|   |   Consolidated Financial Statements(Expressed in U.S. dollars)BALLARD POWER SYSTEMS INC.Years ended December 31, 2010 and 2009 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

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----

|   |  “JOHN SHERIDAN”                                             |  “TONY GUGLIELMIN”                                                      |
|--------|-----------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|
|   |                                                                                    |                                                                                     |
|   |  JOHN SHERIDAN President and Chief Executive Officer  March 8, 2011 |  TONY GUGLIELMIN Vice President and Chief Financial Officer March 8, 2011 |

----

----

----

----

|                                                              |   | 2010   |     |   | 2009   |   |
|-------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|
| Assets                                                            |   |   |     |   |   |   |
| Current assets:                                                   |   |   |     |   |   |   |
| Cash and cash equivalents                                         |   | $      | 51,937   |   |   | $      | 43,299 |   |
| Short-term investments                                            |   |   | 22,508   |   |   |   | 38,932 |   |
| Accounts receivable (notes 5 & 18)                            |   |   | 11,614   |   |   |   | 12,903 |   |
| Inventories (note 6)                                              |   |   | 12,382   |   |   |   | 9,168 |   |
| Prepaid expenses and other current assets                         |   |   | 957      |   |   |   | 2,114 |   |
|                                                              |   |   | 99,398   |   |   |   | 106,416 |   |
|                                                              |   |   |     |   |   |   |   |   |
| Property, plant and equipment (note 7)                            |   |   | 36,706   |   |   |   | 39,320 |   |
| Intangible assets (note 8)                                        |   |   | 2,975    |   |   |   | 824 |   |
| Goodwill                                                          |   |   | 48,106   |   |   |   | 48,106 |   |
| Investments (note 9)                                              |   |   | 673      |   |   |   | 632 |   |
| Long-term accounts receivable (note 5)                            |   |   | 1,596    |   |   |   | - |   |
| Other long-term assets                                            |   |   | 334      |   |   |   | 50 |   |
|                                                              |   | $      | 189,788  |   |   | $      | 195,348 |   |
| Liabilities and Shareholders’ Equity                        |   |   |     |   |   |   |   |   |
| Current liabilities:                                              |   |   |     |   |   |   |   |   |
| Accounts payable and accrued liabilities (notes 10 & 18)      |   | $      | 23,334   |   |   | $      | 20,321 |   |
| Deferred revenue                                                  |   |   | 2,506    |   |   |   | 1,607 |   |
| Accrued warranty liabilities                                      |   |   | 8,570    |   |   |   | 7,813 |   |
| Current portion of obligation under capital lease (note 11)       |   |   | 681      |   |   |   | 316 |   |
|                                                              |   |   | 35,091   |   |   |   | 30,057 |   |
| Long-term liabilities (notes 12 & 13)                         |   |   | 4,432    |   |   |   | 4,632 |   |
| Deferred gain (note 4)                                            |   |   | 9,036    |   |   |   | - |   |
| Obligation under capital lease (note 11)                          |   |   | 13,354   |   |   |   | 1,739 |   |
|                                                              |   |   | 61,913   |   |   |   | 36,428 |   |
| Shareholders’ equity:                                       |   |   |     |   |   |   |   |   |
| Ballard Power Systems Inc. shareholders’ equity             |   |   |     |   |   |   |   |   |
| Share capital (note 14)                                           |   |   | 836,245  |   |   |   | 835,565 |   |
| Treasury shares (note 14)                                         |   |   | (670     | )      |   |   | (207 | ) |
| Contributed surplus (note 14)                                     |   |   | 288,618  |   |   |   | 284,510 |   |
| Accumulated deficit                                               |   |   | (995,669 | )      |   |   | (960,712 | ) |
| Accumulated other comprehensive loss                              |   |   | (236     | )      |   |   | (236 | ) |
| Total Ballard Power Systems Inc. shareholders’ equity       |   |   | 128,288  |   |   |   | 158,920 |   |
|   Dantherm Power A/S non-controlling interests (note 2) |   |   | (413     | )      |   |   | - |   |
| Total Shareholders’ Equity                                  |   |   | 127,875  |   |   |   | 158,920 |   |
|                                                              |   | $      | 189,788  |   |   | $      | 195,348 |   |

----

| BALLARD POWER SYSTEMS INC. |
|----------------------------|

| Consolidated Statements of Operations and Comprehensive Loss |
|--------------------------------------------------------------|

| Years ended December 31, |
|--------------------------|

| (Expressed in thousands of U.S. dollars, except per share amounts and number of shares) |
|-----------------------------------------------------------------------------------------|

|                                                                                   |   | 2010   |       |   | 2009   |   |
|----------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Revenues:                                                                              |   |   |       |   |   |   |
| Product and service revenues                                                           |   | $      | 65,019     |   |   | $      | 46,722 |   |
| Cost of product and service revenues                                                   |   |   | 54,808     |   |   |   | 40,795 |   |
| Gross margin                                                                           |   |   | 10,211     |   |   |   | 5,927 |   |
| Operating expenses:                                                                    |   |   |       |   |   |   |   |   |
| Research and product development                                                       |   |   | 23,812     |   |   |   | 26,628 |   |
| General and administrative                                                             |   |   | 13,315     |   |   |   | 10,801 |   |
| Sales and marketing                                                                    |   |   | 8,861      |   |   |   | 7,203 |   |
| Restructuring and related costs (note 10)                                              |   |   | 285        |   |   |   | 6,229 |   |
| Acquisition charges                                                                    |   |   | 243        |   |   |   | 529 |   |
| Depreciation and amortization                                                          |   |   | 6,454      |   |   |   | 6,580 |   |
| Total operating expenses                                                               |   |   | 52,970     |   |   |   | 57,970 |   |
|                                                                                   |   |   |       |   |   |   |   |   |
| Operating loss                                                                         |   |   | (42,759    | )      |   |   | (52,043 | ) |
| Investment and other income (note 15)                                                  |   |   | 128        |   |   |   | 5,995 |   |
| Interest expense                                                                       |   |   | (974       | )      |   |   | - |   |
| Gain on sale of assets (note 9)                                                        |   |   | 4,765      |   |   |   | 34,419 |   |
| Equity gain in associated companies (note 12)                                          |   |   | -          |   |   |   | 8,364 |   |
| Loss before income taxes                                                               |   |   | (38,840    | )      |   |   | (3,265 | ) |
| Income tax (recovery) (note 17)                                                        |   |   | 3          |   |   |   | (7 | ) |
| Net loss and comprehensive loss                                                        |   |   | (38,843    | )      |   |   | (3,258 | ) |
| Less: Net loss attributable to Dantherm Power A/S  non-controlling interests |   |   | (3,907     | )      |   |   | - |   |
| Net loss and comprehensive loss attributable to Ballard Power Systems Inc.        |   | $      | (34,936    | )      |   | $      | (3,258 | ) |
| Basic and diluted loss per share attributable to Ballard Power Systems Inc.       |   | $      | (0.42      | )      |   | $      | (0.04 | ) |
| Weighted average number of common shares outstanding                                   |   |   | 84,102,315 |   |   |   | 83,637,315 |   |

----

|                                                        | Ballard Power Systems Inc. shareholders' equity  |             |       |   |          |   |    |            |
|-------------------------------------------------------------|------------------------------------------------------------|------------------|------------|--------|---------------|--------|---------|-----------------|
|                                                        |                                                       | Number of shares |       |   | Share capital |   |    | Treasury shares |   |   | Contributed surplus |   |   | Accumulated deficit |   |   | Accumulated other comprehensive loss |   |   | Dantherm Power A/SNon-controlling interests |   |   | Total shareholders’ equity |   |
| Balance, December 31, 2008                                  |                                                       |             | 82,122,135 |   |          | $      | 832,711 |            |   | $ | – |   |   | $ | 283,466 |   |   | $ | (957,454 | ) |   | $ | (236 | ) |   | $ | –  |   |   | $ | 158,487 |   |
| Net loss                                                    |                                                       |             | –    |   |          |   | – |            |   |   | – |   |   |   | – |   |   |   | (3,258 | ) |   |   | – |   |   |   | –  |   |   |   | (3,258 | ) |
| Non-dilutive financing (note 3)                             |                                                       |             | –    |   |          |   | – |            |   |   | – |   |   |   | (719 | ) |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | (719 | ) |
| Purchase of treasury shares  (note 14)            |                                                       |             | –    |   |          |   | – |            |   |   | (207 | ) |   |   | – |   |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | (207 | ) |
| RSUs and DSUs redeemed                                      |                                                       |             | 219,232    |   |          |   | 1,126   |            |   |   | – |   |   |   | (1,283 | ) |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | (157 | ) |
| Options exercised                                           |                                                       |             | 5,000      |   |          |   | 7       |            |   |   | – |   |   |   | - |   |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | 7 |   |
| Share distribution plan                                     |                                                       |             | 1,627,621  |   |          |   | 1,721   |            |   |   | – |   |   |   | 3,046 |   |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | 4,767 |   |
| Balance, December 31, 2009                                  |                                                       |             | 83,973,988 |   |          |   | 835,565 |            |   |   | (207 | ) |   |   | 284,510 |   |   |   | (960,712 | ) |   |   | (236 | ) |   |   | –  |   |   |   | 158,920 |   |
| Acquisition of Dantherm  Power (note 2)           |                                                       |             | –    |   |          |   | – |            |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 3,543 |   |   |   | 3,543 |   |
| Additional investment in  Dantherm Power (note 2) |                                                       |             | –    |   |          |   | – |            |   |   | – |   |   |   | 915 |   |   |   | – |   |   |   | – |   |   |   | (49 | )  |   |   | 866 |   |
| Net loss                                                    |                                                       |             | –    |   |          |   | – |            |   |   | – |   |   |   | – |   |   |   | (34,936 | ) |   |   | – |   |   |   | (3,907 | )  |   |   | (38,843 | ) |
| Non-dilutive financing                                      |                                                       |             | –    |   |          |   | – |            |   |   | – |   |   |   | (22 | ) |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | (22 | ) |
| Purchase of treasury  shares (note 14)            |                                                       |             | –    |   |          |   | – |            |   |   | (559 | ) |   |   | – |   |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | (559 | ) |
| RSUs and DSUs redeemed                                      |                                                       |             | 101,986    |   |          |   | 542     |            |   |   | 96 |   |   |   | (800 | ) |   |   | (21 | ) |   |   | – |   |   |   | –  |   |   |   | (183 | ) |
| Options exercised                                           |                                                       |             | 72,491     |   |          |   | 138     |            |   |   | – |   |   |   | (47 | ) |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | 91 |   |
| Share distribution plan                                     |                                                       |             | –    |   |          |   | – |            |   |   | – |   |   |   | 4,062 |   |   |   | – |   |   |   | – |   |   |   | –  |   |   |   | 4,062 |   |
| Balance, December 31, 2010                                  |                                                       |             | 84,148,465 |   |          | $      | 836,245 |            |   | $ | (670 | ) |   | $ | 288,618 |   |   | $ | (995,669 | ) |   | $ | (236 | ) |   | $ | (413 | )  |   | $ | 127,875 |   |

----

|                                                                         |   | 2010   |    |   | 2009   |   |
|------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Cash provided by (used for):                                                 |   |   |    |   |   |   |
| Operating activities:                                                        |   |   |    |   |   |   |
| Net loss for the year                                                        |   | $      | (38,843 | )      |   | $      | (3,258 | ) |
| Items not affecting cash:                                                    |   |   |    |   |   |   |   |   |
| Compensatory shares                                                          |   |   | 4,057   |   |   |   | 3,033 |   |
| Employee future benefits                                                     |   |   | (358    | )      |   |   | (1,524 | ) |
| Depreciation and amortization                                                |   |   | 8,564   |   |   |   | 9,504 |   |
| Unrealized gain on forward contracts                                         |   |   | (1,404  | )      |   |   | (408 | ) |
| Gain on sale of assets (note 9)                                              |   |   | (4,816  | )      |   |   | (34,439 | ) |
| Equity gain in associated companies                                          |   |   | – |   |   |   | (8,364 | ) |
|                                                                         |   |   | (32,800 | )      |   |   | (35,456 | ) |
| Changes in non-cash working capital:                                         |   |   |    |   |   |   |   |   |
| Accounts receivable                                                          |   |   | (65     | )      |   |   | 6,084 |   |
| Inventories                                                                  |   |   | (2,350  | )      |   |   | 1,356 |   |
| Prepaid expenses and other current assets                                    |   |   | 1,276   |   |   |   | (884 | ) |
| Accounts payable and accrued liabilities                                     |   |   | 2,915   |   |   |   | 1,623 |   |
| Deferred revenue                                                             |   |   | 965     |   |   |   | (3,656 | ) |
| Accrued warranty liabilities                                                 |   |   | 747     |   |   |   | 3,971 |   |
|                                                                         |   |   | 3,488   |   |   |   | 8,494 |   |
| Cash used by operations                                                      |   |   | (29,312 | )      |   |   | (26,962 | ) |
| Investing activities:                                                        |   |   |    |   |   |   |   |   |
| Net decrease (increase) in short-term investments                            |   |   | 17,738  |   |   |   | (7,619 | ) |
| Additions to property, plant and equipment                                   |   |   | (3,453  | )      |   |   | (6,778 | ) |
| Net proceeds on sale of property, plant and equipment  and other   |   |   | 20,012  |   |   |   | 2,182 |   |
| Net proceeds on monetization of other long-term assets (note 9)         |   |   | 3,355   |   |   |   | 37,000 |   |
| Business acquisition including cash acquired (note 2)                        |   |   | 877     |   |   |   | – |   |
| Investments (notes 9 & 12)                                               |   |   | (185    | )      |   |   | (5,135 | ) |
|                                                                         |   |   | 38,344  |   |   |   | 19,650 |   |
| Financing activities:                                                        |   |   |    |   |   |   |   |   |
| Non-dilutive financing (note 3)                                              |   |   | (22     | )      |   |   | (3,243 | ) |
| Purchase of treasury shares (note 14)                                        |   |   | (559    | )      |   |   | (207 | ) |
| Repayment of capital lease obligation (note 11)                              |   |   | (770    | )      |   |   | (30 | ) |
| Net proceeds on issuance of share capital                                    |   |   | 91      |   |   |   | 5 |   |
| Contribution from Dantherm Power A/S non-controlling interests (note 2) |   |   | 866     |   |   |   | – |   |
|                                                                         |   |   | (394    | )      |   |   | (3,475 | ) |
|                                                                         |   |   |    |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                             |   |   | 8,638   |   |   |   | (10,787 | ) |
| Cash and cash equivalents, beginning of year                                 |   |   | 43,299  |   |   |   | 54,086 |   |
| Cash and cash equivalents, end of year                                       |   | $      | 51,937  |   |   | $      | 43,299 |   |

----

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| 1.   | Nature of business and summary of significant accounting policies: |
|----------------|--------------------------------------------------------------------|

|   (a)  | Nature of business: |
|------------------|---------------------|

|   (b) | Basis of presentation, critical accounting estimates and judgment applied: |
|------------|----------------------------------------------------------------------------|

| (c) | Convergence with International Financial Reporting Standards: |
|-----|---------------------------------------------------------------|

|   | Canadian public companies will be required to prepare financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board.  This change will apply to financial statements relating to the Corporation beginning on January 1, 2011.  The Corporation has undertaken a project to ensure compliance with the new standards by the adoption date. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 1.   | Nature of business and summary of significant accounting policies (cont’d): |
|----------------|-----------------------------------------------------------------------------------|

| (d) | Principles of consolidation: |
|-----|------------------------------|

|                                   |                                                Percentage ownership |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                   | 2010                                                                                                                                                                                                                                                                                                           | 2009 |
| Ballard Advanced Materials Corporation | 77.5%                                                                                                                                                                                                                                                                                                          | 77.5% |
| Ballard GmbH                           | 100.0%                                                                                                                                                                                                                                                                                                         | 100.0% |
| Ballard Material Products Inc.         | 100.0%                                                                                                                                                                                                                                                                                                         | 100.0% |
| Ballard Power Corporation              | 100.0%                                                                                                                                                                                                                                                                                                         | 100.0% |
| Dantherm Power A/S (note 2)            | 52.0%                                                                                                                                                                                                                                                                                                          | N/A |

|   | All significant intercompany balances and transactions have been eliminated on consolidation. |
|--------|-----------------------------------------------------------------------------------------------|

| (e) | Translation of foreign currencies: |
|-----|------------------------------------|

| (f) | Revenue recognition: |
|-----|----------------------|

----

----

| 1.   | Nature of business and summary of significant accounting policies (cont’d): |
|----------------|-----------------------------------------------------------------------------------|

| (f) | Revenue recognition (cont’d): |
|-----|-------------------------------------|

| (g) | Cash, cash equivalents and short-term investments: |
|-----|----------------------------------------------------|

| (h) | Financial instruments: |
|-----|------------------------|

|   | Periodically, the Corporation enters into forward exchange contracts to limit its exposure to foreign currency rate fluctuations and to platinum price fluctuations.  These derivative contracts are recorded as either assets or liabilities in the consolidated balance sheet at fair value.  Any changes in fair value are recognized in net income.  The Corporation does not designate its financial instruments as hedges. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

| 1.   | Nature of business and summary of significant accounting policies (cont’d): |
|----------------|-----------------------------------------------------------------------------------|

| (i) | Inventories: |
|-----|--------------|

| (j) | Property, plant and equipment: |
|-----|--------------------------------|

| Buildings                                         | 30 to 39 years                                                                |
|---------------------------------------------------|-------------------------------------------------------------------------------|
| Building under capital lease                      | 15 years                                                                      |
| Computer equipment                                | 3 to 7 years                                                                  |
| Furniture and fixtures                            | 5 to 14 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 capital lease | 5 years                                                                       |

| (k) | Intangible assets: |
|-----|--------------------|

|   | Costs incurred in establishing and maintaining patents and license agreements are expensed in the period incurred. |
|--------|--------------------------------------------------------------------------------------------------------------------|

----

----

| 1.   | Nature of business and summary of significant accounting policies (cont’d): |
|----------------|-----------------------------------------------------------------------------------|

| (l) | Impairment of long-lived assets: |
|-----|----------------------------------|

|   | Long-lived assets, including property, plant and equipment, investments, and intangible assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  An impairment loss, if any, is recognized when the carrying amount of a long-lived asset exceeds its fair value based on its estimated undiscounted future cash flows. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (m) | Goodwill: |
|-----|-----------|

| (n) | Investments: |
|-----|--------------|

| (o) |  Accrued warranty liabilities: |
|-----|-------------------------------------|

----

----

| 1.   | Nature of business and summary of significant accounting policies (cont’d): |
|----------------|-----------------------------------------------------------------------------------|

| (p) | Leases: |
|-----|---------|

|   | Leases are classified as capital or operating depending upon the terms and conditions of the contracts.  Leases, which transfer substantially all the benefits and risks incident to ownership of the leased property to the Corporation, are accounted for as capital leases.  The cost of assets under capital leases represent the present value of minimum lease payments and are amortized on a straight-line basis over the lease term.  Assets under capital leases are presented in property, plant and equipment in the consolidated balance sheet. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Leases that do not transfer substantially all of the benefits and risks incident to ownership of the property are accounted for as operating leases. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| (q) | Asset retirement obligations: |
|-----|-------------------------------|

| (r) | Research and product development costs: |
|-----|-----------------------------------------|

----

----

| 1.   | Nature of business and summary of significant accounting policies (cont’d): |
|----------------|-----------------------------------------------------------------------------------|

| (s) | Income taxes: |
|-----|---------------|

| (t) | Employee future benefits: |
|-----|---------------------------|

|   | ● | Accrued benefit obligations and the cost of pension and other post-retirement benefits earned by participants are determined from actuarial calculations according to the projected benefit method prorated on services.  The accrued benefit obligations under the post-employment benefit plans are determined from actuarial calculations according to the accumulated benefit method.  The calculations are based on management’s best estimate assumptions relating to salary escalations, retirement age of participants and estimated health-care costs.  Pension obligations are discounted using current market interest rates.  Changes in accrued benefit obligations are recognized immediately. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Plan assets are measured at fair value, determined directly by reference to quoted market prices. Changes in fair value on plan assets are recognized immediately. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Actuarial gains or losses arise from changes in actuarial assumptions used to determine accrued benefit obligations and from emerging experience different from the selected assumptions. Actuarial gains or losses are recognized immediately. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Current service costs, if any, are recognized immediately. |
|--------|---------|------------------------------------------------------------|

|   | ● | Curtailment gains and losses arising from plan amendments are recognized immediately. |
|--------|---------|---------------------------------------------------------------------------------------|

----

----

| 1.   | Nature of business and summary of significant accounting policies (cont’d): |
|----------------|-----------------------------------------------------------------------------------|

| (t) | Employee future benefits (cont’d): |
|-----|------------------------------------------|

| (u) | Share-based compensation: |
|-----|---------------------------|

| (v) | Earnings (loss) per share: |
|-----|----------------------------|

| (w) | Comprehensive income (loss): |
|-----|------------------------------|

----

----

| 1.   | Nature of business and summary of significant accounting policies (cont’d): |
|----------------|-----------------------------------------------------------------------------------|

| (x) | Government assistance and investment tax credits: |
|-----|---------------------------------------------------|

| (y) | Comparative figures: |
|-----|----------------------|

| 2.   | Business acquisition: |
|----------------|-----------------------|

----

----

| 2.   | Business acquisition (cont’d): |
|----------------|--------------------------------------|

| Net assets acquired:                    |   |   |   |
|-----------------------------------------|--------|--------|--------|
| Cash and cash equivalents               |   | $      | 3,792  |   |
| Accounts receivable                     |   |   | 128    |   |
| Inventories                             |   |   | 864    |   |
| Prepaid expenses and other              |   |   | 143    |   |
| Property, plant and equipment           |   |   | 536    |   |
| Intangible assets                       |   |   | 2,876  |   |
| Investments                             |   |   | 13     |   |
| Current liabilities                     |   |   | (1,894 | ) |
| Net assets acquired on January 18, 2010 |   |   | 6,458  |   |
| Non-controlling interest of 54.86%      |   |   | (3,543 | ) |
| Total purchase consideration            |   | $      | 2,915  |   |

| Purchase consideration                    |   | $      | (2,915 | )      |
|-------------------------------------------|--------|--------|--------|--------|
| Acquired cash and cash equivalents        |   |   | 3,792  |   |
| Net cash acquired on business acquisition |   | $      | 877    |   |

----

----

| 3. | Non-dilutive financing: |
|----|-------------------------|

| 4. | Sale-leaseback transaction: |
|----|-----------------------------|

| Proceeds on disposition       |   | $      | 20,427  |   |
|-------------------------------|--------|--------|---------|--------|
| Net book value of assets sold |   |   | (10,432 | )      |
| Disposition costs             |   |   | (483    | )      |
| Deferred gain on sale         |   | $      | 9,512   |   |
| Less amortization in 2010     |   |   | (529    | )      |
| Other                         |   |   | 53      |   |
|                          |   | $      | 9,036   |   |

----

----

| 5. | Accounts receivable: |
|----|----------------------|

|                              |   | 2010   |   |   | 2009   |   |
|-----------------------------------|--------|--------|--------|--------|--------|--------|
| Trade receivables                 |   | $      | 12,584 |   |   | $      | 12,847 |   |
| Other                             |   |   | 626    |   |   |   | 56 |   |
|                              |   |   | 13,210 |   |   |   | 12,903 |   |
| Less: Long-term trade receivables |   |   | (1,596 | )      |   |   | – |   |
|                              |   | $      | 11,614 |   |   | $      | 12,903 |   |

| 6. | Inventories: |
|----|--------------|

|                          |   | 2010   |   |   | 2009   |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|
| Raw materials and consumables |   | $      | 6,962  |   |   | $      | 5,928 |   |
| Work-in-progress              |   |   | 2,951  |   |   |   | 2,018 |   |
| Finished goods                |   |   | 2,469  |   |   |   | 1,222 |   |
|                          |   | $      | 12,382 |   |   | $      | 9,168 |   |

| 7. | Property, plant and equipment: |
|----|--------------------------------|

| 2010                                                             |   | Cost   |   |   | Accumulated depreciation |   |   | Net book value |   |
|------------------------------------------------------------------|--------|--------|--------|--------|--------------------------|--------|--------|----------------|--------|
| Land                                                             |   | $      | 1,220  |   |                     | $      | -      |           |   | $ | 1,220 |   |
| Building                                                         |   |   | 3,666  |   |                     |   | 2,044  |           |   |   | 1,622 |   |
| Building under capital lease (notes 4 & 11)                  |   |   | 12,180 |   |                     |   | 652    |           |   |   | 11,528 |   |
| Computer equipment                                               |   |   | 6,339  |   |                     |   | 5,347  |           |   |   | 992 |   |
| Furniture and fixtures                                           |   |   | 741    |   |                     |   | 682    |           |   |   | 59 |   |
| Leasehold improvements                                           |   |   | 6,934  |   |                     |   | 4,097  |           |   |   | 2,837 |   |
| Production and test equipment                                    |   |   | 45,382 |   |                     |   | 28,889 |           |   |   | 16,493 |   |
| Production and test equipment under capital lease (note 11) |   |   | 2,078  |   |                     |   | 123    |           |   |   | 1,955 |   |
|                                                             |   | $      | 78,540 |   |                     | $      | 41,834 |           |   | $ | 36,706 |   |

----

----

| 7. | Property, plant and equipment (cont’d): |
|----|-----------------------------------------------|

| 2009                                                             |   | Cost   |    |   | Accumulated depreciation |   |   | Net book value |   |
|------------------------------------------------------------------|--------|--------|---------|--------|--------------------------|--------|--------|----------------|--------|
| Land                                                             |   | $      | 4,803   |   |                     | $      | -      |           |   | $ | 4,803 |   |
| Building                                                         |   |   | 13,596  |   |                     |   | 5,661  |           |   |   | 7,935 |   |
| Computer equipment                                               |   |   | 11,421  |   |                     |   | 10,319 |           |   |   | 1,102 |   |
| Furniture and fixtures                                           |   |   | 4,692   |   |                     |   | 4,629  |           |   |   | 63 |   |
| Leasehold improvements                                           |   |   | 8,669   |   |                     |   | 5,489  |           |   |   | 3,180 |   |
| Production and test equipment                                    |   |   | 67,651  |   |                     |   | 47,492 |           |   |   | 20,159 |   |
| Production and test equipment under capital lease (note 11) |   |   | 2,078   |   |                     |   | -      |           |   |   | 2,078 |   |
|                                                             |   | $      | 112,910 |   |                     | $      | 73,590 |           |   | $ | 39,320 |   |

|   | For the year ended December 31, 2010, the Corporation recorded $8,086,000 (2009 – $6,300,000) of depreciation expense. |
|--------|------------------------------------------------------------------------------------------------------------------------------|

| 8. | Intangible assets: |
|----|--------------------|

|  2010           |   | Cost |   |   | Accumulated amortization |   |   | Net book value |   |
|----------------------|--------|------|--------|--------|--------------------------|--------|--------|----------------|--------|
| Fuel cell technology |   | $    | 43,443 |   |                     | $      | 40,468 |           |   | $ | 2,975 |   |

|  2009           |   | Cost |   |   | Accumulated amortization |   |   | Net book value |   |
|----------------------|--------|------|--------|--------|--------------------------|--------|--------|----------------|--------|
| Fuel cell technology |   | $    | 40,567 |   |                     | $      | 39,743 |           |   | $ | 824 |   |

|   | During 2010, the Corporation acquired $2,876,000 in fuel cell technology as part of the acquisition of Dantherm Power (note 2). |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | For the year ended December 31, 2010, the Corporation recorded $725,000 (2009 – $2,902,000) of amortization expense. |
|--------|----------------------------------------------------------------------------------------------------------------------------|

| 9. | Investments: |
|----|--------------|

|                                 |   | 2010   |    |   | 2009                 |   |
|--------------------------------------|--------|--------|---------|--------|----------------------|--------|
|                                 |   | Amount |    |   | Percentage ownership |   |   | Amount |   |   | Percentage ownership |   |
| Chrysalix Energy Limited Partnership |   | $      | 663     |   |                 |   | 15.0% |   |   | $ | 632 |   |   |   | 15.0% |   |
| AFCC                                 |   |   | – |   |                 |   | 19.9% |   |   |   | – |   |   |   | 19.9% |   |
| Other                                |   |   | 10      |   |                 |   |   |   |   |   | – |   |   |   |   |   |
|                                 |   | $      | 673     |   |                 |   |   |   |   | $ | 632 |   |   |   |   |   |

----

----

| 9. | Investments (cont'd): |
|----|-----------------------|

| Initial proceeds on disposal of SPA in 2009                  |   | $      | 37,000 |   |
|--------------------------------------------------------------|--------|--------|--------|--------|
| Net book value of AFCC and SPA                               |   |   | (1,262 | )      |
| SPA disposal costs accrued at December 31, 2009              |   |   | (1,441 | )      |
| Other                                                        |   |   | 122    |   |
| Gain on sale of assets in 2009                               |   | $      | 34,419 |   |
| Additional proceeds to extinguish contingent payment in 2010 |   | $      | 5,000  |   |
| SPA disposal costs incurred in 2010                          |   |   | (239   | )      |
| Other                                                        |   |   | 4      |   |
| Gain on sale of assets in 2010                               |   | $      | 4,765  |   |

----

----

| 10. | Accounts payable and accrued liabilities: |
|-----|-------------------------------------------|

|                                          |   | 2010   |    |   | 2009   |   |
|-----------------------------------------------|--------|--------|---------|--------|--------|--------|
| Trade accounts payable                        |   | $      | 8,453   |   |   | $      | 6,670 |   |
| Other liabilities                             |   |   | 4,677   |   |   |   | 3,952 |   |
| Accrued non-dilutive financing costs (note 3) |   |   | 613     |   |   |   | 584 |   |
| Compensation payable                          |   |   | 9,159   |   |   |   | 5,235 |   |
| Taxes payable                                 |   |   | 354     |   |   |   | 302 |   |
| Accrued restructuring and related costs       |   |   | 78      |   |   |   | 2,137 |   |
| Accrued SPA disposal costs (note 9)           |   |   | – |   |   |   | 1,441 |   |
|                                          |   | $      | 23,334  |   |   | $      | 20,321 |   |

| 11. | Obligations under capital lease: |
|-----|----------------------------------|

| Year ending December 31                             |   |   |   |
|-----------------------------------------------------|--------|--------|--------|
| 2011                                                |   | $      | 1,591  |   |
| 2012                                                |   |   | 1,591  |   |
| 2013                                                |   |   | 1,591  |   |
| 2014                                                |   |   | 1,997  |   |
| 2015                                                |   |   | 1,402  |   |
| Thereafter                                          |   |   | 13,941 |   |
| Total minimum lease payments                        |   |   | 22,113 |   |
| Less imputed interest                               |   |   | (8,078 | ) |
| Total obligation under capital lease                |   |   | 14,035 |   |
| Current portion of obligation under capital lease   |   |   | 681    |   |
| Long-term portion of obligation under capital lease |   | $      | 13,354 |   |

----

----

| 11. | Obligations under capital lease (cont'd): |
|-----|-------------------------------------------|

| 12. | Long-term liabilities: |
|-----|------------------------|

|                                    |   | 2010   |   |   | 2009   |   |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|
| Defined benefit pension plan            |   | $      | 2,459  |   |   | $      | 2,695 |   |
| Other benefit plan                      |   |   | 491    |   |   |   | 616 |   |
| Employee future benefit plans (note 13) |   |   | 2,950  |   |   |   | 3,311 |   |
| Asset retirement obligation             |   |   | 1,482  |   |   |   | 1,321 |   |
|                                    |   | $      | 4,432  |   |   | $      | 4,632 |   |

----

----

| 13. | Employee future benefit plans: |
|-----|--------------------------------|

|   |   | 2010              |   |   | 2009               |   |
|--------|--------|-------------------|--------|--------|--------------------|--------|
|   |   | Pension plan |   |   | Other benefit plan |   |   | Pension plan |   |   | Other benefit plan |   |

| Fair value of plan assets  |   | $      | 8,360   |   |   | $      | -    |   |   | $      | 7,105  |   |   | $      | -    |   |
|----------------------------|--------|--------|---------|--------|--------|--------|------|--------|--------|--------|--------|--------|--------|--------|------|--------|
| Accrued benefit obligation |   |   | (10,819 | )      |   |   | (491 | )      |   |   | (9,800 | )      |   |   | (616 | )      |
| Accrued benefit liability  |   | $      | (2,459  | )      |   | $      | (491 | )      |   | $      | (2,695 | )      |   | $      | (616 | )      |

|                       |   | 2010              |    |   | 2009               |   |
|----------------------------|--------|-------------------|---------|--------|--------------------|--------|
|                       |   | Pension plan |    |   | Other benefit plan |   |   | Pension plan |   |   | Other benefit plan |   |
| Balance, beginning of year |   | $                 | 9,800   |   |               | $      | 616 |   |   | $ | 9,981 |   |   | $ | 616 |   |
| Current service cost       |   |              | – |   |               |   | 3 |   |   |   | 366 |   |   |   | 3 |   |
| Interest cost              |   |              | 579     |   |               |   | 35 |   |   |   | 594 |   |   |   | 35 |   |
| Benefits paid              |   |              | (217    | )      |               |   | (31 | ) |   |   | (200 | ) |   |   | (31 | ) |
| Benefits payable           |   |              | 36      |   |               |   | – |   |   |   | – |   |   |   | – |   |
| Actuarial (gains) losses   |   |              | 621     |   |               |   | (132 | ) |   |   | 114 |   |   |   | (7 | ) |
| Curtailment gain           |   |              | – |   |               |   | – |   |   |   | (1,055 | ) |   |   | – |   |
| Balance, end of year       |   | $                 | 10,819  |   |               | $      | 491 |   |   | $ | 9,800 |   |   | $ | 616 |   |

----

----

| 13. | Employee future benefit plans (cont'd): |
|-----|-----------------------------------------|

|                                           |   | 2010              |   |   | 2009               |   |
|------------------------------------------------|--------|-------------------|--------|--------|--------------------|--------|
|                                           |   | Pension plan |   |   | Other benefit plan |   |   | Pension plan |   |   | Other benefit plan |   |
| Balance, beginning of year                     |   | $                 | 7,105  |   |               | $      | – |   |   | $ | 5,761 |   |   | $ | – |   |
| Actual return (loss) on  plan assets |   |              | 1,136  |   |               |   | – |   |   |   | 1,477 |   |   |   | – |   |
| Employer’s contributions                 |   |              | 370    |   |               |   | 28 |   |   |   | 100 |   |   |   | 31 |   |
| Plan expenses                                  |   |              | (34    | )      |               |   | – |   |   |   | (33 | ) |   |   | – |   |
| Benefits paid                                  |   |              | (217   | )      |               |   | (28 | ) |   |   | (200 | ) |   |   | (31 | ) |
| Balance, end of year                           |   | $                 | 8,360  |   |               | $      | – |   |   | $ | 7,105 |   |   | $ | – |   |

|                      |   | 2010   |   |   | 2009   |   |
|---------------------------|--------|--------|--------|--------|--------|--------|
| Cash and cash equivalents |   |   | 2%     |   |   |   | 1% |   |
| Equity securities         |   |   | 71%    |   |   |   | 72% |   |
| Debt securities           |   |   | 27%    |   |   |   | 27% |   |
| Total                     |   |   | 100%   |   |   |   | 100% |   |

|                                             |   | 2010        |    |   | 2009               |   |
|--------------------------------------------------|--------|-------------|---------|--------|--------------------|--------|
|                                             |   | Pensionplan |    |   | Other benefit plan |   |   | Pension plan |   |   | Other benefit plan |   |
| Current service cost                             |   | $           | – |   |               | $      | 3 |   |   | $ | 366 |   |   | $ | 3 |   |
| Interest cost                                    |   |        | 579     |   |               |   | 35 |   |   |   | 594 |   |   |   | 35 |   |
| Actual (return) loss on plan assets         |   |        | (1,136  | )      |               |   | –  |   |   |   | (1,477 | ) |   |   | –  |   |
| Actuarial (gains) losses                         |   |        | 621     |   |               |   | (131 | ) |   |   | 114 |   |   |   | (7 | ) |
| Plan expenses                                    |   |        | 34      |   |               |   | – |   |   |   | 33 |   |   |   | – |   |
| Benefits                                         |   |        | 36      |   |               |   | – |   |   |   | – |   |   |   | – |   |
| Curtailment gain                                 |   |        | – |   |               |   | – |   |   |   | (1,055 | ) |   |   | – |   |
| Employee future benefit plan expense (gain) |   | $           | 134     |   |               | $      | (93 | ) |   | $ | (1,425 | ) |   | $ | 31 |   |

----

----

| 13. | Employee future benefit plans (cont'd): |
|-----|-----------------------------------------|

|                          |   | 2010        |   |   | 2009              |   |
|-------------------------------|--------|-------------|--------|--------|-------------------|--------|
|                          |   | Pensionplan |   |   | Other benefitplan |   |   | Pensionplan |   |   | Other benefitplan |   |
| Discount rate                 |   |        | 5.5%   |   |              |   | 5.5% |   |   |   | 6.0% |   |   |   | 6.0% |   |
| Rate of compensation increase |   |        | n/a    |   |              |   | n/a |   |   |   | n/a |   |   |   | n/a |   |

|                           |   | 2010         |   |   | 2009               |   |
|--------------------------------|--------|--------------|--------|--------|--------------------|--------|
|                           |   | Pension plan |   |   | Other benefit plan |   |   | Pensionplan |   |   | Other benefit plan |   |
| Discount rate                  |   |         | 6.0%   |   |               |   | 6.0% |   |   |   | 6.0% |   |   |   | 6.0% |   |
| Expected return on plan assets |   |         | 7.0%   |   |               |   | n/a |   |   |   | 7.0% |   |   |   | n/a |   |
| Rate of compensation increase  |   |         | n/a    |   |               |   | n/a |   |   |   | 3.3% |   |   |   | n/a |   |

|                                                                        |   | 2010   |   |   | 2009   |   |
|-----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Initial medical health care cost trend rate                                 |   |   | 8.5%   |   |   |   | 9.0% |   |
| Initial dental health care cost trend rate                                  |   |   | 5.0%   |   |   |   | 5.0% |   |
| Cost trend rate declines to medical and dental                              |   |   | 5.0%   |   |   |   | 5.0% |   |
| Year that the medical rate reaches the rate it is assumed to remain at |   |   | 2017   |   |   |   | 2017 |   |
| Year that the dental rate reaches the rate it is assumed to remain at  |   |   | 2009   |   |   |   | 2009 |   |

| 14. | Share capital: |
|-----|----------------|

| (a) | Authorized and issued: |
|-----|------------------------|

----

----

| 14. | Share capital (cont’d): |
|-----|-------------------------------|

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

|                       |   |   | Options for common shares  |   |   |   | Weighted averageexercise price  |   |
|----------------------------|--------|--------|---------------------------------|--------|--------|--------|--------------------------------------|--------|
| Balance, December 31, 2008 |   |   | 5,476,382                       |   |   | $      | 24.65                                |   |
| Options granted            |   |   | 1,944,997                       |   |   |   | 1.60                                 |   |
| Options exercised          |   |   | (5,000                          | )      |   |   | 1.01                                 |   |
| Options forfeited          |   |   | (1,548,528                      | )      |   |   | 33.13                                |   |
| Balance, December 31, 2009 |   |   | 5,867,851                       |   |   |   | 19.18                                |   |
| Options granted            |   |   | 1,709,737                       |   |   |   | 2.31                                 |   |
| Options exercised          |   |   | (72,491                         | )      |   |   | 1.30                                 |   |
| Options forfeited          |   |   | (589,408                        | )      |   |   | 9.48                                 |   |
| Options expired            |   |   | (233,100                        | )      |   |   | 190.90                               |   |
| Balance, December 31, 2010 |   |   | 6,682,589                       |   |   | $      | 10.84                                |   |

----

----

| 14. | Share capital (cont’d): |
|-----|-------------------------------|

| (b) | Share option plan (cont’d): |
|-----|-----------------------------------|

|                    |                 |   | Options outstanding                     |   |      | Options exercisable                                |   |
|-------------------------|----------------------|--------|-----------------------------------------|--------|-----------|----------------------------------------------------|--------|
| Range of exercise price |                 |   | Number outstanding at December 31, 2010 |   |      | Weighted average remainingcontractual life (years) |   |   | Weighted average exercise price |   |   | Number exercisable at December 31, 2010 |   |   | Weighted average exercise price |   |
| $                       | 1.01 – $2.41   |   |                                    |   | 3,163,338 |                                               |   |   | 5.8 |   |   | $ | 1.99 |   |   |   | 514,163 |   |   | $ | 1.66 |   |
| $                       | 3.12 – $5.11   |   |                                    |   | 587,007   |                                               |   |   | 4.2 |   |   |   | 4.83 |   |   |   | 392,338 |   |   |   | 4.83 |   |
| $                       | 5.82 – $7.99   |   |                                    |   | 1,579,205 |                                               |   |   | 4.3 |   |   |   | 7.35 |   |   |   | 1,579,205 |   |   |   | 7.35 |   |
| $                       | 10.00 – $14.76 |   |                                    |   | 376,635   |                                               |   |   | 2.5 |   |   |   | 13.94 |   |   |   | 376,635 |   |   |   | 13.94 |   |
| $                       | 18.40 – $38.96 |   |                                    |   | 525,954   |                                               |   |   | 1.4 |   |   |   | 36.21 |   |   |   | 525,954 |   |   |   | 36.21 |   |
| $                       | 44.04 – $88.98 |   |                                    |   | 450,450   |                                               |   |   | 0.5 |   |   |   | 60.90 |   |   |   | 450,450 |   |   |   | 60.90 |   |
|                    |                 |   |                                    |   | 6,682,589 |                                               |   |   | 4.4 |   |   | $ | 10.84 |   |   |   | 3,838,745 |   |   | $ | 17.21 |   |

|                    |   | 2010    |   |   | 2009    |   |
|-------------------------|--------|---------|--------|--------|---------|--------|
| Expected life           |   | 5 years |   |   | 5 years |   |
| Expected dividends      |   | Nil     |   |   | Nil     |   |
| Expected volatility     |   |    | 65%    |   |    |   | 60% |   |
| Risk-free interest rate |   |    | 3%     |   |    |   | 3% |   |

| (c) | Share distribution plan: |
|-----|--------------------------|

----

----

| 14. | Share capital (cont'd) |
|-----|------------------------|

| (d) | Deferred Share Units: |
|-----|-----------------------|

|                       |   |   | DSUs for common shares |   |
|----------------------------|--------|--------|------------------------|--------|
| Balance, December 31, 2008 |   |   | 333,066                |   |
| DSUs exercised             |   |   | (16,914                | )      |
| Balance, December 31, 2009 |   |   | 316,152                |   |
| DSUs exercised             |   |   | (25,355                | )      |
| Balance, December 31, 2010 |   |   | 290,797                |   |

| (e) | Restricted Share Units: |
|-----|-------------------------|

----

----

| 14. | Share capital (cont'd) |
|-----|------------------------|

|                       |   |   | RSUs for common shares  |   |
|----------------------------|--------|--------|------------------------------|--------|
|                       |   |   | Share DistributionPlan  |   |   |   | Market PurchasePlan  |   |   |   | Total RSUs  |   |
| Balance, December 31, 2008 |   |   | 1,092,813                    |   |   |   | – |   |   |   | 1,092,813 |   |
| RSUs granted               |   |   | 633,737                      |   |   |   | 446,733 |   |   |   | 1,080,470 |   |
| RSUs exercised             |   |   | (357,319                     | )      |   |   | – |   |   |   | (357,319 | ) |
| RSUs forfeited             |   |   | (128,215                     | )      |   |   | (66,000 | ) |   |   | (194,215 | ) |
| Balance, December 31, 2009 |   |   | 1,241,016                    |   |   |   | 380,733 |   |   |   | 1,621,749 |   |
| RSUs granted               |   |   | -                            |   |   |   | 893,370 |   |   |   | 893,370 |   |
| RSUs exercised             |   |   | (154,006                     | )      |   |   | (38,990 | ) |   |   | (192,996 | ) |
| RSUs forfeited             |   |   | (235,040                     | )      |   |   | (176,015 | ) |   |   | (411,055 | ) |
| Balance, December 31, 2010 |   |   | 851,970                      |   |   |   | 1,059,098 |   |   |   | 1,911,068 |   |

|   15. | Investment and other income (loss): |
|-----------------|-------------------------------------|

|                                                                                    |   | 2010   |    |   | 2009   |   |
|-----------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|  Investment return (loss) less interest cost on employee future benefit plans |   | $      | (12     | )      |   | $      | 741 |   |
| Curtailment gain on employee future benefit plans                                       |   |   | – |   |   |   | 1,055 |   |
| Employee future benefits gain (loss) (note 13)                                          |   |   | (12     | )      |   |   | 1,796 |   |
| Investment income                                                                       |   |   | 247     |   |   |   | 387 |   |
| Other income                                                                            |   |   | 300     |   |   |   | 625 |   |
| Foreign exchange gain (loss)                                                            |   |   | (407    | )      |   |   | 3,187 |   |
| Investment and other income (loss)                                                      |   | $      | 128     |   |   | $      | 5,995 |   |

----

----

| 16. | Commitments, guarantees and contingencies: |
|-----|--------------------------------------------|

| (a) | At December 31, 2010, the Corporation is committed to payments under operating leases as follows: |
|-----|---------------------------------------------------------------------------------------------------|

| 2011                         |   |   | 2,551  |   |
|------------------------------|--------|--------|--------|--------|
| 2012                         |   |   | 2,557  |   |
| 2013                         |   |   | 2,521  |   |
| 2014                         |   |   | 2,578  |   |
| 2015                         |   |   | 2,750  |   |
| Thereafter                   |   |   | 13,731 |   |
| Total minimum lease payments |   | $      | 26,688 |   |

| (b) | 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 original terms of the Utilities Development Program  (Phase 1) with the Governments of Canada and British Columbia, total royalties were payable to a maximum equal to the original amount of the government contributions of CDN $10,702,000.  During 2009, a Canadian government agency agreed to terminate potential royalties payable of CDN $5,351,000 in respect of future sales of fuel cell based stationary power products under the Utilities Development Program (Phase 1).  As at December 31, 2010, 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 at December 31, 2010, a total of CDN $5,320,000 in royalty repayments have been made for Phase 2 including payments of CDN $nil in 2010 and CDN $115,000 in 2009. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Original maximum recoverable amount under Phase 1 and 2  Termination of potential royalties payable  Prior year payments applied | CDN$            |  49,031 (5,351) (5,321) |
|------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|----------------------------------------|
| Maximum recoverable amount, December 31, 2010                                                                                                        | CDN$            | 38,359                                 |
| Maximum recoverable amount, December 31, 2010                                                                                                        |   US$ | 38,567                                 |

----

----

| 16. | Commitments, guarantees and contingencies (cont'd): |
|-----|-----------------------------------------------------|

| (c) | As at December 31, 2009, the Corporation had issued letter of credits in the amount of $293,000 related to inventory purchases and customer guarantees.  No such letter of credits were outstanding as at December 31, 2010. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | At December 31, 2010, the Corporation has outstanding commitments aggregating up to a maximum of $1,156,000 (2009 - $1,691,000) relating primarily to purchases of property, plant and equipment. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | The Corporation is also committed to make future investments totaling $201,000 in Chrysalix (note 9). |
|-----|-------------------------------------------------------------------------------------------------------|

| (f) | 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 future sales of such products for commercial transit application to a maximum of $2,212,000 (CDN$ 2,200,000).  No royalties have been paid, or accrued, as of December 31, 2010. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | The Arrangement with Superior Plus (note 3) includes an indemnification agreement dated December 31, 2008 (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 $7,390,000 (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. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 17. | Income taxes: |
|-----|---------------|

|                                                                                |   | 2010   |    |   | 2009   |   |
|-------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Net loss attributable to Ballard Power Systems Inc.  before income taxes  |   | $      | (34,933 | )      |   | $      | (3,265 | ) |
| Expected tax recovery at 28.50% (2009 – 30.00%)                               |   | $      | (9,956  | )      |   | $      | (980 | ) |
| Increase (reduction) in income taxes resulting from:                                |   |   |    |   |   |   |   |   |
|   Gain on sale of assets                                                  |   |   | (1,289  | )      |   |   | (5,966 | ) |
|   Non-deductible expenses (non-taxable income)                            |   |   | 1,249   |   |   |   | 320 |   |
|   Non-taxable equity gain in associated companies                         |   |   | – |   |   |   | (2,509 | ) |
|   Investment tax credits earned                                           |   |   | (4,558  | )      |   |   | (6,681 | ) |
|   Foreign tax rate differences                                            |   |   | 658     |   |   |   | 249 |   |
|   Losses and other deductions for which no benefit has been recorded |   |   | 13,896  |   |   |   | 15,567 |   |
| Income tax expense                                                                  |   |   | – |   |   |   | – |   |
| Branch tax                                                                          |   |   | 3       |   |   |   | (7 | ) |
| Income taxes (recovery)                                                             |   | $      | 3       |   |   | $      | (7 | ) |

|                                                     |   | 2010   |    |   | 2009   |   |
|----------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Canadian scientific research expenditures                |   | $      | 37,398  |   |   | $      | 24,880 |   |
| Canadian losses from operations                          |   |   | 19,652  |   |   |   | – |   |
| Canadian investment tax credits                          |   |   | 13,990  |   |   |   | 8,746 |   |
| German losses from operations for corporate tax purposes |   |   | 220     |   |   |   | 204 |   |
| U.S. federal losses from operations                      |   |   | 14,727  |   |   |   | 18,440 |   |
| U.S. state losses from operations                        |   |   | 1,702   |   |   |   | 3,333 |   |
| U.S. research and development and investment tax credits |   |   | 707     |   |   |   | 783 |   |
| U.S. capital losses                                      |   |   | 180,762 |   |   |   | 180,761 |   |
| Denmark losses from operations                           |   |   | 18,359  |   |   |   | – |   |

|   | The Canadian scientific research expenditures may be carried forward indefinitely.  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 2011 to 2030.  The Canadian loses from operations may be used to offset future Canadian taxable income and expire over the period from 2028 to 2030. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 17. | Income taxes (cont'd): |
|-----|------------------------|

| 2011   |   | $      | 324    |   |
|--------|--------|--------|--------|--------|
| 2012   |   |   | 62     |   |
| 2013   |   |   | 121    |   |
| 2014   |   |   | 107    |   |
| 2016   |   |   | 96     |   |
| 2017   |   |   | 105    |   |
| 2029   |   |   | 7,408  |   |
| 2030   |   |   | 5,767  |   |
|   |   | $      | 13,990 |   |

|                                                |   | 2010   |    |   | 2009   |   |
|-----------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Future income tax assets:                           |   |   |    |   |   |   |
| Scientific research expenditures                    |   | $      | 9,350   |   |   | $      | 6,220 |   |
| Investment in associated companies                  |   |   | 2,296   |   |   |   | 2,173 |   |
| Accrued warranty and pension liabilities            |   |   | 7,965   |   |   |   | 3,747 |   |
| Losses from operations carried forward              |   |   | 14,694  |   |   |   | 6,526 |   |
| Capital losses                                      |   |   | 61,459  |   |   |   | 61,459 |   |
| Investment tax credits                              |   |   | 12,757  |   |   |   | 8,274 |   |
| Property, plant and equipment and intangible assets |   |   | 49,525  |   |   |   | 28,111 |   |
| Total future income tax assets                      |   |   | 158,046 |   |   |   | 116,510 |   |
| Less valuation allowance:                           |   |   |    |   |   |   |   |   |
| - Canada                                            |   |   | (83,993 | )      |   |   | (47,346 | ) |
| - U.S.                                              |   |   | (68,595 | )      |   |   | (69,110 | ) |
| - Germany                                           |   |   | (83     | )      |   |   | (54 | ) |
| - Denmark                                           |   |   | (5,375  | )      |   |   | – |   |
| Net future income taxes                             |   | $      | – |   |   | $      | – |   |

----

----

| 18. | Related party transactions: |
|-----|-----------------------------|

|                                     |   | 2010   |   |   | 2009   |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balances with related parties:           |   |   |   |   |   |   |
| Accounts receivable                      |   | $      | 153    |   |   | $      | – |   |
| Accounts payable and accrued liabilities |   |   | 517    |   |   |   | – |   |

|                                               |   | 2010   |    |   | 2009   |   |
|----------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Transactions during the year with related parties: |   |   |    |   |   |   |
| Revenues                                           |   | $      | 134     |   |   | $      | 380 |   |
| Purchases                                          |   |   | 1,301   |   |   |   | 78 |   |
| Net investments and advances (note 12)             |   | $      | – |   |   | $      | 5,000 |   |

| 19. | Supplemental disclosure of cash flow information: |
|-----|---------------------------------------------------|

|                                                  |   | 2010   |    |   | 2009   |   |
|-------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Non-cash financing and investing activities:          |   |   |    |   |   |   |
| Compensatory shares                                   |   | $      | 540     |   |   | $      | 2,847 |   |
| Accrued costs related to Arrangement (note 3)         |   | $      | – |   |   | $      | 584 |   |
| Assets acquired under capital lease (notes 4 & 7) |   | $      | 12,180  |   |   | $      | 2,078 |   |

|  20. |  Segmented financial information: |
|-----------|----------------------------------------|

|   | The Corporation’s business operates in three market segments: |
|--------|---------------------------------------------------------------------|

| ●       | Fuel Cell Products:  Fuel cell products and services for motive power (material handling and bus markets) and stationary power (back-up power and distributed generation markets) applications; |
|---------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●       | Contract Automotive:  Contract technical and manufacturing services provided primarily to Daimler, Ford, and AFCC; and |
|---------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|

| ●      | Material Products:  Carbon fiber products primarily for automotive transmissions and gas diffusion layers (“GDL”) for fuel cells. |
|---------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 20. | Segmented financial information (cont’d): |
|-----|-------------------------------------------------|

|                                         |   | 2010   |    |   | 2009   |   |
|----------------------------------------------|--------|--------|---------|--------|--------|--------|
| Revenues                                     |   |   |    |   |   |   |
| Fuel Cell Products                           |   | $      | 32,784  |   |   | $      | 24,142 |   |
| Contract Automotive                          |   |   | 11,271  |   |   |   | 9,170 |   |
| Material Products                            |   |   | 20,964  |   |   |   | 13,410 |   |
|                                         |   | $      | 65,019  |   |   | $      | 46,722 |   |
| Segment income (loss) for the year (1)       |   |   |    |   |   |   |   |   |
| Fuel Cell Products                           |   | $      | (8,797  | )      |   | $      | (11,553 | ) |
| Contract Automotive                          |   |   | 1,870   |   |   |   | 1,236 |   |
| Material Products                            |   |   | 7,689   |   |   |   | 2,315 |   |
| Total                                        |   |   | 762     |   |   |   | (8,002 | ) |
| Corporate amounts                            |   |   |    |   |   |   |   |   |
|   Research and product development |   |   | (14,363 | )      |   |   | (12,699 | ) |
|   General and administrative       |   |   | (13,315 | )      |   |   | (10,801 | ) |
|   Sales and marketing              |   |   | (8,861  | )      |   |   | (7,203 | ) |
|   Restructuring and related costs  |   |   | (285    | )      |   |   | (6,229 | ) |
|   Acquisition charges              |   |   | (243    | )      |   |   | (529 | ) |
| Depreciation and amortization                |   |   | (6,454  | )      |   |   | (6,580 | ) |
| Investment and other income                  |   |   | 128     |   |   |   | 5,995 |   |
| Interest expense                             |   |   | (974    | )      |   |   | – |   |
| Gain on sale of assets                       |   |   | 4,765   |   |   |   | 34,419 |   |
| Equity gain in associated companies          |   |   | – |   |   |   | 8,364 |   |
| Loss before income taxes                     |   | $      | (38,840 | )      |   | $      | (3,265 | ) |

----

----

| 20. | Segmented financial information (cont’d): |
|-----|-------------------------------------------------|

|            |   | 2010     |    |   | 2009                                       |   |
|-----------------|--------|----------|---------|--------|--------------------------------------------|--------|
|            |   | Revenues |    |   | Property, plant and equipment and goodwill |   |   | Revenues |   |   | Property, plant and equipment and goodwill |   |
| Canada          |   | $        | 5,070   |   |                                       | $      | 74,672 |   |   | $ | 6,246 |   |   | $ | 76,746 |   |
| U.S.            |   |     | 31,179  |   |                                       |   | 9,700 |   |   |   | 30,347 |   |   |   | 10,621 |   |
| Germany         |   |     | 17,465  |   |                                       |   | 59 |   |   |   | 4,879 |   |   |   | 59 |   |
| U.K.            |   |     | 5,733   |   |                                       |   | – |   |   |   | 132 |   |   |   | – |   |
| Denmark         |   |     | 1,048   |   |                                       |   | 381 |   |   |   | – |   |   |   | – |   |
| Japan           |   |     | – |   |                                       |   | – |   |   |   | 485 |   |   |   | – |   |
| Other countries |   |     | 4,524   |   |                                       |   | – |   |   |   | 4,633 |   |   |   | – |   |
|            |   | $        | 65,019  |   |                                       | $      | 84,812 |   |   | $ | 46,722 |   |   | $ | 87,426 |   |

----

----

| 21. | Financial instruments: |
|-----|------------------------|

| (a)   | Fair Value: |
|-----------------|-------------|

|   |  (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 areobservable 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 observablemarket data (unobservable inputs).                                                                           |

|   | The Corporation categorized the fair value measurement of its cash, cash equivalents and short-term investments in Level 1 as they are primarily derived directly from reference to quoted (unadjusted) prices in active markets. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                         |   |                         |   |   | 2010                  |   |   |     |   |   |    |   |   |                         |   |   | 2009                  |   |   |   |   |
|------------------------------------------------------------------------------|--------|------------------------------|--------|--------|-----------------------|--------|--------|----------|--------|--------|---------|--------|--------|------------------------------|--------|--------|-----------------------|--------|--------|--------|--------|
|                                                                         |   | Canadian dollar portfolio(1) |   |   | U.S. dollar portfolio |   |   | Other(1) |   |   | Total   |   |   | Canadian dollar portfolio(1) |   |   | U.S. dollar portfolio |   |   | Total  |   |
| Cash and cash equivalents                                                    |   | $                            | 17,771 |   |                  | $      | 30,947 |     |   | $      | 1,231   |   |   | $                            | 49,949 |   |                  | $      | 9,191  |   |   | $ | 34,108 |   |   | $ | 43,299 |   |
| Short-term investments                                                       |   |                         | 8,480  |   |                  |   | 16,016 |     |   |   | – |   |   |                         | 24,496 |   |                  |   | 11,059 |   |   |   | 27,873 |   |   |   | 38,932 |   |
| Total cash, cash equivalents  and short-term investments |   | $                            | 26,251 |   |                  | $      | 46,963 |     |   | $      | 1,231   |   |   | $                            | 74,445 |   |                  | $      | 20,250 |   |   | $ | 61,981 |   |   | $ | 82,231 |   |

| (1) U.S. dollar equivalent |
|----------------------------|

----

----

| 21. | Financial instruments (cont'd): |
|-----|---------------------------------|

| (b) | Financial risk management (cont’d): |
|-----|-------------------------------------------|

|   | (i)   | Foreign currency exchange rate risk is the risk that the fair value of future 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 accounts payable and accrued liabilities, accrued warranty liabilities, and obligations under capital lease.  Substantially all revenues and the related accounts receivable are denominated in U.S. dollars. |
|--------|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           |   | $U.S. to $1.00 CDN |   |   | $CDN to $1.00 $U.S. |   |
|--------------------------------|--------|--------------------|--------|--------|---------------------|--------|
| January 1, 2010 Opening rate   |   | $                  | 0.951  |   |                | $      | 1.051 |   |
| December 31, 2010 Closing rate |   |               | 1.005  |   |                |   | 0.995 |   |
| Fiscal 2010 Average rate       |   |               | 0.971  |   |                |   | 1.030 |   |

----

----

| 21. | Financial instruments (cont'd): |
|-----|---------------------------------|

| (b) | Financial risk management (cont’d): |
|-----|-------------------------------------------|

|   | (ii)   | Interest rate risk is the risk that the fair value of future 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, 2010, a 0.25% decline in interest rates, with all other variables held constant, would result in a decrease in investment income $186,000, 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | 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 equivalents, short-term investments and accounts receivable.  The Corporation limits its exposure to credit risk on 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. |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | Commodity risk is the risk of financial loss to the Corporation due to fluctuations in platinum prices.  To manage its exposure to platinum price fluctuations, the Corporation includes platinum pricing adjustments directly into certain significant customer contracts in addition to entering into platinum forward contracts.  Forward contracts are recorded at their fair value as either assets or liabilities on the balance sheet.  At December 31, 2010, the Corporation had outstanding platinum forward contracts to purchase a total of $3,100,000 of platinum at an average rate of $1,738 per troy ounce, resulting in an unrealized gain of $90,000. |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Based on the outstanding platinum forward contracts held at December 31, 2010, a $100 increase in the market price of platinum will result in a gain of $180,000 charged to income.  If the market price of platinum declines by $100, there would be an equal, and opposite impact, on net income. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 22. | Capital disclosures: |
|-----|----------------------|

| 23. | Differences between Canadian and United States accounting principles and practices: |
|-----|-------------------------------------------------------------------------------------|

| (a)   | Under Canadian GAAP, the adoption of the U.S. dollar in 2001 as the presentation and measurement currency was implemented by translating all prior year financial statement amounts at the foreign exchange rate on December 31, 2001.  Under U.S. GAAP, a change in presentation and measurement currency is implemented retroactively, such that prior period financial statements are translated under the current rate method using foreign exchange rates in effect on those dates.  As a result, there is a difference in the share capital, additional paid-in capital, accumulated deficit and accumulated other comprehensive income amounts under U.S. GAAP as compared to Canadian GAAP. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Under Canadian GAAP, the Corporation has accounted for funding received in prior years under the TPC agreement in accordance with specific pronouncements on accounting for government assistance by reducing research and product development expenses, cost of revenues, inventory and capital assets by the amount of the funding received. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under U.S. GAAP, there are no authoritative accounting standards addressing the various types of government assistance programs.  Since the TPC funding combines the characteristics of a grant with some characteristics of a debt instrument, the Corporation has recorded the entire funding as long-term debt under U.S. GAAP.  In addition, the U.S. GAAP liability is a Canadian dollar denominated liability and, as a result, foreign exchange gains and losses are incurred. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 23. | Differences between Canadian and United States accounting principles and practices (cont’d): |
|-----|----------------------------------------------------------------------------------------------------|

| (c)   | Under Canadian GAAP, the Corporation is required to account for gains and losses on the issuance of shares by a subsidiary or other entity which the Corporation accounts for on an equity basis, as a component of income.  Under U.S. GAAP, the effect of such dilution gains are recorded in equity as an increase in paid-in capital rather than as income. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d)   | Prior to 2002, under Canadian GAAP, no compensation expense was recorded for employee share option plans under the intrinsic value method.  A previous option exchange plan was accounted for as a variable option plan under U.S. GAAP.  Prior to the Corporation’s 100% acquisition of Ballard Generation Systems Inc. (“BGS”) in 2003, minority interest under U.S. GAAP included the minority interest’s percentage share of compensation expense under variable plan accounting.  The balance of the purchase price allocated to goodwill from the acquisition of the minority interest in BGS reflects this difference under U.S. GAAP. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e)   | Under Canadian GAAP, investments where no significant influence exists are accounted for using the cost method.  Under U.S. GAAP, investments in limited partnerships such as Chrysalix are accounted for using the equity method.  In 2008, Chrysalix was written down to its estimated net realizable value and there is no difference in the carrying value of such investment as of December 31, 2010 and 2009 between Canadian and U.S. GAAP. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | Under U.S. GAAP, no sub-total would be provided in the operating section of the consolidated statement of cash flows.  There are no other differences in operating, investing and financing cash flows. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 23. | Differences between Canadian and United States accounting principles and practices (cont’d): |
|-----|----------------------------------------------------------------------------------------------------|

|   | Consolidated condensed balance sheets: |
|--------|----------------------------------------|

|                                                  |   | 2010         |     |   | 2009       |   |
|-------------------------------------------------------|--------|--------------|----------|--------|------------|--------|
|                                                  |   | CanadianGAAP |     |   | Difference |   |   | U.S.GAAP |   |   | CanadianGAAP |   |   | Difference |   |   | U.S.GAAP |   |
| Current assets                                        |   | $            | 99,398   |   |       | $      | – |   |   | $ | 99,398 |   |   | $ | 106,416 |   |   | $ | – |   |   | $ | 106,416 |   |
| Property, plant and equipment                         |   |         | 36,706   |   |       |   | – |   |   |   | 36,706 |   |   |   | 39,320 |   |   |   | – |   |   |   | 39,320 |   |
| Intangible assets                                     |   |         | 2,975    |   |       |   | – |   |   |   | 2,975 |   |   |   | 824 |   |   |   | – |   |   |   | 824 |   |
| Goodwill (d)                                          |   |         | 48,106   |   |       |   | 490 |   |   |   | 48,596 |   |   |   | 48,106 |   |   |   | 490 |   |   |   | 48,596 |   |
| Investments (e)                                       |   |         | 673      |   |       |   | – |   |   |   | 673 |   |   |   | 632 |   |   |   | – |   |   |   | 632 |   |
| Long-term accounts receivable                         |   |         | 1,596    |   |       |   | – |   |   |   | 1,596 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Other long-term assets                                |   |         | 334      |   |       |   | – |   |   |   | 334 |   |   |   | 50 |   |   |   | – |   |   |   | 50 |   |
|                                                  |   | $            | 189,788  |   |       | $      | 490 |   |   | $ | 190,278 |   |   | $ | 195,348 |   |   | $ | 490 |   |   | $ | 195,838 |   |
| Current liabilities                                   |   | $            | 35,091   |   |       | $      | – |   |   | $ | 35,091 |   |   | $ | 30,057 |   |   | $ | – |   |   | $ | 30,057 |   |
| Long-term liabilities (b)                             |   |         | 4,432    |   |       |   | 38,245 |   |   |   | 42,677 |   |   |   | 4,632 |   |   |   | 36,404 |   |   |   | 41,036 |   |
| Deferred gain                                         |   |         | 9,036    |   |       |   | – |   |   |   | 9,036 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Obligation under capital lease                        |   |         | 13,354   |   |       |   | – |   |   |   | 13,354 |   |   |   | 1,739 |   |   |   | – |   |   |   | 1,739 |   |
|                                                  |   |         | 61,913   |   |       |   | 38,245 |   |   |   | 100,158 |   |   |   | 36,428 |   |   |   | 36,404 |   |   |   | 72,832 |   |
| Shareholders' equity:                                 |   |         |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ballard Power Systems Inc. shareholders’ equity |   |         |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Share capital (a)                                     |   |         | 836,245  |   |       |   | 119,583 |   |   |   | 955,828 |   |   |   | 835,565 |   |   |   | 119,583 |   |   |   | 955,148 |   |
| Treasury shares                                       |   |         | (670     | )      |       |   | – |   |   |   | (670 | ) |   |   | (207 | ) |   |   | – |   |   |   | (207 | ) |
| Additional paid-in capital (a)(c)                     |   |         | 288,618  |   |       |   | 86,929 |   |   |   | 375,547 |   |   |   | 284,510 |   |   |   | 86,929 |   |   |   | 371,439 |   |
| Accumulated deficit                                   |   |         | (995,669 | )      |       |   | (168,626 | ) |   |   | (1,164,295 | ) |   |   | (960,712 | ) |   |   | (166,785 | ) |   |   | (1,127,497 | ) |
| Accumulated other comprehensive  income (a) |   |         | (236     | )      |       |   | (75,641 | ) |   |   | (75,877 | ) |   |   | (236 | ) |   |   | (75,641 | ) |   |   | (75,877 | ) |
| Ballard Power Systems Inc. shareholders' equity       |   |         | 128,288  |   |       |   | (37,755 | ) |   |   | 90,533 |   |   |   | 158,920 |   |   |   | (35,914 | ) |   |   | 123,006 |   |
| Dantherm Power A/S non-controlling interests          |   |         | (413     | )      |       |   | – |   |   |   | (413 | ) |   |   | - |   |   |   | – |   |   |   | – |   |
| Total shareholders’ equity                      |   |         | 127,875  |   |       |   | (37,755 | ) |   |   | 90,120 |   |   |   | 158,920 |   |   |   | (35,914 | ) |   |   | 123,006 |   |
|                                                  |   | $            | 189,788  |   |       | $      | 490 |   |   | $ | 190,278 |   |   | $ | 195,348 |   |   | $ | 490 |   |   | $ | 195,838 |   |

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| 23. | Differences between Canadian and United States accounting principles and practices (cont’d): |
|-----|----------------------------------------------------------------------------------------------------|

|                                                                                                         |   | 2010   |    |   | 2009   |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Loss attributable to Ballard Power Systems Inc. under  Canadian GAAP                               |   | $      | (34,936 | )      |   | $      | (3,258 | ) |
| Research and development (b)                                                                                 |   |   | 223     |   |   |   | 4,293 |   |
| Foreign exchange loss (b)                                                                                    |   |   | (2,064  | )      |   |   | (4,808 | ) |
| Net loss and comprehensive loss attributable to Ballard Power Systems Inc. in accordance with U.S. GAAP |   | $      | (36,777 | )      |   | $      | (3,773 | ) |
| Basic and diluted loss per share, U.S. GAAP                                                                  |   | $      | (0.44   | )      |   | $      | (0.05 | ) |

|                                               |   |   | Ballard Power Systems Inc. shareholders' equity  |   |   |   |                 |   |   |   |                           |   |
|----------------------------------------------------|--------|--------|-------------------------------------------------------|--------|--------|--------|----------------------|--------|--------|--------|--------------------------------|--------|
|                                               |   |   | Sharecapital                                     |   |   |   | Treasuryshares  |   |   |   | Additionalpaid-incapital  |   |   |   | Accumualteddeficit  |   |   |   | Accumulatedothercomprehensiveincome (loss)  |   |   |   | DanthermPower A/SNon-controllinginterests  |   |   |   | Totalshareholders'equity  |   |
| Balance, December 31, 2008                         |   | $      | 952,294                                               |   |   | $      | –              |   |   | $      | 370,395                        |   |   | $ | (1,123,724 | ) |   | $ | (75,877 | ) |   | $ | – |   |   | $ | 123,088 |   |
| Net Loss                                           |   |   | –                                               |   |   |   | –              |   |   |   | –                        |   |   |   | (3,773 | ) |   |   | – |   |   |   | – |   |   |   | (3,773 | ) |
| Non-dilutive financing                             |   |   | –                                               |   |   |   | –              |   |   |   | (719                           | )      |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (719 | ) |
| Purchase of treasury shares                        |   |   | –                                               |   |   |   | (207                 | )      |   |   | –                        |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (207 | ) |
| RSUs and DSUs redeemed                             |   |   | 1,126                                                 |   |   |   | –              |   |   |   | (1,283                         | )      |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (157 | ) |
| Options exercised                                  |   |   | 7                                                     |   |   |   | –              |   |   |   | –                        |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 7 |   |
| Share distribution plan                            |   |   | 1,721                                                 |   |   |   | –              |   |   |   | 3,046                          |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 4,767 |   |
| Balance, December 31, 2009                         |   | $      | 955,148                                               |   |   | $      | (207                 | )      |   | $      | 371,439                        |   |   | $ | (1,127,497 | ) |   | $ | (75,877 | ) |   | $ | – |   |   | $ | 123,006 |   |
| Acquisition of Dantherm  Power           |   |   | –                                               |   |   |   | –              |   |   |   | –                        |   |   |   | – |   |   |   | – |   |   |   | 3,543 |   |   |   | 3,543 |   |
| Additional investment in  Dantherm Power |   |   | –                                               |   |   |   | –              |   |   |   | 915                            |   |   |   | – |   |   |   | – |   |   |   | (49 | ) |   |   | 866 |   |
| Net loss                                           |   |   | –                                               |   |   |   | –              |   |   |   | –                        |   |   |   | (36,777 | ) |   |   | – |   |   |   | (3,907 | ) |   |   | (40,684 | ) |
| Non-dilutive financing                             |   |   | –                                               |   |   |   | –              |   |   |   | (22                            | )      |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (22 | ) |
| Purchase of treasury shares                        |   |   | –                                               |   |   |   | (559                 | )      |   |   | –                        |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (559 | ) |
| RSUs and DSUs redeemed                             |   |   | 542                                                   |   |   |   | 96                   |   |   |   | (800                           | )      |   |   | (21 | ) |   |   | – |   |   |   | – |   |   |   | (183 | ) |
| Options exercised                                  |   |   | 138                                                   |   |   |   | –              |   |   |   | (47                            | )      |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 91 |   |
| Share distribution plan                            |   |   | –                                               |   |   |   | –              |   |   |   | 4,062                          |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 4,062 |   |
| Balance, December 31, 2010                         |   | $      | 955,828                                               |   |   | $      | (670                 | )      |   | $      | 375,547                        |   |   | $ | (1,164,295 | ) |   | $ | (75,877 | ) |   | $ | (413 | ) |   | $ | 90,120 |   |

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