| |                                                                    | 
| | ------------------------------------------------------------------ | 
| | Consolidated
      Financial Statements(Expressed in U.S. dollars) | 
| |                                                                    | 
| | BALLARD POWER SYSTEMS
    INC.                                     | 
| |                                                                    | 
| | Years ended December 31, 2012 and 2011                             | 
| |                                                                    | 

---



MANAGEMENTS REPORT

Managements Responsibility for the Financial Statements
andReport on Internal Control over Financial
Reporting

The
consolidated financial statements contained in this Annual Report have been
prepared by management in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board.
The integrity and objectivity of the data in these consolidated financial
statements are managements responsibility. Management is also responsible for
all other information in the Annual Report and for ensuring that this
information is consistent, where appropriate, with the information and data
contained in the consolidated financial statements.

Management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial
statements for external reporting purposes in accordance with IFRS. Internal
control over financial reporting may not prevent or detect fraud or
misstatements because of limitations inherent in any system of internal control.
Management has assessed the effectiveness of the Corporations internal control
over financial reporting based on the framework in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and concluded that the Corporations internal control over financial
reporting was effective as of December 31, 2012. In addition, management
maintains disclosure controls and procedures to provide reasonable assurance
that material information is communicated to management and appropriately
disclosed. Some of the assets and liabilities include amounts, which are based
on estimates and judgments, as their final determination is dependent on future
events.

The
Board of Directors oversees managements responsibilities for financial
reporting through the Audit Committee, which consists of four directors who are
independent and not involved in the daily operations of the Corporation. The
Audit Committee meets on a regular basis with management and the external and
internal auditors to discuss internal controls over the financial reporting
process, auditing matters and financial reporting issues. The Audit Committee is
responsible for appointing the external auditors (subject to shareholder
approval), and reviewing and approving all financial disclosure contained in our
public documents and related party transactions.

---



The external auditors, KPMG LLP,
have audited the financial statements and expressed an unqualified opinion
thereon. KPMG has also expressed an unqualified opinion on the effective
operation of the internal controls over financial reporting as of December 31,
2012. The external auditors have full access to management and the Audit
Committee with respect to their findings concerning the fairness of financial
reporting and the adequacy of internal controls.

JOHN SHERIDAN
    TONY GUGLIELMINJOHN SHERIDAN
    TONY GUGLIELMINPresident and
    Vice President andChief Executive
Officer
    Chief Financial
  OfficerFebruary 20, 2013
    February 20,
  2013


---



| | KPMG LLP                             | Telephone |  | (604) 691-3000
| | ------------------------------------ | --------- |  | --------------
| | Chartered
      Accountants          | Fax       |  | (604) 691-3031
| | PO Box 10426 777 Dunsmuir
    Street | Internet  |  | www.kpmg.ca   
| | Vancouver BC V7Y 1K3                 |           |  |               
| | Canada                               |           |  |               

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of
Directors of Ballard Power Systems Inc.

We have audited the accompanying
consolidated statements of financial position of Ballard Power Systems Inc. (the
Company) as at December 31, 2012 and December 31, 2011 and the related
consolidated statements of comprehensive loss, changes in equity and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in
accordance with Canadian generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company as at December 31, 2012 and
December 31, 2011, and its consolidated financial performance and its
consolidated cash flows for the years then ended in conformity with
International Financial Reporting Standardsas issued by the International Accounting Standards Board.

The accompanying consolidated
financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in note 2(e) to the consolidated financial
statements, the Companys ability to continue as a going concern and realize its
assets and discharge its liabilities and commitments in the normal course of
business is dependent on it having sufficient liquidity and achieving profitable
operations that are sustainable. These conditions indicate the existence of a
material uncertainty that casts substantial doubt about the Company's ability to
continue as a going concern. Managements plans in regard to these matters are
also described in note 2(e). The consolidated financial statements do not
include any adjustments that might result from the outcome of this material
uncertainty.



---



We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Companys internal control over financial reporting as of
December 31, 2012, based on the criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated February 20, 2013 expressed an
unqualified opinion on the effectiveness of the Companys internal control over
financial reporting.

Chartered Accountants

February 20, 2013Vancouver,Canada

---



| | KPMG LLP                               | Telephone |  | (604) 691-3000
| | -------------------------------------- | --------- |  | --------------
| | Chartered Accountants                  | Fax       |  | (604) 691-3031
| | PO Box 10426 777 Dunsmuir
      Street | Internet  |  | www.kpmg.ca   
| | Vancouver BC V7Y 1K3                   |           |  |               
| | Canada                                 |           |  |               

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of
Directors of Ballard Power Systems Inc.

We have audited Ballard Power
Systems Inc.s (the Company) internal control over financial reporting as of
December 31, 2012, based on the criteria established inInternal Control
 Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Companys management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the section entitled Managements Report on Disclosure Controls and
Procedures and Internal Controls over Financial Reporting under the heading
Internal control over financial reporting included in Management Discussion
and Analysis. Our responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

A companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.

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

In our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2012, based on the criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).



---



We also have audited, in
accordance with Canadian generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board (United States), the
consolidated statements of financial position of the Company as of December 31,
2012 and December 31, 2011, and the related consolidated statements of
comprehensive loss, changes in equity and cash flows for the years then ended,
and our report dated February 20, 2013 expressed an unqualified opinion on those
consolidated financial statements.

Chartered Accountants

February 20, 2013Vancouver,
Canada

---



BALLARD POWER SYSTEMS INC.Consolidated Statement of Financial
Position(Expressed in thousands of U.S.
dollars)

|                                                                   |  |         |  | December
      31, |            |   | December 31, |  
|------------------------------------------------------------------ |  | ------- |  | ------------------ | ---------- | - | ------------ | -
|                                                                   |  | Note    |  |                    | 2012       |   |              |  
|Assets                                                             |  |         |  |                    |            |   |              |  
|                                                                  
|Current
    assets:                                                |  |         |  |                    |            |   |              |  
|Cash and cash equivalents                                          |  |         |  | $                  | 9,770      |   |              | $
|Short-term
      investments                                       |  |         |  |                    | 12,068     |   |              |  
|Trade and other receivables                                        |  | 7       |  |                    | 16,374     |   |              |  
|Inventories                                                        |  | 8       |  |                    | 11,277     |   |              |  
|Prepaid expenses and other current
      assets                    |  |         |  |                    | 1,011      |   |              |  
|                                                                   |  |         |  |                    | 50,500     |   |              |  
|Assets classified as held for
      sale                           |  | 28      |  |                    | 10,798     |   |              |  
|Total current
      assets                                         |  |         |  |                    | 61,298     |   |              |  
|                                                                  
|Property, plant and
      equipment                                |  | 9       |  |                    | 24,316     |   |              |  
|Intangible assets                                                  |  | 10      |  |                    | 4,194      |   |              |  
|Goodwill                                                           |  | 11      |  |                    | 36,291     |   |              |  
|Investments                                                        |  | 12      |  |                    | 667        |   |              |  
|Long-term trade
      receivables                                  |  | 7       |  |                    | 594        |   |              |  
|Other long-term assets                                             |  |         |  |                    | 187        |   |              |  
|Total assets                                                       |  |         |  | $                  | 127,547    |   |              | $
|                                                                  
|Liabilities                                                        |  |         |  |                    |            |   |              |  
|                                                                  
|Current
      liabilities:                                         |  |         |  |                    |            |   |              |  
|Bank operating line                                                |  | 13      |  | $                  | 9,358      |   |              | $
|Trade and other
      payables                                     |  | 14      |  |                    | 12,215     |   |              |  
|Deferred revenue                                                   |  |         |  |                    | 3,705      |   |              |  
|Provisions                                                         |  | 15      |  |                    | 9,423      |   |              |  
|Finance lease liability                                            |  | 13 & 16 |  |                    | 1,043      |   |              |  
|Convertible
      debenture                                        |  | 17      |  |                    | 2,924      |   |              |  
|                                                                   |  |         |  |                    | 38,668     |   |              |  
|Liabilities classified
      as held for sale                      |  | 28      |  |                    | 1,423      |   |              |  
|Total current liabilities                                          |  |         |  |                    | 40,091     |   |              |  
|                                                                  
|Finance lease
      liability                                      |  | 13 & 16 |  |                    | 13,011     |   |              |  
|Deferred gain                                                      |  |         |  |                    | 5,193      |   |              |  
|Provisions                                                         |  | 15      |  |                    | 5,089      |   |              |  
|Convertible debenture                                              |  | 17      |  |                    | -          |   |              |  
|Employee future
      benefits                                     |  | 18      |  |                    | 6,161      |   |              |  
|Total liabilities                                                  |  |         |  |                    | 69,545     |   |              |  
|                                                                  
|Equity:                                                            |  |         |  |                    |            |   |              |  
|Share capital                                                      |  | 19      |  |                    | 845,630    |   |              |  
|Treasury
shares                                                    |  | 19      |  |                    | (313       | ) |              |  
|Contributed surplus                                                |  | 19      |  |                    | 291,184    |   |              |  
|Accumulated
      deficit                                          |  |         |  |                    | (1,074,181 | ) |              |  
|Foreign currency reserve                                           |  |         |  |                    | 92         |   |              |  
|Total equity
      attributable to equity holders                  |  |         |  |                    | 62,412     |   |              |  
|Dantherm Power A/S non-controlling interests                       |  |         |  |                    | (4,410     | ) |              |  
|Total equity                                                       |  |         |  |                    | 58,002     |   |              |  
|Total liabilities and equity                                       |  |         |  | $                  | 127,547    |   |              | $
|                                                                  
|Subsequent events (note 29)                                        |  |         |  |                    |            |   |              |  
|See accompanying notes to consolidated
      financial statements. |  |         |  |                    |            |   |              |  

|Approved on behalf of the
      Board: |             
|-------------------------------------- | ------------
|                                      
|Ed Kilroy                            | Ian Bourne
|Director                               | Director    

---



BALLARD POWER SYSTEMS
INC.Consolidated Statement of
Comprehensive LossFor the year ended December 31(Expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|                                                                                  |  | Note |  |   | 2012       |   |                      | 2011      
|--------------------------------------------------------------------------------- |  | ---- |  | - | ---------- | - | -------------------- | ----------
|                                                                                  |  |      |  |   |            |   | (restated  note 28)
|Revenues:                                                                         |  |      |  |   |            |   |                      |           
|Product and service
      revenues                                                |  |      |  | $ | 43,690     |   | $                    | 55,773    
|Cost of product
      and service revenues                                        |  |      |  |   | 36,321     |   |                      | 48,494    
|Gross margin                                                                      |  |      |  |   | 7,369      |   |                      | 7,279     
|                                                                                 
|Operating expenses:                                                               |  |      |  |   |            |   |                      |           
|Research and product
      development                                            |  |      |  |   | 19,273     |   |                      | 24,896    
|General and
      administrative                                                  |  |      |  |   | 12,306     |   |                      | 11,455    
|Sales and marketing                                                               |  |      |  |   | 6,901      |   |                      | 8,515     
|Total operating
      expenses                                                    |  |      |  |   | 38,480     |   |                      | 44,866    
|                                                                                 
|Results from
      operating activities                                           |  |      |  |   | (31,111    | ) |                      | (37,587   
|Finance income and
      other                                                    |  | 27   |  |   | 31         |   |                      | 195       
|Finance
    expense                                                               |  | 27   |  |   | (1,690     | ) |                      | (1,392    
|Net finance expense                                                               |  |      |  |   | (1,659     | ) |                      | (1,197    
|Gain (loss) on
      sale of property, plant and equipment                        |  | 9    |  |   | (69        | ) |                      | 734       
|Impairment loss on property,
      plant and equipment                            |  | 9    |  |   | (570       | ) |                      | (1,727    
|Impairment loss
      on goodwill                                                 |  | 11   |  |   | (10,000    | ) |                      | -         
|Loss before income
    taxes                                                      |  |      |  |   | (43,409    | ) |                      | (39,777   
|Income tax
      expense                                                          |  | 23   |  |   | -          |   |                      | (134      
|Net
      loss from continuing operations                                         |  |      |  |   | (43,409    | ) |                      | (39,911   
|Net earnings
      (loss) from discontinued operations                            |  | 28   |  |   | (65        | ) |                      | 3,755     
|Net
      loss                                                                    |  |      |  | $ | (43,474    | ) | $                    | (36,156   
|Foreign currency
      translation differences                                    |  |      |  |   | (186       | ) |                      | 363       
|Defined benefit plan actuarial
      losses                                       |  | 18   |  |   | (807       | ) |                      | (2,905    
|Net gain (loss)
      on hedge of forward contracts                               |  |      |  |   | (20        | ) |                      | 20        
|Comprehensive loss                                                                |  |      |  | $ | (44,487    | ) | $                    | (38,678   
|                                                                                  |  |      |  |   |            |   |                      |           
|Net loss attributable to:                                                         |  |      |  |   |            |   |                      |           
|Ballard Power Systems
      Inc. from continuing operations                       |  |      |  | $ | (42,070    | ) | $                    | (37,175   
|Ballard Power Systems
      Inc. from discontinued operations                     |  |      |  |   | (65        | ) |                      | 3,755     
|Dantherm Power A/S
      non-controlling interest                                 |  |      |  |   | (1,339     | ) |                      | (2,736    
|Net
    loss                                                                      |  |      |  | $ | (43,474    | ) | $                    | (36,156   
|                                                                                  |  |      |  |   |            |   |                      |           
|Comprehensive loss attributable
      to:                                         |  |      |  |   |            |   |                      |           
|Ballard Power Systems
      Inc.                                                  |  |      |  | $ | (43,059    | ) | $                    | (36,116   
|Dantherm Power A/S
      non-controlling interest                                 |  |      |  |   | (1,428     | ) |                      | (2,562    
|Comprehensive loss                                                                |  |      |  | $ | (44,487    | ) | $                    | (38,678   
|                                                                                  |  |      |  |   |            |   |                      |           
|Basic and diluted loss per share
      attributable to Ballard Power Systems Inc. |  |      |  |   |            |   |                      |           
|Continuing
      operations                                                       |  |      |  | $ | (0.48      | ) | $                    | (0.44     
|Discontinued
      operations                                                     |  |      |  | $ | (0.00      | ) | $                    | 0.04      
|Net loss                                                                          |  |      |  | $ | (0.48      | ) | $                    | (0.40     
|Weighted average number of common
      shares outstanding                        |  |      |  |   | 87,591,501 |   |                      | 84,440,970

See accompanying notes to
consolidated financial statements.

---



BALLARD POWER SYSTEMS
INC.Consolidated Statement of
Changes in Equity(Expressed in thousands
of U.S. dollars except per share amounts and number of shares)

|                                              |  | Ballard Power Systems Inc. Equity |  |   |              | DanthermPower A/S |   |                |       |       |                   
|--------------------------------------------- |  | --------------------------------- |  | - | ------------ | ----------------- | - | -------------- | ----- | ----- | ------------------
|                                              |  | Number ofshares                   |  |   | Sharecapital |                   |   | Treasuryshares |       |       | Contributedsurplus
|Balance,
      December 31, 2010              |  | 84,148,465                        |  | $ | 836,245      |                   | $ | (670           | )     | $     | 289,444           
|Net loss                                      |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|Non-dilutive
      financing                  |  | -                                 |  |   | -            |                   |   | -              |       |       | (60               
|Purchase of treasury
      shares             |  | -                                 |  |   | -            |                   |   | (327           | )     |       | -                 
|RSUs
      redeemed                           |  | 376,225                           |  |   | 1,393        |                   |   | 482            |       |       | (2,769            
|Options exercised                             |  | 25,834                            |  |   | 48           |                   |   | -              |       |       | (8                
|Share distribution
plan                       |  | -                                 |  |   | -            |                   |   | -              |       |       | 2,612             
|Other
      comprehensive income (loss):      |  |                                   |  |   |              |                   |   |                |       |       |                   
|Foreign currency translation
      for        |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|foreign
      operations                      |  |                                   |  |   |              |                   |   |                |       |       |                   
|Defined benefit plan actuarial
      loss     |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|Net gain on hedge of forward
      contracts  |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|Balance, December 31,
      2011              |  | 84,550,524                        |  | $ | 837,686      |                   | $ | (515           | )     | $     | 289,219           
|Net
      loss                                |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|Acquisition (note 6)                          |  | 7,136,237                         |  |   | 7,493        |                   |   | -              |       |       | -                 
|Additional investment in                      |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|Dantherm Power
      A/S                      |  |                                   |  |   |              |                   |   |                |       |       |                   
|Purchase of treasury shares                   |  | -                                 |  |   | -            |                   |   | (6             | )     |       | -                 
|DSUs redeemed                                 |  | 52,120                            |  |   | 314          |                   |   | -              |       |       | (358              
|RSUs redeemed                                 |  | 49,095                            |  |   | 113          |                   |   | 208            |       |       | (415              
|Options exercised                             |  | 13,501                            |  |   | 24           |                   |   | -              |       |       | (7                
|Share distribution plan                       |  | -                                 |  |   | -            |                   |   | -              |       |       | 2,745             
|Other comprehensive loss:                     |  |                                   |  |   |              |                   |   |                |       |       |                   
|**Foreign currency
      translation for**    |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|**foreign
      operations**                  |  |                                   |  |   |              |                   |   |                |       |       |                   
|**Defined benefit plan
      actuarial loss** |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|**Net loss on hedge of
      forward**        |  | -                                 |  |   | -            |                   |   | -              |       |       | -                 
|**contracts**                                 |  |                                   |  |   |              |                   |   |                |       |       |                   
|Balance, December 31, 2012                    |  | 91,801,477                        |  | $ | 845,630      |                   | $ | (313           | **)** | **$** | 291,184           

See accompanying notes to
consolidated financial statements.

---



BALLARD POWER SYSTEMS
INC.Consolidated Statement of Cash
FlowsFor the year ended December 31(Expressed in thousands of U.S. dollars)

|                                                                             |  | Note |  |   | 2012    |   |   | 2011   
|---------------------------------------------------------------------------- |  | ---- |  | - | ------- | - | - | -------
|Cash provided by (used
    for):                                             |  |      |  |   |         |   |   |        
|                                                                            
|Operating activities:                                                        |  |      |  |   |         |   |   |        
|                                                                            
|Net loss for the
      year                                                  |  |      |  | $ | (43,474 | ) | $ | (36,156
|Adjustments for:                                                             |  |      |  |   |         |   |   |        
|Compensatory
      shares                                                    |  |      |  |   | 2,746   |   |   | 2,646  
|Employee future
      benefits                                               |  |      |  |   | (331    | ) |   | (172   
|Depreciation and
      amortization                                          |  |      |  |   | 6,184   |   |   | 5,906  
|Loss (gain) on sale of
      property, plant and equipment                   |  | 9    |  |   | 69      |   |   | (734   
|Impairment loss on
      property, plant and equipment                       |  | 9    |  |   | 1,070   |   |   | 1,727  
|Impairment loss on
      goodwill                                            |  | 11   |  |   | 11,815  |   |   | -      
|Unrealized loss (gain)
      on forward contracts                            |  |      |  |   | (285    | ) |   | 285    
|                                                                             |  |      |  |   | (22,206 | ) |   | (26,498
|Changes in
      non-cash working capital:                                   |  |      |  |   |         |   |   |        
|Trade and other
      receivables                                            |  |      |  |   | 65      |   |   | (4,317 
|Inventories                                                                  |  |      |  |   | 4,434   |   |   | (1,293 
|Prepaid expenses and other
      current assets                              |  |      |  |   | (151    | ) |   | 42     
|Trade and other
      payables                                               |  |      |  |   | (10,459 | ) |   | (1,691 
|Deferred revenue                                                             |  |      |  |   | 166     |   |   | 1,052  
|Warranty
      provision                                                     |  |      |  |   | 5       |   |   | (516   
|                                                                             |  |      |  |   | (5,940  | ) |   | (6,723 
|Cash used by
      operating activities                                      |  |      |  | $ | (28,146 | ) | $ | (33,221
|                                                                            
|Investing activities:                                                        |  |      |  |   |         |   |   |        
|                                                                            
|Net decrease
      (increase) in short-term investments                      |  |      |  |   | 13,810  |   |   | (3,370 
|Additions to property, plant and
      equipment                             |  |      |  |   | (1,168  | ) |   | (4,107 
|Net proceeds on
      sale of property, plant and equipment and other        |  |      |  |   | 424     |   |   | 3,666  
|Net investments in associated
      companies                                |  | 12   |  |   | (32     | ) |   | 36     
|Other investment
      activities                                            |  |      |  |   | (9      | ) |   | -      
|                                                                             |  |      |  | $ | 13,025  |   | $ | (3,775 
|                                                                            
|Financing activities:                                                        |  |      |  |   |         |   |   |        
|                                                                            
|Non-dilutive
      financing                                                 |  |      |  |   | -       |   |   | (60    
|Purchase of treasury
      shares                                            |  |      |  |   | (6      | ) |   | (327   
|Payment of
      finance lease liabilities                                   |  |      |  |   | (999    | ) |   | (830   
|Net proceeds from bank operating
      line                                  |  | 13   |  |   | 4,771   |   |   | 4,587  
|Net proceeds on
      issuance of share capital                              |  |      |  |   | 17      |   |   | 40     
|Proceeds on issuance of
      convertible debenture from                     |  | 17   |  |   | 862     |   |   | 1,718  
|Dantherm Power A/S
      non-controlling interests                           |  |      |  |   |         |   |   |        
|                                                                             |  |      |  | $ | 4,645   |   | $ | 5,128  
|                                                                            
|Effect of
      exchange rate fluctuations on cash and cash equivalents held |  |      |  | $ | (70     | ) | $ | 247    
|                                                                            
|Increase (decrease) in cash and cash
      equivalents                       |  |      |  | $ | (10,546 | ) | $ | (31,621
|Cash and cash equivalents, beginning of period                               |  |      |  |   | 20,316  |   |   | 51,937 
|Cash and cash equivalents, end of
      period                               |  |      |  | $ | 9,770   |   | $ | 20,316 

Supplemental disclosure of cash flow
information (note 25).Cash flows of discontinued operations (note
28).See accompanying notes to
consolidated financial statements.

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.  | Reporting
      entity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The principal business of
      Ballard Power Systems Inc. (the Corporation) 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 (back-up power and distributed generation) markets; and
      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 Corporations
      technology is based on proton exchange membrane (PEM) fuel
      cells.
      The Corporation is a company
      domiciled in Canada and its registered office is located at 9000 Glenlyon
      Parkway, Burnaby, British Columbia, Canada, V5J 5J8. The consolidated
      financial statements of the Corporation as at and for the year ended
      December 31, 2012 comprise the Corporation and its subsidiaries (note
      3(a)).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2.  | Basis of
      preparation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(a) | Statement of
      compliance:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | These consolidated financial
      statements of the Corporation have been prepared in accordance with
      International Financial Reporting Standards (IFRS) as issued by the
      International Accounting Standards Board (IASB).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    | The consolidated financial
      statements were authorized for issue by the Board of Directors on February
      20, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(b) | Basis of
    measurement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    | The consolidated financial
      statements have been prepared on the historical cost basis except for the
      following material items in the statement of financial
  position:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Financial instruments classified as fair value through profit or
        loss and available-for-sale are measured at fair value;Derivative financial instruments are measured at fair value;
        andEmployee future benefits liability is recognized as the net total of
        the present value of the defined benefit obligation, less the fair value
        of plan assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

12

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of shares)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.  | Basis of preparation
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(c) | Functional and presentation
      currency:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | These consolidated financial
      statements are presented in U.S. dollars, which is the Corporations
      functional currency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(d) | Use of
  estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    | The preparation of the
      consolidated financial statements in conformity with IFRS requires the
      Corporations management to make estimates and assumptions that affect the
      application of accounting policies and the reported amounts of assets,
      liabilities, income and expenses. Actual results may differ from these
      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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    | Significant areas having
      estimation uncertainty include revenue recognition, asset impairment,
      warranty provision, inventory provision, employee future benefits, and
      income taxes. These estimates and assumptions are discussed further in
      note 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(e) | Going concern:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    | These consolidated financial
      statements have been prepared assuming the Corporation will continue as a
      going concern. The Corporation is required to assess its ability to
      continue as a going concern or whether substantial doubt exists as to the
      Corporations ability to continue as a going concern into the foreseeable
      future. While the Corporation believes that it has adequate liquidity in
      cash, working capital and non-core asset monetization opportunities (notes
      28 & 29) to finance its operations, there are material risks and
      uncertainties that cause substantial doubt as to the Corporations ability
      to continue as a going concern. The Corporations ability to continue as a
      going concern and realize its assets and discharge its liabilities and
      commitments in the normal course of business is dependent upon the
      Corporation having adequate liquidity and achieving profitable operations
      that are sustainable. There are various risks and uncertainties affecting
      the Corporation including, but not limited to, the market acceptance and
      rate of commercialization of the Corporations products, the ability of
      the Corporation to successfully execute its business plan, and general
      global economic conditions, certain of which are beyond the Corporations
      control.
|   
|    | The Corporations strategy
      to mitigate these risks and uncertainties is to execute a business plan
      aimed at continued focus on Fuel Cell Products revenue growth, improving
      overall gross margins, managing operating expenses and working capital
      requirements, and securing additional financing to fund its operations as
      needed including the sale of non-core assets (notes 28 & 29). Failure
      to implement this plan could have a material adverse effect on the
      Corporations financial condition and or results of
  operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

13

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of shares)

|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.  | Basis of preparation
      (contd):                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                            
|(e) | Going concern (contd):                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                            
|    | These consolidated financial
      statements do not include any adjustments or disclosures that would be
      required if assets are not realized and liabilities and commitments are
      not settled in the normal course of operations.                                                              
|    |                                                                                                                                                                                                                                                                                                            
|3.  | Significant accounting
      policies:                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                            
|    | The accounting policies set
      out below have been applied consistently to all periods presented in these
      consolidated financial statements, unless otherwise indicated.
      Certain prior year
      comparative figures have been reclassified to comply with current year
      presentation.
|    |                                                                                                                                                                                                                                                                                                            
|(a) | Basis of
      consolidation:                                                                                                                                                                                                                                                                              
|   
|    | The consolidated financial
      statements include the accounts of the Corporation and its principal
      subsidiaries as follows:                                                                                                                                                                       

| |                                      |  |           |  | Percentage
ownership
| | ------------------------------------ |  | --------- |  | --------------------
| |                                      |  | 2012      |  | 2011                
| | Ballard Fuel
      Cell Systems Inc. |  | 100%      |  | -                   
| | Ballard Material Products
      Inc. |  | 100%      |  | 100%                
| | Ballard Power
      Corporation      |  | 100%      |  | 100%                
| | Dantherm Power A/S                   |  | 52% - 57% |  | 52%                 

| | Subsidiaries are entities
      over which the Corporation exercises control, where control is defined as
      the power to govern financial and operating policies, generally owning
      greater than 50% of the voting rights. The financial statements of
      subsidiaries are included in the consolidated financial statements from
      the date that control commences until the date that control ceases.
      Intercompany balances and transactions are eliminated in the consolidated
      financial statements.
      The Corporation acquired a
      45% interest in Dantherm Power A/S on January 18, 2010. The Corporation
      acquired an additional 7% interest in Dantherm Power A/S in August 2010
      and a further 5% interest in December 2012. As the Corporation obtained
      control over Dantherm Power A/S as of the date of acquisition of the 45%
      interest, Dantherm Power A/S has been consolidated since acquisition on
      January 18, 2010.
      Acquisitions of
      non-controlling interest are accounted as transactions with equity holders
      in their capacity as equity holders; therefore no goodwill is recognized
      as a result of such transactions.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|    |                                                
|--- | -----------------------------------------------
|3.  | Significant accounting
      policies (contd):
|    |                                                
|(b) | Foreign
      currency:                        
|    |                                                
|    | (i)                                            
|   
|    |                                                
|   
|    | (ii)                                           
|   
|    |                                                
|   
|(c) | Financial
      instruments:                   
|   
|    | (i)                                            
|   
|    |                                                
|   
|    |                                                
|   
|    |                                                

15

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|    |                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.  | Significant accounting
      policies (contd):
|    |                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(c) | Financial
      instruments (contd):          
|    |                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (i)                                             | Financial assets
      (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                 | The Corporations short-term
      investments, consisting of highly liquid interest bearing securities with
      maturities at the date of purchase between three months and three years,
      are classified as held for trading.
      The Corporation also periodically
      enters into platinum futures and foreign exchange forward contracts to
      limit its exposure to platinum price and foreign currency rate
      fluctuations. These derivatives are recognized initially at fair value and
      are recorded as either assets or liabilities based on their fair value.
      Subsequent to initial recognition, these derivatives are measured at fair
      value and changes to their value are recorded through net loss, unless
      these financial instruments are designated as hedges (note 3 (c)(iv)).
      Loans and receivables
      Loans and receivables are
      financial assets with fixed or determinable payments that are not quoted
      in an active market. Such assets are recognized initially at fair value
      and subsequently at amortized cost using the effective interest method,
      less any impairment losses. Loans and receivables are comprised of the
      Corporations trade and other receivables.
      Cash and cash
      equivalents
      Cash and cash equivalents consist
      of cash on deposit and highly liquid short-term interest-bearing
      securities with original maturities of three months or less and are
      initially measured at fair value, and subsequently measured at amortized
      cost, which approximates fair value due to the short-term and liquid
      nature of these assets.
      Available-for-sale financial
      assets
      Available-for-sale financial
      assets are non-derivative financial assets that are designated as
      available-for-sale and that are not classified in any of the previous
      categories. The Corporations investment in Chrysalix Energy Limited
      Partnership (Chrysalix) is classified as available-for-sale financial
      assets. Subsequent to initial recognition, they are measured at fair value
      and changes therein, other than impairment losses and foreign currency
      differences, are recognized in other comprehensive income. When an
      investment is derecognized, the cumulative gain or loss in other
      comprehensive income is transferred to profit or loss.

16

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|       |                                                
|------ | -----------------------------------------------
|**3.** | Significant accounting
      policies (contd):
|       |                                                
|(c)    | Financial
      instruments (contd):          
|      
|       | (i)                                            
|       |                                                
|       |                                                
|      
|       |                                                
|      
|       | (ii)                                           
|      
|       |                                                
|      
|       | (iii)                                          
|      
|       |                                                

17

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|       |                                                
|------ | -----------------------------------------------
|**3.** | Significant accounting
      policies (contd):
|       |                                                
|(c)    | Financial
      instruments (contd):          
|       |                                                
|       | (iv)                                           
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                

18

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**3.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(c)    | Financial
      instruments (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      
|       | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|(d)    | Inventories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      
|       | Inventories are
      recorded at the lower of cost and net realizable value. The cost of
      inventories is based on the first-in first-out principle, and includes
      expenditures incurred in acquiring the inventories, production or
      conversion costs and other costs incurred in bringing them to their
      existing location and condition. In the case of manufactured inventories
      and work in progress, cost includes materials, labor and appropriate share
      of production overhead based on normal operating capacity. Costs of
      materials are determined on an average per unit basis.
|      
|       | Net realizable
      value is the estimated selling price in the ordinary course of business,
      less the estimated costs of completion and selling expenses. In
      establishing any impairment of inventory, management estimates the
      likelihood that inventory carrying values will be affected by changes in
      market demand, technology and design, which would impair the value of
      inventory on hand.                                                                                                                                                                                               
|      
|(e)    | Property, plant
      and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|       | Property, plant
      and equipment are measured at cost less accumulated depreciation and
      accumulated impairment losses. Cost includes expenditure that is directly
      attributable to the acquisition of the asset. The cost of self-constructed
      assets includes the cost of materials, costs directly attributable to
      bringing the assets to a working condition for their intended use, and the
      costs of dismantling and removing items and restoring the site on which
      they are located.                                                                                                 

19

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|       |                                                                                                                                                                                                                                                                                                                            
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**3.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                            
|(e)    | Property, plant and
      equipment (contd):                                                                                                                                                                                                                                                                              
|      
|       | When parts of an item of
      property, plant and equipment have different useful lives, they are
      accounted for as separate items (major components).                                                                                                                                                               
|      
|       | Property, plant and
      equipment are depreciated from the date of acquisition or, in respect of
      internally constructed assets, from the time an asset is completed and
      ready for use, using the straight-line method less its residual value over
      the estimated useful lives of the assets as
follows:

| | Building                                                | 20
      years                                         
| | ------------------------------------------------------- | -------------------------------------------------------
| | Building under finance lease                            | 15 years                                               
| | Computer equipment                                      | 3 to 7 years                                           
| | Furniture and fixtures                                  | 5 to 14 years                                          
| | Furniture and fixtures under finance
lease              | 5 years                                                
| | Leasehold improvements                                  | The shorter of initial term of the respective lease
and
| |                                                         | estimated useful life                                  
| | Production and test equipment                           | 4 to 15 years                                          
| | Production
      and test equipment under finance lease | 5 years                                                

Depreciation methods, useful lives and residual values are reviewed at
each financial year-end and adjusted if appropriate.

Gains
and losses on disposal of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant
and equipment, and are recognized net within other income in profit or
loss.

|(f) | Leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Leases where the Corporation
      assumes substantially all the risks and rewards of ownership are
      classified as finance leases. Upon initial recognition the leased asset is
      measured at an amount equal to the lower of its fair value and the present
      value of the minimum lease payments. Subsequent to initial recognition,
      the asset is accounted for in accordance with the accounting policy
      applicable to that asset. Other leases are operating leases and not
      recognized in the statement of financial position.
|   
|    | Minimum lease payments made
      under finance leases are apportioned between the finance expense and the
      reduction of the outstanding liability. The finance expense is allocated
      to each period during the lease term so as to produce a constant periodic
      rate of interest on the remaining balance of the
  liability.                                                                                                                                                                                                                   

20

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**3.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(f)    | Leases
(contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | Payments made under
      operating leases are recognized in income on a straight-line basis over
      the term of the lease. Lease incentives received are recognized as a
      reduction to the lease expense over the term of the lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|(g)    | Goodwill and intangible
      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      
|       | Goodwill is recognized as
      the fair value of the consideration transferred including the recognized
      amount of any non-controlling interest in the acquiree, less the fair
      value of the net identifiable assets acquired and liabilities assumed, as
      of the acquisition date. Subsequent to initial recognition, goodwill is
      measured at cost less accumulated impairment losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|       | Goodwill acquired in a
      business combination is allocated to groups of cash generating units that
      are expected to benefit from the synergies of the
combination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       | Intangible assets consist of
      fuel cell technology acquired from third parties and are recorded at cost
      less accumulated amortization and impairment losses. Intangible assets
      less their residual values are amortized over their estimated useful lives
      of 5 years using the straight-line method from the date that they are
      available for use. Amortization methods, useful lives and residual values
      are reviewed annually and adjusted if appropriate. Costs incurred in
      establishing and maintaining patents and license agreements are expensed
      in the period incurred.                                                                                                                                                                                                                                                                                                          
|      
|       | Research costs are expensed
      as they are incurred. Product development costs are expensed as incurred
      except when they meet specific criteria for capitalization. Development
      activities involve a plan or design for the production of new or
      substantially improved products and processes. Development costs are
      capitalized only if costs can be measured reliably, the product or process
      is technically and commercially feasible, future economic benefits are
      probable and the Corporation intends to and has sufficient resources to
      complete development to use or sell the asset. Capitalized development
      costs are measured at cost less accumulated amortization and accumulated
      impairment losses. Capitalized development costs, if any, are amortized
      when commercial production begins, using the straight-line method over a
      period of 5 years.

21

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|       |                                                
|------ | -----------------------------------------------
|**3.** | Significant accounting
      policies (contd):
|       |                                                
|(h)    | Impairment:                                    
|       |                                                
|       | (i)                                            
|      
|       |                                                
|      
|       |                                                
|      
|       | (ii)                                           
|      
|       |                                                
|      
|       |                                                

22

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**3.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(h)    | Impairment
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      
|       | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      
|(i)    | Provisions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|       | A provision is
      recognized if, as a result of a past event, the Corporation has a present
      legal or constructive obligation that can be estimated reliably, and it is
      probable that an outflow of economic benefits will be required to settle
      the obligation. Provisions are determined by discounting the expected
      future cash flows at a pre-tax rate that reflects current market
      assessments of the time value of money and the risk specific to the
      liability. The unwinding of the discount is recognized as a finance
      cost.
|      
|       | Warranty
      provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | A provision for
      warranty costs is recorded on product sales at the time the sale is
      recognized. In establishing the warranty provision, management estimates
      the likelihood that products sold will experience warranty claims and the
      estimated cost to resolve claims received, taking into account the nature
      of the contract and past and projected experience with the
    products.                                                                                                                                                          
|      
|       | Decommissioning
      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       | Legal obligations
      to retire tangible long-lived assets are recorded at fair value at
      acquisition with a corresponding increase in asset value. These include
      assets leased under operating leases. The liability is accreted over the
      life of the asset to fair value and the increase in asset value is
      depreciated over the remaining useful life of the
  asset.                                                                                                                                                                                

23

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in
thousands of U.S. dollars, except per share amounts and number of
shares)

|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**3.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(j)    | Revenue
    recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      
|       | The Corporation generates
      revenues primarily from product sales and services. 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                                                                                                                                                                                                                                                                                                                                                                                                            
|      
|       | 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) the Corporation retains 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 the Corporation; 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.
|      
|       | On cost-plus reimbursable
      contracts, revenues are recognized as costs are incurred, and include
      applicable fees earned as services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|      
|       | On long-term fixed price
      service contracts, revenues are recognized 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 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.                                                                                                                                                                                                                                                                                                                                                           
|      
|       | Deferred revenue represents
      cash received from customers in excess of revenue recognized on
      uncompleted contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|(k)    | Finance income and
      costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      
|       | Finance income comprises of
      interest income on funds invested, gains on the disposal of
      available-for-sale financial assets and changes in the fair value of
      financial assets at fair value through profit or loss. Interest income is
      recognized as it accrues in income, using the effective interest
      method.                                                                                                                                                                                                                                                                                                                                                                                       
|      
|       | Finance costs comprise
      interest expense on capital leases, unwinding of the discount on
      provisions, changes in the fair value of financial assets at fair value
      through profit or loss and impairment losses recognized on financial
      assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       | Foreign currency gains and
      losses are reported on a net basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

24

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2012, and 2011                                                                      
|(Tabular amounts
      expressed in thousands of U.S. dollars, except per share amounts and
      number of shares)
|                                                                                                                   

|3**.** | Significant accounting policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(l)    | Income
      taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | The Corporation
      follows 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 substantively
      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
      date and are reduced to the extent that it is no longer probable that the
      related tax benefit will be realized.                                                                                                                                                                                                                                                                                                                         
|      
|(m)    | Employee
      benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       | Defined
      contribution plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | A defined
      contribution plan is a post-employment benefit plan under which an entity
      pays fixed contributions into a separate entity and will have no legal or
      constructive obligation to pay further amounts. Obligations for
      contributions to defined contribution pension plans are recognized as an
      employee benefit expense in profit or loss in the periods during which
      services are rendered by employees. Prepaid contributions are recognized
      as an asset to the extent that a cash refund or a reduction in future
      payments is available. Contributions to a defined contribution plan that
      are due more than 12 months after the end of the period in which the
      employees render the service are discounted to their present
    value.                                                                                                                                       
|      
|       | Defined benefit
      plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      
|       | A defined benefit
      plan is a post-employment benefit plan other than a defined contribution
      plan. The Corporations net obligation in respect of defined benefit
      pension plans is calculated separately for each plan by estimating the
      amount of future benefit that employees have earned in return for their
      service in the current and prior periods; that benefit is discounted to
      determine its present value. Any unrecognized past service costs and the
      fair value of any plan assets are deducted. The discount rate is the yield
      at the reporting date on AA credit-rated bonds that have maturity dates
      approximating the terms of the Corporations obligations and that are
      denominated in the same currency in which the benefits are expected to be
      paid. The calculation is performed annually by a qualified actuary using
      the projected unit credit method.

25

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**3.** | **Significant
      accounting policies (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(m)    | Employee benefits
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      
|       | Defined benefit plans
      (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      
|       | When the calculation results
      in a benefit to the Corporation, the recognized asset is limited to the
      total of any unrecognized past service costs and the present value of
      economic benefits available in the form of any future refunds from the
      plan or reductions in future contributions to the plan. In order to
      calculate the present value of economic benefits, consideration is given
      to any minimum funding requirements that apply to any plan in the
      Corporation. An economic benefit is available to the Corporation if it is
      realizable during the life of the plan, or on settlement of the plan
      liabilities.                                                                                                    
|      
|       | As a result of the
      curtailment of the pension plan in 2009, there is no current service cost
      associated with the plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      
|       | The Corporation recognizes
      all actuarial gains and losses arising from defined benefit plans
      immediately in other comprehensive income, and reports them in retained
      earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|       | Other long-term employee
      benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|      
|       | The Corporations net
      obligation in respect of long-term employee benefits other than pension
      plans is the amount of future benefit that employees have earned in return
      for their service in the current and prior periods; that benefit is
      discounted to determine its present value, and the fair value of any
      related assets is deducted. The discount rate is the yield at the
      reporting date on AA credit-rated bonds that have maturity dates
      approximating the terms of the Corporations obligations. The calculation
      is performed using the projected unit credit method. Any actuarial gains
      and losses are recognized in other comprehensive income or loss in the
      period in which they arise.                
|      
|       | Termination
      benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      
|       | Termination benefits are
      recognized as an expense when the Corporation is committed demonstrably,
      without realistic possibility of withdrawal, to a formal detailed plan to
      either terminate employment before the normal retirement date, or to
      provide termination benefits as a result of an offer made to encourage
      voluntary redundancy. Termination benefits for voluntary redundancies are
      recognized as an expense if the Corporation has made an offer of voluntary
      redundancy, it is probable that the offer will be accepted, and the number
      of acceptances can be estimated reliably. If benefits are payable more
      than 12 months after the reporting period, then they are discounted to
      their present value.

26

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**3.** | **Significant
      accounting policies (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(m)    | Employee benefits
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      
|       | Short-term employee
      benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      
|       | Short-term employee benefit
      obligations are measured on an undiscounted basis and are expensed as the
      related service is provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|       | A liability is recognized
      for the amount expected to be paid under short-term cash bonus or profit
      sharing plans if the Corporation has a present legal or constructive
      obligation to pay this amount as a result of past service provided by the
      employee, and the obligation can be estimated reliably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      
|(n)    | Share-based compensation
      plans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|      
|       | The Corporation uses the
      fair-value based method of accounting for share-based compensation for all
      awards of shares and share options granted. The resulting compensation
      expense, based on the fair value of the awards granted, excluding the
      impact of any non-market service and performance vesting conditions, is
      charged to income over the period that the employees unconditionally
      become entitled to the award, with a corresponding increase to contributed
      surplus. Fair values of share options are calculated using the
      Black-Scholes valuation method as of the grant date and adjusted for
      estimated forfeitures. For awards with graded vesting, the fair value of
      each tranche is calculated separately and recognized over its respective
      vesting period. Non-market vesting conditions are considered in making
      assumptions about the number of awards that are expected to vest. At each
      reporting date, the Corporation reassesses its estimates of the number of
      awards that are expected to vest and recognizes the impact of any revision
      in the income statement with a corresponding adjustment to contributed
      surplus.
|      
|       | The Corporation issues
      shares and share options under its share-based compensation plans as
      described in note 19. Any consideration paid by employees on exercise of
      share options or purchase of shares, together with the amount initially
      recorded in contributed surplus, is credited to share
capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|(o)    | Earnings (loss) per
      share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      
|       | Basic earnings (loss) per
      share is computed using the weighted average number of common shares
      outstanding during the period, adjusted for treasury shares. Diluted
      earnings per share is calculated using the treasury stock
  method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|       | Under the treasury stock
      method, the dilution is calculated based upon the number of common shares
      issued should deferred share units (DSUs), restricted share units
      (RSUs), and in the money options, if any, be exercised. When the
      effects of outstanding stock-based compensation arrangements would be
      anti-dilutive, diluted loss per share is not
  calculated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

27

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**3.** | **Significant
      accounting policies (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(p)    | Government assistance and
      investment tax credits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      
|       | Government assistance and
      investment tax credits are recorded as either a reduction of the cost of
      the applicable assets, or credited against the related expense incurred in
      the statement of comprehensive loss, as determined by the terms and
      conditions of the agreements under which the assistance is provided to the
      Corporation or the nature of the expenditures which gave rise to the
      credits. Government assistance and investment tax credit receivables are
      recorded when their receipt is reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(q)    | Segment
      reporting:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | An operating segment is a
      component of the Corporation that engages in business activities from
      which it may earn revenues and incur expenses, including revenues and
      expenses that relate to transactions with any of the Corporations other
      components. Segment results include items directly attributable to a
      segment as well as those that can be allocated on a reasonable basis.
      Unallocated items comprise mainly corporate assets, head office expenses,
      and income tax assets and liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|**4.** | **Critical judgments in applying accounting policies
      and key sources of estimation uncertainty:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      
|       | The preparation of the consolidated
      financial statements in conformity with IFRS requires the Corporations
      management to make estimates and assumptions that affect the application
      of accounting policies and the reported amounts of assets, liabilities,
      income and expenses. Actual results may differ from these
      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.
      Critical judgments in
      applying accounting policies:
      At this time, the
      Corporations management has concluded that there are no critical
      judgments that management has made in the process of applying the
      Corporations accounting policies.
      Key sources of estimation
      uncertainty:
      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 fiscal year.

28

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**4.** | **Critical
      judgments in applying accounting policies and key sources of estimation
      uncertainty (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(a)    | Revenue
    recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | Revenues under certain
      contracts for product and engineering development services, provide for
      receipt of payment based on achieving defined milestones or on the
      performance of work under product development programs. Revenues are
      recognized under these contracts based on managements estimate of
      progress achieved against these milestones or on the proportionate
      performance method of accounting. Changes in managements estimated costs
      to complete a contract may result in an adjustment to previously
      recognized revenues.                                                                                                                                                                                                                                             
|      
|(b)    | Asset
  impairment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|       | The carrying amounts of the
      Corporations 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | The Corporations most
      significant estimates and assumptions involve values associated with
      goodwill and intangible assets. These estimates and assumptions include
      those with respect to future cash inflows and outflows, discount rates,
      asset lives, and the determination of cash generating units. At least
      annually, the carrying value of goodwill and intangible assets is reviewed
      for potential impairment. Among other things, this review considers the
      fair value of the cash-generating units based on discounted estimated
      future cash flows. This review involves significant estimation
      uncertainty, which could affect the Corporations future results if the
      current estimates of future performance and fair values
  change.                          
|      
|(c)    | Warranty
  provision:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      
|       | In establishing the warranty
      provision, management estimates the likelihood that products sold will
      experience warranty claims and the cost to resolve claims received. In
      making such determinations, the Corporation uses estimates based on the
      nature of the contract and past and projected experience with the
      products. Should these estimates prove to be incorrect, the Corporation
      may incur costs different from those provided for in the warranty
      provision. Management reviews warranty assumptions and makes adjustments
      to the provision at each reporting date based on the latest information
      available, including the expiry of contractual obligations. Adjustments to
      the warranty provision are recorded in cost of product and service
      revenues.

29

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**4.** | **Critical
      judgments in applying accounting policies and key sources of estimation
      uncertainty (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(d)    | Inventory
    provision:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|       | In determining the lower of
      cost and net realizable value of inventory and in establishing the
      appropriate impairment amount for inventory obsolescence, management
      estimates the likelihood that inventory carrying values will be affected
      by changes in market pricing or demand for the products and by changes in
      technology or design which could make inventory on hand obsolete or
      recoverable at less than the recorded value. Management performs regular
      reviews to assess the impact of changes in technology and design, sales
      trends and other changes on the carrying value of inventory. Where it is
      determined that such changes have occurred and will have an impact on the
      value of inventory on hand, appropriate adjustments 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.
|      
|(e)    | Employee future
      benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      
|       | The present value of the
      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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      
|(f)    | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|       | Deferred tax assets and
      liabilities are measured using enacted, or substantively 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. Management reviews the deferred income tax assets at each reporting
      period and records adjustments to the extent that it is no longer probable
      that the related tax benefit will be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

30

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**5.** | **Recent accounting pronouncements:**                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | The following is
      an overview of accounting standard changes that the Corporation 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
      the annual periods beginning on or after January 1, 2013, with earlier
      application permitted. The Corporation does not expect to adopt any of
      these standards before their effective dates.  
|      
|(a)    | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|      
|       | 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.                                                                                  
|      
|       | The Corporation
      intends to adopt IFRS 9 in its financial statements for the fiscal year
      beginning on January 1, 2015. The extent of the impact of adoption has not
      yet been determined.                                                                                                                                                                                                                                                                 

31

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**5.** | **Recent accounting pronouncements
      (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(b)    | IFRS 10
      Consolidated Financial
      Statements:                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      
|       | In May
      2011, the IASB published IFRS 10Consolidated Financial Statementswhich is a replacement of SIC-12Consolidation  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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | IFRS 10
      shall be applied to fiscal years beginning on or after January 1,
      2013.                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       | The
      Corporation intends to adopt IFRS 10 for the fiscal year beginning on
      January 1, 2013. The Corporation does not expect IFRS 10 to have a
      material impact on its financial statements.                                                                                                                                                                                                                                                                                
|      
|(c)    | IFRS 11
      Joint
  Arrangements:                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      
|       | In May
      2011, the IASB published IFRS 11Joint Arrangementswhich
      supersedes IAS 31 *Interests in Joint Ventures*and SIC-13Jointly 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. This new standard
      shall be applied to fiscal years beginning on or after January 1,
      2013.    
|      
|       | The
      Corporation intends to adopt IFRS 11 for the fiscal year beginning on
      January 1, 2013. The Corporation does not expect IFRS 11 to have a
      material impact on its financial statements.                                                                                                                                                                                                                                                                                
|      
|(d)    | IFRS 12
      Disclosure of Interests in Other
      Entities:                                                                                                                                                                                                                                                                                                                                                                                                                            
|      
|       | In May
      2011, the IASB published IFRS 12Disclosure of Interests in Other Entitieswhich 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. IFRS 12 shall be applied to fiscal years beginning on or after
      January 1, 2013.
|      
|       | The Corporation
      intends to adopt IFRS 12 for the fiscal year beginning on January 1, 2013.
      The Corporation does not expect IFRS 12 to have a material impact on its
      financial statements.                                                                                                                                                                                                                                                                                

32

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**5.** | Recent accounting
      pronouncements (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(e)    | IFRS 13 Fair Value Measurement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | In May 2011, the IASB
      published IFRS 13Fair Value
      Measurementto 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.                                                                                                                                                                                      
|      
|       | The Corporation intends to
      adopt IFRS 13 for the fiscal year beginning on January 1, 2013. The
      Corporation does not expect IFRS 13 to have a material impact on its
      financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|(f)    | Amendments to IAS 19 Employee Benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | In June 2011, the IASB
      issued amendments to IAS 19Employee Benefits. The
      amendments to IAS 19 make significant changes to the recognition and
      measurement of defined benefit pension expense and termination benefits,
      and to enhance the disclosures for all employee benefits. Actuarial gains
      and losses are renamed remeasurements and will be recognized immediately
      in other comprehensive income (OCI).                                                                                                                                                                                                                                                                                                           
|      
|       | Remeasurements recognized in
      OCI will not be recycled through profit or loss in subsequent periods. The
      amendments also accelerate the recognition of past service costs whereby
      they are recognized in the period of a plan amendment. The annual expense
      for a funded benefit plan will be computed based on the application of the
      discount rate to the net defined benefit asset or liability. The
      amendments to IAS 19 will also impact the presentation of pension expense
      as benefit cost will be split between (i) the cost of benefits accrued in
      the current period (service cost) and benefit changes (past-service cost,
      settlements and curtailments); and (ii) finance expense or
    income.
|      
|       | A number of other amendments
      have been made to recognition, measurement and classification, including
      those re-defining short-term and other long-term benefits guidance on the
      treatment of taxes related to benefit plans, guidance on risk/cost sharing
      factors and expanded disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       | The amendments to IAS 19
      shall be applied to fiscal years beginning on or after January 1, 2013.
      The Corporation intends to adopt the amendments in its financial
      statements for the fiscal year beginning on January 1, 2013. The
      Corporations current accounting policy for employee benefits for the
      presentation of pension expense and the immediate recognition of actuarial
      gains and losses in OCI is consistent with the requirements in the
      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.             

33

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|5.     | Recent accounting
      pronouncements (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(g)    | Amendments to IAS 1 Financial Statement Presentation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | In June 2011, the IASB
      issued amendments to IAS 1Presentation 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | The Corporation intends to
      adopt the amendments to IAS 1 for the fiscal year beginning on January 1,
      2013. The Corporation does not expect the amendments to IAS 1 to have a
      material impact on its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(h)    | Amendments to other
      standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | In addition,
      there have been amendments to existing standards, including IFRS 7Financial Instruments:
      Disclosure, IAS 27Separate Financial Statements, IAS 28Investments in Associates 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. The Corporation does not expect the amendments to have a
      material impact on its financial statements.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|**6.** | Acquisition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | On August 1, 2012
      (acquisition date), the Corporation completed an agreement to acquire
      key assets and product lines from IdaTech, LLC (IdaTech). In exchange
      for 7,136,237 of the Corporations common shares valued at $7,493,000
      based on the Corporations share price at the acquisition date, the
      Corporation acquired IdaTechs key assets including fuel cell systems
      inventory, prepaid right to inventory, and product lines for backup power
      applications, distributor and customer relationships, a license to
      intellectual property, the right to assume control of a manufacturing
      facility, and certain property, plant and equipment.                                                                                                                                                                                                                                                                                                    
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | The prepaid right
      to inventory and other current assets of approximately $2,728,000 relates
      to a contract manufacturing agreement including a supply commitment
      whereby IdaTech will provide additional units of finished goods inventory
      to the Corporation prior to January 1, 2013. An additional payment of
      approximately $500,000 for the additional units will be made to IdaTech
      when the Corporation receives payment from its customers as the units are
      sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

34

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|6. | Acquisition
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The acquisition has
      been accounted for using the acquisition method of accounting and,
      accordingly, the acquired assets and liabilities have been included in the
      consolidated financial statements since the date of acquisition, and
      revenues since the acquisition date totaling $5,087,000 are reported in
      the Fuel Cell Products segment. The intangible assets arising from this
      acquisition are amortized over their estimated useful life of 5 years. Pro
      forma revenue and net loss attributable to the Corporation as if the
      assets were acquired on January 1, 2012 cannot be determined, as reliable
      information is not available.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Acquisition costs of
      $274,000 were incurred in 2012 as a result of the transaction, and are
      recognized in general and administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The following is the fair
      value of the identified assets acquired, and liabilities assumed at the
      date of acquisition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | Net assets acquired:                                      |  |   |       |  
| | --------------------------------------------------------- |  | - | ----- | -
| | Inventories                                               |  | $ | 1,895 |  
| | Prepaid right to
      inventory and other current assets |  |   | 2,728 |  
| | Property, plant and
      equipment                       |  |   | 861   |  
| | Intangible
    assets                                     |  |   | 2,886 |  
| | Trade and other
      payables                            |  |   | (431  | )
| | Warranty provision                                        |  |   | (446  | )
| | Total purchase consideration                              |  | $ | 7,493 |  

|7. | Trade and other
      receivables:
|-- | ----------------------------------
|   |                                   

| |                                           |  | December 31, |        |   | December 31, |  
| | ----------------------------------------- |  | ------------ | ------ | - | ------------ | -
| |                                           |  | 2012         |        |   | 2011         |  
| | Trade receivables                         |  | $            | 16,709 |   |              | $
| | Other                                     |  |              | 259    |   |              |  
| |                                           |  |              | 16,968 |   |              |  
| | Less:
      Non-current trade receivables |  |              | (594   | ) |              |  
| |                                           |  | $            | 16,374 |   |              | $

|8. | Inventories:
|-- | ------------
|   |             

| |                                     |  | December 31, |        | December 31,
| | ----------------------------------- |  | ------------ | ------ | ------------
| |                                     |  | 2012         |        | 2011        
| | Raw materials
      and consumables |  | $            | 4,702  |             
| | Work-in-progress                    |  |              | 1,646  |             
| | Finished goods                      |  |              | 4,929  |             
| |                                     |  | $            | 11,277 |             

35

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**8.** | Inventories (contd):                                                                                                                                                                                                                                                                                                                                                                     
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                           
|       | In 2012, changes in raw
      materials and consumables, finished goods and work-in-progress recognized
      as cost of product and service revenues amounted to $19,218,000 (2011 -
      $37,227,000).                                                                                                                                                                                 
|      
|       | In 2012, the write-down of
      inventories to net realizable value amounted to $717,000 (2011 -
      $486,000). There were no reversals of previously recorded write-downs in
      2012 or 2011. Write-downs and reversals are included in either cost of
      product and service revenues, or research and product development expense,
      depending on the nature of inventory.
|      
|9.     | Property, plant and
      equipment:                                                                                                                                                                                                                                                                                                                                                      
|      

|                                                        |  | Balance at   |        |           |   |           |  |   |        |   | Reclassified |      |         | Balance at  
|------------------------------------------------------- |  | ------------ | ------ | --------- | - | --------- |  | - | ------ | - | ------------ | ---- | ------- | ------------
|                                                        |  | December 31, |        |           |   |           |  |   |        |   | as held for  |      |         | December 31,
|Cost                                                    |  | 2011         |        | Additions |   | Disposals |  |   | sale   |   |              | 2012
|Land                                                    |  | $            | 1,220  |           | $ | -         |  | $ | -      |   |              | $    | (1,220  | )           
|Building                                                |  |              | 3,666  |           |   | -         |  |   | -      |   |              |      | (3,666  | )           
|Building under finance
      lease                      |  |              | 12,180 |           |   | -         |  |   | -      |   |              |      | -       |             
|Computer equipment                                      |  |              | 6,423  |           |   | 276       |  |   | (54    | ) |              |      | (701    | )           
|Furniture and fixtures                                  |  |              | 834    |           |   | 1         |  |   | (23    | ) |              |      | (57     | )           
|Furniture and fixtures under finance
      lease        |  |              | 317    |           |   | -         |  |   | -      |   |              |      | -       |             
|Leasehold improvements                                  |  |              | 10,086 |           |   | 125       |  |   | -      |   |              |      | (1,032  | )           
|Production and test equipment                           |  |              | 45,091 |           |   | 1,670     |  |   | (1,493 | ) |              |      | (13,161 | )           
|Production and test equipment
      under finance lease |  |              | 3,667  |           |   | -         |  |   | -      |   |              |      | -       |             
|Total                                                   |  | $            | 83,484 |           | $ | 2,072     |  | $ | (1,570 | ) |              | $    | (19,837 | )           

|                                    |  | Balance at   |        |              |   |       |            |           |       |  |      |        |                   | Reclassified |             | Balance at
|----------------------------------- |  | ------------ | ------ | ------------ | - | ----- | ---------- | --------- | ----- |  | ---- | ------ | ----------------- | ------------ | ----------- | ----------
|Depreciation and impairment         |  | December 31, |        |              |   |       | Impairment |           |       |  |      |        | as held
      for |              | December 31
|loss                                |  | 2011         |        | Depreciation |   | loss  |            | Disposals |       |  | sale |        | 2012             
|Land                                |  | $            | -      |              | $ | -     |            | $         | -     |  | $    | -      |                   |              | $           | -         
|Building                            |  |              | 2,199  |              |   | 154   |            |           | -     |  |      | -      |                   |              |             | (2,353    
|Building under
      finance lease  |  |              | 1,488  |              |   | 813   |            |           | -     |  |      | -      |                   |              |             | -         
|Computer equipment                  |  |              | 5,676  |              |   | 241   |            |           | -     |  |      | (54    | )                 |              |             | (493      
|Furniture and
      fixtures        |  |              | 788    |              |   | 12    |            |           | -     |  |      | (23    | )                 |              |             | (57       
|Furniture and fixtures
      under  |  |              | 37     |              |   | 63    |            |           | -     |  |      | -      |                   |              |             | -         
|finance lease                       |  |              |        |              |   |       |            |           |       |  |      |        |                   |              |             |           
|Leasehold
      improvements        |  |              | 4,963  |              |   | 694   |            |           | -     |  |      | -      |                   |              |             | (767      
|Production and test
      equipment |  |              | 32,806 |              |   | 3,003 |            |           | 1,070 |  |      | (975   | )                 |              |             | (10,352   
|Production and
      test equipment |  |              | 442    |              |   | 458   |            |           | -     |  |      | -      |                   |              |             | -         
|under finance lease                 |  |              |        |              |   |       |            |           |       |  |      |        |                   |              |             |           
|Total                               |  | $            | 48,399 |              | $ | 5,438 |            | $         | 1,070 |  | $    | (1,052 | )                 |              | $           | (14,022   

36

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|9. | Property, plant and equipment (contd):
|-- | ---------------------------------------
|   |                                        

|                                                  |  | Balance at  |        |           |   |           |  |   |        |   | Balance at 
|------------------------------------------------- |  | ----------- | ------ | --------- | - | --------- |  | - | ------ | - | -----------
|                                                  |  | December 31 |        |           |   |           |  |   |        |   | December 31
|Cost                                              |  | 2010        |        | Additions |   | Disposals |  |   | 2011  
|Land                                              |  | $           | 1,220  |           | $ | -         |  | $ | -      |   |            
|Building                                          |  |             | 3,666  |           |   | -         |  |   | -      |   |            
|Building under finance
      lease                |  |             | 12,180 |           |   | -         |  |   | -      |   |            
|Computer equipment                                |  |             | 6,339  |           |   | 403       |  |   | (319   | ) |            
|Furniture and fixtures                            |  |             | 741    |           |   | 93        |  |   | -      |   |            
|Furniture and fixtures under finance
      lease  |  |             | -      |           |   | 317       |  |   | -      |   |            
|Leasehold improvements                            |  |             | 7,518  |           |   | 2,568     |  |   | -      |   |            
|Production and test equipment                     |  |             | 45,382 |           |   | 2,785     |  |   | (3,076 | ) |            
|Production and test equipment under finance lease |  |             | 2,078  |           |   | 1,589     |  |   | -      |   |            
|Total                                             |  | $           | 79,124 |           | $ | 7,755     |  | $ | (3,395 | ) |            

|                                                  |  | Balance at  |        |              |   |       |            |           |       |  |      |        |             | Balance at
|------------------------------------------------- |  | ----------- | ------ | ------------ | - | ----- | ---------- | --------- | ----- |  | ---- | ------ | ----------- | ----------
|                                                  |  | December 31 |        |              |   |       | Impairment |           |       |  |      |        | December 31
|Depreciation and impairment loss                  |  | 2010        |        | Depreciation |   | loss  |            | Disposals |       |  | 2011
|Land                                              |  | $           | -      |              | $ | -     |            | $         | -     |  | $    | -      |             |           
|Building                                          |  |             | 2,044  |              |   | 155   |            |           | -     |  |      | -      |             |           
|Building under finance
      lease                |  |             | 652    |              |   | 836   |            |           | -     |  |      | -      |             |           
|Computer equipment                                |  |             | 5,347  |              |   | 345   |            |           | -     |  |      | (16    | )           |           
|Furniture and fixtures                            |  |             | 682    |              |   | 106   |            |           | -     |  |      | -      |             |           
|Furniture and fixtures under finance
      lease  |  |             | -      |              |   | 37    |            |           | -     |  |      | -      |             |           
|Leasehold improvements                            |  |             | 4,442  |              |   | 521   |            |           | -     |  |      | -      |             |           
|Production and test equipment                     |  |             | 28,889 |              |   | 3,292 |            |           | 1,727 |  |      | (1,102 | )           |           
|Production and test equipment
      under finance |  |             | 123    |              |   | 319   |            |           | -     |  |      | -      |             |           
|lease                                             |  |             |        |              |   |       |            |           |       |  |      |        |             |           
|Total                                             |  | $           | 42,179 |              | $ | 5,611 |            | $         | 1,727 |  | $    | (1,118 | )           |           

|                                                        |  | Balance at        |        | Balance at       
|------------------------------------------------------- |  | ----------------- | ------ | -----------------
|Carrying amounts                                        |  | December 31, 2012 |        | December 31, 2011
|Land                                                    |  | $                 | -      |                  
|Building                                                |  |                   | -      |                  
|Building under
      finance lease                      |  |                   | 9,879  |                  
|Computer equipment                                      |  |                   | 574    |                  
|Furniture and
      fixtures                            |  |                   | 35     |                  
|Furniture and fixtures under
      finance lease        |  |                   | 217    |                  
|Leasehold
      improvements                            |  |                   | 4,289  |                  
|Production and test
      equipment                     |  |                   | 6,555  |                  
|Production and test equipment under
      finance lease |  |                   | 2,767  |                  
|Total                                                   |  | $                 | 24,316 |                  

37

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|9.      | Property, plant and equipment
      (contd):                                                                                                                                                                                                                                                                                                                      
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                    
|        | *Leased assets*                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                    
|        | The Corporation
      leases certain assets under finance lease agreements including the
      Corporations head office building in Burnaby, British Columbia and
      certain production and test equipment.                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                    
|        | *Disposals*                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                    
|        | The total loss on
      sale of property, plant and equipment was $69,000 in 2012. In 2011, a gain
      on sale of property, plant and equipment of $734,000 was
    recognized.                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                    
|        | *Impairment
      loss*                                                                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                    
|        | During the year
      ended December 31, 2012, impairment losses of $1,070,000 (2011 -
      $1,727,000) were recognized, of which $570,000 related to the obsolescence
      of production and test equipment. The remaining $500,000 related to the
      impairment of assets held for sale (note 28). No impairment losses were
      reversed in 2012 or 2011.
|        |                                                                                                                                                                                                                                                                                                                                                                    
|**10.** | **Intangible
      assets:**                                                                                                                                                                                                                                                                                                                                       

| | Fuel cell
      technology               |  |   |        |  |   | Accumulated  |  |   | Net
      carrying |  
| | ---------------------------------------- |  | - | ------ |  | - | ------------ |  | - | ------------------ | -
| | Balance                                  |  |   | Cost   |  |   | amortization |  |   | amount             |  
| | At January 1, 2011                       |  | $ | 43,443 |  | $ | 40,468       |  | $ | 2,975              |  
| | Amortization                             |  |   | -      |  |   | 726          |  |   | (726               | )
| | At December 31, 2011                     |  |   | 43,443 |  |   | 41,194       |  |   | 2,249              |  
| | Acquisition through business combination |  |   | 2,886  |  |   | -            |  |   | 2,886              |  
| | Amortization                             |  |   | -      |  |   | 941          |  |   | (941               | )
| | At December 31, 2012                     |  | $ | 46,329 |  | $ | 42,135       |  | $ | 4,194              |  

|    | Amortization and impairment
      losses of fuel cell technology and development costs are allocated to
      research and product development expense. There were no impairment losses
      recorded in 2012 and 2011.                                                                                                           
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|11. | Goodwill:                                                                                                                                                                                                                                                                                                                          
|   
|    | For the purpose of
      impairment testing, goodwill is allocated to the Corporations cash-generating units which represent the lowest level within the Corporation
      at which the goodwill is monitored for internal management purposes, which
      is not higher than the Corporations operating segments (note
    26).

38

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**11.** | Goodwill
      (contd):                                                                                   
|------- | -----------------------------------------------------------------------------------------------------------
|        |                                                                                                            
|        | The
      aggregate carrying amount of goodwill allocated to each cash-generating
      unit is as follows:

| |                          |  | December 31, |        | December 31,
| | ------------------------ |  | ------------ | ------ | ------------
| |                          |  |              | 2012   |             
| | Fuel cell
      products |  | $            | 36,291 |             
| | Contract automotive      |  |              | -      |             
| | Material products        |  |              | -      |             
| |                          |  | $            | 36,291 |             

| | The impairment testing for the above
      cash-generating units 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Fuel Cell Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Corporations fair value test is in
      effect a modified market capitalization assessment, whereby the fair value
      of the Fuel Cell Products segment is calculated by first calculating the
      value of the Corporation at December 31, 2012 based on the average closing
      share price in the month of December, adding a reasonable estimated
      control premium of 25% to determine the Corporations enterprise value on
      a controlling basis after adjusting for excess cash balances, and
      deducting the fair value of the Materials Product segment from this
      enterprise value, arriving at the fair value of the Fuel Cell Products
      segment. Based on the fair value test, the Corporation has determined that
      the fair value of the Fuel Cell Products segment was deficient compared to
      its carrying value, resulting in a $10,000,000 impairment loss recognized
      against goodwill. The $46,291,000 of goodwill associated with the Fuel
      Cell Products segment as of December 31, 2011 was written down to
      $36,291,000 as of December 31, 2012.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In addition to the fair value test, the
      Corporation also performed a value in use test on the Fuel Cell Products
      segment, comparing 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 the discounted cash flow analysis requiring
      judgment 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. The Corporations 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 earnings
      before interest, taxes, depreciation and amortization (EBITDA)
      multiplied by a terminal value multiplier of 4.0. The value in use
      assessment resulted in an estimated fair value for the Fuel Cell Products
      segment that is consistent with that determined under the fair value, less
      costs to sell, assessment.               

39

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**11.** | **Goodwill (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | Material
      Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | The Material Products
      segment was disposed of on January 31, 2013 (note 29). As a result, the
      fair value of the Material Products segment, determined based on a fair
      value less costs to sell assessment, compared the segments carrying value
      as of December 31, 2012 against the actual net proceeds received on
      disposition on January 31, 2013. As a result of the assessment, the
      Corporation determined that the fair value of the Material Products
      segment was deficient to its carrying value, resulting in a $1,815,000
      write-off of goodwill and $500,000 write-down of property, plant and
      equipment associated with the Material Products segment. The impairment
      losses relating to the Material Products segment are included in net loss
      from discontinued operations (note 28).
|       
|12.     | Investments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | Investments are
      comprised of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                                      |  |                         |     |           |                   |   |        |   |          
| | ------------------------------------ |  | ----------------------- | --- | --------- | ----------------- | - | ------ | - | ---------
| |                                     
| |                                      |  | December 31,
      2012 |     |           | December 31, 2011 |  
| |                                      |  |                         |     |           | Percentage        |   |        |   |          
| |                                      |  | Amount                  |     | ownership |                   |   | Amount |   | ownership
| | Chrysalix Energy Limited Partnership |  | $                       | 659 |           | 15.0              | % |        | $ | 627      
| | Other                                |  |                         | 8   |           |                   |   |        |   | 8        
| |                                      |  | $                       | 667 |           |                   |   |        | $ | 635      

|    | Chrysalix Energy Limited
      Partnership (Chrysalix) is accounted for as an available-for-sale
      financial asset and recorded at fair value. During 2012, the Corporation
      made additional capital contributions of $44,000 (2011 - $103,000) in
      Chrysalix, which was offset by cash distributions received from Chrysalix
      of $12,000 (2011 - $139,000).                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The Corporation maintains a
      19.9% interest in AFCC Automotive Fuel Cell Cooperation Corp. (AFCC),
      which is accounted for as an available-for-sale financial asset and
      recorded at fair value of $1. The Corporation has no obligation to fund
      any of AFCCs operating expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|13. | Bank
      facilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    | The Corporation has a demand
      revolving facility (Bank Operating Line) in which an operating line of
      credit of up to CDN $10,000,000 is made available to be drawn upon by the
      Corporation. The Bank Operating Line is utilized to assist in financing
      the day-to-day operating activities and short-term working capital
      requirements of the business. Outstanding amounts are charged interest at
      the banks prime rate minus 0.50% per annum and are repayable on demand by
      the bank. During 2012, the Corporation was advanced $17,331,000 (2011 -
      $14,265,000) under the bank operating line of which $12,560,000 (2011 -
      $9,678,000) was repaid during the year. At December 31, 2012, $9,358,000
      (2011 - $4,587,000) was outstanding on the Bank Operating
  Line.
|   

40

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in thousands of U.S. dollars, except per share
amounts and number of shares)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|13. | Bank facilities (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | The Corporation also has a CDN $3,323,000 capital
      leasing facility (Leasing Facility) which can be utilized to finance the
      acquisition and lease of operating equipment (notes 9 & 16). Interest
      is charged on outstanding amounts at the banks prime rate per annum and
      is repayable at the option of the bank, if there has been, in the opinion
      of the bank, a material adverse change in the financial condition of the
      Corporation. At December 31, 2012, $2,546,000 was outstanding on the
      Leasing Facility which is included in the finance lease liability. The
      remaining $11,508,000 finance lease liability relates to the lease of the
      Corporations head office building.
|   
|    | Both the Bank Operating Line and Leasing Facility
      are secured by a hypothecation of the Corporations cash, cash equivalents
      and short-term investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|14. | Trade and other payables:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   

|        |                              |  | December 31, |        | December 31,
|------- | ---------------------------- |  | ------------ | ------ | ------------
|        |                              |  |              | 2012   |             
|        | Trade accounts
      payable |  | $            | 5,256  |             
|        | Compensation payable         |  |              | 2,046  |             
|        | Other
      liabilities      |  |              | 4,669  |             
|        | Taxes payable                |  |              | 244    |             
|        |                              |  | $            | 12,215 |             
|        |                              |  |              |        |             
|**15.** | **Provisions:**              |  |              |        |             

| |                                            |  |       |       |   |               |   |        |           |  |          |             |   |                 |       |       |   |  |   |        |  
| | ------------------------------------------ |  | ----- | ----- | - | ------------- | - | ------ | --------- |  | -------- | ----------- | - | --------------- | ----- | ----- | - |  | - | ------ | -
| |                                            |  |       |       |   |               |   |        |           |  | Warranty |             |   | Decommissioning |       |       |   |  |  
| | Balance                                    |  | Legal |       |   | Restructuring |   |        | provision |  |          | liabilities |   |                 | Total |      
| | At January 1,
      2011                   |  | $     | 1,371 |   |               | $ | 78     |           |  | $        | 8,570       |   |                 | $     | 3,102 |   |  | $ | 13,121 |  
| | Provisions made during the
      year      |  |       | 50    |   |               |   | 1,356  |           |  |          | 2,097       |   |                 |       | 1,706 |   |  |   | 5,209  |  
| | Provisions used
      during the year      |  |       | (897  | ) |               |   | (401   | )         |  |          | (716        | ) |                 |       | -     |   |  |   | (2,014 | )
| | Provisions reversed during the
      year  |  |       | -     |   |               |   | -      |           |  |          | (1,721      | ) |                 |       | -     |   |  |   | (1,721 | )
| | Effect of movements in exchange rates      |  |       | (4    | ) |               |   | (29    | )         |  |          | (181        | ) |                 |       | (75   | ) |  |   | (289   | )
| | At December 31, 2011                       |  | $     | 520   |   |               | $ | 1,004  |           |  | $        | 8,049       |   |                 | $     | 4,733 |   |  | $ | 14,306 |  
| | Assumed through
      business combination |  |       | -     |   |               |   | -      |           |  |          | 447         |   |                 |       | -     |   |  |   | 447    |  
| | Provisions made during the
      year      |  |       | -     |   |               |   | 1,937  |           |  |          | 1,514       |   |                 |       | 250   |   |  |   | 3,701  |  
| | Provisions used
      during the year      |  |       | (528  | ) |               |   | (2,060 | )         |  |          | (1,309      | ) |                 |       | -     |   |  |   | (3,897 | )
| | Provisions reversed during the
      year  |  |       | -     |   |               |   | -      |           |  |          | (373        | ) |                 |       | -     |   |  |   | (373   | )
| | Effect of movements in exchange rates      |  |       | 8     |   |               |   | 41     |           |  |          | 173         |   |                 |       | 106   |   |  |   | 328    |  
| | At December 31, 2012                       |  | $     | -     |   |               | $ | 922    |           |  | $        | 8,501       |   |                 | $     | 5,089 |   |  | $ | 14,512 |  
| |                                           
| | Current                                    |  | $     | -     |   |               | $ | 922    |           |  | $        | 8,501       |   |                 | $     | -     |   |  | $ | 9,423  |  
| | Non-current                                |  |       | -     |   |               |   | -      |           |  |          | -           |   |                 |       | 5,089 |   |  |   | 5,089  |  
| |                                            |  | $     | -     |   |               | $ | 922    |           |  | $        | 8,501       |   |                 | $     | 5,089 |   |  | $ | 14,512 |  

41

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in thousands of U.S. dollars, except per share
amounts and number of shares)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|15. | Provisions
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Restructuring                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    | During 2012, the Corporation
      incurred $1,931,000 of restructuring charges due primarily to a 7%
      workforce reduction and a minor restructuring focused on overhead cost
      reduction. The estimated restructuring costs primarily include employee
      termination benefits and are expected to be paid in 2013. Restructuring
      charges are recognized in general and administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    | Warranty
      provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | During the year, the
      warranty provision increased by $452,000, due in part to the assumption of
      warranty provisions as part of the acquisition of key assets and product
      lines from IdaTech (note 6).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | Decommissioning
      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    | Provisions for
      decommissioning liabilities have been recorded for the Corporations two
      leased locations in Burnaby, British Columbia, comprising the
      Corporations head office building and manufacturing facilities, and are
      related to site restoration obligations at the end of their respective
      lease terms. Due to the long-term nature of the liability, the most
      significant uncertainty in estimating the provision is the costs that will
      be incurred. The Corporation has determined a range of reasonable possible
      outcomes of the total costs for the head office building and manufacturing
      facility. In determining the fair value of the decommissioning
      liabilities, the estimated future cash flows have been discounted at 2%
      per annum.
|   
|    | The Corporation performed an
      assessment of the estimated cash flows required to settle the obligations
      for the two buildings as of December 31, 2012, resulting in an additional
      provision of $100,000 recorded against decommissioning liabilities. The
      remaining provision increase during 2012 was due to accretion costs. The
      total undiscounted amount of the estimated cash flows required to settle
      the obligation for one of the buildings is $2,372,000, which is expected
      to be settled at the end of the lease term in 2025. The total undiscounted
      amount of the estimated cash flows required to settle the obligation for
      the second building is $3,994,000, which is expected to be settled at the
      end of the operating lease term of 2019.        

42

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in thousands of U.S. dollars, except per share
amounts and number of shares)

|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|16. | Finance lease
      liability                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                             
|    | The Corporation leases
      certain assets under finance lease agreements (note 9). The finance leases
      have imputed interest rates ranging between 2.25% to 7.35% per annum and
      expire between December 2014 and February 2025.
|   
|    | The future minimum lease
      payments for the Corporations finance leases are as follows:                                                                                                                                                
|    |                                                                                                                                                                                                                                             

| | Year ending December
31                                |   |        |  
| | ------------------------------------------------------ | - | ------ | -
| | 2013                                                   | $ | 1,924  |  
| | 2014                                                   |   | 2,329  |  
| | 2015                                                   |   | 1,734  |  
| | 2016                                                   |   | 1,914  |  
| | 2017                                                   |   | 1,401  |  
| | Thereafter                                             |   | 11,135 |  
| | Total minimum
      lease payments                     |   | 20,437 |  
| | Less: Imputed interest                                 |   | (6,383 | )
| | Total finance
      lease liability                    |   | 14,054 |  
| | Less: Current portion of finance lease
      liability |   | (1,043 | )
| | Non-current portion of finance lease
    liability     | $ | 13,011 |  

|    | At December 31, 2012,
      $2,546,000 was outstanding on the Leasing Facility which is included in
      the finance lease liability. The remaining $11,508,000 finance lease
      liability relates to the lease of the Corporations head office
      building.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|17. | Convertible
      debenture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The convertible debenture
      relates to financing to Dantherm Power A/S by the non-controlling partner
      and is redeemable at the option of Dantherm Power A/S subject to approval
      by all convertible debenture holders on or after January 1, 2013 including
      interest which is accrued at 12%. Prior to December 31, 2013 (the
      Maturity Date), the convertible debenture holders may elect to convert
      all or part of the debenture into shares of Dantherm Power A/S. The
      conversion price for convertible debenture notes entered into prior to
      January 1, 2012, of approximately DKK 9,120,000, is DKK 3.40 per share.
      Convertible debenture notes of approximately DKK 5,066,000 entered into
      since January 1, 2012 have a conversion price of DKK 0.14 per share. This
      conversion feature was determined to have a nominal value. The Maturity
      Date may be extended to December 31, 2014 with approval of the subscribers
      (note 29). During 2012, an additional $862,000, of convertible debt
      financing was advanced to Dantherm Power A/S by a non-controlling partner.
      At December 31, 2012, the convertible debt outstanding was $2,924,000,
      which includes $417,000 of interest payable.

43

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in thousands of U.S. dollars, except per share
amounts and number of shares)

|                                       
|---------------------------------------
|**18. Employee future
      benefits:**

| |                                       |  | 2012    |         | 2011
| | ------------------------------------- |  | ------- | ------- | ----
| |                                       |  | Pension |         |     
| |                                       |  | plan    |         |     
| | Plan
      assets                     |  | $       | 9,344   |     
| | Plan obligations                      |  |         | (14,652 | )   
| | Employee future benefit plans deficit |  | $       | (5,308  | )   

The
Corporation maintains a defined benefit pension plan covering existing and
former employees in the United States. The benefits under the pension plan are
based on years of service and salary levels accrued as of December 31, 2009. In
2009, amendments were made to the defined benefit pension plan to freeze
benefits accruing to employees at their respective years of service and salary
levels obtained as of December 31, 2009. Certain employees in the United States
are also eligible for post-retirement healthcare, life insurance and other
benefits.

The
Corporation accrues the present value of its obligations under employee future
benefit plans and the related costs, net of the present value of plan
assets.

The
measurement date used to determine pension and other post-retirement benefit
obligations and expense is December 31 of each year. The most recent actuarial
valuation of the employee future benefit plans for funding purposes was as of
January 1, 2012. The next actuarial valuation of the employee future benefit
plans for funding purposes is expected to be performed as of January 1,
2013.

The
Corporation expects contributions of approximately $210,000 to be paid to its
defined benefit plans in 2013. Information about the Corporations employee
future benefit plans, in aggregate, is as follows:

Movement in the present value of the defined benefit
plan obligations:

| |                                                       |  | 2012    |        | 2011
| | ----------------------------------------------------- |  | ------- | ------ | ----
| |                                                       |  | Pension |        |     
| |                                                       |  | Plan    |        |     
| | Defined benefit
      plan obligations at January 1   |  | $       | 13,329 |     
| | Current service cost                                  |  |         | -      |     
| | Interest
      cost                                   |  |         | 565    |     
| | Benefits paid                                         |  |         | (318   | )   
| | Benefits
      payable                                |  |         | 46     |     
| | Actuarial losses in other comprehensive
    income    |  |         | 1,030  |     
| | Defined benefit plan obligations at December
      31 |  | $       | 14,652 |     

44

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in thousands of U.S. dollars, except per share
amounts and number of shares)

|                                                 
|-------------------------------------------------
|**18. Employee future
      benefits: (contd):**

| | Movement in the present value of plan assets:                   |  |         |       |     
| | --------------------------------------------------------------- |  | ------- | ----- | ----
| |                                                                 |  | 2012    |       | 2011
| |                                                                 |  | Pension |       |     
| |                                                                 |  | plan    |       |     
| | Fair value of
      plan assets at January 1                    |  | $       | 8,223 |     
| | Expected return on plan
      assets                            |  |         | 574   |     
| | Employers
      contributions                                  |  |         | 360   |     
| | Benefits paid                                                   |  |         | (318  | )   
| | Actuarial (losses) gains in other comprehensive
      income    |  |         | 505   |     
| | Fair value of plan assets at December 31                        |  | $       | 9,344 |     
| |                                                                
| | Pension plan assets
      comprise:                             |  |         |       |     
| |                                                                
| |                                                                 |  |         |       |     
| | Cash and cash
      equivalents                                 |  |         |       |     
| | Equity securities                                               |  |         |       |     
| | Debt securities                                                 |  |         |       |     
| | Total                                                           |  |         |       |     
| |                                                                
| | Expense recognized in net
      income:                         |  |         |       |     
| |                                                                
| |                                                                 |  | 2012    |       | 2011
| |                                                                 |  | Pension |       |     
| |                                                                 |  | plan    |       |     
| | Current service
      cost                                      |  | $       | -     |     
| | Interest on
obligations                                         |  |         | 565   |     
| | Expected
      (return) on plan assets                          |  |         | (574  | )   
| | Benefits payable                                                |  |         | 47    |     
| | Expense recognized in net income                                |  |         | 38    |     
| | Actuarial (gain) loss on plan
      assets and plan obligations |  |         |       |     
| | recognized in
      other comprehensive income                  |  |         | 525   |     
| | Total expense
      (income) recognized in net income and       |  |         |       |     
| | other
      comprehensive income                                |  | $       | 563   |     

The
expense recognized in net income is recorded in Finance expense.

45

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in thousands of U.S. dollars, except per share
amounts and number of shares)

|                                                 
|-------------------------------------------------
|**18. Employee future
      benefits: (contd):**

| | Expense (income) recognized
      in other comprehensive income:                                                                                           
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                            
| |                                                                                                                                                            
| |                                                                                                                                                            
| | Actuarial loss on defined benefit plan obligations                                                                                                         
| | Expected return
      on plan assets                                                                                                                       
| | Actual (return) loss on plan assets                                                                                                                        
| | Plan expenses                                                                                                                                              
| | Actuarial (gain) loss recognized in other comprehensive                                                                                                    
| | income                                                                                                                                                     
| |                                                                                                                                                            
| | Cumulative actuarial gains and losses recognized in other
      comprehensive income:                                                                      
| |                                                                                                                                                            
| |                                                                                                                                                            
| |                                                                                                                                                            
| |                                                                                                                                                            
| | Cumulative amount at January 1                                                                                                                             
| | Recognized during the period                                                                                                                               
| | Cumulative amount at December
      31                                                                                                                     
| |                                                                                                                                                            
| | The significant actuarial assumptions adopted in measuring the fair
      value of benefit obligations at December 31, 2012 and 2011 were as
      follows:
| |                                                                                                                                                            
| |                                                                                                                                                            
| |                                                                                                                                                            
| |                                                                                                                                                            
| | Discount rate                                                                                                                                              
| | Rate of compensation
increase                                                                                                                              
| |                                                                                                                                                            
| | The significant actuarial assumptions adopted in determining net
      expense for the years ended December 31, 2012 and 2011 were as
      follows:       
| |                                                                                                                                                            
| |                                                                                                                                                            
| |                                                                                                                                                            
| |                                                                                                                                                            
| | Discount rate                                                                                                                                              
| | Expected return
      on plan assets                                                                                                                       
| | Rate of compensation
      increase                                                                                                                        

46

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in thousands of U.S. dollars, except per share
amounts and number of shares)

|                                                 
|-------------------------------------------------
|**18. Employee future
      benefits: (contd):**

| | The assumed health care cost trend rates applicable to
      the other benefit plans at December 31, 2012 and 2011 were as
      follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                          
| | Initial medical
      health care cost trend rate                                                                                        
| | Initial dental health care cost
      trend rate                                                                                         
| | Cost trend rate
      declines to medical and dental                                                                                     
| | Year that the medical rate
      reaches the rate it is assumed to remain at                                                             
| | Year that the dental rate reaches the rate it is assumed
      to remain at                                                              

A
one-percentage-point change in assumed health care cost trend rates would not
have a material impact on the Corporations financial statements.

|19.
      Equity:             
|------------------------------
|                              
|(a) Authorized and
    issued:

Unlimited number of common shares, voting, without par value.

Unlimited number of preferred shares, issuable in series.

At
December 31, 2012, 91,801,477 (2011  84,550,524) common shares are issued and
outstanding.

|(b) Share option
    plan:
|--------------------------
|                          

The
Corporation has options outstanding under a consolidated share option plan. All
directors, officers and employees of the Corporation, and its subsidiaries, are
eligible to participate in the share option plans although as a matter of
policy, options are currently not issued to directors. Option exercise prices
are denominated in both Canadian and U.S. dollars, depending on the residency of
the recipient. Canadian dollar denominated options have been converted to U.S.
dollars using the year-end exchange rate for presentation purposes.

All
options have a term of seven to ten years from the date of grant unless
otherwise determined by the board of directors. One-third of the options vest
and may be exercised, at the beginning of each of the second, third and fourth
years after granting.

47

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012,
and 2011(Tabular amounts expressed in thousands of U.S. dollars, except per share
amounts and number of shares)

|                        
|------------------------
|**19. Equity (contd):**

(b)Share option plan (contd):

| | As at December 31, 2012, options
      outstanding from the consolidated share option plan was as
    follows:
| | --------------------------------------------------------------------------------------------------------------
| |                                                                                                               
| | Balance                                                                                                       
| | At January 1, 2011                                                                                            
| | Options granted                                                                                               
| | Options exercised                                                                                             
| | Options forfeited                                                                                             
| | Options expired                                                                                               
| | At December 31,
      2011                                                                                    
| | Options granted                                                                                               
| | Options exercised                                                                                             
| | Options forfeited                                                                                             
| | Options expired                                                                                               
| | At December 31, 2012                                                                                          

| | The following table summarizes
      information about the Corporations share options outstanding as at
      December 31, 2012:
| | ---------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                  
| |                                                                                                                                  
| |                                                                                                                                  
| |                                                                                                                                  
| |                                                                                                                                  
| | Range of exercise price                                                                                                          
| | $0.81  $1.96                                                                                                                    
| | $2.11 
      $2.41                                                                                                              
| | $3.12  $5.11                                                                                                                    
| | $5.82 
      $7.99                                                                                                              
| | $10.00  $14.76                                                                                                                  
| |                                                                                                                                  

During
2012, compensation expense of $1,274,000 (2011 - $1,743,000) was recorded in net
income as a result of fair value accounting for share options granted. The share
options granted during the year had a weighted average fair value of $0.80 (2011
- $1.14) and vesting periods of three years.

48

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**19.** | Equity (contd):                                                                                                                                            
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                             
|(b)     | Share option plan
      (contd):                                                                                                                           
|       
|        | The fair values of the
      options granted were determined using the Black-Scholes valuation model
      under the following weighted average
assumptions:

| |                           | 2012    |  | 2011     
| | ------------------------- | ------- |  | ---------
| | Expected
      life       | 5
years |  | 5
  years
| | Expected dividends        | Nil     |  | Nil      
| | Expected
      volatility | 62%     |  | 63%      
| | Risk-free interest rate   | 2%      |  | 3%       

|(c) | Share distribution
      plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The Corporation has a
      consolidated share distribution plan that permits the issuance of common
      shares for no cash consideration to employees of the Corporation to
      recognize their past contribution and to encourage future contribution to
      the Corporation. At December 31, 2012, there were 873,441 (2011  440,268)
      shares available to be issued under this plan.                                                                                                                           
|   
|    | No compensation expense was
      recorded against income during the years ended December 31, 2012 and 2011
      for shares distributed, and to be distributed, under the
plan.                                                                                                                                                                                                                                                                                                                                               
|   
|(d) | Deferred share
    units:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | Deferred share units
      (DSUs) are granted to the board of directors and executives. Eligible
      directors may elect to receive all or part of their annual retainers and
      executives may elect to receive all or part of their annual bonuses in
      DSUs. Each DSU is redeemable for one common share in the capital of the
      Corporation after the director or executive ceases to provide services to
      the Corporation. Shares will be issued from the Corporations share
      distribution plan.

| | Balance                                        | DSUs for common
      shares
| | ---------------------------------------------- | ----------------------------
| | At January 1,
      2011 and December 31, 2011 | 290,797                     
| | DSUs
      granted                             | 249,785                     
| | DSUs
      exercised                           | (90,337                     
| | At December 31, 2012                           | 450,245                     

During
2012, compensation expense of $176,000 was recorded in net income. No
compensation expense was recorded against income during the year ended December
31, 2011.

49

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**19.** | Equity (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(e)     | Restricted share
      units:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | Restricted share units
      (RSUs) are granted to employees and executives. Each RSU is convertible
      into one common share. The RSUs vest after a specified number of years
      from the date of issuance, and under certain circumstances, are contingent
      on achieving specified performance criteria.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       
|        | The Corporation has two
      plans under which RSUs may be granted, the consolidated share distribution
      plan and the market purchase RSU plan. Awards under the consolidated share
      distribution plan (note 19 (c)) are satisfied by the issuance of treasury
      shares on maturity. Awards granted under the market purchase RSU Plan are
      satisfied by shares purchased on the open market by a trust established
      for that purpose. No common shares were repurchased in 2012. During 2011,
      the Corporation repurchased 230,211 common shares through the trust for
      cash consideration of $327,000 for the purpose of funding future grants
      under the Market Purchase RSU Plan. As at December 31, 2012 the
      Corporation held 183,629 shares as treasury
shares.

| |                            |  | RSUs for common shares |  
| | -------------------------- |  | ---------------------- | -
| |                            |  | Share                  |  
| | Balance                    |  | Distribution Plan      |  
| | At January 1,
      2011   |  | 851,970                |  
| | RSUs
    granted           |  | -                      |  
| | RSUs
      exercised       |  | (660,522               | )
| | RSUs
      forfeited       |  | (4,975                 | )
| | At December 31,
      2011 |  | 186,473                |  
| | RSUs
    granted           |  | 1,352,784              |  
| | RSUs
      exercised       |  | (84,530                | )
| | RSUs
      forfeited       |  | (122,044               | )
| | RSUs
      transferred     |  | 652,625                |  
| | At December 31, 2012       |  | 1,985,308              |  

In
December 2012, 652,625 unvested RSUs previously granted under the Market
Purchase Plan were cancelled and new RSUs were reissued from the Share
Distribution Plan with identical terms.

The
fair value of RSU grants is measured based on the stock price of the shares
underlying the RSU on the date of grant. During 2012, compensation expense of
$1,296,000 (2011 - $870,000) was recorded against income.

50

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|20. | Operating
      leases:                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                    
|    | The Corporation leases a
      facility at its Burnaby, Canada location, which has been assessed as an
      operating lease. The facility has a lease term expiring in 2019, with
      renewal options after that date. Lease payments of $2,434,000 were
      expensed in 2012.
|   
|    | At December 31, 2012, the
      Corporation is committed to payments under operating leases as
      follows:                                                                                                                                                                      

| | Less than 1 year             | $ | 2,520 
| | ---------------------------- | - | ------
| | 1-3 years                    |   | 5,327 
| | 4-5
    years                |   | 5,499 
| | Thereafter                   |   | 8,228 
| | Total minimum lease payments | $ | 21,574

|21. | Commitments and
      contingencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | As of December 31, 2012, the
      Corporation has agreed to pay 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 Governments of Canada and
      British Columbia, total royalties are payable to a maximum equal to the
      original amount of the government contributions of CDN$5,351,000. As of
      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$38,329,000. As of December 31, 2012, a total of CDN $5,320,000 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, the
      Corporation reached a settlement agreement with TPC to terminate all
      existing and future potential royalties payable under the Utilities
      Development Program (Phase 2) in exchange for a final repayment of CDN
      $1,930,000 (note 29).
|   
|    | At December 31, 2012, the
      Corporation has outstanding commitments aggregating up to a maximum of
      $329,000 (2011 - $867,000) relating primarily to purchases of property,
      plant and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    | The Corporation is also
      committed to make future investments totaling $56,000 in Chrysalix (note
      12).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

51

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|21. | Commitments and
      contingencies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Corporation has agreed
      to pay royalties in respect of sales of Ballard fuel cells or fuel cell
      systems under a July 31, 1996 Fuel Cell Bus Program Agreement (FC Bus
      Agreement), with Province of British Columbia, BC Transit, and BC
      Transportation Financing Authority (BCTFA). Under the terms of FC Bus
      Agreement, the royalty payable is at a rate of 2% on deferred sales of
      such products for commercial transit application to a maximum of
      $2,211,000 (CDN$ 2,200,000). No royalties have been paid to
  date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    | On December 31, 2008, the
      Corporation completed a restructuring transaction with Superior Plus
      Income Fund (Superior Plus), which included an indemnification agreement
      (the Indemnity Agreement), which sets out the parties continuing
      obligations to the other. The Indemnity Agreement provides for the
      indemnification by each of the parties to the other for breaches of
      representations and warranties or covenants, as well as, in the
      Corporations case, any liability relating to the business which is
      suffered by Superior Plus. The Corporations indemnity to Superior Plus
      with respect to representation relating to the existence of the
      Corporations tax pools immediately prior to the completion of the
      Arrangement is limited to an aggregate of $7,388,000 (CDN $7,350,000) with
      a threshold amount of $503,000 (CDN $500,000) before there is an
      obligation to make a payment. The Indemnity Agreement also provides for
      adjustments to be paid by the Corporation, or to the Corporation,
      depending on the final determination of the amount of 2008 Canadian
      non-capital losses, scientific research and development expenditures and
      investment tax credits, 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, no amount payable or receivable has been accrued as a
      result of the Indemnity Agreement.
|   
|22. | Personnel
      expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    | Personnel expenses are
      included in cost of product and services revenues, research and product
      development expense, general and administrative expense, and sales and
      marketing expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |                                      | December 31, |        | December 31,
| | ------------------------------------ | ------------ | ------ | ------------
| |                                      | 2012         |        | 2011        
| | Salaries and
      employee benefits | $            | 45,836 |             
| | Share-based compensation (note 19)   |              | 2,582  |             
| |                                      | $            | 48,418 |             

52

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|**23.** | Income taxes:                                                                                                                                          
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                        
|(a)     | Current tax
    expense:                                                                                                                               
|       
|        | The components of income tax
      benefit / (expense) included in the determination of the profit (loss)
      from continuing operations comprise of:

| |                                                                                                                                                                                                                               | 2012 |         |   | 2011 |  
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------- | - | ---- | -
| | Current tax expense                                                                                                                                                                                                           |      |         |   |      |  
| | Current period income
    tax                                                                                                                                                                                                 | $    | -       |   |      | $
| | Withholding
      tax                                                                                                                                                                                                         |      | -       |   |      |  
| | Adjustment for prior periods                                                                                                                                                                                                  |      | -       |   |      |  
| | Total current tax expense                                                                                                                                                                                                     | $    | -       |   |      | $
| |                                                                                                                                                                                                                              
| | Deferred tax expense                                                                                                                                                                                                          |      |         |   |      |  
| | Origination and reversal of
      temporary differences                                                                                                                                                                       | $    | 14,967  |   |      | $
| | Adjustments for
      prior periods                                                                                                                                                                                           |      | 2,146   |   |      |  
| | Change in unrecognized deductible temporary
      differences                                                                                                                                                                 |      | (17,113 | ) |      |  
| | Total deferred tax expense                                                                                                                                                                                                    | $    | -       |   |      | $
| |                                                                                                                                                                                                                              
| | Total income tax expense                                                                                                                                                                                                      | $    | -       |   |      | $
| |                                                                                                                                                                                                                              
| | The Corporations effective income tax rate differs
      from the combined Canadian federal and provincial statutory income tax
      rate for companies. The principal factors causing the difference are as
      follows:
| |                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                               | 2012 |         |   | 2011 |  
| | Net loss before income taxes                                                                                                                                                                                                  | $    | (43,409 | ) |      | $
| | Expected tax expense (recovery)
      at 25.0% (2011  26.5%)                                                                                                                                                                 | $    | (10,852 | ) |      | $
| | Increase
      (reduction) in income taxes resulting from:                                                                                                                                                                    |      |         |   |      |  
| | Non-deductible
      portion of capital gain (loss)                                                                                                                                                                           |      | -       |   |      |  
| | Non-deductible
      expenses (non-taxable income)                                                                                                                                                                            |      | 3,512   |   |      |  
| | Expiry of
      losses and investment tax credits                                                                                                                                                                             |      | 27,539  |   |      |  
| | Investment
      tax credits earned                                                                                                                                                                                           |      | (3,848  | ) |      |  
| | Foreign
      tax rate differences                                                                                                                                                                                            |      | (6      | ) |      |  
| | Change in
      unrecognized deductible temporary differences                                                                                                                                                                 |      | (16,345 | ) |      |  
| | Income taxes                                                                                                                                                                                                                  | $    | -       |   |      | $

|(b) | Unrecognized deferred tax
      liabilities:                                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | At December 31, 2012, the
      Corporation did not recognize any deferred tax liabilities resulting from
      taxable temporary differences for financial statement and income tax
      purposes.

53

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|23. | Income taxes (contd):                                                                                                                                                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                            
|(c) | Unrecognized deferred tax
      asset:                                                                                                                                                                     
|   
|    | At December 31, 2012, the
      Corporation did not have any deferred tax assets resulting from the
      following deductible temporary differences for financial statement and
      income tax purposes.

| |                                                           | 2012 |         | 2011
| | --------------------------------------------------------- | ---- | ------- | ----
| | Scientific
      research expenditures                    | $    | 57,285  |     
| | Investment in associated
      companies                  |      | 18,364  |     
| | Accrued warranty
      liabilities                        |      | 30,359  |     
| | Losses from operations carried
      forward              |      | 75,290  |     
| | Capital losses
      carried forward                      |      | 9,423   |     
| | U.S. investment tax
      credits                         |      | 626     |     
| | Investment tax
      credits                              |      | 22,451  |     
| | Property, plant and equipment and intangible
      assets |      | 206,860 |     
| |                                                           | $    | 420,658 |     

Deferred tax assets have not been recognized in respect of these
deductible temporary differences because it is not probable that future taxable
profit will be available against which the Corporation can utilize the
benefits.

The
Corporation has available to carry forward the following as at December 31:

| |                                                                | 2012 |        | 2011
| | -------------------------------------------------------------- | ---- | ------ | ----
| | Canadian
      scientific research expenditures                | $    | 57,285 |     
| | Canadian losses from
      operations                          |      | 29,710 |     
| | Canadian
      investment tax credits                          |      | 22,451 |     
| | German losses from operations
      for corporate tax purposes |      | 241    |     
| | U.S. federal
      losses from operations                      |      | 13,543 |     
| | U.S. state losses from
      operations                        |      | 1,702  |     
| | U.S. research
      and development and investment tax credits |      | 626    |     
| | U.S. capital losses                                            |      | 9,423  |     
| | Denmark losses from operations                                 |      | 30,094 |     

The
Canadian scientific research expenditures may be carried forward indefinitely.
The Canadian losses from operations may be used to offset future Canadian
taxable income and expire over the period from 2029 to 2032.

54

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

|23. | Income taxes (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(c) | Unrecognized deferred tax
      assets (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | The German and Denmark
      losses from operations may be used to offset future taxable income in
      Germany and Denmark for corporate tax and trade tax purposes and may be
      carried forward indefinitely.                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    | The U.S. federal losses from
      operations may be used to offset future U.S. taxable income and expire
      over the period from 2013 to 2032. The U.S. states losses from operations
      arising in California may be used to offset future state taxable income
      and may be carried forward for ten years. The U.S. federal and state
      research and development and investment tax credits are available to
      reduce future U.S. taxable income and expire over the period from 2013 to
      2031. The U.S. capital losses are available to reduce U.S. capital gains
      and expire in 2013.
|   
|    | The Canadian investment tax
      credits may be used to offset future Canadian income taxes otherwise
      payable and expire as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | 2013 | $ | 121   
| | ---- | - | ------
| | 2014 |   | 107   
| | 2016 |   | 96    
| | 2017 |   | 105   
| | 2019 |   | 2,643 
| | 2020 |   | 1,925 
| | 2021 |   | 1,814 
| | 2022 |   | 1,637 
| | 2029 |   | 4,763 
| | 2030 |   | 3,261 
| | 2031 |   | 3,032 
| | 2032 |   | 2,947 
| |      | $ | 22,451

24. Related party transactions:

Related
parties include shareholders with a significant ownership interest in the
Corporation, together with its subsidiaries and affiliates and the Corporations
key management personnel. The revenue and costs recognized from transactions
with such parties reflect the prices and terms of sales and purchase
transactions with related parties, which are in accordance with normal trade
practices. Transactions between the Corporation and its subsidiaries are
eliminated on consolidation.

| | Balances with related
      parties: | 2012 |       | 2011
| | ------------------------------------ | ---- | ----- | ----
| | Trade
      receivables              | $    | -     |     
| | Trade
      payables                 | $    | 100   |     
| | Interest
      payable               | $    | 417   |     
| | Convertible
      debenture payable  | $    | 2,507 |     

55

---



|BALLARD POWER SYSTEMS INC.                                                                                         
|-------------------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial
      Statements                                                                   
|Years ended December 31, 2012,
      and 2011                                                                      
|(Tabular amounts expressed in
      thousands of U.S. dollars, except per share amounts and number of
      shares)
|                                                                                                                   

24. Related party transactions
(contd):

| | Transactions during the year
      with related parties: | 2012 |     | 2011
| | -------------------------------------------------------- | ---- | --- | ----
| | Revenues                                                 | $    | -   |     
| | Purchases                                                | $    | 309 |     
| | Finance expense                                          | $    | 289 |     

The Corporation provides key
management personnel, being board directors and executive officers, certain
benefits, in addition to their salaries. Key management personnel also
participate in the Corporations share-based compensation plans (note 19).

In addition to cash and equity
compensation, the Corporation provides the executive officers with certain
personal benefits, including car allowance, medical benefit program, long and
short-term disability coverage, life insurance and an annual medical and
financial planning allowance.

In accordance with the
employment agreements of the executive officers, the Corporation is required to
provide notice of 12 months plus one month for every year of employment
completed with the Corporation, to a maximum of 24 months, or payment in lieu of
such notice, consisting of the salary, bonus and other benefits that would have
been earned during such notice period. If there is a change of control, and if
the executive officers employment is terminated, including a constructive
dismissal, within 2 years following the date of a change of control, the
executive officer is entitled to a payment equivalent to payment in lieu of a 24
month notice period.

Key management personnel
compensation is comprised of:

| |                                           | 2012 |       | 2011
| | ----------------------------------------- | ---- | ----- | ----
| | Salaries and
      employee benefits      | $    | 2,412 |     
| | Post-employment retirement
      benefits |      | 63    |     
| | Termination
      benefits                |      | -     |     
| | Share-based compensation (note 19)        |      | 1,396 |     
| |                                           | $    | 3,871 |     

25. Supplemental disclosure of
cash flow information:

| | Non-cash financing and investing
      activities: | 2012 |       | 2011
| | -------------------------------------------------- | ---- | ----- | ----
| | Compensatory
      shares                          | $    | 427   |     
| | Shares issued for acquisition
      (note 6)       | $    | 7,493 |     
| | Assets acquired under finance lease                | $    | -     |     

56

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012, and
2011(Tabular amounts expressed in thousands
of U.S. dollars, except per share amounts and number of shares)

| | 
| | 

|**26.** | **Operating
      segments:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | The Corporations business has
      three market segments:
      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;
        Contract Automotive: contract manufacturing services provided primarily
        for Daimler AG;
        Material Products (Discontinued
        Operation): carbon fiber products
        primarily for automotive transmissions and gas diffusion layers (GDL)
        for fuel cells.In 2012, the Corporation decided
      to dispose of its Material Products segment, which was subsequently sold
      on January 31, 2013 (note 29). As a result, the Material Products segment
      has been classified and accounted for as a discontinued operation (note
      28) at December 31, 2012 and has not been included in the segment
      disclosures.
      In 2011, the Corporation
      completed its manufacturing services contract for the supply of automotive
      fuel cell modules to Daimler AG. As a result, the Contract Automotive
      segment ceased to be an operating segment as of December 31,
      2011.
      Segment revenues and segment
      income (loss) represent the primary financial measures used by senior
      management in assessing performance and allocating resources, and include
      the revenues, cost of product and service revenues and expenses for which
      management is held accountable. Segment expenses include research and
      product development costs directly attributable to individual segments.
      Costs associated with shared
      services and other shared costs are allocated based on headcount and
      square footage. Corporate amounts include expenses for research and
      product development that are not attributable to individual segments,
      sales and marketing, and general and administrative, which apply generally
      across all segments and are reviewed separately by senior management.
      A significant portion of the
      Corporations production, testing and lab equipment, and facilities, as
      well as intellectual property, are common across the segments. Therefore,
      management does not classify asset information on a segmented basis.
      Instead, performance assessments of these assets and related resource
      allocations are done on a company-wide basis.

57

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012, and
2011(Tabular amounts expressed in thousands
of U.S. dollars, except per share amounts and number of shares)

| | 
| | 

|**26.** | **Operating segments
      (contd):**
|------- | --------------------------------------
|        |                                       

| |                                                            | 2012 |         | 2011 |  
| | ---------------------------------------------------------- | ---- | ------- | ---- | -
| | Total revenues                                             |      |         |      |  
| | Fuel Cell
      Products                                   | $    | 43,690  |      | $
| | Contract Automotive                                        |      | -       |      |  
| |                                                            | $    | 43,690  |      | $
| | Segment income (loss) for the year(1)                      |      |         |      |  
| | Fuel Cell
      Products                                   | $    | 850     |      | $
| | Contract Automotive                                        |      | -       |      |  
| | Total                                                      |      | 850     |      |  
| | Corporate amounts                                          |      |         |      |  
| | Research and product
      development                     |      | (12,754 | )    |  
| | General and
      administrative                           |      | (12,306 | )    |  
| | Sales and marketing                                        |      | (6,901  | )    |  
| | Net finance loss                                           |      | (1,659  | )    |  
| | Gain (loss) on
      sale of property, plant and equipment |      | (69     | )    |  
| | Impairment loss on property, plant and equipment           |      | (570    | )    |  
| | Impairment loss on goodwill                                |      | (10,000 | )    |  
| | Loss before income tax and
      discontinued operations   | $    | (43,409 | )    | $

(1)Research and product development costs directly related to segments are
included in segment income (loss) for the year.


In 2012,
revenues from the Fuel Cell Products segment included sales to two customers of
$6,152,000 and $5,500,000, respectively, which exceeded 10% of total revenue.

In 2011,
sales to a single customer of $18,119,000 exceeded 10% of total revenue, of
which $9,899,000 were included in revenues from the Fuel Cell Products segment
and $8,220,000 were included in revenues from the Contract Automotive
segment.

Revenues
from continuing operations by geographic area, which are attributed to countries
based on customer location for the years ended December 31, is as follows:

| | Revenues           | 2012 |        | 2011
| | ------------------ | ---- | ------ | ----
| | Canada             | $    | 9,669  |     
| | U.S.               |      | 11,346 |     
| | Germany            |      | 2,664  |     
| | Denmark            |      | 1,716  |     
| | Belgium            |      | 4,119  |     
| | South
      Africa |      | 6,887  |     
| | Brazil             |      | -      |     
| | Other countries    |      | 7,289  |     
| |                    | $    | 43,690 |     

58

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012, and
2011(Tabular amounts expressed in thousands
of U.S. dollars, except per share amounts and number of shares)

| | 
| | 

|**26.** | **Operating segments
      (contd):**                    
|------- | ----------------------------------------------------------
|        |                                                           
|        | Non-current assets by geographic
      area is as follows:
|        |                                                           

| |                    | December 31, |        | December 31,
| | ------------------ | ------------ | ------ | ------------
| | Non-current assets | 2012         |        | 2011        
| | Canada             | $            | 63,935 |             
| | U.S.               |              | 251    |             
| | Denmark            |              | 1,318  |             
| | Germany            |              | 59     |             
| | Mexico             |              | 686    |             
| |                    | $            | 66,249 |             

|**27.** | **Financial
      instruments:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(a)     | Fair value:
      The Corporations financial
      instruments consist of cash and cash equivalents, short-term investments,
      accounts receivables, long-term investments, accounts payable and accrued
      liabilities, and obligations under capital lease. The fair values of cash
      and cash equivalents, accounts receivable, accounts payable and accrued
      liabilities approximate carrying value because of the short-term nature of
      these instruments. The Corporations investments (note 12) are not
      actively traded, therefore management estimates fair value using valuation
      techniques that require inputs that are unobservable, including inputs
      made available by its investees (i.e. Level 3 of the fair value
      hierarchy). The interest rates applied to the obligations under capital
      lease are not considered to be materially different from market rates,
      thus the carrying value of obligations under capital lease approximate
      fair value. The carrying value of short-term investments equal their fair
      values as they are classified as held for trading.
      Fair value measurements
      recognized in the balance sheet must be categorized in accordance with the
      following levels:

| | (i)                                                                                                                                                                                                                      | Level 1: quoted prices
      (unadjusted) in active markets for identical assets or
    liabilities;                                                                                                      
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                          |                                                                                                                                                                                                           
| | (ii)                                                                                                                                                                                                                     | Level 2: inputs other
      than quoted prices included in Level 1 that are observable for the asset
      or liability, either directly (i.e. as prices) or indirectly (i.e.,
      derived from prices);
| |                                                                                                                                                                                                                         
| | (iii)                                                                                                                                                                                                                    | Level 3: inputs for
      the asset or liability that are not based on observable market data
      (unobservable inputs).                                                                                
| |                                                                                                                                                                                                                          |                                                                                                                                                                                                           
| | The Corporation categorized the
      fair value measurement of its short-term investments in Level 1 as they
      are primarily derived directly from reference to quoted (unadjusted)
      prices in active markets.

59

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012, and
2011(Tabular amounts expressed in thousands
of U.S. dollars, except per share amounts and number of shares)

| | 
| | 

**27.**
    **Financial
      instruments (contd):**(b)
    Financial risk
      management:The Corporation primarily has
      exposure to currency exchange rate risk, interest rate risk and credit
      risk. These risks arise primarily from the Corporations holdings of
      Canadian dollar denominated cash and cash equivalents and short-term
      investments.


| |                                             |  | 2012                 
| | ------------------------------------------- |  | ---------------------
| |                                             |  | Canadian
      dollar
| |                                             |  | portfolio(1)         
| | Cash and cash equivalents                   |  | $                    
| | Short-term investments                      |  |                      
| | Total cash, cash equivalents and short-term |  |                      
| | investments                                 |  | $                    
| |                                            
| |                                             |  | 2011                 
| |                                             |  | Canadian dollar      
| |                                             |  | portfolio(1)         
| | Cash and cash equivalents                   |  | $                    
| | Short-term investments                      |  |                      
| | Total cash, cash equivalents and short-term |  |                      
| | investments                                 |  | $                    

(1) U.S. dollar equivalent


Changes
arising from these risks could impact the Corporations reported investment and
other income through either changes to investment income or foreign exchange
gains or losses. Reported finance income and expenses and other income are as
follows:

| |                                       |  | 2012 |        |   | 2011 |  
| | ------------------------------------- |  | ---- | ------ | - | ---- | -
| | Investment income                     |  | $    | 249    |   |      | $
| | Other
      income                    |  |      | (11    | ) |      |  
| | Pension costs                         |  |      | (29    | ) |      |  
| | Foreign exchange loss                 |  |      | (178   | ) |      |  
| | Finance income (loss) and
      other |  | $    | 31     |   |      | $
| | Finance expense                       |  | $    | (1,690 | ) |      | $

The
Corporation did not realize any material gains or losses on its accounts
receivable or its financial liabilities measured at amortized cost.

60

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012, and
2011(Tabular
amounts expressed in thousands of U.S. dollars, except per share amounts and
number of shares)

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**27.** | **Financial instruments
      (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(b)     | Financial risk management
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | Foreign currency exchange rate
      risk (contd)
      Foreign currency exchange rate
      risk is the risk that the fair value of deferred cash flows of a financial
      instrument will fluctuate because of changes in foreign exchange rates.
      The Corporation is exposed to currency risks primarily due to its holdings
      of Canadian dollar denominated cash equivalents and short-term investments
      and its Canadian dollar denominated purchases and accounts payable.
      Substantially all receivables are denominated in U.S. dollars.
      The Corporation limits its
      exposure to foreign currency risk by holding Canadian denominated cash,
      cash equivalents and short-term investments in amounts up to 100% of
      forecasted twelve month Canadian dollar net expenditures and up to 50% of
      the following twelve months of forecasted Canadian dollar net
      expenditures, thereby creating a natural hedge. Periodically, the
      Corporation also enters into forward foreign exchange contracts to further
      limit its exposure. At December 31, 2012, the Corporation had Canadian
      dollar cash, cash equivalents and short-term investments of CDN
      $17,398,000.

| | The
      following exchange rates applied during the year ended December 31,
      2012:
| | -----------------------------------------------------------------------------------------
| |                                                                                          
| |                                                                                          
| | January 1, 2012 Opening rate                                                             
| | December 31,
      2012 Closing rate                                                     
| | Fiscal 2012 Average rate                                                                 

Based on
cash, cash equivalents and short-term investments held at December 31, 2012, a
10% increase in the Canadian dollar against the U.S. dollar, with all other
variables held constant, would result in an increase in foreign exchange gains
of approximately $1,742,000 recorded against net income.

If the
Canadian dollar weakened 10% against the U.S. dollar, there would be an equal,
and opposite impact, on net income. This sensitivity analysis includes foreign
currency denominated monetary items, and adjusts their translation at year-end,
for a 10% change in foreign currency rates.

61

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012, and
2011(Tabular
amounts expressed in thousands of U.S. dollars, except per share amounts and
number of shares)

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**27.** | **Financial instruments
      (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(b)     | Financial risk management
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | Interest rate risk
      Interest rate risk is the risk
      that the fair value of deferred cash flows of a financial instrument will
      fluctuate because of changes in market interest rates. The Corporation is
      exposed to interest rate risk arising primarily from fluctuations in
      interest rates on its cash, cash equivalents and short-term investments.
      The Corporation limits its exposure to interest rate risk by continually
      monitoring and adjusting portfolio duration to align to forecasted cash
      requirements and anticipated changes in interest rates.
      Based on cash, cash equivalents
      and short-term investments at December 31, 2012, a 0.25% decline in
      interest rates, with all other variables held constant, would result in a
      decrease in investment income $55,000, arising mainly as a result of an
      increase in the fair value of fixed rate financial assets classified as
      held-for-trading. If interest rates had been 0.25% higher, there would be
      an equal and opposite impact on net income.
      Credit risk
      Credit risk is the risk of
      financial loss to the Corporation if a counterparty to a financial
      instrument fails to meet its contractual obligations and arises
      principally from the Corporations cash, cash equivalents, short-term
      investments and accounts receivable. The Corporation limits its exposure
      to credit risk on cash, cash equivalents and short-term investments by
      only investing in liquid, investment grade securities. The Corporation
      manages its exposure to credit risk on accounts receivable by assessing
      the ability of counterparties to fulfill their obligations under the
      related contracts prior to entering into such contracts, and continuously
      monitors these exposures.

62

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012, and
2011(Tabular
amounts expressed in thousands of U.S. dollars, except per share amounts and
number of shares)

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**28.** | **Assets held for sale and
      discontinued operations:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | In 2012, the Corporation decided
      to dispose of its Material Products segment, which was subsequently sold
      on January 31, 2013 (note 29). Due to the Corporations commitment to the
      disposition of the segment as of December 31, 2012, the Material Products
      segment has been classified and accounted for as discontinued operations
      and the assets and liabilities of the Material Products segment have been
      classified as held for sale. Impairment losses of $1,815,000 and $500,000
      relating to goodwill and property, plant and equipment, respectively, were
      recognized based on a fair value less costs to sell assessment, which
      compared the segments carrying value as of December 31, 2012 to the
      actual net proceeds received on disposition on January 31, 2013 (note 11).

| | Assets
      and liabilities classified as held for sale are comprised of the
      following: |  |      |        |   |     
| | ---------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ----
| |                                                                                                |  |      |        |   |     
| |                                                                                                |  |      |        |   |     
| |                                                                                                |  |      |        |   |     
| | Trade and other receivables                                                                    |  |      |        |   |     
| | Inventories                                                                                    |  |      |        |   |     
| | Prepaid expenses and other current assets                                                      |  |      |        |   |     
| | Property, plant and
equipment                                                                  |  |      |        |   |     
| | Assets classified as held for
      sale                                                       |  |      |        |   |     
| |                                                                                               
| | Trade and other payables                                                                       |  |      |        |   |     
| | Deferred revenue                                                                               |  |      |        |   |     
| | Liabilities classified as held for
      sale                                                  |  |      |        |   |     
| |                                                                                               
| | Net earnings (loss) from discontinued operations is comprised of
      the following:          | 
| |                                                                                               
| |                                                                                                |  | 2012 |        |   | 2011
| | Product and service revenues                                                                   |  | $    | 15,540 |   |     
| | Cost of product and service
      revenues                                                     |  |      | 11,159 |   |     
| | Gross margin                                                                                   |  |      | 4,381  |   |     
| |                                                                                               
| | Total operating expenses                                                                       |  |      | (2,053 | ) |     
| | Impairment on
      property, plant and equipment                                              |  |      | (500   | ) |     
| | Impairment loss on
    goodwill                                                                |  |      | (1,815 | ) |     
| | Earnings before
      income taxes                                                             |  |      | 13     |   |     
| | Income tax expense                                                                             |  |      | (78    | ) |     
| | Net earnings (loss) from discontinued
      operations                                         |  | $    | (65    | ) |     

63

---



BALLARD POWER SYSTEMS
INC.Notes to Consolidated Financial
StatementsYears ended December 31, 2012, and
2011(Tabular
amounts expressed in thousands of U.S. dollars, except per share amounts and
number of shares)

|        |                                                                     
|------- | --------------------------------------------------------------------
|**28.** | **Assets held for sale and
      discontinued operations (contd):**

| | Net
      cash flows from discontinued operations is as follows:  
| | ------------------------------------------------------------------
| |                                                                   
| |                                                                   
| | Cash provided by (used in) operating activities                   
| | Cash used in
      investing activities                           
| | Cash used in financing
      activities                           
| | Cash and cash
      equivalents provided by (used in) discontinued
| | operations                                                        

|**29.** | **Subsequent
      events:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | On January 15, 2013, a Canadian
      government agency agreed to terminate previous funding obligations that
      were repayable through potential royalties in respect of future sales of
      fuel cell based stationary power products under the Utilities Development
      Program (Phase 2) (note 21) in exchange for a final repayment by the
      Corporation of CDN $1,930,000.
      On January 31, 2013, the
      Corporation completed an agreement to sell substantially all of the assets
      of its Material Products division for up to $12,000,000. Of this amount,
      $10,500,000 was paid to the Corporation in cash on closing, with the
      remainder payable dependent on the Material Products division achieving
      certain financial results in 2013. The Material Products division has been
      classified and accounted for as assets held for sale and discontinued
      operations (note 28) at December 31, 2012.
      On February 18, 2013, the
      maturity date of the convertible debenture related to financing to
      Dantherm Power A/S by the non-controlling partner (note 17) was extended
      from December 31, 2013 to December 31, 2014.

64

---