market as a
result of our reliance on a single customer in this market, or unexpected delays
in terms of closing and shipping expected sales orders primarily in our backup
power and engineering services markets; (ii) shifts in product sales mix
negatively impacting projected gross margin as a percentage of revenues; or
(iii) delays in the timing of our projected product cost reductions. In
addition, Adjusted EBITDA could also be negatively impacted by increases in Cash
Operating Costs as a result of (i) increased product development costs due to
unexpected cost overruns or by lower than anticipated engineering services
contracts or government cost recoveries; or (ii) negative foreign exchange
impacts due to a higher than expected Canadian dollar. A 1% increase in the
Canadian dollar, relative to the U.S. dollar, negatively impacts Adjusted EBITDA
and Cash Operating Costs by approximately $0.3 million to $0.4
million.

Similar to prior years and
consistent with our revenue and Adjusted EBITDA performance expectations for the
year and the resulting impacts on gross margin and working capital, we expect
cash used in operating activities in 2013 to be materially higher in the first
and second quarters of 2013, as compared to the third and fourth quarters of
2013. Cash used in operating activities in the first two quarters of 2013 is
expected to be negatively impacted by the buildup of inventory to support higher
product shipments in the third and fourth quarters, and by the timing of
revenues and the related customer collections which are also skewed towards the
last half of the year.

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Our cash flow from operations
outlook for 2013 is based on our internal net cash forecast and takes into
account our actual results for the first month of 2013 and our forecasted net
cash requirements for the balance of the year as a result of the above noted
Adjusted EBITDA forecast and our expectations for working capital requirements,
capital expenditures, and other investing, and financing activities for the
year. The primary risk factors that could cause us to miss our cash flow from
operations expectations for 2013 are lower than expected Adjusted EBITDA
performance as a result of the occurrence of any or all of the above noted risk
factors, and increased working capital requirements primarily as a result of (i)
higher than anticipated accounts receivable due to delays in the timing of
revenues and the related customer collections, (ii) unexpected changes in the
timing and amount of expected government grants and the related contract
payments; (iii) unexpected changes in the timing and mix of supplier purchases
and payments; and (iv) increased inventory levels due to unexpected changes in
the timing and mix of expected product shipments.

OFF-BALANCE SHEET ARRANGEMENTS
& CONTRACTUAL OBLIGATIONS

Periodically, we use forward
foreign exchange and forward platinum purchase contracts to manage our exposure
to currency rate fluctuations and platinum price fluctuations. We record these
contracts at their fair value as either assets or liabilities on our balance
sheet. Any changes in fair value are either (i) recorded in our statement of
comprehensive income if formally designated and qualified under hedge accounting
criteria; or (ii) recorded in our statement of operations if either not
designated, or not qualified, under hedge accounting criteria. At December 31,
2012, we did not have any outstanding foreign exchange currency contracts or
outstanding platinum forward purchase contracts.

At December 31, 2012, we did not
have any other material obligations under guarantee contracts, retained or
contingent interests in transferred assets, outstanding derivative instruments
or non-consolidated variable interests.

At December 31, 2012 we had the
following contractual obligations and commercial commitments:

|(Expressed in thousands of U.S.
      dollars) |  | Payments due by period,
|---------------------------------------------- |  | -----------------------
|Contractual Obligations                        |  |                        
|                                               |  |                        
|Operating
      leases                         |  | $                      
|Capital leases                                 |  |                        
|Asset retirement
      obligations             |  |                        
|Total contractual obligations                  |  | $                      

In addition to the contractual
purchase obligations above, we have outstanding commitments of $0.3 million
related primarily to purchases of capital assets at December 31, 2012. Capital
expenditures pertain to our regular operations and are expected to be funded
through cash on hand.

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As of December 31, 2012, we have
also agreed to pay previous funding obligations that were repayable through potential
royalties in respect of sales of certain fuel cell-based stationary power
products under two development programs with Canadian government agencies. The
total combined royalty is limited in any year to 4% of revenue from such
products. Under the terms of the Utilities Development Program (Phase 1) with
the Government British Columbia, total royalties are payable to a maximum equal
to the original amount of the government contributions of CDN $5.4 million. As
at December 31, 2012, no royalties have been incurred for Phase 1. Under the
terms of the Utilities Development Program (Phase 2) with Technology
Partnerships Canada (TPC) total royalties are payable to a maximum of CDN
$38.3 million. As at December 31, 2012, a total of CDN $5.3 million in royalty
repayments have been made for Phase 2. The Corporation has made no Phase 2
royalty repayments in 2012 and 2011. On January 15, 2013, we reached an
agreement with TPC to terminate all existing and future potential royalties
payable in respect of future sales of fuel cell based stationary power products
under the Utilities Development Program (Phase 2) in exchange for a final
repayment to TPC of CDN $1.9 million.

In the ordinary course of business
or as required by certain acquisition or disposition agreements, we are
periodically required to provide certain indemnities to other parties. Our
Arrangement with Superior Plus includes an indemnification agreement dated
December 31, 2008 (the "Indemnity Agreement"), which sets out the parties
continuing obligations to the other. The Indemnity Agreement has two basic
elements: it provides for the indemnification by each of the parties to the
other for breaches of representations and warranties or covenants as well as, in
our case, any liability relating to our business which is suffered by Superior
Plus. Our indemnity to Superior Plus with respect to our representation relating
to the existence of our tax pools immediately prior to the completion of the
Arrangement is limited to an aggregate of $7.4 million (Canadian $7.4 million)
with a threshold amount of $0.5 million (Canadian $0.5 million) before there is
an obligation to make a payment. Second, the Indemnity Agreement provides for
adjustments to be paid by us, or to us, depending on the final determination of
the amount of our Canadian non-capital losses, scientific research and
development expenditures and investment tax credits generated to December 31,
2008, to the extent that such amounts are more or less than the amounts
estimated at the time the Arrangement was executed. At December 31, 2012, we
have not accrued any amount owing, or receivable, as a result of the Indemnity
Agreement.

RELATED PARTY TRANSACTIONS

Related parties include
shareholders with a significant ownership interest in us, together with their
subsidiaries and affiliates, our key management personnel, and our minority
interest partners in Dantherm Power. Revenues and costs recognized from such
transactions reflect the prices and terms of sale and purchase transactions with
related parties, which are in accordance with normal trade practices at fair
value. Related party transactions and balances are as follows:

|(Expressed in thousands of U.S.
      dollars) |  | Three months ended |      | Year ended        
|---------------------------------------------- |  | ------------------ | ---- | ------------------
|                                               |  | December
      31, |      | December
      31,
|Transactions with related
      parties        |  |                    | 2012 |                   
|Revenues                                       |  | $                  | -    |                   
|Purchases                                      |  | $                  | -    |                   
|Finance expense
      on convertible           |  | $                  | 86   |                   
|debenture payable                              |  |                    |      |                   

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|(Expressed in thousands of U.S.
      dollars) |  | As at December 31,
|---------------------------------------------- |  | ------------------
|Balances with related parties                  |  |                   
|Trade accounts
      payable                   |  | $                 
|Interest payable                               |  | $                 
|Convertible debenture payable                  |  | $                 
|                                              
|OUTSTANDING SHARE DATA                         |  |                   
|                                              
|As at February 20, 2013                        |  |                   
|Common share
      outstanding                 |  |                   
|Options outstanding                            |  |                   

CRITICAL ACCOUNTING POLICIES
AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Our consolidated financial
statements are prepared in accordance with International Financial Reporting
Standards, which require us to make estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual result may differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis Revisions
to accounting estimates are recognized in the period in which the estimates are
revised and in any future periods affected.

At this time, we have concluded
that there are no critical judgments that we have made in the process of
applying our accounting policies. Our significant accounting policies are
detailed in note 3 to the annual consolidated financial statements.

The following are key assumptions
concerning the future and other key sources of estimation uncertainty that have
a significant risk of resulting in a material adjustment to the reported amount
of assets, liabilities, income and expenses within the next financial
year.

REVENUE RECOGNITION

Revenues are generated primarily
from product sales and services in our Fuel Cell Products, Contract Automotive
and Material Products segments. Product revenues are derived primarily from
standard equipment and material sales contracts and from long-term fixed price
contracts. Service revenues are derived primarily from cost-plus reimbursable
contracts and from long-term fixed price contracts.

On standard equipment and material
sales contracts, revenues are recognized when (i) significant risks and rewards
of ownership of the goods has been transferred to the buyer; (ii) we retain
neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold; (iii) the amount of revenue
can be measured reliably; (iv) it is probable that the economic benefits
associated with the sale will accrue to us; and (v) the costs incurred, or to be
incurred, in respect of the transaction can be measured reliably. Provisions are
made at the time of sale for warranties. Revenue recognition for standard
equipment and material sales contracts does not usually involve significant
estimates.

On cost-plus reimbursable
contracts, revenues are recognized as costs are incurred, and include applicable
fees earned as services are provided. Revenue recognition for cost-plus
reimbursable contracts does not usually involve significant estimates.

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On long-term fixed price
contracts, revenues are recorded on the percentage-of-completion basis over the
duration of the contract, which consists of recognizing revenue on a given
contract proportionately with its percentage of completion at any given time.
The percentage of completion is determined by dividing the cumulative costs
incurred as at the balance sheet date by the sum of incurred and anticipated
costs for completing a contract.

- The
  determination of anticipated costs for completing a contract is based on
  estimates that can be affected by a variety of factors such as variances in
  the timeline to completion, the cost of materials, the availability and cost
  of labour, as well as productivity.
- The determination of potential revenues
  includes the contractually agreed amount and may be adjusted based on the
  estimate of our attainment on achieving certain defined contractual
  milestones. Managements estimation is required in determining the probability
  that the revenue will be received and in determining the measurement of that
  amount.

Estimates used to determine
revenues and costs of long-term fixed price contracts involve uncertainties that
ultimately depend on the outcome of future events and are periodically revised
as projects progress. There is a risk that a customer may ultimately disagree
with our assessment of the progress achieved against milestones or that our
estimates of the work required to complete a contract may change. The cumulative
effect of changes to anticipated revenues and anticipated costs for completing a
contract are recognized in the period in which the revisions are identified. In
the event that the anticipated costs exceed the anticipated revenues on a
contract, such loss is recognized in its entirety in the period it becomes
known.

During the three months and year
ended December 31, 2012 and 2011, there was no material adjustments to revenues
relating to revenue recognized in a prior period.

ASSET IMPAIRMENT

The carrying amounts of our
non-financial assets other than inventories are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such
indication exists, then the assets recoverable amount is estimated. For
goodwill and intangible assets that have indefinite useful lives, the
recoverable amount is estimated at least annually.

The recoverable amount of an asset
or cash-generating unit is the greater of its value in use and its fair value
less costs to sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. In assessing fair value less costs to sell, the price
that would be received on the sale of an asset in an orderly transaction between
market participants at the measurement date is estimated. For the purposes of
impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other groups
of assets. Cash-generating units to which goodwill has been allocated reflects
the lowest level at which goodwill is monitored for internal reporting purposes.
Many of the factors used in assessing fair value are outside the control of
management and it is reasonably likely that assumptions and estimates will
change from period to period. These changes may result in future impairments.
For example, our revenue growth rate could be lower than projected due to
economic, industry or competitive factors, or the discount rate used in our
value in use model could increase due to a change in market interest rates. In
addition, future goodwill impairment charges may be necessary if our market
capitalization decreased due to a decline in the trading price of our common
stock, which could negatively impact the fair value of our operating
segments.

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An impairment loss is recognized
if the carrying amount of an asset or its cash-generating unit exceeds its
estimated recoverable amount. Impairment losses are recognized in net loss.
Impairment losses recognized in respect of the cash-generating units are
allocated first to reduce the carrying amount of any goodwill allocated to the
units, and then to reduce the carrying amounts of the other assets in the unit
on a pro-rata basis.

An impairment loss in respect of
goodwill is not reversed. In respect of other assets, impairment losses
recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss
is reversed only to the extent that the assets carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or
amortization, if no impairment loss had been recognized.

We perform the annual review of
goodwill as at December 31 of each year, more often if events or changes in
circumstances indicate that it might be impaired. Under IFRS, the annual review
of goodwill requires a comparison of the carrying value of the asset to the
higher of (i) value in use; and (ii) fair value less costs to
sell.Value in use is defined as the present value of future cash flows
expected to be derived from the asset in its current state. Prior to our 2012
annual impairment test, our consolidated goodwill balance of $48.1 million
consisted of $46.3 million in our core Fuel Cell Products segment, and $1.8
million in our now discontinued Material Products segment. Based on the
impairment test performed as at December 31, 2012, we have recorded a goodwill
impairment charge of ($11.8) million in our 2012 financial results, consisting
of goodwill impairment of ($10.0) million in our Fuel Cell Products segment and
a goodwill write-off of ($1.8) million in our Material Products segment. Details
of our goodwill impairment tests are as follows:

- One of the methods used to assess the recoverable amount of the goodwill
in our core Fuel Cells Products segment is a fair value, less costs to sale,
test. Our fair value test is in effect a modified market capitalization
assessment, whereby we calculate the fair value of the Fuel Cell Products
segment by first calculating the value of the Company at December 31, 2012 based
on the average closing share price in the month of December, add a reasonable
estimated control premium of 25% to determine the Companys enterprise value on
a controlling basis after adjusting for excess cash balances, and then deduct
the fair value of our Materials Product segments from this enterprise value to
arrive at the fair value of the Fuel Cell Products segment. As a result of this
assessment, we have determined that the fair value of the Fuel Cell Products
segment was deficient to its carrying value resulting in a ($10.0) million
write-down of Fuel Cell Products goodwill from $46.3 million to $36.3 million as
of December 31, 2012.
- In addition to this fair value test, we also performed a value in use
test on our Fuel Cell Products segment that compared the carrying value of the
segment to the present value of future cash flows expected to be derived from
the segment. The principal factors used in this discounted cash flow analysis
requiring significant estimation are the projected results of operations, the
discount rate based on the weighted average cost of capital (WACC), and
terminal value assumptions for each reporting unit. Our value in use
test was based on a WACC of 20%; an average estimated compound annual growth
rate of approximately 35% from 2012 to 2017; and a terminal year EBITDA
multiplied by a terminal value multiplier of 4.0. Our value in use assessment
resulted in an estimated fair value for the Fuel Cell Products segment that is
consistent with that as determined under the above fair value, less costs to
sell, assessment.

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- The fair value of our Material Products
  segment was determined based on a fair value less costs to sell assessment
  which compared the segments carrying value at December 31, 2012 to the actual
  net proceeds received on disposition on January 31, 2013. As a result of this
  assessment, we have determined that the fair value of the Material Products
  segment was deficient to its carrying value resulting in a ($1.8) million
  write-off of Material Products goodwill and a ($0.5) million write-down of
  property, plant and equipment as of December 31, 2012. Total 2012 impairment
  charges of ($2.3) million for the Material Products segment are included in
  net loss from discontinued operations.

As a result of our quarterly
review of the carrying amounts of our non-financial assets (other than
inventories) to determine whether there is any indication of impairment, we
recorded an impairment charge of ($0.6) million in our Fuel Cell Products
segment for the three months and year ended December 31, 2012 related to a
write-down of manufacturing equipment never put into use.

WARRANTY PROVISION

A provision for warranty costs is
recorded on product sales at the time of shipment. In establishing the accrued
warranty liabilities, we estimate the likelihood that products sold will
experience warranty claims and the cost to resolve claims received. In making
such determinations, we use estimates based on the nature of the contract and
past and projected experience with the products. Should these estimates prove to
be incorrect, we may incur costs different from those provided for in our
warranty provisions. During the three months and year ended December 31, 2012,
we recorded provisions to accrued warranty liabilities of $0.4 million and $1.5
million, respectively, for new product sales, compared to $1.0 million and $1.9
million, respectively, for the three months and year ended December 31, 2011.

We review our warranty assumptions
and make adjustments to accrued warranty liabilities quarterly based on the
latest information available and to reflect the expiry of contractual
obligations. Adjustments to accrued warranty liabilities are recorded in cost of
product and service revenues. As a result of these reviews and the resulting
adjustments, our warranty provision and cost of revenues for the three months
and year ended December 31, 2012 were adjusted upwards by a net amount of ($0.2)
million and downwards by $0.4 million, respectively, compared to a net
adjustment downwards of $0.5 million and $1.7 million, respectively, for the
three months and year ended December 31, 2011. The adjustments to reduce accrued
warranty liabilities were primarily due to contractual expirations, changes in
estimated costs to repair, and improved lifetimes and reliability of our fuel
cell products.

INVENTORY PROVISION

In determining the lower of cost
and net realizable value of our inventory and establishing the appropriate
provision for inventory obsolescence, we estimate the likelihood that inventory
carrying values will be affected by changes in market pricing or demand for our
products and by changes in technology or design which could make inventory on
hand obsolete or recoverable at less than cost. We perform regular reviews to
assess the impact of changes in technology and
design, sales trends and other changes on the carrying value of inventory. Where
we determine that such changes have occurred and will have a negative impact on
the value of inventory on hand, appropriate provisions are made. If there is a
subsequent increase in the value of inventory on hand, reversals of previous
write-downs to net realizable value are made. Unforeseen changes in these
factors could result in additional inventory provisions, or reversals of
previous provisions, being required. During the three months and year ended
December 31, 2012, inventory provisions of ($0.2)million and
($0.7)million, respectively, were recorded as a charge to cost of product and
service revenues, compared to ($0.3) million and ($0.6) million, respectively,
for the three months and year ended December 31, 2011.

Page 26 of 35

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EMPLOYEE FUTURE BENEFITS

The present value of our defined
benefit obligation is determined by discounting the estimated future cash
outflows using interest rates of high-quality corporate bonds that have terms to
maturity approximating the terms of the related pension liability. Determination
of benefit expense requires assumptions such as the discount rate to measure
obligations, expected plan investment performance, expected healthcare cost
trend rate, and retirement ages of employees. Actual results will differ from
the recorded amounts based on these estimates and assumptions.

INCOME TAXES

We use the asset and liability
method of accounting for income taxes. Under this method, deferred income taxes
are recognized for the deferred income tax consequences attributable to
differences between the financial statement carrying values of assets and
liabilities and their respective income tax bases (temporary differences) and
for loss carry-forwards. The resulting changes in the net deferred tax asset or
liability are included in income.

Deferred tax assets and
liabilities are measured using enacted, or substantially enacted, tax rates
expected to apply to taxable income in the years in which temporary differences
are expected to be recovered or settled. The effect on deferred income tax
assets and liabilities, of a change in tax rates, is included in income in the
period that includes the substantive enactment date. Deferred income tax assets
are reviewed at each reporting period and are reduced to the extent that it is
no longer probable that the related tax benefit will be realized. As of December
31, 2012 and 2011, we have not recorded any deferred income tax assets on our
consolidated statement of financial position.

NEW IFRS ACCOUNTING POLICIES

The following is an overview of
accounting standard changes that we will be required to adopt in future years.
Except as otherwise noted below for IFRS 9, IAS 32 and amendments to IFRS 7, the
standards are effective for our annual periods beginning on or after January 1,
2013, with earlier application permitted. We do not expect to adopt any of these
standards before their effective dates.

IFRS 9  Financial Instruments

In November 2009, the
International Accounting Standards Board (IASB) published IFRS 9 Financial
Instruments. This new standard simplifies the classification and measurement of
financial assets set out in IAS 39 Financial Instruments: Recognition and
Measurement. Financial assets are to be measured at amortized cost or fair
value. They are to be measured at amortized cost if the two following conditions
are met:

a) The assets are held within a
business model whose objective is to collect contractual cash flows;
and

b) The contractual cash flows are
solely payments of principal and interest on the outstanding principal.

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All other financial assets are to
be measured at fair value through net earnings. The entity may, if certain
conditions are met, elect to use the fair value option instead of measurement at
amortized cost. As well, the entity may choose upon initial recognition to
measure non-trading equity investments at fair value through comprehensive
income. Such a choice is irrevocable.

In October 2010, the IASB issued
revisions to IFRS 9, adding the requirements for classification and measurement
of financial liabilities contained in IAS 39 and further points. For financial
liabilities measured at fair value through net earnings using the fair value
option, the amount of change in a liabilitys fair value attributable to changes
in its credit risk is recognized directly in other comprehensive income.

In December 2011, the IASB
deferred the mandatory effective date of IFRS 9 to fiscal years beginning on or
after January 1, 2015. Early adoption is permitted under certain conditions. An
entity is not required to restate comparative financial periods for its
first-time application of IFRS 9, but must comply with the new disclosure
requirements.

We intend to adopt IFRS 9 in our
financial statements for the annual period beginning on January 1, 2015. The
extent of the impact of adoption of IFRS 9 has not yet been determined.

IFRS 10 - Consolidated
Financial Statements

In May 2011, the IASB published
IFRS 10 Consolidated Financial Statements which is a replacement of SIC-12
Consolidation  Special Purpose Entities, and certain parts of IAS 27
Consolidated and Separate Financial Statements. IFRS 10 uses control as the
single basis for consolidation, irrespective of the nature of the investee,
employing the following factors to identify control:

a) Power over the
investee;

b) Exposure or rights to variable
returns from involvement with the investee;

c) The ability to use power over
the investee to affect the amount of the investors returns.

IFRS 10 shall be applied to fiscal
years beginning on or after January 1, 2013. We intend to adopt IFRS 10 in our
financial statements for the annual period beginning on January 1, 2013. We do
not expect IFRS 10 to have a material impact on our financial statements.

IFRS 11 - Joint Arrangements

In May 2011, the IASB published
IFRS 11 Joint Arrangements which supersedes IAS 31 Interests in Joint
Ventures and SIC-13 Jointly Controlled Entities  Non-Monetary Contributions
by Venturers. IFRS 11 requires that joint ventures be accounted for using the
equity method of accounting and eliminates the need for proportionate
consolidation.

IFRS 11 shall be applied to fiscal
years beginning on or after January 1, 2013. We intend to adopt IFRS 11 in our
financial statements for the annual period beginning on January 1, 2013. We do
not expect IFRS 11 to have a material impact on our financial
statements.

IFRS 12 - Disclosure of
Interests in Other Entities

In May 2011, the IASB published
IFRS 12 Disclosure of Interests in Other Entities which requires that an entity disclose information on the nature of and risks
associated with its interests in other entities (i.e. subsidiaries, joint
arrangements, associates or unconsolidated structured entities) and the effects
of those interests on its financial statements.

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IFRS 12 shall be applied to fiscal
years beginning on or after January 1, 2013. We intend to adopt IFRS 12 in our
financial statements for the annual period beginning on January 1, 2013. We do
not expect IFRS 12 to have a material impact on our financial
statements.

IFRS 13 - Fair Value
Measurement

In May 2011, the IASB published
IFRS 13 Fair Value Measurement to establish a single framework for fair value
measurement of financial and non-financial items. IFRS 13 defines fair value as
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. It also requires disclosure of certain information on fair
value measurements.

IFRS 13 shall be applied to fiscal
years beginning on or after January 1, 2013. We intend to adopt IFRS 13 in our
financial statements for the annual period beginning on January 1, 2013. We do
not expect IFRS 13 to have a material impact on our financial
statements.

Amendments to IAS 19 - Employee
Benefits

In June 2011, the IASB issued
amendments to IAS 19 Employee Benefits. Changes in defined benefit obligations
and plan assets are to be recognized in other comprehensive income when they
occur, thus eliminating the corridor approach and accelerating recognition of
past service cost. Net interest is to be recognized in net earnings and
calculated using the discount rate by reference to market yields at the end of
the reporting period on high quality corporate bonds. The actual return on plan
assets minus net interest is to be recognized in other comprehensive
income.

The amendments to IAS 19 shall be
applied to fiscal years beginning on or after January 1, 2013. We intend to
adopt the amendments to IAS 19 in our financial statements for the annual period
beginning on January 1, 2013. Our current accounting policy for employee
benefits for the presentation of pension expense and the immediate recognition
of actuarial gains and losses in other comprehensive income is consistent with
the requirements of the amended IAS 19 standard. However, additional disclosures
and the computation of annual expense based on the application of the discount
rate to the net defined benefit asset or liability will be required in relation
to the revised standard.

Amendments to IAS 1  Financial
Statement Presentation

In June 2011, the IASB issued
amendments to IAS 1 Presentation of Financial Statements. Items of other
comprehensive income and the corresponding tax expense are required to be
grouped into those that will and will not subsequently be reclassified through
net earnings.

These amendments shall be applied
to fiscal years beginning on or after July 1, 2012. We intend to adopt the
amendments to IAS 1 in our financial statements for the annual period beginning
on January 1, 2013. We do not expect the amendments to IAS 1 to have a material
impact on our financial statements.

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Amendments to other IFRS
Standards

In addition, there have been
amendments to existing standards, including IFRS 7Financial Instruments: Disclosure, IAS 27Separate
Financial Statements, IAS 28Investments inAssociates and Joint
Ventures, and IAS 32Financial Instruments: Presentation. IFRS 7 amendments require disclosure about the effects
of offsetting financial assets and financial liabilities and related
arrangements on an entitys financial position. IAS 27 addresses accounting for
subsidiaries, jointly controlled entities and associates in non-consolidated
financial statements. IAS 28 has been amended to include joint ventures in its
scope and to address the changes in IFRS 10 to 13. IAS 32 addresses
inconsistencies when applying the offsetting requirements, and is effective for
annual periods beginning on or after January 1, 2014. We do not expect these
amendments to have a material impact on our financial statements.

SUPPLEMENTAL NON-GAAP MEASURES

In addition to providing measures
prepared in accordance with GAAP, we present certain supplemental non-GAAP
measures. These measures are Cash Operating Costs, EBITDA and Adjusted EBITDA,
and Normalized Net Loss. These non-GAAP measures do not have any standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable to
similar measures presented by other companies. We believe these measures are
useful in evaluating the operating performance and liquidity of the Companys
ongoing business. These measures should be considered in addition to, and not as
a substitute for, net income, cash flows and other measures of financial
performance and liquidity reported in accordance with GAAP.

Cash Operating
Costs

This supplemental non-GAAP measure
is provided to assist readers in determining our operating costs on a cash
basis. We believe this measure is useful in assessing performance and
highlighting trends on an overall basis. We also believe Cash Operating Costs is
frequently used by securities analysts and investors when comparing our results
with those of other companies. Cash Operating Costs differs from the most
comparable GAAP measure, operating expenses, primarily because it does not
include stock-based compensation expense, depreciation and amortization,
restructuring charges, acquisition costs and financing charges. The following
table shows a reconciliation of operating expenses to Cash Operating Costs from
continuing operations for the three months and years ended December 31, 2012 and
2011:

|(Expressed in thousands of U.S.
      dollars) |  | Three months ended December
    31, |           
|---------------------------------------------- |  | ----------------------------------- | ----------
|Cash Operating Costs                           |  | 2012                                |           
|Operating
      Expense                        |  | $                                   | 10,047    
|Stock-based
      compensation (expense)       |  |                                     | **(1,555**
|recovery                                       |  |                                     |           
|Acquisition and
      integration costs        |  |                                     | (91       
|Restructuring
      charges                    |  |                                     | -         
|Financing
      charges                        |  |                                     | (564      
|Depreciation and
      amortization            |  |                                     | (504      
|Cash Operating Costs                           |  | $                                   | 7,333     
|                                              
|(Expressed in thousands of U.S.
      dollars) |  | Years ended December 31,           
|Cash Operating Costs                           |  |                                     | 2012      
|Operating
      Expense                        |  | $                                   | 38,480    
|Stock-based
      compensation expense         |  |                                     | (2,582    
|Acquisition and
      integration costs        |  |                                     | (274      
|Restructuring
      charges                    |  |                                     | (1,931    
|Financing
      charges                        |  |                                     | (564      
|Depreciation and
      amortization            |  |                                     | (2,828    
|Cash Operating
      Costs                     |  | $                                   | 30,301    

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EBITDA and Adjusted
EBITDA

These supplemental non-GAAP
measures are provided to assist readers in determining our operating performance
and ability to generate operating cash flow. We believe this measure is useful
in assessing performance and highlighting trends on an overall basis. We also
believe EBITDA and Adjusted EBITDA are frequently used by securities analysts
and investors when comparing our results with those of other companies. EBITDA
differs from the most comparable GAAP measure, net income attributable to
Ballard, primarily because it does not include finance expense, income taxes,
depreciation of property, plant and equipment, amortization of intangible
assets, and goodwill impairment charges. Adjusted EBITDA adjusts EBITDA for
stock-based compensation expense, transactional gains and losses, asset
impairment charges, finance and other income, and acquisition costs.

The following table shows a
reconciliation of net income attributable to Ballard to EBITDA and Adjusted
EBITDA from continuing operations for the three months and year ended December
31, 2012 and 2011:

|(Expressed in thousands of U.S.
      dollars) |  | Three months ended December 31, |            
|---------------------------------------------- |  | ------------------------------- | -----------
|EBITDA and Adjusted
EBITDA                     |  | 2012                            |            
|Net loss from
      continuing operations      |  | **$**                           | **(16,809**
|attributable to
      Ballard                  |  |                                 |            
|Depreciation and
      amortization            |  |                                 | 1,016      
|Finance
      expense                          |  |                                 | 458        
|Income taxes                                   |  |                                 | -          
|EBITDA
      attributable to Ballard           |  | $                               | (15,335    
|Stock-based
      compensation expense         |  |                                 | **1,555**  
|(recovery)                                     |  |                                 |            
|Acquisition
      and integration costs        |  |                                 | 91         
|Finance
      and other (income) loss          |  |                                 | (167       
|Impairment
      of goodwill                   |  |                                 | 10,000     
|Loss
      (gain) on sale and impairment of    |  |                                 | **634**    
|property, plant and equipment                  |  |                                 |            
|Adjusted
    EBITDA                            |  | $                               | (3,222     
|                                              
|(Expressed in thousands of U.S.
    dollars)   |  | Year ended
      December 31,   |            
|EBITDA and Adjusted
EBITDA                     |  | 2012                            |            
|Net loss from
      continuing operations      |  | $                               | (42,070    
|attributable to
      Ballard                  |  |                                 |            
|Depreciation and
      amortization            |  |                                 | 4,840      
|Finance
      expense                          |  |                                 | 1,690      
|Income taxes                                   |  |                                 | -          
|EBITDA
      attributable to Ballard           |  | $                               | (35,540    
|Stock-based
      compensation                 |  |                                 | 2,582      
|Acquisition
      costs                        |  |                                 | 274        
|Finance
      and other (income) loss          |  |                                 | (31        
|Impairment
      of goodwill                   |  |                                 | 10,000     
|Loss
      (gain) on sale and impairment of    |  |                                 | **639**    
|property, plant and equipment                  |  |                                 |            
|Adjusted EBITDA                                |  | $                               | (22,076    

Normalized Net Loss

This supplemental non-GAAP measure
is provided to assist readers in determining our financial performance. We
believe this measure is useful in assessing our actual performance by adjusting
our results from continuing operations for one-time transactional gains and
losses and impairment losses. Normalized Net Loss differs from the most
comparable GAAP measure, net loss attributable to Ballard from continuing
operations, primarily because it does not include
transactional gains and losses and asset impairment charges.

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The following table shows a
reconciliation of net loss attributable to Ballard from continuing operations to
Normalized Net Loss for the three months and years ended December 31, 2012 and
2011.

|(Expressed in thousands of U.S.
      dollars) |                          | Three months ended December
    31, |            
|---------------------------------------------- | ------------------------ | ----------------------------------- | -----------
|Normalized Net Loss                            |                          | **2012**                            |            
|Net loss
      attributable to Ballard from    |                          | **$**                               | **(16,809**
|continuing
      operations                    |                          |                                     |            
|Impairment of
      goodwill                   |                          |                                     | 10,000     
|Impairment on
      property, plant and        |                          |                                     | 570        
|equipment                                      |                          |                                     |            
|Normalized Net Loss                            |                          | $                                   | (6,239     
|Normalized Net Loss per
      share            |                          | $                                   | (0.07      
|                                              
|(Expressed in thousands of U.S. dollars)       | Years ended December 31, |                                    
|Normalized Net Loss                            |                          | 2012                                |            
|Net loss
      attributable to Ballard from    |                          | **$**                               | **(42,070**
|continuing
      operations                    |                          |                                     |            
|Impairment of
      goodwill                   |                          |                                     | 10,000     
|Impairment on
      property, plant and        |                          |                                     | **570**    
|equipment                                      |                          |                                     |            
|Normalized Net Loss                            |                          | $                                   | (31,500    
|Normalized Net Loss per
      share            |                          | $                                   | (0.36      

MANAGEMENTS REPORT ON
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL
REPORTING

Disclosure controls and
procedures

Our disclosure controls and
procedures are designed to provide reasonable assurance that relevant
information is gathered and reported to senior management, including the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO), on a timely
basis so that appropriate decisions can be made regarding public disclosures.

As of the end of the period
covered by this report, we evaluated, under the supervision and with the
participation of management, including the CEO and the CFO, the effectiveness of
the design and operation of our disclosure controls and procedures, as defined
in Rules 13a15(e) and 15d-15(e) of the Securities Exchange Act of 1934
(Exchange Act). The CEO and CFO have concluded that as of December 31, 2012,
our disclosure controls and procedures were effective to ensure that information
required to be disclosed in reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
therein, and accumulated and reported to management to allow timely discussions
regarding required disclosure.

Internal control over financial
reporting

The CEO and CFO, together with
other members of management, are responsible for establishing and maintaining
adequate internal control over the Companys financial reporting. Internal
control over financial reporting is designed under our supervision, and effected
by the Companys board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
IFRS.

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There are inherent limitations in
the effectiveness of internal control over financial reporting, including the
possibility that misstatements may not be prevented or detected. Accordingly,
even effective internal controls over financial reporting can provide only
reasonable assurance with respect to financial statement preparation.
Furthermore, the effectiveness of internal controls can change with
circumstances.

Management, including the CEO and
CFO, have evaluated the effectiveness of internal control over financial
reporting, as defined in Rules 13a15(f) of the Exchange Act, in relation to
criteria described inInternal
ControlIntegrated Frameworkissued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, Management has determined that internal control over
financial reporting was effective as of December 31, 2012.

KPMG LLP, our independent
registered public accounting firm, has audited our consolidated financial
statements and expressed an unqualified opinion thereon. KPMG has also expressed
an unqualified opinion on the effective operation of our internal control over
financial reporting as of December 31, 2012.

Changes in internal control
over financial reporting

During the year ended December 31,
2012, there were no material changes in internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting. Our design of
disclosure controls and procedures and internal controls over financial
reporting includes controls, policies and procedures covering Dantherm Power.

RISKS & UNCERTAINTIES

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

Our business entails risks and
uncertainties that affect our outlook and eventual results of our business and
commercialization plans. The primary risks relate to meeting our product
development and commercialization milestones, which require that our products
exhibit the functionality, cost, durability and performance required in a
commercial product and that we have sufficient access to capital to fund these
activities. To be commercially useful, most of our products must be integrated
into products manufactured by system integrators or OEMs. There is no guarantee
that system integrators or OEMs will provide products that use our products as
components. There is also a risk that mass markets for certain of our products
may never develop, or that market acceptance might take longer to develop than
anticipated.

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

- We may not be able to achieve
  commercialization of our products on the timetable we anticipate, or at
  all;
- We expect our cash reserves will be reduced
  due to future operating losses and working
  capital requirements, and we cannot provide certainty as to how long our cash
  reserves will last or that we will be able to access additional capital when
  necessary;

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- A mass market for our products may never
  develop or may take longer to develop than we anticipate;
- We may not be able to successfully execute
  our business plan;
- In our material handling market, we depend on
  a single customer for the majority of our revenues;
- We have limited experience manufacturing fuel
  cell products on a commercial basis;
- Global economic conditions are beyond our
  control and may have an adverse impact on our business or on our key suppliers
  and / or customers;
- Potential fluctuations in our financial and
  business results make forecasting difficult and may restrict our access to
  funding for our commercialization plan;
- We could be adversely affected by risks
  associated with acquisitions;
- We are subject to risks inherent in
  international operations;
- Exchange rate fluctuations are beyond our
  control and may have a material adverse effect on our business, operating
  results, financial condition and profitability;
- Commodity price fluctuations are beyond our
  control and may have a material adverse effect on our business, operating
  results, financial condition and profitability;
- We are dependent upon Original Equipment
  Manufacturers and Systems Integrators to purchase certain of our
  products;
- We are dependent on third party suppliers for
  the supply of key materials and components for our products;
- We currently face and will continue to face
  significant competition;
- We could lose or fail to attract the
  personnel necessary to run our business;
- Public Policy and regulatory changes could
  hurt the market for our products;
- We depend on our intellectual property, and
  our failure to protect that intellectual property could adversely affect our
  future growth and success;
- We could be liable for environmental damages
  resulting from our research, development or manufacturing operations;
  and
- Our products use flammable fuels, which could
  subject our business to product liability claims.

FORWARD-LOOKING STATEMENTS
DISCLAIMER

This document contains
forward-looking statements that are based on the beliefs of management and
reflect our current expectations as contemplated under the safe harbor
provisions of Section 21E of the United States Securities Exchange Act of 1934,
as amended. Such statements include, but are not limited to, statements with
respect to our objectives, goals, liquidity, sources of capital and our outlook
including our estimated revenue and gross margins, cash flow from operations,
Cash Operating Costs, EBITDA and Adjusted EBITDA
(see Non-GAAP Measures) contained in our Business Outlook, as well as
statements with respect to our beliefs, plans, objectives, expectations,
anticipations, estimates and intentions. Words such as "estimate", "project",
"believe", "anticipate", "intend", "expect", "plan", "predict", "may", "should",
"will", the negatives of these words or other variations thereof and comparable
terminology are intended to identify forward-looking statements. These
statements are not guarantees of future performance and involve assumptions,
risks and uncertainties that are difficult to predict.

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In particular, these
forward-looking statements are based on certain factors and assumptions
disclosed in our Outlook as well as specific assumptions relating to our
expectations with respect to the generation of new sales, producing, delivering
and selling the expected product volumes at the expected prices, and controlling
our costs. They are also based on a variety of general factors and assumptions
including, but not limited to, our expectations regarding product development
efforts, manufacturing capacity, product pricing, market demand, and the
availability and prices of raw materials, labour and supplies. These assumptions
have been derived from information available to the Company including
information obtained by the Company from third parties. These assumptions may
prove to be incorrect in whole or in part. In addition, actual results may
differ materially from those expressed, implied, or forecasted in such
forward-looking statements. Factors that could cause our actual results or
outcomes to differ materially from the results expressed, implied or forecasted
in such forward-looking statements include, but are not limited to: the
condition of the global economy; the rate of mass adoption of our products;
changes in product pricing; changes in our customers' requirements, the
competitive environment and related market conditions; product development
delays; changes in the availability or price of raw materials, labour and
supplies; our ability to attract and retain business partners, suppliers,
employees and customers; changing environmental regulations; our access to
funding and our ability to provide the capital required for product development,
operations and marketing efforts, and working capital requirements; our ability
to protect our intellectual property; the magnitude of the rate of change of the
Canadian dollar versus the U.S. dollar; and the general assumption that none of
the risks identified in the Risks and Uncertainties section of this report or in
our most recent Annual Information Form will materialize. Readers should not
place undue reliance on Ballard's forward-looking statements.

The forward-looking statements
contained in this document speak only as of the date of this Management
Discussion and Analysis. Except as required by applicable legislation, Ballard
does not undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this Management Discussion and Analysis, including the occurrence of
unanticipated events.

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