MANAGEMENTS DISCUSSION AND ANALYSIS

This discussion and analysis of
financial condition and results of operations of Ballard Power Systems Inc.
(Ballard, the Company, we, us or our) is prepared as at February 24,
2016 and should be read in conjunction with our audited consolidated financial
statements and accompanying notes for the year ended December 31, 2015. The
results reported herein are presented in U.S. dollars unless otherwise stated
and have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board.
Additional information relating to the Company, including our Annual Information
Form, is filed with Canadian (www.sedar.com) and U.S. securities
regulatory authorities (www.sec.gov) and is also available on our website atwww.ballard.com.

BUSINESS OVERVIEW

At Ballard, we are building a clean
energy growth company. We are recognized as a world leader in proton exchange
membrane (PEM) fuel cell development and commercialization. Our principal
business is the design, development, manufacture, sale and service of fuel cell
products for a variety of applications, focusing on our power product markets of
Heavy-Duty Motive (consisting of bus and tram applications), Portable Power,
Material Handling and Telecom Backup Power, as well as the delivery of
Technology Solutions including engineering services and the license and sale of
our extensive intellectual property portfolio and fundamental
knowledgefor a variety of fuel cell applications.

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

We provide our customers with the
positive economic and environmental benefits unique to fuel cell power. We plan
to build value for our shareholders by developing, manufacturing, selling and
servicing industry-leading fuel cell products to meet the needs of our customers
in select target markets.

Our business strategy is a two-pronged
approach to build shareholder value through the sale and service of power
products and the delivery of technology solutions. In power product sales, our
focus is on meeting the power needs of our customers by delivering high value,
high reliability, high quality and innovative clean energy power products that
reduce customer costs and risks. Through technology solutions, our focus is on
enabling our customers to solve their technical and business challenges and
accelerate their fuel cell programs by delivering customized, high value,
bundled technology solutions, including specialized engineering services, access
to our deep intellectual property portfolio and know-how through licensing or
sale, and providing technology component supply.

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We are based in Canada, with head
office, research and development, testing, manufacturing and service facilities
in Burnaby, British Columbia. In the United States, we have research and
development facilities in Bend, Oregon, and have a sales, manufacturing, and
research and development facility in Southborough, Massachusetts. We use a
contract manufacturing facility in Tijuana, Mexico. We also have a sales,
service and research and development facility in Hobro, Denmark.

RECENT DEVELOPMENTS

As part of the Companys
rationalization and renewal initiatives, Ballard announces that three executives
 Paul Cass, COO, Dr. Christopher Guzy, CTO, and Steve Karaffa, CCO  will be
departing from the Company by March 31, 2016. Responsibilities of the departing
executives have now been assumed by internal personnel: David Whyte has been
promoted from Director, Operations to VP, Operations, flattening and eliminating
duplication in the Operations reporting structure; Dr. Kevin Colbow is now VP,
Technology and Product Development, also retaining his current responsibility
for Technology Solutions; and Karim Kassam is now VP, Commercial, also retaining
his current responsibility for Business and Corporate Development. These senior
management changes eliminate three C-level positions through rationalization and
consolidation, while providing an opportunity for new approaches in these roles.

On December 31, 2008, we completed a
restructuring agreement (Arrangement) with Superior Plus Income Fund
(Superior Plus), whereby Ballard caused its entire business and operations,
including all assets and liabilities, to be transferred to a new corporate
entity, such that the new corporate entity held all of the same assets,
liabilities, directors, management and employees as Ballard formerly had under
its old corporate entity, except for its tax attributes. The Arrangement
included an indemnification agreement (the "Indemnity Agreement") which set out
each partys continuing obligations to the other including a provision for
adjustments to be paid by us, or to us, depending on the final determination of
the amount of our Canadian non-capital losses, scientific research and
development expenditures and investment tax credits generated to December 31,
2008, to the extent that such amounts are more or less than the amounts
estimated at the time the Arrangement was executed. In 2015, we reached
agreement and signed mutual releases with Superior Plus as to the full and final
amount payable to us under the Indemnity Agreement and received additional cash
proceeds of approximately $3.3 million (Canadian $4.6 million) in February 2016.
The cash proceeds receivable have been recorded as a credit to shareholders
equity as of December 31, 2015 consistent with the accounting for the original
transaction in 2008.

On January 21, 2016, we announced the
signing of an equipment supply agreement, valued at $12 million, with an
existing partner in China, Guangdong Synergy Hydrogen Power Technology Co., Ltd.
(Synergy) to provide FCvelocity-9SSL fuel cell stacks for range extension
applications in commercial vehicles in China. Ballard expects to deliver the
stacks in 2016 and 2017. Synergy will collaborate with Dongfeng Xiangyangtouring
Car Co., Ltd. (DFAC), which is part of Dongfeng Motor Corporation, a Chinese
state-owned automobile manufacturer headquartered in Wuhan. Dongfeng Motor
Corporation is the largest manufacturer of commercial vehicles in China. Amounts
earned from this agreement (nil in fiscal 2015) will be
recorded as Heavy-Duty Motive revenues.

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On December 29, 2015, we announced that
our subsidiary, Protonex Technology Corporation (Protonex), had received a
follow-on purchase order from the U.S. Army for more than 400 Squad Power
Manager (SPM-622) Special Operations Kits, with a value of approximately $2.8
million. The purchase order was issued by the Program Executive Office  Soldier
which has responsibility for acquiring man-worn and carried equipment utilized
by U.S. Army Soldiers. The SPM-622 product has been developed and is produced by
the Protonex engineering and operations team at the companys facility in
Southborough, Massachusetts for Military use. To date more than 4,000 Power
Managers have been trialed and deployed by the United States and allied
Militaries. Amounts earned from this agreement ($1.7 million in the fourth
quarter of 2015) are recorded as Portable Power revenues.

On November 10, 2015, weannounced that we had
closed a $5 million strategic equity investment in Ballard by Nisshinbo Holdings
Inc. (Nisshinbo) in Japan, as previously announced on October 27, 2015. The
investment was made through a private placement subscription of approximately
3.3 million Ballard common shares issued from treasury at $1.5049 per share
(based on a 10-day volume weighted average share price calculation). We intend
to use the proceeds from the financing for general corporate purposes, including
the potential funding of future acquisitions or investments in complementary
businesses, products or technologies. The common shares issued are subject to a
four-month hold period expiring on March 10, 2016 in accordance with applicable
securities laws. Nisshinbo is an Environmental and Energy Company providing
low-carbon, optimized products across a range of business lines, including
chemicals, precision instruments, electronics, automotive brakes, textiles and
paper. Nisshinbo has been a long-time leading global supplier of carbon plates,
used in the construction of membrane electrode assemblies (MEAs), to the fuel
cell industry. On January 20, 2016, we announced that we had received a
follow-on purchase order from Nisshinbo for a further phase of a Technology
Solutions program related to the development of a breakthrough catalyst
technology intended to reduce the cost of certain proton exchange membrane (PEM)
fuel cells. The program, now entering its seventh phase, has been underway for
approximately 2.5 years.

On November 1, 2015, we announced that
the signing of a definitive agreement with Tangshan Railway Vehicle Company,
Limited (TRC) for the development of a new fuel cell module that will be
designed to meet the requirements of tram or Modern Ground Rail Transit
Equipment applications. This agreement, with a value of approximately $3
million, contemplates that TRC trams will use next-generation Ballard fuel cell
power modules designed specifically for the Modern Ground Rail Transit Equipment
application, with a target of powering the initial prototype by 2016. The
purpose-designed product is expected to deliver at least 200 kilowatts of power.
Amounts earned from this agreement ($0.5 million in the fourth quarter of 2015)
are recorded as Technology Solutions revenue.

On October 1, 2015, we completed the
acquisition of Protonex, a leading designer and manufacturer of advanced power
management products and portable fuel cell solutions. The signing of a
definitive agreement to acquire Protonex was previously announced on June 29,
2015. As consideration for the transaction, we assumed and paid certain of
Protonex debt obligations and transaction costs on closing of approximately
$3.8 million, and issued approximately 11.4 million of Ballard shares at fair
value of $1.20 per share, or approximately $13.7 million, for total purchase
consideration of $17.5 million.

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On September 28, 2015, we announced the
signing of a joint development agreement and a supply agreement to develop and
commercialize a fuel cell engine specifically designed for integration into low
floor trams manufactured by CRRC Qingdao Sifang Company, Ltd. (CRRC Sifang), a
Chinese rolling stock manufacturer. The agreements include delivery expected in
2016 of ten customized FCvelocity® modules and have an initial expected value of
approximately $6 million. Ballard plans to develop a new prototype configuration
of its FCvelocity® fuel cell module to deliver 200 kilowatts of net power for
use in powering trams in urban deployments. An initial deployment of eight fuel
cell-powered trams is planned by CRRC Sifang and the City of Foshan on the
Gaoming Line starting in 2017. Amounts earned from this agreement (nil in fiscal
2015) will be recorded as either Heavy-Duty Motive or Technology Solutions
revenues depending on the nature of work performed.

On September 25, 2015, we announced the
signing of a long-term license and supply agreement with Synergy to provide fuel
cell power products and technology solutions in support of the planned
deployment of approximately 300 fuel cell-powered buses in the cities of Foshan
and Yunfu, China. The agreement has an estimated initial value of approximately
$17 million expected through 2016, with the opportunity for significant
recurring royalties starting in 2017. The agreement includes supply and sale of
fully-assembled fuel cell power modules, ready-to-assemble module kits, a
technology license for localization of assembly, supply of proprietary fuel cell
stacks and long-term recurring royalties leveraged to unit volumes of locally
assembled modules. Amounts earned from this agreement ($2.9 million in the
fourth quarter of 2015) are recorded as either Heavy-Duty Motive or Technology
Solutions revenues depending on the nature of work performed.

On September 24, 2015, we announced
that we are developing, and plan to launch, two new configurations of our
FCvelocity®-HD7 fuel cell module in 2016. The two new module configurations will
expand Ballards product portfolio and provide customers with increased
flexibility to address a range of emerging power needs in heavy-duty transit
applications, such as buses. Ballards latest-generation FCvelocity®-HD7 was
launched in a 90kW net power configuration in June 2015 at the UITP World
Congress and Exhibition in Milan, Italy. This initial 90kW configuration will
typically be used to power large urban transit buses. The two new product
configurations are expected to deliver net power of 30kW and 60kW, respectively,
and are expected to be launched for commercial deployments in 2016 to power
smaller buses and provide range extension solutions. During fiscal 2015, $1.4
million of FCvelocity®-HD7 development costs were capitalized as fuel cell
technology intangible assets.

On July 22, 2015, we announced the
signing of an agreement to provide a 1 megawatt (1MW) ClearGen fuel cell
distributed generation system for Hydrogène de France (HDF) which will be
deployed at an AkzoNobel sodium chlorate chemical plant in Bordeaux Métropole,
France. In addition, Ballard will provide engineering services support for the
program. The program will be partially funded by the EU Fuel Cells and Hydrogen
Joint Undertaking (FCH-JU), with the remaining funding expected to be provided
by HDF and its partners. The program agreement is structured in two phases.
Under the first phase, targeted for completion in mid-2016, Ballard received an
initial payment of €1.7 million to undertake engineering services and core
component development work. Under the second phase, targeted for completion in
2017, Ballard is expected to receive an additional €1.7 million for onsite
assembly and commissioning, subject to HDF securing necessary funding to
complete the project. Amounts earned from this agreement ($0.7 million in the
fourth quarter of 2015 and $0.8 million in fiscal 2015) are recorded as
Technology Solutions revenue.

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On July 7, 2015, we closed an  underwritten offering (July 2015
Offering) of 9.3 million common shares for  gross proceeds of approximately $15.0 million, which included the exercise
in  full by the underwriters of their option to purchase up to an additional 15% of  common shares to cover over-allotments.
Net proceeds to Ballard were  approximately $13.4 million, after deducting underwriting discounts, commissions  and other
offering expenses. During fiscal 2015, we used the net proceeds of $13.4 million in pursuit of our ongoing general business
objectives including the funding of our 2015 working capital requirements, and for the continuing development and marketing
of our proprietary technologies and core products.

On June 8, 2015, we announced the
signing of definitive license and supply agreements with Nantong Zehe New Energy
Technology Co., Ltd. (Nantong Zehe) and Synergy to provide fuel cell power
products and technology solutions to support the planned deployment of an
initial 33 fuel cell-powered buses in two Chinese cities. The agreements have an
estimated value of approximately $10 million, the majority of which was
recognized in 2015. The agreements include an initial order from Nantong Zehe
(announced in April 2015) for the supply of FCvelocity®-HD7 bus power modules to
power eight buses in addition to new orders for the supply of additional power
products and technology solutions including a non-exclusive license for local
assembly of FCvelocity®-HD7 bus power modules for use in clean energy buses in
China. In addition, Ballard will be the exclusive supplier of its proprietary
fuel cell stacks for use in power modules assembled in China under these
agreements. Amounts earned from these agreements ($0.9 million in the fourth
quarter of 2015 and $8.6 million in fiscal 2015) are recorded as either
Heavy-Duty Motive or Technology Solutions revenues depending on the nature of
work performed.

On February 11, 2015, we entered into a
transaction with Volkswagen Group (Volkswagen) to transfer certain
automotive-related fuel cell intellectual property for an aggregate amount of
approximately $80 million including the benefits of a two-year extension of our
existing technology development and engineering services agreement with
Volkswagen previously announced on March 6, 2013 (see below for additional
details). Under the transfer agreement (Volkswagen IP Agreement), Ballard will
transfer to Volkswagen the ownership of the automotive-related portion of the
fuel cell intellectual property assets previously acquired by us from United
Technologies Corporation (UTC) on April 24, 2014 (the UTC Portfolio) through
two separate transactions for total gross proceeds of $50 million:

|(i) |  | On the closing of the initial
      transaction on February 23, 2015, Ballard transferred ownership of the
      automotive-related patents and patent applications of the UTC Portfolio in
      exchange for gross proceeds of $40 million. This receipt triggered a 25%,
      or $10.0 million, license fee payment to UTC. Although ownership of the
      patents and patent applications was transferred to Volkswagen, Ballard
      received a royalty-free back-license to all the transferred patents and
      patent applications for use in all non-automotive applications, in bus
      applications and in certain limited pre-commercial automotive
      applications.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(ii) |  | On the closing of the second
      transaction on December 2, 2015, Ballard transferred a copy of the
      automotive-related know-how of the UTC Portfolio in exchange for gross
      proceeds receivable of $10 million. This receipt (expected to be collected
      in the first quarter of 2016 net of applicable withholding taxes that are
      expected to be recovered in fiscal 2016) will trigger a 9%, or $0.9
      million, payment to UTC in fiscal 2016. On the closing of the sale of a
      copy of the know-how, Ballard retained full ownership of the know-how
      including the right to sell additional copies of the know- how to third
      parties as well as retaining the right to use the know-how in all our
      applications.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On the closing of the sale of the
automotive-related patents and patent applications of the UTC Portfolio in the
first quarter of 2015, we recognized a gain on sale of intellectual property of
$14.2 million on net proceeds received of $29.5 million. On the closing of the
sale of a copy of the automotive-related know-how in the fourth quarter of 2015,
we recognized an additional gain on sale of intellectual property of $5.4
million on net proceeds receivable of approximately $9.1 million.

On January 2, 2015, we announced that
we had given termination notice on two licensing agreements in the China market
as a result of material breaches of these agreements by Azure Hydrogen Energy
Science and Technology Corporation (Azure). The first license agreement (the
Azure Bus Licensing Agreement), originally announced on September 26, 2013,
related to the assembly of Ballards FCvelocity®-HD7 Bus power modules for the
Chinese market. The second license agreement (the Azure Telecom Backup Power
Licensing Agreement), announced on June 19, 2014, related to the assembly of
Ballards ElectraGen® Telecom Backup Power systems in China for the Chinese
market. As a result of Azures breaches under both contracts, and
notwithstanding Ballards good faith efforts to reach a settlement, we provided
notice of termination of both agreements and recorded an impairment loss on
trade receivables of $4.4 million in the fourth quarter of 2014 as we fully
impaired all outstanding amounts owed by Azure. In June 2015, we agreed to a
mutual release with Azure (Azure Mutual Release Agreement) whereby each party
mutually released and forever discharged each other from any and all liability
arising from the above noted licensing agreements. Pursuant to the Azure Mutual
Release Agreement, Azure returned for cancellation its 10% ownership position in
Dantherm Power to Dantherm Power for $nil proceeds, upon which the shares were
cancelled by Dantherm Power. Following such cancellation, Ballards controlling
ownership position in Dantherm Power was increased from 52% to 57%. Amounts
earned from the Azure Bus Licensing Agreement (nil in fiscal 2015, nil in the
fourth quarter of 2014, and $4.9 million in fiscal 2014) and the Azure Telecom
Backup Power Licensing Agreement (nil in fiscal 2015, nil in the fourth quarter
of 2014, and $3.8 million in fiscal 2014) prior to the contract termination and
subsequent mutual release are recorded as Technology Solutions
revenues.

During 2015, a total of 0.1 million
share purchase warrants were exercised for Ballard common shares generating net
proceeds of $0.2 million. During 2014, a total of 7.9 million share purchase
warrants were exercised for Ballard common shares generating net proceeds of
$12.3 million. The share purchase warrants were issued as part of two
underwritten offerings which closed in March 2013 and October 2013. As of
December 31, 2015, 0.1 million share purchase warrants (exercisable at $1.50 per
share to March 2018) from the March 2013 underwritten offering and 1.7 million
share purchase warrants (exercisable at $2.00 per share to October 2018) from
the October 2013 underwritten offering remain outstanding.

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During 2015, a total of 0.3 million
employee share purchase options were exercised for Ballard common shares
generating proceeds of $0.4 million. During 2014, a total of 3.6 million
employee share purchase options were exercised for Ballard common shares
generating proceeds of $6.8 million. As of December 31, 2015, 5.5 million share
purchase options at a variety of prices and vesting dates remain outstanding.

On October 8, 2014, we completed a long
term supply agreement with Plug Power Inc (Plug Power) to provide fuel cell
stacks for use in Plug Powers GenDrive systems deployed in forklift trucks.
The new supply agreement replaced an existing agreement and runs to the end of
2017, with the provision for two 1-year potential extensions.

On April 24, 2014, we acquired the
transportation and stationary related fuel cell intellectual property assets of
United Technologies Corporation (UTC) for total consideration of $22.3
million. The UTC Portfolio consisted of approximately 800 patents and patent
applications, as well as patent licenses, invention disclosures and know-how
primarily related to PEM fuel cell technology. In addition to incremental
intellectual property licensing revenue or sale opportunities, the acquired
intellectual property assets will support other key elements of Ballards
corporate strategy: engineering service capabilities will be expanded in both
automotive and non-automotive markets; and fuel cell product sales will be
accelerated through product development initiatives in areas such as durability
and balance of plant simplification. As consideration for the acquired
intellectual property assets, UTC received 5.1 million Ballard common shares
valued at $20.3 million, $2 million in cash, a grant back license to use the
patent portfolio in UTCs existing businesses, and a portion (typically 25%) of
Ballards future intellectual property sale and licensing income generated from
the combined intellectual property portfolio for a period of 15-years expiring
in April 2029. On February 11, 2015, we entered into an agreement with
Volkswagen to transfer the automotive-related portion of the UTC Portfolio to
Volkswagen in two separate transactions for total payments of $50 million (which
will trigger total payments to UTC of $10.9 million; of which $10.0 million was
paid in fiscal 2015) while retaining a royalty-free back-license to utilize the
entire UTC Portfolio in all non-automotive applications, in bus applications and
in certain limited pre-commercial purposes in automotive applications. We retain
a royalty obligation to pay UTC a portion (typically 25%) of any additional
future intellectual property sale and licensing income generated from our
intellectual property portfolio until April 2029.

On March 6, 2013, we entered into a
technology development and engineering services agreement with Volkswagen to
advance development of fuel cells for use in powering demonstration cars in
Volkswagens fuel cell automotive research program. The initial contract term
was 4-years commencing in March 2013, with an option by Volkswagen for a 2-year
extension. The initial expected 4-year contract value was in the range of
approximately $60 - $100 million Canadian. On closing of the Volkswagen IP
Agreement in February 2015, this technology development and engineering services
was extended 2-years to February 2019. Over the full 6-years, this technology
development and engineering services contract now has an estimated value of
Canadian $100-140 million and is focused on the design and manufacture of
next-generation fuel cell stacks for use in Volkswagens fuel cell demonstration
car program. Volkswagen also retains an option to further extend this program by
2-years to February 2021. Amounts earned from this agreement (approximately $3.6
million in the fourth quarter of 2015, $14.5 million in fiscal 2015, $4.0
million in the fourth quarter of 2014, and $18.5 million in fiscal 2014) are
recorded as Technology Solutions revenues.

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OPERATING SEGMENTS

We report our results in the single
operating segment of Fuel Cell Products and Services. Our Fuel Cell Products and
Services segment consists of the sale and service of fuel cell products for our
power product markets of Heavy-Duty Motive (consisting of bus and tram
applications), Portable Power, Material Handling and Telecom Backup Power, as
well as the delivery of Technology Solutions including engineering services and
the license and sale of our extensive intellectual property portfolio and
fundamental knowledgefor a variety of fuel cell applications.

We made changes to the composition of
revenues in our Fuel Cell Products and Services segment in 2015. As a result,
licensing revenues of nil for the fourth quarter of 2014 and $6.3 million for
fiscal 2014 previously recorded as either Heavy-Duty Motive revenues, Material
Handling revenues, or Telecom Backup Power revenues have been retroactively
reclassified as Technology Solutions revenues.

SELECTED ANNUAL FINANCIAL
INFORMATION

|Results of Operations                                             | Year ended,    
|----------------------------------------------------------------- | ---------------
|                                                                  | 2015           
|(Expressed in thousands of U.S. dollars, except per share         |                
|amounts and gross margin
      %)                                 |                
|From
      continuing operations                                  |                
|Revenues                                                          | $              
|Gross
      margin                                                | $              
|Gross margin %                                                    |                
|Cash Operating
      Costs(1)                                     | $              
|Adjusted EBITDA(1)                                                | $              
|Normalized Net
      Loss(1)                                      | $              
|Normalized Net Loss per share                                     | $              
|Net loss from continuing operations attributable to
    Ballard   | $              
|Net loss per share attributable to Ballard, basic and
    diluted | $              
|From
      discontinued operations                                |                
|Net earnings (loss) from discontinued operations                  | $              
|Net earnings
      (loss) per share from discontinued operations  | $              
|Financial Position                                                | At December 31,
|(expressed in thousands of U.S.
      dollars)                    | 2015           
|Total assets                                                      | $              
|Cash, cash
      equivalents and short-term investments           | $              

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

2015 Performance compared to 2015 Business Outlook

Although we did not provide formal revenue guidance for 2015, we did indicate that
we expected the positive top-line growth trends in 2012 through 2014 to continue in 2015 as we continued to pursue our growth
strategy for fuel cell product sales, engineering services and intellectual property licensing and sale. While our strategic
focus on multiple fuel cell product markets, engineering services and intellectual property monetization serves to mitigate
risk, the resulting cadence in customer demand can be uneven through the early stages of market development. As such and
given this early stage of fuel cell market development and adoption rate, our financial results on a quarterly basis are
subject to a high degree of variability.

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Actual revenues of $56.5 million in 2015 declined (18%), or ($12.3) million,
compared to 2014. Actual revenues in 2015 were lower than internal revenue expectations for 2015, primarily as a result of
lower than planned Telecom Backup Power revenues driven by a significant decline in shipments of methanol-based backup power
systems and hydrogen-based backup power stacks. New customer deployments of Telecom Backup Power system and stack solutions
also continued to be negatively impacted by the relatively long, protracted sales cycle that includes additional time
required for qualification, onsite testing, field trialing and certification. We continue to review strategic alternatives
for our Telecom Backup Power business, including a possible sale, joint venture or orderly wind-up of this
business.

RESULTS OF OPERATIONS  Fourth
Quarter of 2015

Revenue and gross margin

|(Expressed in thousands of U.S.
      dollars) | Three months ended December
    31,
|---------------------------------------------- | -----------------------------------
|                                              
|Fuel Cell
      Products andServices           | 2015                               
|Heavy-Duty Motive                              | $                                  
|Portable
      Power                           |                                    
|Material Handling                              |                                    
|Telecom Backup
      Power                     |                                    
|Technology Solutions                           |                                    
|Revenues                                       |                                    
|Cost of goods sold                             |                                    
|Gross Margin                                   | $                                  
|Gross Margin %                                 |                                    

Fuel Cell Products and Services
Revenues of $20.0 million for the fourth quarter of 2015 increased 28%, or $4.3
million, compared to the fourth quarter of 2014. The 28% increase was driven by
higher Heavy-Duty Motive, Portable Power and Technology Solutions revenues,
which more than offset a decrease in Telecom Backup Power revenues as Material
Handling revenues were relatively flat.

Technology Solutions revenues of $6.8
million increased $0.7 million, or 12%, due primarily to amounts earned in 2015
on the HDF distributed generation project, the TRC tram project and from Nantong
Zehe for bus licensing and engineering services work. These increases more than
offset a decline in Volkswagen service revenues which were negatively impacted
by approximately ($0.6) million in the fourth quarter of 2015, as compared to
the fourth quarter of 2014, as a result of an approximate (18%) lower Canadian
dollar, relative to the U.S. dollar, as the Volkswagen Agreement is priced in
Canadian dollars. The underlying costs to satisfy the Volkswagen Agreement are
primarily denominated in Canadian dollars.

Heavy-Duty Motive revenues of $4.1
million increased $1.9 million, or 92%, due to higher bus revenues as a result
of significantly higher shipments of FCvelocity®-HD7 bus power modules and
FCvelocity®-HD7 bus module part kits in the fourth quarter of 2015 primarily to
our customers, Synergy and Nantong Zehe in China.

Material Handling revenues of $4.1
million decreased ($0.3) million, or (6%), primarily as a result of the
pass-through of the benefit of lower platinum commodity prices to our customer,
Plug Power, as overall stack shipments were relatively flat.

Portable Power revenues of $3.4 million
in the fourth quarter of 2015 were generated by Protonex subsequent to our
acquisition on October 1, 2015. Protonex is a leading designer and manufacturer
of advanced power management products and portable fuel cell solutions.

Telecom Backup Power revenues of $1.6
million decreased ($1.5) million, or (48%), due to a significant decline in
shipments of methanol-based backup power systems, which more than offset the
increase in shipments of hydrogen-based backup power systems. New customer
deployments of Telecom Backup Power system and stack solutions also continued to
be negatively impacted by the relatively long, protracted sales cycle that
includes additional time required for qualification, onsite testing, field
trialing and certification. We continue to review strategic alternatives for our
Telecom Backup Power business, including a possible sale, joint venture or
orderly wind-up of this business.

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Fuel Cell Products and Services gross
margins improved to $3.8 million, or 19% of revenues, for the fourth quarter of
2015, compared to ($3.0) million, or (19%) of revenues, for the fourth quarter
of 2014. The significant improvement in gross margin of $6.9 million, or 226%,
was driven by the 28% increase in overall revenues combined with the 38 point
improvement in gross margin as a percent of revenues.

Gross margin in the fourth quarter of
2015 benefited from the increase in shipments of higher margin Heavy-Duty Motive
products and services and by the increase in Portable Power shipments and
services as a result of the recent acquisition of Protonex. In addition, gross
margin in the fourth quarter of 2014 was adversely impacted by negative warranty
and inventory charges. Negative net warranty adjustments of ($3.7) million were
recognized in the fourth quarter of 2014 relating primarily to an increase in
customer service related expenses in our Telecom Backup Power market as a result
of fuel processor issues in a select Asian deployment, compared to net positive
warranty adjustments of $0.5 million in the fourth quarter of 2015. Negative
inventory impairments of ($0.6) million were recognized in the fourth quarter of
2014 relating primarily to excess distributed generation and other excess and
obsolete inventory, compared to negative inventory impairments of ($0.4) million
in the fourth quarter of 2015 relating primarily to excess bus inventory as we
transition from FCvelocity®-HD6 bus products to FCvelocity®-HD7 bus
products.

Cash Operating Costs

|(Expressed in thousands
      of U.S. dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Three
      months ended December 31,
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 2015                                 
|Research and Product                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      
|Development (operating
    cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $                                    
|General and
      Administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                      
|(operating cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                      
|Sales and Marketing (operating
      cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                      
|Cash Operating Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $                                    
|Cash Operating Costs is a
      non-GAAP measure. We use certain Non-GAAP measures to assist in assessing
      our financial performance. Non-GAAP measures do not have any standardized
      meaning prescribed by GAAP and are therefore unlikely to be comparable to
      similar measures presented by other companies. See reconciliation to GAAP
      in the Supplemental Non-GAAP Measures section. Cash Operating Costs
      adjusts operating expenses for stock-based compensation expense,
      depreciation and amortization, impairment losses on trade receivables,
      restructuring charges, acquisition costs and financing
    charges.

Cash Operating Costs (see Supplemental
Non-GAAP Measures) for the fourth quarter of 2015 were $7.7 million, a decrease
of ($0.1) million, or (1%), compared to the fourth quarter of 2014. The (1%)
decrease in the fourth quarter of 2015 was driven by lower research and product
development operating costs which were partially offset by slightly higher
general and administrative and sales and marketing operating costs.

Research and product development
operating costs for the fourth quarter of 2015 were $3.1 million, a decrease of
($0.6) million, or (17%), compared to the fourth quarter of 2014. The (17%)
decrease was driven primarily by increased government funding as recoveries in
Denmark by Dantherm Power were up significantly, by the capitalization in the
fourth quarter of 2015 of $0.8 million of FCvelocity®-HD7 development costs as
fuel cell technology intangible assets, and by lower labour costs in Canada as a
result of an approximate (18%) lower Canadian
dollar, relative to the U.S. dollar, and the resulting positive impact on our
Canadian operating cost base. These costs savings in the fourth quarter of 2015
were partially offset by increased costs as a result of the acquisition of
Protonex on October 1, 2015 which contributed approximately $0.7 million of
research and product development operating costs in the quarter.

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General and administrative operating
costs for the fourth quarter of 2015 were $2.8 million, an increase of 10%
compared to the fourth quarter of 2014. The 10% increase was driven primarily by
the acquisition of Protonex on October 1, 2015 which contributed approximately
$0.6 million of general and administrative operating costs in the quarter. This
cost pressure in the fourth quarter of 2015 was partially offset by lower labour
costs in Canada as a result of an approximate (18%) lower Canadian dollar,
relative to the U.S. dollar, and the resulting positive impact on our Canadian
operating cost base.

Sales and marketing operating costs for
the fourth quarter of 2015 were $1.9 million, an increase of 17% compared to the
fourth quarter of 2014. The 17% increase was driven primarily by increased
investment in sales and marketing capacity primarily in the Telecom Backup Power
market, combined with the acquisition of Protonex on October 1, 2015 which
contributed approximately $0.3 million of sales and marketing operating costs in
the quarter. This cost pressure in the fourth quarter of 2015 was partially
offset by lower labour costs in Canada as a result of an approximate (18%) lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact
on our Canadian operating cost base.

As noted above, operating costs in the
fourth quarter of 2015 benefited from the positive impact of a weaker Canadian
dollar, relative to the U.S. dollar. As a significant amount of our net
operating costs (primarily labour) are denominated in Canadian dollars,
operating expenses and Adjusted EBITDA are impacted by changes in the Canadian
dollar relative to the U.S. dollar. As the Canadian dollar relative to the U.S.
dollar was approximately (18%) lower in the fourth quarter of 2015 as compared
to the fourth quarter of 2014, positive foreign exchange impacts on our Canadian
operating cost base and Adjusted EBITDA were approximately $1.3 million. A $0.01
decrease in the Canadian dollar, relative to the U.S. dollar, positively impacts
annual Cash Operating Costs and Adjusted EBITDA by approximately $0.2 million to
$0.3 million.

|Adjusted
  EBITDA                             
|----------------------------------------------
|(Expressed in
      thousands of U.S. dollars)
|                                              
|Adjusted EBITDA                               

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


Adjusted EBITDA (see Supplemental
Non-GAAP Measures) for the fourth quarter of 2015 was ($2.9) million, compared
to ($16.1) million for the fourth quarter of 2014. The $13.1 million reduction
in Adjusted EBITDA loss in the fourth quarter of 2015 was driven by the $6.9
million increase in gross margin primarily as a result of the 28% increase in
revenue combined with lower net negative warranty and inventory charges of $4.2
million, by lower impairment losses on trade receivables included in other
operating expenses of $6.2 million, and by the decline in Cash Operating Costs
of $0.1 million.

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Impairment loss on trade receivables
for the three months ended December 31, 2015 were nil, compared to ($6.2)
million for the corresponding period of 2014. Impairment loss on trade
receivables in 2014 consists of a ($4.4) million impairment charge as a result
of material breaches by Azure of the Azure Telecom Backup Power Licensing
Agreement and the Azure Bus Licensing Agreement, and by additional impairment
charges of ($1.8) related to non-collection of certain of our customers
primarily in Asia.In the event that we are able to recover on an impaired trade receivable through
legal or other means, the recovered amount is recognized in the period of
recovery as a reversal of the impairment loss.

|Net income (loss) attributable to
      Ballard
|-----------------------------------------------
|(Expressed in
      thousands of U.S. dollars) 
|                                               
|Net income (loss) attributable to Ballard      
|from continuing
      operations               

Net income (loss) attributable to
Ballard from continuing operations for the fourth quarter of 2015 was ($1.4)
million, or ($0.01) per share, compared to a net loss of ($17.5) million, or
($0.13) per share, in the fourth quarter of 2014. The $16.1 million reduction in
net loss was driven by the reduction in Adjusted EBITDA loss of $13.1 million,
combined with the gain on sale of intellectual property of $5.4 million related
to the closing of the sale of a copy of the automotive-related know-how of the
UTC Portfolio to Volkswagen pursuant to the Volkswagen IP Agreement. These
fourth quarter of 2015 net income improvements were partially offset by
acquisition costs of ($0.9) million in 2015 related to the Protonex acquisition,
by higher income taxes of ($0.5) million related to withholding taxes incurred
on Chinese licensing income, and by higher stock-based compensation expense of
($0.6) million.

As noted above, net loss attributable
to Ballard in the fourth quarter of 2015 was positively impacted by the gain on
sale of intellectual property of $5.4 million, and negatively impacted by
acquisition costs of ($0.9) million. Adjusted EBITDA and net loss attributable
to Ballard in the fourth quarter of 2014 was negatively impacted by impairment
loss on trade receivables of ($6.2) million. Excluding the impact of the gain on
sale of intellectual property and the impact from acquisition costs and
impairment losses on trade receivables, Normalized Net Loss (see Supplemental
Non-GAAP Measures) in the fourth quarter of 2015 was ($5.9) million, or ($0.04)
per share, compared to ($11.3) million, or ($0.09) per share, for the fourth
quarter of 2014.

Net loss attributable to Ballard from
continuing operations excludes the net loss attributed to the non-controlling
interests in the losses of Dantherm Power related to their 43% equity interest
in Dantherm Power. Net income (loss) attributed to
non-controllinginterests for the fourth quarter of 2015 was $0.1 million,
compared to ($0.6) million for the fourth quarter of 2014. The improvement in
performance at Dantherm Power in the fourth quarter of 2015, as compared to the
fourth quarter of 2014, is primarily a result of cost reduction efforts combined
with an increase in government funding recoveries on research and product
development activities.

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|Cash used in operating
      activities       
|----------------------------------------------
|(Expressed in
      thousands of U.S. dollars)
|                                              
|Cash (used in) provided by operating          
|activities                                    

Cash used in operating activities in
the fourth quarter of 2015 was ($10.6) million, consisting of cash operating
losses of ($4.6) million and net working capital outflows of ($5.9) million.
Cash used in operating activities in the fourth quarter of 2014 was ($8.2)
million, consisting of cash operating losses of ($10.8) million partially offset
by net working capital inflows of $2.6 million. The ($2.4) million increase in
cash used by operating activities in the fourth quarter of 2015, as compared to
the fourth quarter of 2014, was driven by the relative increase in working
capital requirements of ($8.6) million, partially offset by the relative
reduction in cash operating losses of $6.2 million. The $6.2 million reduction
in cash operating losses in the fourth quarter of 2015 was due primarily to the
$13.1 million reduction in Adjusted EBITDA loss, partially offset by lower
impairment losses on trade receivables of ($6.1) million which while included in
the Adjusted EBITDA loss, are excluded from cash operating losses.

The total change in working capital of
($5.9) million in the fourth quarter of 2015 was driven by higher accounts
receivable of ($2.2) million primarily as a result of the timing of Portable
Power and Heavy-Duty Motive revenues and the related customer collections, by
lower accounts payable and accrued liabilities of ($1.8) million due primarily
to the timing of purchases and supplier payments including the payment of
acquisition and transaction related costs incurred on the Protonex acquisition,
and by lower deferred revenue of ($1.5) million as we completed the contract
work on certain Technology Solutions, Heavy-Duty Motive and government grant
contracts for which we received pre-payments in an earlier period.

This compares to a total change in
working capital of $2.6 million in the fourth quarter of 2014 which was due to
higher accrued warranty provisions of $3.5 million primarily as a result of an
adjustment for an expected increase in customer service related expenses in our
Telecom Backup Power market in Asia, combined with lower inventory of $2.6
million as we shipped product purchased and built in prior quarters. These
fourth quarter of 2014 working capital inflows were partially offset by lower
accounts payable and accrued liabilities of ($3.7) million as a result of
increased supplier payments made for higher inventory purchases in the first
three quarters of 2014 and by a downward adjustment to accrued cash-based
compensation expense in the fourth quarter of 2014.

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RESULTS OF OPERATIONS  Year ended
December 31, 2015

|Revenue and gross
      margin                
|----------------------------------------------
|(Expressed in thousands of
      U.S. dollars)
|Fuel Cell
      Products andServices          
|Heavy-Duty
      Motive                       
|Portable Power                                
|Material
      Handling                       
|Telecom Backup Power                          
|Technology Solutions                          
|Revenues                                      
|Cost of goods sold                            
|Gross Margin                                  
|Gross Margin %                                

Fuel Cell Products and Services
Revenues of $56.5 million in 2015 declined (18%), or ($12.3) million, compared
to 2014. The (18%) decline was driven by lower Technology Solutions, Telecom
Backup Power and Material Handling revenues, which more than offset an increase
in Heavy-Duty Motive and Portable Power revenues. As a result of the termination
of the Azure contracts in the fourth quarter of 2014, we did not record any
revenue in 2015 from the Azure Bus and Azure Telecom Backup Power Agreements as
compared to a total of $8.7 million recognized in 2014.

Technology Solutions
revenues of $22.7 million decreased ($13.9) million, or (38%), due primarily to
the absence in 2015 of licensing and engineering services revenues under the
Azure Bus Licensing Agreement (nil in 2015 as compared to $4.9 million in 2014)
and the Azure Telecom Backup Power Licensing Agreement (nil in 2015 as compared
to $3.9 million in 2014), and by the increased allocation of engineering
resources during 2015 to corporate research and product development activities.
In addition, Volkswagen service revenues were negatively impacted by
approximately ($2.3) million in 2015, as compared to 2014, as a result of an
approximate (16%) lower Canadian dollar, relative to the U.S. dollar, as the
Volkswagen Agreement is priced in Canadian dollars. The Volkswagen Agreement is
priced in Canadian dollars as a majority of the underlying costs to satisfy the
agreement are denominated in Canadian dollars.

Material Handling revenues of $12.7
million decreased ($1.2) million, or (9%), primarily as a result of the pass
through of the benefit of lower platinum commodity prices to our customer, Plug
Power, as overall stack shipments were relatively flat.

Heavy-Duty Motive revenues of $12.0
million increased $6.8 million, or 133%, due to higher shipments of fuel cell
bus products to our customers primarily in Asia, North America and Europe. Bus
product shipments in 2015 included significantly higher shipments of
FCvelocity®-HD7 bus power modules and FCvelocity®-HD7 bus module part kits
primarily to our customers, Nantong Zehe and Synergy in China.

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Telecom Backup Power revenues of $5.7
million declined ($7.4) million, or (56%), due to a significant decline in
shipments of methanol-based backup power systems and hydrogen-based backup power
stacks, combined with a lower average selling price in 2015 on sales of
methanol-based backup power systems driven by the completed shipment of an
initial order from RJIL of 100 ElectraGen-ME 2.5kW fuel cell backup power
systems to be deployed in RJILs wireless telecom network in India. The lower
average selling price of methanol-based backup power systems in 2015 was due
primarily to product mix as the 100-system RJIL order was for 2.5kW systems
compared to predominately 5.0kW system shipments in 2014. New customer
deployments of Telecom Backup Power system and stack solutions also continued to
be negatively impacted in 2015 by the relatively long, protracted sales cycle
that includes additional time required for qualification, onsite testing, field
trialing and certification, as well as by our actions to correct certain product
quality issues discovered in 2014.

Portable Power revenues of $3.4 million
in 2015 were generated by Protonex subsequent to our acquisition on October 1,
2015. Protonex is a leading designer and manufacturer of advanced power
management products and portable fuel cell solutions.

Fuel Cell Products and Services gross
margins were $10.0 million, or 18% of revenues, for 2015, compared to $10.2
million, or 15% of revenues, for 2014. The minor decline in overall gross margin
of ($0.3) million, or (3%), was driven by the (18%) decline in overall revenues
offset by the 3 point improvement in gross margin as a percent of revenues from
15% in 2014 to 18% in 2015.

Gross margin in 2015 was negatively
impacted by a significant reduction in higher margin Technology Solutions
licensing revenues as licensing amounts earned in 2015 on the Nantong Zehe
agreements were significantly lower than amounts earned in 2014 on the breached
Azure Bus and Azure Telecom Backup Power Agreements totaling $8.7 million. This
negative gross margin impact in 2015 was partially offset by improvements in
2015 as a result of the significant increase in shipments of higher margin
Heavy-Duty Motive bus products and by the increase in Portable Power shipments
and services as a result of the recent acquisition of Protonex. In addition,
gross margin in 2014 was negatively impacted by negative warranty and inventory
charges. Negative net warranty adjustments of ($3.5) million were recognized in
2014 relating primarily to an increase in customer service related expenses in
our Telecom Backup Power market as a result of fuel processor issues in a select
Asian deployment, compared to net positive warranty adjustments of $1.3 million
in 2015 relating primarily to warranty expirations and reduced product costs.
Negative inventory impairments of ($1.3) million were recognized in 2014
relating primarily to excess distributed generation and other excess and
obsolete inventory, compared to negative inventory impairments of ($0.6) million
in 2015 relating primarily to excess bus inventory as we transition from
FCvelocity®-HD6 bus products to FCvelocity®-HD7 bus products.

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|Cash Operating
      Costs                    
|----------------------------------------------
|(Expressed in
      thousands of U.S. dollars)
|                                              
|Research and
    Product                      
|Development (operating
      cost)            
|General and Administrative                    
|(operating cost)                              
|Sales and Marketing (operating cost)          
|Cash Operating Costs                          

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


Cash Operating Costs (see Supplemental
Non-GAAP Measures) in 2015 were $29.0 million, an increase of $2.7 million, or
10%, compared to 2014. The 10% increase in 2015 was driven by significantly
higher research and product development operating costs, and by slightly higher
sales and marketing operating costs, which more than offset the reduction in
general and administrative costs.

Research and product development
operating costs in 2015 were $13.3 million, an increase of $2.9 million, or 27%,
compared to 2014. The 27% increase was driven primarily by the (38%) decline in
Technology Solutions revenues resulting in significantly fewer engineering staff
resources being directed to revenue generating engineering service projects as
engineering resources were instead redirected to research and product
development activities. Labour and material costs incurred on revenue producing
engineering services projects are reallocated from research and product
development expenses to cost of goods sold. These cost pressures in 2015 were
partially offset by the capitalization in 2015 of $1.6 million of
FCvelocity®-HD7 development costs as fuel cell technology intangible assets, and
by lower labour costs in Canada as a result of an approximate (16%) lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact
on our Canadian operating cost base.

General and administrative operating
costs in 2015 were $9.0 million, a decline of ($0.4) million, or (5%), compared
to 2014. The (5%) decrease was driven by lower labour costs in Canada as a
result of an approximate (16%) lower Canadian dollar, relative to the U.S.
dollar, and the resulting positive impact on our Canadian operating cost base.
These cost savings in 2015 were partially offset by higher legal and patent
renewal expenses in 2015 and by additional expenses assumed on the acquisition
of Protonex on October 1, 2015.

Sales and marketing operating costs in 2015 were
$6.7 million, an increase of 4% compared to 2014. The 4% increase was driven by
increased investment in sales and marketing capacity primarily in the Telecom
Backup Power market, and by the additional expenses assumed on the acquisition
of Protonex on October 1, 2015. These cost pressures in 2015 were partially
offset by lower labour costs in Canada as a result of an approximate (16%) lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact
on our Canadian operating cost base.

As noted above, operating costs in 2015
benefited from the positive impact of a weaker Canadian dollar, relative to the
U.S. dollar. As a significant amount of our net operating costs (primarily
labour) are denominated in Canadian dollars, operating expenses and Adjusted
EBITDA are impacted by changes in the Canadian dollar relative to the U.S.
dollar. As the Canadian dollar relative to the U.S. dollar was approximately
(16%) lower in 2015 as compared to 2014, positive foreign exchange impacts on
our Canadian operating cost base and Adjusted EBITDA were approximately $4.3
million. A $0.01 decrease in the Canadian dollar, relative to the U.S. dollar,
positively impacts annual Cash Operating Costs and Adjusted EBITDA by
approximately $0.2 million to $0.3 million.

Page 16 of
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|Adjusted
  EBITDA                             
|----------------------------------------------
|(Expressed in
      thousands of U.S. dollars)
|                                              
|Adjusted EBITDA                               

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


Adjusted EBITDA (see Supplemental
Non-GAAP Measures) in 2015 was ($15.3) million, compared to ($18.6) million for
2014. The $3.4 million reduction in Adjusted EBITDA loss in the 2015 was driven
by lower impairment losses on trade receivables included in other operating
expenses of $7.1 million, partially offset by the increase in Cash Operating
Costs of ($2.7) million primarily as a result of significantly fewer engineering
staff resources being directed to revenue generating engineering service
projects, and by the minor decline in gross margin of ($0.3) million.

Impairment (loss) recovery on trade
receivables in 2015 were $0.9 million, compared to ($6.2) million for 2014.
Impairment recovery on trade receivables in 2015 of $0.9 million resulted
primarily from the collection of certain accounts principally in Asia that were
considered impaired and written down 2014. Impairment loss on trade receivables
in 2014 of ($6.2) million consist primarily of a ($4.4) million impairment
charge as a result of material breaches by Azure of the Azure Telecom Backup
Power Licensing Agreement and the Azure Bus Licensing Agreement, and by
additional impairment charges of ($1.8) related to non-collection of certain of
our customers primarily in Asia.In the event that we are able to recover on an impaired trade
receivable through legal or other means, the recovered amount is recognized in
the period of recovery as a reversal of the impairment loss.

|Net income (loss) attributable to
      Ballard
|-----------------------------------------------
|(Expressed in
      thousands of U.S. dollars) 
|                                               
|Net income (loss) attributable to Ballard      
|from continuing
      operations               

Net income (loss) attributable to
Ballard from continuing operations in 2015 was ($5.8) million, or ($0.04) per
share, compared to a net loss of ($28.2) million, or ($0.22) per share, in 2014.
The $22.4 million reduction in net loss for 2015 was driven primarily by the
gain on sale of intellectual property of $19.6 million related to the closing of
the sale of the automotive-related patents and patent applications of the UTC
Portfolio and the closing of the sale of a copy of the automotive-related
know-how of the UTC Portfolio to Volkswagen pursuant to the Volkswagen IP
Agreement, combined with the reduction in Adjusted EBITDA loss of $3.4 million,
and the decline in depreciation and amortization expense of $1.2 million
primarily as a result of lower intangible asset amortization after the
Volkswagen IP Agreement. These 2015 net income improvements were partially
offset by acquisition costs of ($1.5) million in 2015 related to the Protonex
acquisition.

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As noted above, net loss attributable
to Ballard in 2015 was positively impacted by the gain on sale of intellectual
property of $19.6 million, and negatively impacted by acquisition costs of
($1.5) million. Adjusted EBITDA and net loss attributable to Ballard in 2015
were also positively impacted by net impairment recoveries on trade receivables
of $0.9 million. Adjusted EBITDA and net loss attributable to Ballard 2014 was
negatively impacted by impairment loss on trade receivables of ($6.2) million.
Excluding the impact of the gain on sale of intellectual property and the impact
from acquisition costs, impairment (losses) recoveries (losses) on trade
receivables, and other minor asset impairment charges, Normalized Net Loss (see
Supplemental Non-GAAP Measures) in 2015 was ($24.8) million, or ($0.18) per
share, compared to ($21.8) million, or ($0.17) per share, for 2014.

Net loss attributable to Ballard from
continuing operations excludes the net loss attributed to the non-controlling
interests in the losses of Dantherm Power related to their 48% equity interest
in Dantherm Power. Net loss attributed to
non-controllinginterests for 2015 was ($0.8) million, compared to ($1.6)
million for 2014. The improvement in performance at Dantherm Power in 2015, as
compared to 2014, is primarily a result of cost reduction efforts combined with
an increase in government funding recoveries on research and product development
activities.

|Cash used in
      operating activities       
|----------------------------------------------
|(Expressed in
      thousands of U.S. dollars)
|                                              
|Cash (used in) provided by operating          
|activities                                    

Cash used in operating activities in
2015 was ($25.4) million, consisting of cash operating losses of ($19.3) million
and net working capital outflows of ($6.0) million. Cash used in operating
activities in 2014 was ($20.7) million, consisting of cash operating losses of
($15.7) million and net working capital outflows of ($5.0) million. The ($4.7)
million increase in cash used by operating activities in 2015, as compared to
2014, was driven by the relative increase in cash operating losses of ($3.6)
million, combined with the relative increase in working capital requirements of
($1.0) million. The ($3.6) million increase in cash operating losses in 2015 was
due primarily to lower impairment losses on trade receivables of ($5.8) million
which while included in the Adjusted EBITDA loss, are excluded from cash
operating losses, partially offset by the $3.4 million reduction in Adjusted
EBITDA loss.

The total change in working capital of
($6.0) million in 2015 was driven by higher inventory of ($5.6) million
primarily to support expected Heavy-Duty Motive and Power Products shipments in
the first quarter of 2016 to Synergy, the U.S. Army and other customers and as a
result of delayed but expected Telecom Backup Power system shipments, by lower
accrued warranty provisions of ($3.6) million due primarily to customer service
related expenses incurred in our Telecom Backup Power market in Asia and by
Heavy-Duty Motive warranty contract expirations, and by lower accounts payable
and accrued liabilities of ($1.3) million due primarily to the timing of
purchases and supplier payments. These 2015 working capital outflows were
partially offset by higher deferred revenue of $4.0 million as we collected
pre-payments on certain Heavy-Duty Motive and Technology Solutions contracts in
advance of work performed.

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This compares to a total change in
working capital of ($5.0) million in 2014 which was driven by lower accounts
receivable of ($4.1) million primarily as a result of impairment losses on trade
receivables of ($6.2) million and the timing of Technology Solutions, Heavy-Duty
Motive and Telecom Backup Power revenues and the related customer collections,
and by lower deferred revenue of ($4.4) million as we completed the contract
work on Technology Solutions and certain government grant contracts for which we
received prepayments in an earlier period. These working capital outflows in
2014 were partially offset by working capital inflows related to higher accrued
warranty provisions of $2.4 million primarily as a result of an adjustment for
an expected increase in customer service related expenses in our Telecom Backup
Power market in Asia, and by lower inventory of $1.5 million as we shipped
product purchased and built in prior quarters.

OPERATING EXPENSES AND OTHER
ITEMS

|Research and
      product development expenses   |     
|------------------------------------------------- | ----
|(Expressed in
      thousands of U.S. dollars)    |     
|Research and product development                  |     
|Research and product
      development expense    | ****
|Less: Depreciation and amortization
      expense |     
|Less: Stock-based compensation expense            |     
|Research and product development
      (operating |     
|cost)                                             |     
|                                                 
|(Expressed in
      thousands of U.S. dollars)    |     
|Research and product development                  |     
|Research and product
      development expense    |     
|Less: Depreciation and amortization
      expense |     
|Less: Stock-based compensation expense            |     
|Research and product development
      (operating |     
|cost)                                             |     

Research and product
developmentexpenses for the three months
ended December 31, 2015 were $3.5 million, a decline of ($1.0) million, or 23%,
compared to the corresponding period of 2014. Excluding depreciation and
amortization expense of ($0.3) million and ($0.9) million, respectively, in each
of the periods and excluding stock-based compensation (expense) recovery of
($0.1) million and $0.1 million, respectively, in each of the periods, research
and product development operating costs were $3.1 million in the fourth quarter
of 2015, a decline of ($0.6) million, or (17%), compared to the fourth quarter
of 2014.

The (17%) decline in research and
development operating costs in the fourth quarter of 2015 was driven primarily
by increased government funding as recoveries in Denmark by Dantherm Power were
up significantly, by the capitalization in the fourth quarter of 2015 of $0.8
million of FCvelocity®-HD7 development costs as fuel cell technology intangible
assets, and by lower labour costs in Canada as a result of an approximate (18%)
lower Canadian dollar, relative to the U.S. dollar, and the resulting positive
impact on our Canadian operating cost base. These costs savings in the fourth
quarter of 2015 were partially offset by increased costs as a result of the
acquisition of Protonex on October 1, 2015 which contributed approximately $0.7
million of research and product development operating costs in the quarter.

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Research and product development
expenses for the year ended December 31, 2015 were $16.2 million, an increase of
$1.9 million, or 13%, compared to the corresponding period of 2014. Excluding
depreciation and amortization expense of ($1.9) million and ($3.2) million,
respectively, in each of the periods and excluding stock-based compensation
expense of ($1.0) million and ($0.6) million, respectively, in each of the
periods, research and product development operating costs were $13.3 million in
2015, an increase of $2.9 million, or 27%, compared to 2014.

The 27% increase in research and
development operating costs in 2015 was driven primarily by the (38%) decline in
Technology Solutions revenues resulting in fewer engineering staff resources
being directed to revenue generating engineering service projects. These
engineering resources were instead redirected to corporate research and product
development activities. In addition, costs increased in 2015 as a result of the
acquisition of Protonex on October 1, 2015 which contributed approximately $0.7
million of research and product development operating costs in 2015. These cost
pressures in 2015 were partially offset by the capitalization in 2015 of $1.6
million of FCvelocity®-HD7 development costs as fuel cell technology intangible
assets, and by lower labour costs in Canada as a result of an approximate (16%)
lower Canadian dollar, relative to the U.S. dollar, and the resulting positive
impact on our Canadian operating cost base. Government funding recoveries in
were effectively flat year over year as increased government funding recoveries
in Denmark by Dantherm Power in 2015 were offset by lower government funding
recoveries in Canada in 2015 primarily as a result of the conclusion of the
multi-year SDTC Bus award in the fourth quarter of 2014 with the introduction of
the FCvelocity®-HD7, Ballards next-generation of fuel cell bus power module.

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

Depreciation and amortization expense
included in research and product development expense for the three months and
year ended December 31, 2015 was $0.3 million and $1.9 million, respectively,
compared to $0.9 million and $3.2 million, respectively, for the corresponding
periods of 2014. Depreciation and amortization expense relates primarily to
amortization expense on our intangible assets and depreciation expense on our
manufacturing equipment. Depreciation and amortization expense has declined in
2015 as a result of the Volkswagen IP Agreement whereby in the first quarter of
2015 we transferred to Volkswagen the ownership of the automotive-related
portion of the fuel cell intellectual property assets previously acquired by us
from UTC in the second quarter of 2014. Although ownership of the patents and
patent applications was transferred to Volkswagen, Ballard received a
royalty-free back-license to all the transferred patents and patent applications to utilize all
non-automotive applications, in bus applications and in certain limited
pre-commercial purposes for automotive applications.

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Stock-based compensation expense
(recovery) included in research and product development expense for the three
months and year ended December 31, 2015 was $0.1 million and $1.0 million,
respectively, compared to ($0.1) million and $0.6 million, respectively, for the
corresponding periods of 2014. Stock-based compensation increased in 2015
primarily as a result of a change in compensation structure from cash incentive
awards to share-compensation awards for certain employees combined with new
awards granted on the acquisition of Protonex to certain Protonex employees. In
addition, a downward adjustment to accrued stock-based compensation expense was
made in the fourth quarters of both 2015 and 2014 as certain outstanding
restricted share units failed to meet the vesting criteria.

General and administrative
expenses

|(Expressed in thousands of U.S. dollars)          |  | Three months ended December 31,
|------------------------------------------------- |  | -------------------------------
|General and administrative                        |  |                                
|General and administrative
      expense          |  | **$**                          
|Less: Depreciation and amortization
      expense |  | $                              
|Less: Stock-based compensation expense            |  | $                              
|General and administrative (operating cost)       |  | $                              
|                                                 
|(Expressed in
      thousands of U.S. dollars)    |  | Year ended December
      31,  
|General and administrative                        |  |                                
|General and administrative
      expense          |  | $                              
|Less: Depreciation and amortization
      expense |  | $                              
|Less: Stock-based compensation expense            |  | $                              
|General and administrative (operating cost)       |  | $                              

General and
administrative expenses for the three months ended December 31, 2015 were
$3.0 million, an increase of $0.9 million, or 40%, compared to the corresponding
period of 2014. Excluding relatively insignificant depreciation and amortization
expense in each of the periods, and excluding stock-based compensation (expense)
recovery of ($0.1) million and $0.4 million, respectively, in each of the
periods, general and administrative operating costs were $2.8 million in the
fourth quarter of 2015, an increase of $0.3 million, or 10%, compared to the
fourth quarter of 2014.

The 10% increase in general and
administrative operating costs in the fourth quarter of 2015 was driven
primarily by the acquisition of Protonex on October 1, 2015 which contributed
approximately $0.6 million of general and administrative operating costs in the
quarter. This cost pressure in the fourth quarter of 2015 was partially offset
by lower labour costs in Canada as a result of an approximate (18%) lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact
on our Canadian operating cost base.

General and
administrativeexpenses for year ended December 31, 2015 were $10.6 million, an increase
of $0.1 million, or 1%, compared to the corresponding period of 2014. Excluding
relatively insignificant depreciation and amortization expense in each of the
periods, and excluding stock-based compensation expense of ($1.3) million and
($0.8) million, respectively, in each of the periods,
general and administrative operating costs in the 2015 were $9.0 million, a
decrease of ($0.4) million, or (5%), compared to 2014.

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The (5%) decrease in general and
administrative operating costs in 2015 was driven primarily by lower labour
costs in Canada as a result of an approximate (16%) lower Canadian dollar,
relative to the U.S. dollar, and the resulting positive impact on our Canadian
operating cost base. These cost savings in 2015 were partially offset by added
expenses assumed on the acquisition of Protonex on October 1, 2015 and by higher
patent renewal costs in 2015 related to the acquired UTC intellectual property
portfolio prior to its sale in February 2015 in the Volkswagen IP Agreement.
Higher legal and transaction related expenses incurred in 2015, primarily as a
result of the Azure contract breaches, were offset by lower human resources
expenses in 2015 due to CEO search expenses incurred in 2014.

Depreciation and amortization expense
included in general and administrative expense relates primarily to depreciation
expense on our office equipment and was relatively consistent period over
period.

Stock-based compensation expense
(recovery) included in general and administrative expense for the three months
and year ended December 31, 2015 was $0.1 million and $1.3 million,
respectively, compared to ($0.4) million and $0.8 million, respectively, for the
corresponding periods of 2014. Stock-based compensation increased in 2015
primarily as a result of a change in compensation structure from cash incentive
awards to share-compensation awards for certain employees combined with new
awards granted on the acquisition of Protonex to certain Protonex employees. In
addition, a downward adjustment to accrued stock-based compensation expense was
made in the fourth quarters of both 2015 and 2014 as certain outstanding
restricted share units failed to meet the vesting criteria.

Sales and marketing expenses

|(Expressed in thousands of U.S. dollars) |  | Three months ended December 31,
|---------------------------------------- |  | -------------------------------
|Sales and marketing                      |  |                                
|Sales and marketing
      expense        |  | **$**                          
|Less: Stock-based compensation expense   |  | $                              
|Sales and marketing (operating cost)     |  | $                              
|                                        
|(Expressed in thousands of U.S. dollars) |  | Year ended December 31,        
|Sales and marketing                      |  |                                
|Sales and marketing
      expense        |  | $                              
|Less: Stock-based compensation expense   |  | $                              
|Sales and marketing (operating cost)     |  | $                              

Sales and
marketingexpenses for the three months
ended December 31, 2015 were $2.0 million, an increase of $0.2 million, or 11%,
compared to the corresponding period of 2014. Excluding stock-based compensation
expense of ($0.1) million and ($0.2), respectively, in each of the periods,
sales and marketing operating costs were $1.9 million in the fourth quarter of
2015, an increase of 17% compared to the fourth quarter of 2014.

Sales and marketing expenses for the
year ended December 31, 2015 were $7.4 million, an increase of 2%, compared to
the corresponding period of 2014. Excluding stock-based compensation expense of ($0.7) million and ($0.8) million, respectively,
in each of the periods, sales and marketing operating costs were $6.7 million in
2015, an increase of 4% compared to 2014.

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The respective 17% and 4% increases in
sales and marketing operating costs in 2015 were driven by increased investment
in sales and marketing capacity primarily in the Telecom Backup Power market,
combined with the acquisition of Protonex on October 1, 2015 which contributed
approximately $0.3 million of sales and marketing operating costs in the
quarter. This cost pressure in the fourth quarter of 2015 was partially offset
by lower labour costs in Canada as a result of an approximate (18%) lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact
on our Canadian operating cost base.

Other (expense)
recoveryfor the three months and year ended December 31, 2015 was ($0.9) million
and $0.6 million, respectively, compared to ($6.2) million and ($6.3) million
for the corresponding periods of 2014. The following tables provide a breakdown
of other (expense) recovery for the reported periods:

|(Expressed in thousands of U.S. dollars)  |  | Three months ended December 31,
|----------------------------------------- |  | -------------------------------
|                                          |  |                                
|Impairment (loss) recovery
      on trade |  |                                
|receivables                               |  | **$**                          
|Restructuring (expense) recovery          |  |                                
|Acquisition charges                       |  |                                
|Other (expenses) recovery                 |  | $                              
|                                         
|(Expressed in thousands of U.S. dollars)  |  | Year ended December 31,        
|                                          |  |                                
|Impairment (loss) recovery
      on trade |  |                                
|receivables                               |  | $                              
|Restructuring (expense) recovery          |  |                                
|Acquisition charges                       |  |                                
|Other (expenses) recovery                 |  | $                              

Impairment (loss) recovery on trade
receivables of $0.9 million for the year ended December 31, 2015 consist of a
$1.5 million impairment recovery as we collected on certain accounts in 2015
principally in Asia that were considered impaired and written down in 2014, less
new impairment charges in 2015 of ($0.6) million related to non-collection of
certain other accounts primarily in Asia.In the event that we are able to recover
on an impaired trade receivable through legal or other means, the recovered
amount is recognized in the period of recovery as a reversal of the impairment
loss.

Impairment loss on trade receivables
for the three months and year ended December 31, 2014 was ($6.2) million and
consist of a ($4.4) million impairment charge as a result of material breaches
by Azure of the Azure Telecom Backup Power Licensing Agreement and the Azure Bus
Licensing Agreement, and by additional impairment charges of ($1.8) million
related to non-collection of certain of our customers primarily in
Asia.

Acquisition charges for the three
months and year ended December 31, 2015 of ($0.9) million and ($1.5) million,
respectively, consist of brokerage, legal and other costs incurred related to the acquisition of Protonex which closed on October
1, 2015. Acquisition costs are expensed as incurred.

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Restructuringcharges of ($0.1)
million in 2014 relate primarily to minor restructurings focused on overhead
cost reduction.

Finance income (loss) and
otherfor the three months and year ended December 31, 2015 was ($1.0) million
and ($0.3) million, respectively, compared to ($0.5) million and ($0.1) million,
respectively, for the corresponding periods of 2014. The following tables
provide a breakdown of finance and other income (loss) for the reported periods:

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

Employee future benefit plan expense
for the three months and year ended December 31, 2015 were ($0.1) million and
($0.3) million, respectively, relatively consistent with the corresponding
periods of 2014. Employee future benefit plan expense primarily represents the
excess of expected interest cost on plan obligations in excess of the expected
return on plan assets related to a curtailed defined benefit pension plan for
certain former United States employees. Pension administration expense of
approximately ($0.1) million for the years ended December 31, 2015 and 2014
represent administrative costs incurred in managing the plan.

Foreign exchange gains (losses) for the
three months and year ended December 31, 2015 were ($0.9) million and $0.1
million, respectively, compared to ($0.5) million and nil, respectively, for the
corresponding periods of 2014. Foreign exchange gains and losses are
attributable primarily to the effect of the changes in the value of the Canadian
dollar, relative to the U.S. dollar, on our Canadian dollar-denominated net
monetary position and on any outstanding foreign exchange currency contracts
that are marked to market each reporting period if not qualified for hedge
accounting treatment. Foreign exchange gains and losses are also impacted by the
conversion of Dantherm Powers assets and liabilities from the Danish Kroner to
the U.S. dollar at exchange rates in effect at each reporting date.

Investment and other income for the
three months and years ended December 31, 2015 and 2014
were nominal and were earned primarily on our cash, cash equivalents and
short-term investments.

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Finance
expensefor the three months and year
ended December 31, 2015 was ($0.2) million and ($0.8) million, respectively,
compared to ($0.2) million and ($0.9) million, respectively, for the
corresponding periods of 2014. Finance expense relates primarily to the sale and
leaseback of our head office building in Burnaby, British Columbia which was
completed on March 9, 2010. Due to the long term nature of the lease, the
leaseback of the building qualifies as a finance (or capital) lease.

Gain on sale of Intellectual
Propertyfor the three months and year
ended December 31, 2015 was $5.4 million and $19.6 million, respectively, and
resulted from the transfer of ownership of the UTC Portfolio previously acquired
by us from UTC in 2014 to Volkswagen in 2015 through two separate transactions
under the Volkswagen IP Agreement for total gross proceeds of $50 million.

On the closing of the sale of the
automotive-related patents and patent applications of the UTC Portfolio in the
first quarter of 2015, we recognized a gain on sale of intellectual property of
$14.2 million on net proceeds received of $29.5 million. On the closing of the
initial transaction on February 23, 2015, Ballard transferred ownership of the
automotive-related patents and patent applications of the UTC Portfolio in
exchange for gross proceeds of $40 million. This receipt triggered a 25%, or
$10.0 million, license fee payment to UTC. Although ownership of the patents and
patent applications was transferred to Volkswagen, Ballard received a
royalty-free back-license to all the transferred patents and patent applications
for use in all non-automotive applications, in bus applications and in certain
limited pre-commercial automotive applications. The gain on sale of intellectual
property of $14.2 million represents gross proceeds received on the sale of the
automotive-related patents and patent applications from Volkswagen of $40.0
million, net of the license fee paid to UTC of ($10.0) million, transaction
costs of approximately ($0.5) million, and the ascribed cost of the patents and
patent applications in the UTC Portfolio of approximately ($15.3)
million.

On the closing of the sale of a copy of
the automotive-related know-how of the UTC Portfolio in the fourth quarter of
2015, we recognized an additional gain on sale of intellectual property of $5.4
million. On the closing of the second tranche on December 2, 2015, Ballard
transferred a copy of the automotive-related know-how of the UTC Portfolio in
exchange for gross proceeds receivable of $10 million. This receivable is
recorded in trade and other receivables at December 31, 2015 and is expected to
be collected in the first quarter of 2016, net of applicable withholding taxes,
which are expected to be recovered in fiscal 2016. The receipt will trigger a
9%, or $0.9 million, payment to UTC in fiscal 2016 which is recorded in accounts
payable and accrued liabilities as of December 31, 2015. On the closing of the
sale of a copy of the automotive-related know-how of the UTC Portfolio, Ballard
retained full ownership of the know-how including the right to sell additional
copies of the know-how to third parties as well as retaining the right to use
the know-how in all our applications. The gain on sale of intellectual property
of $5.4 million represents gross proceeds receivable from Volkswagen of $10.0
million, net of a fee payable to UTC of ($0.9) million, and the ascribed cost of
the automotive-related know-how of the UTC Portfolio previously classified as
assets held for sale of approximately ($3.8) million.

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Impairment loss on investmentfor the year ended December 31, 2014 was
($0.1) million and consists of an impairment charge related to our non-core
investment in Chrysalix Energy Limited Partnership which was written down in
2014 to its net realizable value of nil.

Net income (loss) attributed to
non-controlling interestsfor the three
months and year ended December 31, 2015 was $0.1 million and ($0.8) million,
respectively, compared to ($0.6) million and ($1.6) million, respectively, for
the corresponding periods of 2014. Amounts primarily represent the
non-controlling interest of Dantherm A/S in the losses of Dantherm Power as a
result of their 43% total equity interest in Dantherm Power. The improvement in
performance at Dantherm Power in 2015, as compared to 2014, is primarily a
result of cost reduction efforts combined with an increase in government funding
recoveries on research and product development activities.

Net earnings from Discontinued  Operationsfor
the year ended December  31, 2014 was $0.3 million and consists of additional proceeds received in the  form of a 12-month
product credit on the disposition of our former Materials  Product division. As a result of the disposition of our Materials Products segment on  January 31, 2013, the former Material Products segment
has been classified as a  discontinued operation in our consolidated financial statements. As such, the  operating results of
the former Material Products segment have been removed from  our results from continuing operations and are instead presented
separately in  the statement of comprehensive income as income from discontinued operations.  The former Materials Product
segment sold carbon fiber products primarily for  automotive transmissions, and GDLs for fuel cells.

PROTONEX ACQUISITION PURCHASE PRICE
ALLOCATION

On October 1, 2015, we completed the
acquisition of Protonex, a leading designer and manufacturer of advanced power
management products and portable fuel cell solutions. During the fourth quarter
of 2015, we completed detailed valuation studies and prepared the preliminary
purchase price allocation for Protonex using the acquisition method of
accounting in accordance withIFRS 3 Business
Combinations, with Ballard Power considered
as the accounting acquirer and Protonex as the accounting acquiree. As the
accounting acquirer, consideration given by Ballard to acquire Protonex has been
allocated to the assets acquired, and the liabilities assumed, based on their
fair values as of the acquisition date of October 1, 2015.

As consideration for the transaction,
we assumed and paid certain of Protonex debt obligations and transaction costs
on closing of approximately $3.8 million, and issued approximately 11.4 million
of Ballard shares at fair value of $1.20 per share, or approximately $13.7
million, for total purchase consideration of $17.5 million. In accordance withIAS 3, the
fair value of the 11.4 million Ballard shares has been measured for accounting
purposes using the $1.20 closing price of the Ballard shares on the day
immediately preceding the acquisition date.

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In accordance with IFRS 3, the
identifiable assets acquired and liabilities assumed as part of a business
combination are recognized separately from goodwill at the acquisition date if
they meet the definition of an asset or liability and are exchanged as part of
the business combination. The identifiable assets acquired and liabilities
assumed are then measured at their acquisition date fair values based on
the contractual terms, economic conditions, Ballards operating and accounting
policies and other pertinent conditions as of the acquisition date. The fair
value review of Protonex assets and liabilities commenced with a review of the
carrying amount of each respective asset and liability. The carrying amounts of
all assets and liabilities were audited as of September 30, 2015 (the former
fiscal year-end of Protonex) and included confirmation of existence and a review
of potential impairment of all significant assets and a review for completeness
of all liabilities. Each asset and liability was then reviewed and measured for
potential fair value adjustments from carrying cost to arrive at the preliminary
fair value of each asset and liability as of the acquisition date of October 1,
2015.

|(Expressed in thousands of U.S. dollars)                    |   |           |  
|----------------------------------------------------------- | - | --------- | -
|Fair Value of Assets
      acquired and Liabilities assumed |   |           |  
|                                                            |   | Oct-01-15 |  
|Cash and cash
      equivalents                             | $ | 1,464     |  
|Accounts receivable                                         |   | 558       |  
|Inventory                                                   |   | 2,330     |  
|Other current assets                                        |   | 167       |  
|Property, plant and
      equipment                         |   | 1,223     |  
|Intangible assets                                           |   | 11,138    |  
|Goodwill                                                    |   | 4,272     |  
|Other long-term assets                                      |   | 22        |  
|Accounts payable and
      accrued liabilities              |   | (2,654    | )
|Deferred revenue                                            |   | (275      | )
|Capital lease
      payable                                 |   | (22       | )
|Accrued warranty obligations                                |   | (47       | )
|Payable to Ballard
      Power                              |   | (703      | )
|Other long-term liabilities                                 |   | (2        | )
|Fair Value (preliminary) of Assets acquired and             |   |           |  
|Liabilities
    assumed                                     | $ | 17,471    |  

The preliminary fair value of each of
the acquired identifiable assets and liabilities assumed was determined as
follows:

● The fair value of certain
of the acquired working capital balances including accounts receivable, other
current assets, accounts payable and accrued liabilities and accrued warranty
obligations have been assessed at their respective audited carrying amount on
September 30, 2015 which is considered to approximately equate to fair value as
a result of the short-term to maturity of each of these accounts.


● The fair value of acquired raw
material inventory has been assessed at its audited carrying amount on September
30, 2015 which is considered to approximately equate to fair value. A cost-based
approach has been used for raw material inventory as market information to
utilize a market approach is not available. Furthermore, an audit of Protonex as
of September 30, 2015 included a net realizable value assessment of the
inventory.


● The fair value of acquired
finished goods and work-in-progress inventory has been calculated using the
market or income approach. Under this approach, the fair value of the finished
goods and work-in-progress inventory has been calculated equal to the estimated selling price of the finished units less the sum of
the estimated (i) costs to complete; (ii) costs of disposal, and (iii) a
reasonable profit allowance for the completion and selling effort of the
acquirer, all of which are estimated from the perspective of a market
participant. The fair value of finished goods and work-in-progress inventory of
includes a fair value adjustment of $0.1 million from its original audited
carrying amount.


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● The fair value of other
assets, deferred revenues, and capital lease obligations have been assessed at
their respective audited carrying amounts on September 30, 2015 as any fair
value adjustment would be insignificant.


● Acquired property, plant
and equipment consist primarily of specialized manufacturing and research and
development equipment, as well as miscellaneous leasehold improvements, computer
hardware, computer software and office equipment, all physically located in
Protonex operating facility in Southborough, MA. As there is no market-based
evidence of fair value for these specialized assets that are rarely sold other
than as part of a continuing business, fair value was estimated using a
depreciated replacement cost approach in accordance withIAS 16. A depreciated
replacement cost approach considers how much it would cost to reproduce an asset
after adjusting for depreciation and optimization. The adjustment for
depreciation takes into account the age of the asset in relation to its useful
life and its residual value. The adjustment for optimization takes into account
situations in which the asset is obsolete, over-engineered or has capacity
greater than that required. The fair value of property, plant and equipment
includes a fair value adjustment of $1.0 million from its original audited net
book value carrying amount.


● Acquired identified intangible
assets consist of patents, know-how and in-process research and development,
customer base and relationships, trademarks and service marks, non-compete
arrangements, and domain names. We have concluded that each of the identified
intangible assets meet the definition of an identified intangible asset (or
non-monetary asset without physical substance) under IAS 38
Intangible Assetsas the acquired IP meets the
definition of an asset and is identifiable. The fair value of all identified
intangible assets includes a fair value adjustment of $11.1 million from their
original audited carrying amount.


|(Expressed in thousands of U.S. dollars)                      |   |        |  |             
|------------------------------------------------------------- | - | ------ |  | ------------
|Fair Value of Identified
      Intangible Assets              |   | Amount |  | Amortization
|                                                              |   |        |  | Period      
|Patents, know-how and
      in-process research & development | $ | 8,973  |  | 20-years    
|Customer base and relationships                               |   | 986    |  | 10-years    
|Trademarks and service
      marks                            |   | 1,135  |  | 15-years    
|Non-compete agreements                                        |   | 27     |  | 1-year      
|Domain names                                                  |   | 17     |  | 15-years    
|Fair Value (preliminary)
      of Identified Intangible       |   |        |  |             
|Assets                                                        | $ | 11,138 |  |             

The preliminary fair value of acquired
identified intangible assets were calculated with the assistance of an
independent valuator and were determined through a variety of valuation
techniques.

|○ | The fair value of the
      acquired product and patent portfolio including know-how and in-process
      R&D totaling $9.0 million has been calculated using the Relief from
      Royalty approach which is a variant of the Income Approach. The
      application of the Relief from Royalty approach involves estimating the
      value of an intangible asset by quantifying the present value of the
      stream of market-derived royalty payments that the owner of the intangible
      asset is exempted or relieved from paying. The method entails the
      determination of the avoided cost as if the Company did not own any
      patents, and instead was required to make royalty payments for their use.
      The basic tenet of this method is that without the ownership of the
      subject intangible asset, the user of that intangible asset would have to
      make payments to the owner in return for the rights to use
  it.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|○ | The fair value of the
      acquired customer contracts and relationships totaling $1.0 million has
      been calculated using the Multi-Period Excess Earnings Method (MPEEM)
      approach which is a variant of the Income Approach. The basic principle of
      the MPEEM Approach is that a single asset, in isolation, is not capable of
      generating cash flow for an enterprise. Several assets are brought
      together and exploited to generate cash flow. Therefore, to determine cash
      flow from the exploitation of existing customer contracts/relationships,
      one must deduct the related expenses incurred for the exploitation of
      other assets used for the generation of overall cash flow and revenues.
      The fair value of existing customer contracts/relationships was estimated
      by discounting the net cash flow derived from the expected revenues
      attributable to the acquired customer contracts/relationships.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|○ | The fair value of the acquired
      trademarks and service marks totaling $1.1 million has been calculated
      using the Price Premium approach which is a variant of the Income Approach
      as reasonable market data to enable use of the Relief of Royalty approach
      was not available. Under the Price Premium approach, the Company is
      expected to be able to charge a minimal price premium (vis-à-vis
      competitors) attributable to the acquired trademarks/trade names.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|○ | The fair value of the
      acquired non-compete covenants were nominal and were calculated using the
      Income Approach whereby the fair value of the non-compete covenants was
      estimated by calculating the expected decrease or loss in forecasted cash
      flows if the employees compete with the targets business sans the
      non-compete covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|○ | The fair value of the
      acquired website and domain names were nominal and were calculated using
      the Replacement Cost Approach which considers the value based on the cost
      of reproducing or replacing the
asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

The remaining unallocated $4.3 million
of the total purchase price consideration of $17.5 million has been ascribed as
Goodwill. The goodwill of $4.3 million resulting from the acquisition consists
largely of the expectation that the acquisition will complement the
Corporations Fuel Cell Products and Services growth platform by delivering
strategic benefits in diversification, growth, scale, and profitability.

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SUMMARY OF QUARTERLY RESULTS FROM
CONTINUING OPERATIONS

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

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

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

● Revenues: Variations in fuel cell
revenues reflect the demand and timing of our customers fuel cell vehicle, bus
and fuel cell product deployments as well as the demand and timing of their
engineering services projects.Variations
in fuel cell revenues also reflect the timing of work performed and the
achievements of milestones under long-term fixed price contracts including the
contract with Volkswagen which commenced in the first quarter of 2013, the Azure
Bus Licensing Agreement which commenced in the third quarter of 2013 and the
Azure Telecom Backup Power Licensing Agreement which commenced in the second
quarter of 2014 prior to breaches by Azure of both the Azure Bus Licensing
Agreement and the Azure Telecom Backup Power Licensing Agreement in the fourth
quarter of 2014. Revenues were positively impacted as of the fourth quarter of
2015 by the acquisition and integration of Protonex on October 1, 2015.


● Operating
expenditures: Operating expenses were
negatively impacted as of the fourth quarter of 2015 by the acquisition and
integration of Protonex on October 1, 2015, including the incurrence of
acquisition related expenses totaling $1.5 million incurred in the second and
third quarters of 2015. Operating expenses were positively impacted in the first
quarter of 2015 by net recoveries of previously impaired trade receivables of
$1.0 million. Operating expenses were negatively impacted in the fourth quarter
of 2014 by impairment losses on trade receivables of ($6.2) million consisting
of a ($4.4) million impairment charge as a result of material breaches by Azure
of the Azure Telecom Backup Power Licensing Agreement and the Azure Bus
Licensing Agreement, and by additional
      impairment charges of ($1.8) million related to non-collection of certain
      of our customers primarily in Asia. Impairment losses on trade receivables
      are recognized in other income (expense). Operating expenses also include
      the impact of changes in the value of the Canadian dollar, versus the U.S.
      dollar, on our Canadian dollar denominated
    expenditures.


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|● | **Net income (loss):**The net income for the
      first quarter of 2015 was positively impacted by a gain on sale of
      intellectual property of $14.2 million resulting from the sale of the
      automotive-related patents and patent applications of the UTC Portfolio
      transferred to Volkswagen on the closing of the initial tranche of the
      Volkswagen IP Agreement. Net income for the fourth quarter of 2015 was
      positively impacted by a gain on sale of intellectual property of $5.4
      million resulting from the sale of a copy of the automotive-related
      know-how of the UTC Portfolio to Volkswagen on the closing of the second
      and final tranche of the Volkswagen IP
  Agreement.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CASH FLOWSCash, cash equivalents and short-term
investments were $40.0 million at December 31, 2015, compared to $23.7 million
at December 31, 2014. The $16.4 million increase in cash, cash equivalents and
short-term investments in 2015 was driven by net proceeds on the sale of
intellectual property of $29.5 million received on the closing of the initial
tranche of the Volkswagen IP Agreement, combined with net proceeds from the July
2015 Offering of $13.3 million, net proceeds from the Nisshinbo strategic equity
investment of $5.0 million, net proceeds from share purchase warrant exercises
of $0.2 million and employee share purchase option proceeds of $0.4 million.
These inflows were partially offset by a net loss (excluding non-cash items) of
($19.3) million, working capital outflows of ($6.0) million, purchases in
property, plant and equipment of ($2.3) million, the acquisition of Protonex of
($3.8) million partially offset by acquired Protonex cash of $1.5 million, and
investments in fuel cell technology intangible assets of ($1.6)
million.

For the three months ended December 31,
2015, cash used by operating activities was ($10.6) million, consisting of cash
operating losses of ($4.6) million and net working capital outflows of ($5.9)
million. For the three months ended December 31, 2014, cash used by operating
activities was ($8.2) million, consisting of cash operating losses of ($10.8)
million partially offset by net working capital inflows of $2.6 million. The
($2.4) million increase in cash used by operating activities in the fourth
quarter of 2015, as compared to the fourth quarter of 2014, was driven by the
relative increase in working capital requirements of ($8.6) million, partially
offset by the relative reduction in cash operating losses of $6.2 million. The
$6.2 million reduction in cash operating losses in the fourth quarter of 2015
was due primarily to the $13.1 million reduction in Adjusted EBITDA loss,
partially offset by lower impairment losses on trade receivables of ($6.1)
million which while included in the Adjusted EBITDA loss, are excluded from cash
operating losses.

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In the fourth quarter of 2015, net
working capital cash outflows of ($5.9) million were driven by higher accounts
receivable of ($2.2) million primarily as a result of the timing of Portable
Power and Heavy-Duty Motive revenues and the related customer collections, by
lower accounts payable and accrued liabilities of ($1.8) million due primarily
to the timing of purchases and supplier payments including the payment of
acquisition and transaction related costs incurred on the Protonex acquisition,
and by lower deferred revenue of ($1.5) million as we completed the contract
work on certain Technology Solutions, Heavy-Duty Motive and government grant
contracts for which we received pre-payments in an earlier period. Working
capital inflows of $2.6 million in the fourth quarter of 2014 was due to higher
accrued warranty provisions of $3.5 million primarily as a result of an
adjustment for an expected increase in customer service related expenses in our
Telecom Backup Power market in Asia, combined with lower inventory of $2.6
million as we shipped product purchased and built in prior quarters. These
fourth quarter of 2014 working capital inflows were partially offset by lower
accounts payable and accrued liabilities of ($3.7) million as a result of
increased supplier payments made for higher inventory purchases in the first
three quarters of 2014 and by a downward adjustment to accrued cash-based
compensation expense in the fourth quarter of 2014.

For the year ended December 31, 2015,
cash used in operating activities was ($25.4) million, consisting of cash
operating losses of ($19.3) million and net working capital outflows of ($6.0)
million. For the year ended December 31, 2014, cash used in operating activities
was ($20.7) million, consisting of cash operating losses of ($15.7) million and
net working capital outflows of ($5.0) million. The ($4.7) million increase in
cash used by operating activities in 2015, as compared to 2014, was driven by
the relative increase in cash operating losses of ($3.6) million, combined with
the relative increase in working capital requirements of ($1.0) million. The
($3.6) million increase in cash operating losses in 2015 was due primarily to
lower impairment losses on trade receivables of ($5.8) million which while
included in the Adjusted EBITDA loss, are excluded from cash operating losses,
partially offset by the $3.4 million reduction in Adjusted EBITDA
loss.

In 2015, net working capital outflows
of ($6.0) million were driven by higher inventory of ($5.6) million primarily to
support expected Heavy-Duty Motive and Power Products shipments in the first
quarter of 2016 to Synergy, the U.S. Army and other customers and as a result of
delayed but expected Telecom Backup Power system shipments, by lower accrued
warranty provisions of ($3.6) million due primarily to customer service related
expenses incurred in our Telecom Backup Power market in Asia and by Heavy-Duty
Motive warranty contract expirations, and by lower accounts payable and accrued
liabilities of ($1.3) million due primarily to the timing of purchases and
supplier payments. These 2015 working capital outflows were partially offset by
higher deferred revenue of $4.0 million as we collected pre-payments on certain
Heavy-Duty Motive and Technology Solutions contracts in advance of work
performed. Working capital outflows of ($5.0) million in 2014 was driven by
lower accounts receivable of ($4.1) million primarily as a result of impairment
losses on trade receivables of ($6.2) million and the timing of Technology
Solutions, Heavy-Duty Motive and Telecom Backup Power revenues and the related
customer collections, and by lower deferred revenue of ($4.4) million as we
completed the contract work on Technology Solutions and certain government grant
contracts for which we received prepayments in an earlier period. These working
capital outflows in 2014 were partially offset by working capital inflows
related to higher accrued warranty provisions of $2.4 million primarily as a
result of an adjustment for an expected increase in customer service related
expenses in our Telecom Backup Power market in Asia, and by lower inventory of
$1.5 million as we shipped product purchased and built in prior
quarters.

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Investing activities resulted in net
cash inflows (outflows) of ($3.6) million and $23.3 million, respectively, for
the three months and year ended December 31, 2015, compared to cash outflows
($0.5) million and ($4.2) million, respectively, for the corresponding periods
of 2014. Investing activities in 2015 of $23.2 million consist primarily of net
proceeds on the sale of intellectual property of $29.5 million received on the
closing of the initial tranche of the Volkswagen IP Agreement, partially offset
by capital expenditures of ($2.3) million, by the acquisition of Protonex of
($3.8) million partially offset by acquired Protonex cash of $1.5 million, and
by investments in fuel cell technology intangible assets of ($1.6) million.
Investing activities in 2014 of ($4.2) million consist primarily of the
investment in fuel cell technology intangible assets of ($3.4) million related
primarily to the acquisition and integration of the UTC intellectual property
assets, and capital expenditures of ($0.8) million.

Financing activities resulted in cash
inflows of $4.9 million and $18.1 million, respectively, for the three months
and year ended December 31, 2015 compared to cash (outflows) inflows of ($0.2)
million and $18.5 million for the corresponding periods of 2014. Financing
activities in 2015 of $18.1 million consist of net proceeds received from the
July 2015 Offering of $13.4 million, net proceeds from the November 2015
Nisshinbo strategic equity investment of $5.0 million, net proceeds from share
purchase warrant exercises of $0.2 million, proceeds from employee share
purchase option exercises of $0.4 million, partially offset by capital lease
payments of ($0.8) million. Financing activities in 2014 of $18.5 million
consist of net proceeds from share purchase warrant exercises of $12.3 million,
proceeds from employee share purchase option exercises of $6.8 million, proceeds
on sale of treasury shares of $0.4 million, partially offset by capital lease
payments of ($0.9) million.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2015, we had total
Liquidity of $40.0 million. We measure Liquidity as our net cash position,
consisting of the sum of our cash, cash equivalents and short-term investments
of $40.0 million, net of amounts drawn on our $7 million Canadian demand
revolving facility (Operating Facility) of nil. The Operating Facility is
occasionally used to assist in financing our short term working capital
requirements and is secured by a hypothecation of our cash, cash equivalents and
short-term investments. Our Liquidity position was subsequently augmented in
February 2016 by approximately $3.3 million (Canadian $4.6 million) as we
reached payment under a settlement agreement with Superior Plus as to the full
and final amount payable to us under the Indemnity Agreement. Our Liquidity
position is expected to be further augmented in 2016 by the additional net
proceeds receivable of approximately $9 million due from the sale of the
automotive-related know-how of the UTC Portfolio to Volkswagen pursuant to the
Volkswagen IP Agreement.

We also have a $1.8 million Canadian
capital leasing facility (Leasing Facility) which is occasionally used to
finance the acquisition and / or lease of operating equipment and is secured by
a hypothecation of our cash, cash equivalents and short-term investments. At
December 31, 2015, $0.7 million Canadian was outstanding on the Leasing
Facility.

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Our Liquidity objective is to maintain
cash balances sufficient to fund at least six quarters of forecasted cash used
by operating activities at all times. Our strategy to attain this objective is
to continue our drive to attain profitable operations that are sustainable by
executing a business plan that continues to focus on Fuel Cell Products and
Services revenue growth, improving overall gross margins, minimizing Cash
Operating Costs, managing working capital requirements, and securing additional
financing to fund our operations as needed until we do achieve profitable
operations that are sustainable. As a result of our recent actions to bolster
our cash balances including the net proceeds received, and receivable, pursuant
to the Volkswagen IP Agreement, the July 2015 Offering, the November 2015
Nisshinbo equity investment, and the settlement of the Superior Plus Indemnity
Agreement, we believe that we have adequate liquidity in cash and working
capital to meet this Liquidity objective and to finance our
operations.

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

In addition to our existing cash
reserves of $40.0 million at December 31, 2015, there are 0.1 million warrants
outstanding (expire on March 27, 2018) from the March 2013 underwritten offering
each of which enables the holder to purchase one common share at a fixed price
of $1.50 per common share, and 1.7 million warrants outstanding (expire on
October 9, 2018) from the October 2013 underwritten offering each of which
enable the holder to purchase one common share at a fixed price of $2.00 per
common share. If any of these warrants are exercised, our liquidity position
would be further augmented. We may also choose to pursue additional liquidity
through the issuance of debt or equity in private or public market financings.
To enable such an action and to allow the exercise of warrants, we filed a short
form base shelf prospectus (Prospectus) in May 2014 in each of the provinces
and territories of Canada, except Quebec, and a corresponding shelf registration
statement on Form F-10 (Registration Statement) with the United States
Securities and Exchange Commission. These filings enable offerings of equity
securities during the effective period (to June 2016) of the Prospectus and
Registration Statements. However, no assurance can be given that any such
additional liquidity will be available or that, if available, it can be obtained
on terms favorable to the Company.

2016 BUSINESS OUTLOOK

In 2016, we expect to grow revenue, improve gross margin and rationalize certain
operating costs. We expect to see revenue growth in our Heavy-Duty Motive market as well as a full-year contribution from our
Portable Power market. On gross margin improvement, we plan to generate further product cost reductions and improve operating
efficiencies while realizing benefits from expected increased volumes and improved product mix, including important
contributions from Portable Power, Technology Solutions and Heavy-Duty Motive. Finally, on operating costs, we have initiated
a review of strategic alternatives for our Telecom Backup Power business and will rationalize our Telecom Backup Power and
executive team cost structures in 2016.

Given the early stage of fuel cell
market development and adoption rate and consistent with 2015, we have decided not to provide
specific revenue and Adjusted EBITDA guidance for 2016. While our strategic focus on multiple fuel cell product
markets, engineering services and intellectual property monetization serves to
mitigate risk, the resulting cadence in customer demand can be uneven through
the early stages of market development. As such, our financial results on a
quarterly basis are subject to a high degree of variability.

Our outlook for 2016 is based on our internal forecast which reflects an assessment
of overall business conditions and takes into account actual sales and financial results in the first six weeks of 2016,
sales orders received for units and services to be delivered in the remainder of 2016, an estimate with respect to the
generation of new sales and the timing of deliveries in each of our markets for the balance of 2016, and assumes an average
U.S. dollar exchange rate in the low 70's in relation to the Canadian dollar for the remainder of 2016. The primary risk
factors to our business outlook expectations for 2016 are delays from forecast in terms of closing and delivering expected
sales primarily in our Heavy-Duty Motive and Portable Power markets, potential adverse macro-economic conditions negatively
impacting our Chinese customer's access to capital and program plans which could adversely impact our Heavy-Duty market,
potential disruptions in the Material Handling market as a result of our reliance on a single customer in this market and
that customer's internal stack development and commercialization plans, and fluctuations in the Canadian dollar, relative to
the U.S. dollar, as a significant portion of our Technology Solutions revenues (including the technology development and
engineering services agreement with Volkswagen) are priced in Canadian dollars.

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Furthermore, potential fluctuations in
our financial results make financial forecasting difficult. The Company's
revenues, cash flows and other operating results can vary significantly from
quarter to quarter. Sales and margins may be lower than anticipated due to
general economic conditions, market-related factors and competitive factors.
Cash receipts may also vary from quarter to quarter due to the timing of cash
collections from customers. As a result, quarter-to-quarter comparisons of
revenues, cash flows and other operating results may not be meaningful. In
addition, due to the early stage of development of the market for hydrogen fuel
cell products, it is difficult to accurately predict future revenues, cash flows
or results of operations on a quarterly basis. It is likely that in one or more
future quarters, financial results will fall below the expectations of
securities analysts and investors. If this occurs, the trading price of the
Company's shares may be materially and adversely affected.

OFF-BALANCE SHEET ARRANGEMENTS &
CONTRACTUAL OBLIGATIONS

Periodically, we use forward foreign
exchange and forward platinum purchase contracts to manage our exposure to
currency rate fluctuations and platinum price fluctuations. We record these
contracts at their fair value as either assets or liabilities on our balance
sheet. Any changes in fair value are either (i) recorded in our statement of
comprehensive income if formally designated and qualified under hedge accounting
criteria; or (ii) recorded in our statement of operations if either not
designated, or not qualified, under hedge accounting criteria. At December 31,
2015, we had outstanding foreign exchange currency contracts to purchase a total
of Canadian $10.8 million at an average rate of 1.33 Canadian per U.S dollar,
resulting in an unrealized loss of ($0.3) million at December 31, 2015. The
outstanding foreign exchange currency contracts are not qualified under hedge
accounting.

At December 31, 2015, we did not have
any other material obligations under guarantee contracts, retained or contingent
interests in transferred assets, outstanding derivative instruments or
non-consolidated variable interests.

At December 31, 2015, we had the
following contractual obligations and commercial commitments:

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

In addition, we have outstanding
commitments of $0.4 million related primarily to purchases of capital assets at
December 31, 2015. Capital expenditures pertain to our regular operations and
are expected to be funded through cash on hand.

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In connection with the acquisition of
intellectual property from UTC on April 24, 2014, we retain a royalty obligation
to pay UTC a portion (typically 25%) of any future intellectual property sale
and licensing income generated from our intellectual property portfolio for a
period of 15-years expiring in April 2029.

As at December 31, 2015, we retain a
previous funding obligation to pay royalties of 2% of revenues (to a maximum of
Canadian $5.4 million) on sales of certain fuel cell products for commercial
distributed utility applications. No royalties have been incurred to date as a
result of this agreement. We also retain a previous funding obligation to pay
royalties of 2% of revenues (to a maximum of Canadian $2.2 million) on sales of
certain fuel cell products for commercial transit applications. No royalties
have been incurred to date as a result of this agreement.

In the ordinary course of business or
as required by certain acquisition or disposition agreements, we are
periodically required to provide certain indemnities to other
parties.

Our Arrangement with Superior Plus
included an Indemnity Agreement which set out each partys continuing
obligations to the other. The Indemnity Agreement included two basic elements to
the final determination date of December 31, 2015: it provided for the
indemnification of each party by the other for breaches of representations and
warranties or covenants as well as, in our case, any liability relating to our
business which is suffered by Superior Plus. Our indemnity to Superior Plus with
respect to our representation relating to the existence of our tax pools
immediately prior to the completion of the Arrangement is limited to an
aggregate of Canadian $7.4 million with a threshold amount of Canadian $0.5
million before there is an obligation to make a payment. Second, the Indemnity
Agreement provided for adjustments to be paid by us, or to us, depending on the
final determination of the amount of our Canadian non-capital losses, scientific
research and development expenditures and investment tax credits generated to
December 31, 2008, to the extent that such amounts are more or less than the
amounts estimated at the time the Arrangement was executed. In 2015, we reached
agreement and signed mutual releases with Superior Plus as to the full and final
amount payable to us under the Indemnity Agreement and received additional cash
proceeds of approximately $3.3 million (Canadian $4.6 million) in February 2016.
The cash proceeds receivable have been recorded as a credit to shareholders
equity as of December 31, 2015 consistent with the accounting treatment for the
original transaction in 2008.

At December 31, 2015, we have not
accrued any other amount owing, or receivable, as a result of any other
indemnity agreements undertaken in the ordinary course of business.

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RELATED PARTY TRANSACTIONS

Related parties include shareholders
with a significant ownership interest in either us or Dantherm Power, together
with their subsidiaries and affiliates. Revenues and costs recognized from such
transactions reflect the prices and terms of sale and purchase transactions with
related parties, which are in accordance with normal trade practices at fair
value. For the three months and year ended December 31, 2015 and 2014, related
party transactions and balances are limited to transactions between Dantherm
Power and its non-controlling interests as follows:

|(Expressed in thousands of U.S.
      dollars)                        | Three Months Ended
      December 31,
|--------------------------------------------------------------------- | -------------------------------------
|Transactions with related
      parties                               |                                      
|Purchases                                                             |                                      
|Finance expense
      on Dantherm Power debt to Dantherm Power non-   |                                      
|controlling interests                                                 |                                      
|                                                                     
|(Expressed
      in thousands of U.S. dollars)                        | Year
      Ended December 31,        
|Transactions with related
      parties                               |                                      
|Purchases                                                             |                                      
|Finance expense
      on Dantherm Power debt to Dantherm Power non-   |                                      
|controlling interests                                                 |                                      
|                                                                     
|(Expressed
      in thousands of U.S. dollars)                        |                                      
|Balances with related
      parties                                   |                                      
|Trade accounts payable                                                |                                      
|Interest
      payable                                                |                                      
|Dantherm Power debt
      to Dantherm Power non-controlling interests |                                      

As at December 31, 2015, Ballard holds
a controlling 57% ownership interest in Dantherm Power as compared to a 43%
interest held by Dantherm A/S. Ballards ownership position increased in
mid-June 2015 from 52% to 57% when pursuant to a mutual release agreement, Azure
returned its 10% ownership position in Dantherm Power to Dantherm Power for nil
proceeds, upon which the shares were cancelled by Dantherm Power. As of December
31, 2015, the outstanding Dantherm Power debt (including interest) to Dantherm
Powers non-controlling interests totals $0.5 million, bears interest at 6.0%
per annum, is non-convertible, and is repayable by December 31, 2016.

|OUTSTANDING SHARE DATA                          |            
|----------------------------------------------- | -----------
|                                               
|As at February 24, 2016                         |            
|Common share
      outstanding                  | 156,839,687
|Warrants outstanding                            | 1,797,563  
|Options
    outstanding                         | 5,503,000  
|DSUs outstanding                               | 917,625    
|RSUs outstanding (subject to vesting criteria) | 1,708,626  

CRITICAL ACCOUNTING POLICIES AND KEY
SOURCES OF ESTIMATION
UNCERTAINTYOur consolidated financial statements
are prepared in accordance with IFRS, which require us to make estimates and
assumptions that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results may differ
from those estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods affected.

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Critical Judgments in Applying
Accounting Policies:Critical judgments that we have made in
the process of applying our accounting policies and that have the most
significant effect on the amounts recognized in the consolidated financial
statements is limited to our assessment of the Corporations ability to continue
as a going concern (See Note 2 (e) to our annual consolidated financial
statements).

Our significant accounting policies are
detailed in note 4 to our annual consolidated financial statements for the year
ended December 31, 2015.

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

REVENUE RECOGNITION

Revenues are generated primarily from
product sales and services, the license and sale of intellectual property, and
the provision of engineering services. Product and service revenues are derived
primarily from standard equipment and material sales contracts and from
long-term fixed price contracts. Intellectual property license and sale revenues
are derived primarily from licensing and sale agreements and from long-term
fixed price contracts. Engineering service revenues are derived primarily from
cost-plus reimbursable contracts and from long-term fixed price
contracts.

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

On standard licensing and sale
agreements, revenues are recognized on the transfer of the rights to the
licensee if (i) the rights to the assets are assigned to the licensee in return
for a fixed fee or a non-refundable guarantee; (ii) the contract is
non-cancellable; (iii) the licensee is able to exploit its rights to the asset
freely; and (iv) the Company has no remaining obligations to perform. Otherwise,
the proceeds are considered to relate to the right to use the asset over the
license period and the revenue is recognized over that period. Revenue
recognition for license and sale agreements does not usually involve significant
estimates.

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

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

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

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

During the three months and year ended
December 31, 2015 and 2014, there were no material adjustments to revenues
relating to revenue recognized in a prior period.

ASSET IMPAIRMENT

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

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

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

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

We perform the annual review of
goodwill as at December 31 of each year, more often if events or changes in
circumstances indicate that it might be impaired. Under IFRS, the annual review
of goodwill requires a comparison of the carrying value of the asset to the
higher of (i) value in use; and (ii) fair value less costs to
sell.Value
in use is defined as the present value of future cash flows expected to be
derived from the asset in its current state. As of December 31, 2015, our
consolidated goodwill balance of $40.6 million relates solely to our Fuel Cell
Products and Services segment. Based on the impairment test performed as at
December 31, 2015, we have concluded that no goodwill impairment charge is
required for the year ending December 31, 2015. Details of our 2015 goodwill
impairment tests are as follows:

|● | One of the methods used to assess
      the recoverable amount of the goodwill is a fair value, less costs to
      sale, test. Our fair value test is in effect a modified market
      capitalization assessment, whereby we calculate the fair value of the Fuel
      Cell Products and Services segment by first calculating the value of the
      Company at December 31, 2015 based on the average closing share price in
      the month of December, add a reasonable estimated control premium of 25%
      to determine the Companys enterprise value on a controlling basis after
      adjusting for excess cash balances, and then deducting the estimated costs
      to sell from this enterprise value to arrive at the fair value of the Fuel
      Cell Products and Services segment. As a result of this assessment, we
      have determined that the fair value of the Fuel Cell Products and Services
      segment exceeds its carrying value as of December 31, 2015 indicating that
      no impairment charge is required for 2015.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|● | In
      addition to this fair value test, we also performed a value in use test on
      our Fuel Cell Products and Services segment that compared the carrying
      value of the segment to the present value of future cash flows expected to
      be derived from the segment. The principal factors used in this discounted
      cash flow analysis requiring significant estimation are the projected
      results of operations, the discount rate based on the weighted average
      cost of capital (WACC), and terminal value assumptions. Our value in use
      test was based on a WACC of 15%; an average estimated compound annual
      growth rate of approximately 27% from 2016 to 2021; and a terminal year
      EBITDA multiplied by a terminal value multiplier of 10. Our value in use
      assessment resulted in an estimated fair value for the Fuel Cell Products
      and Services segment that is consistent with that as determined under the
      above fair value, less costs to sell, assessment. As a result of this
      assessment, we have determined that the fair value of the Fuel Cell
      Products segment exceeds its carrying value by a significant amount as of
      December 31, 2015 indicating that no impairment charge is required in
      2015.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the above goodwill
impairment test, we perform a quarterly assessment of the carrying amounts of
our non-financial assets (other than inventories) to determine whether there is
any indication of impairment. During the three months and years ended December,
2015 and 2014, there was no material adjustments to non-financial assets (other
than inventories) relating to these reviews.

WARRANTY PROVISION

A provision for warranty costs is
recorded on product sales at the time of shipment. In establishing the accrued
warranty liabilities, we estimate the likelihood that products sold will
experience warranty claims and the cost to resolve claims received.

In making such determinations, we use
estimates based on the nature of the contract and past and projected experience
with the products. Should these estimates prove to be incorrect, we may incur
costs different from those provided for in our warranty provisions. During the
three months and year ended December 31, 2015, we recorded provisions to accrued
warranty liabilities of $0.3million and $0.9 million, respectively, for new product sales,
compared to $0.5 million and $1.0 million, respectively, for the three months
and year ended December 31, 2014.

We review our warranty assumptions and
make adjustments to accrued warranty liabilities quarterly based on the latest
information available and to reflect the expiry of contractual obligations.
Adjustments to accrued warranty liabilities are recorded in cost of product and
service revenues. As a result of these reviews and the resulting adjustments,
our warranty provision and cost of revenues for the three months and year ended
December 31, 2015 were adjusted downwards by a net amount of $0.5 million and
$1.3 million, respectively, compared to a net adjustment (upwards) downwards of
($3.7) million and ($3.5) million for the three months and year ended December
31, 2014. The adjustments to the accrued warranty liability provisions in 2015
were due primarily due to contractual warranty expirations and improved
lifetimes and reliability of our Heavy-Duty Motive and Telecom Backup Power
products, whereas the negative adjustments to the accrued warranty liability
provisions in 2014 were primarily due to an increase in customer service related
expenses for our Telecom Backup Power products in Asia.

INVENTORY PROVISION

In determining the lower of cost and
net realizable value of our inventory and establishing the appropriate provision
for inventory obsolescence, we estimate the likelihood that inventory carrying values will be
affected by changes in market pricing or demand for our products and by changes
in technology or design which could make inventory on hand obsolete or
recoverable at less than cost. We perform regular reviews to assess the impact
of changes in technology and design, sales trends and other changes on the
carrying value of inventory. Where we determine that such changes have occurred
and will have a negative impact on the value of inventory on hand, appropriate
provisions are made. If there is a subsequent increase in the value of inventory
on hand, reversals of previous write-downs to net realizable value are made.
Unforeseen changes in these factors could result in additional inventory
provisions, or reversals of previous provisions, being required. During the
three months and year ended December 31, 2015, negative inventory adjustments of
($0.4) million and ($0.6) million, respectively, were recorded as a charge to
cost of product and service revenues, compared to negative inventory adjustments
of ($0.6) million and ($1.3) million, respectively, for the three months and
year ended December 31, 2014.

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IMPAIRMENT RECOVERIES (LOSSES) ON TRADE
RECEIVABLES

Trade and other receivables are
recognized initially at fair value and subsequently at amortized cost using the
effective interest method, less any impairment losses. Fair value is estimated
as the present value of future cash flows, discounted at the market rate of
interest at the reporting date. In determining the fair value of our trade and
other receivables and establishing the appropriate provision for doubtful
accounts, we perform regular reviews to estimate the likelihood that our trade
and other accounts receivable will ultimately be collected in a timely manner.
Where we determine that customer collectability issues have occurred and will
have a negative impact on the value of trade and other receivables, appropriate
provisions are made. If there is a subsequent recovery in the value of trade and
other receivables, reversals of previous write-downs to fair value are made.
Unforeseen changes in these factors could result in additional impairment
provisions, or reversals of previous impairment provisions, being required.
During the three months and year ended December 31, 2015, net impairment
recoveries on trade receivables of nil and $0.9 million, respectively, were
recorded as other operating income, compared to compared to net impairment
(charges) of ($6.2) million and ($6.2) million, respectively, for the three
months and year ended December 31, 2014.

EMPLOYEE FUTURE BENEFITS

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

INCOME TAXES

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

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Deferred tax assets and liabilities are
measured using enacted, or substantively enacted, tax rates expected to apply to
taxable income in the years in which temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities,
of a change in tax rates, is included in income in the period that includes the
substantive enactment date. Deferred income tax assets are reviewed at each
reporting period and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized. As of December 31, 2015 and 2014,
we have not recorded any deferred income tax assets on our consolidated
statement of financial position.

NEW AND FUTURE IFRS ACCOUNTING
POLICIES

Recently Adopted Accounting
Policy Changes:

We did not adopt any new accounting
standard changes or amendments effective January 1, 2015 that had a material
impact on our consolidated financial statements.

Future Accounting Policy
Changes:

The following is an overview of
accounting standard changes that we will be required to adopt in future years.
We do not expect to adopt any of these standards before their effective dates
and we continue to evaluate the impact of these standards on our consolidated
financial statements.

IFRS 11 (Amendments)  BUSINESS
COMBINATION ACCOUNTING FOR INTERESTS IN AJOINT OPERATION

On May 6, 2014, the IASB issued
amendments toIFRS 11 Accounting for
Acquisitions of Interests in Joint Operations. The amendments require business combination accounting to be applied to
acquisitions of interests in a joint operation that constitute a business.

The amendments apply prospectively for
annual periods beginning on or after January 1, 2016. The Corporation intends to
adopt the amendments to IFRS 11 in its financial statements for the fiscal year
beginning on January 1, 2016. We do not expect the amendments to have a material
impact on the financial statements.

IAS 16 and IAS 38 (Amendments) 
METHODS OF DEPRECIATION AND AMORTIZATION

On May 12, 2014, the
IASB issued amendments toIAS 16 Property,
Plant and EquipmentandIAS 38 Intangible Assets.
The amendment made to IAS 16 explicitly state that revenue-based methods of
depreciation cannot be used for property, plant and equipment. This is because
such methods reflect factors other than the consumption of economic benefits
embodied in the asset. The amendments in IAS 38 introduce a rebuttable
presumption that the use of revenue-based amortization methods for intangible
assets is inappropriate. This presumption could be overcome only when revenue
and consumption of the economic benefits of the intangible asset are highly
correlated or when the intangible asset is expressed as a measure of revenue.

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The amendments apply prospectively for
annual periods beginning on or after January 1, 2016. The Corporation intends to
adopt the amendments to IAS 16 and IAS 38 in its financial statements for the
fiscal year beginning on January 1, 2016. We do not expect the amendments to
have a material impact on the financial statements.

ANNUAL IMPROVEMENTS TO IFRS (2012 
2014) CYCLE

On September 25, 2014, the IASB issued
narrow-scope amendments to a total of four standards as part of its annual
improvements process. Amendments were made to clarify the following in their
respective standards:

|● | Changes in method for disposal
      under IFRS 5 Non-current Assets Held for Sale and Discontinued
      Operations;                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | Continuing involvement for
      servicing contracts and offsetting disclosures in condensed interim
      financial statements under IFRS 7 Financial Instruments:
      Disclosures;
|● | Discount rate in a regional
      market sharing the same currency under IAS 19 Employee Benefits;
      and                                                                           
|● | Disclosure of information
      elsewhere in the interim financial report under IAS 34 Interim Financial
      Reporting;                                                            

The amendments will apply for annual
periods beginning on or after January 1, 2016. Each of the amendments has its
own specific transition requirements. The Corporation intends to adopt the
amendments in its financial statements for the fiscal year beginning on January
1, 2016. We do not expect the amendments to have a material impact on the
financial statements.

IAS 1 (Amendments) - DISCLOSURE
INITIATIVE

On December 18, 2014, the IASB issued
amendments toIAS 1 Presentation of Financial
Statementsas part of its major initiative to
improve presentation and disclosure in financial reports (the Disclosure
Initiative). The amendments will not require any significant change to current
practice, but should facilitate improved financial statement disclosures.

The amendments are effective for annual
periods beginning on or after January 1, 2016. The Corporation intends to adopt
the amendments to IAS 16 and IAS 38 in its financial statements for the fiscal
year beginning on January 1, 2016. The extent of the impact of adoption of the
amendments has not yet been determined.

IFRS 15  REVENUE FROM CONTRACTS
WITH CUSTOMERS

On May 28, 2014, the IASB issuedIFRS 15 Revenue from Contracts with
Customers, which replacesIAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real
Estate,IFRIC 18 Transfer of Assets from Customers, andSIC 31 Revenue  Barter
Transactions Involving Advertising Services.

IFRS 15 contains a single model that
applies to contracts with customers and two approaches to recognizing revenue:
at a point in time or over time. The model features a contract-based five-step
analysis of transactions to determine whether, how much, and when revenue is
recognized. New estimates and judgmental thresholds have been introduced, which
may affect the amount and/or timing of revenue recognized. The new standard
applies to contracts with customers. It does not apply to insurance contracts,
financial instruments or lease contracts, which fall in the scope of other
IFRSs.

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The new standard is effective for
fiscal years ending on or after December 31, 2018 and is available for early
adoption. The Corporation intends to adopt IFRS 15 in its financial statements
for the fiscal year beginning on January 1, 2018. The extent of the impact of
adoption of the standard has not yet been determined.

IFRS 9  FINANCIAL
INSTRUMENTS

On July 24, 2014, the IASB issued the
completeIFRS 9 Financial Instruments(IFRS 9 (2014)). IFRS 9 (2014) introduces
new requirements for the classification and measurement of financial assets.
Under IFRS 9 (2014), financial assets are classified and measured based on the
business model in which they are held and the characteristics of their
contractual cash flows.

The standard introduces additional
changes relating to financial liabilities. It also amends the impairment model
by introducing a new expected credit loss model for calculating impairment.

IFRS 9 (2014) also includes a new
general hedge accounting standard which aligns hedge accounting more closely
with risk management. This new standard does not fundamentally change the types
of hedging relationships or the requirement to measure and recognize
ineffectiveness; however it will provide more hedging strategies that are used
for risk management to qualify for hedge accounting and introduce more judgment
to assess the effectiveness of a hedging relationship. Special transitional
requirements have been set for the application of the new general hedging model.

The mandatory effective date of IFRS 9
(2014) is for annual periods beginning on or after January 1, 2018 and must be
applied retrospectively with some exemptions. Early adoption is permitted. The
restatement of prior periods is not required and is only permitted if
information is available without the use of hindsight. The Corporation intends
to adopt IFRS 9 (2014) in its financial statements for the fiscal year beginning
on January 1, 2018. The extent of the impact of adoption of the standard has not
yet been determined.

IFRS 16  LEASES

On January 13, 2016, the IASB issued
IFRS 16 Leases. IFRS 16 standard introduces a single lessee accounting model and
requires a lessee to recognize assets and liabilities for all leases with a term
of more than 12 months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the
underlying asset and a lease liability representing its obligation to make lease
payments.

This standard substantially carries forward the lessor accounting
requirements of IAS 17, while requiring enhanced disclosures to be provided by
lessors. Other areas of the lease accounting model have been impacted, including
the definition of a lease. Transitional provisions have been
provided.

The new standard is effective for
annual periods beginning on or after January 1, 2019. Early adoption is
permitted for entities that applyIFRS 15
Revenue from Contracts with Customersas at
or before the date of initial adoption of IFRS 16. IFRS 16 will replaceIFRS 17 Leases.The Corporation intends to adopt IFRS 16 in its financial statements for
the fiscal year beginning on January 1, 2019. The extent of the impact of
adoption of the standard has not yet been determined.

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

Cash Operating
CostsThis supplemental non-GAAP measure
is provided to assist readers in determining our operating costs on a cash
basis. We believe this measure is useful in assessing performance and
highlighting trends on an overall basis.

We also believe Cash Operating Costs is
frequently used by securities analysts and investors when comparing our results
with those of other companies. Cash Operating Costs differs from the most
comparable GAAP measure, operating expenses, primarily because it does not
include stock-based compensation expense, depreciation and amortization,
impairment losses or recoveries on trade receivables, restructuring charges,
acquisition costs, and financing charges. The following tables show a
reconciliation of operating expenses to Cash Operating Costs for the three
months and year ended December 31, 2015 and 2014:

|(Expressed in thousands of U.S.
      dollars) |  | Three months ended December
    31,
|---------------------------------------------- |  | -----------------------------------
|Cash Operating Costs                           |  | 2015                               
|Total Operating Expenses                       |  | $                                  
|Stock-based compensation
      (expense)       |  |                                    
|recovery                                       |  |                                    
|Impairment recovery
      (losses) on trade    |  |                                    
|receivables                                    |  |                                    
|Acquisition and
      integration costs        |  |                                    
|Restructuring (charges)
      recovery         |  |                                    
|Financing
    charges                          |  |                                    
|Depreciation and
      amortization            |  |                                    
|Cash Operating Costs                           |  | $                                  
|                                              
|                                              
|(Expressed in
      thousands of U.S. dollars) |  | Year ended December 31,            
|Cash Operating Costs                           |  | 2015                               
|Total Operating Expenses                       |  | $                                  
|Stock-based compensation
      expense         |  |                                    
|Impairment recovery
      (losses) on trade    |  |                                    
|receivables                                    |  |                                    
|Acquisition and
      integration costs        |  |                                    
|Restructuring (charges)
      recovery         |  |                                    
|Financing
    charges                          |  |                                    
|Depreciation and
      amortization            |  |                                    
|Cash Operating Costs                           |  | $                                  

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EBITDA and Adjusted
EBITDAThese supplemental non-GAAP measures
are provided to assist readers in determining our operating performance and
ability to generate operating cash flow. We believe this measure is useful in
assessing performance and highlighting trends on an overall basis. We also
believe EBITDA and Adjusted EBITDA are frequently used by securities analysts
and investors when comparing our results with those of other companies. EBITDA
differs from the most comparable GAAP measure, net loss attributable to Ballard
from continuing operations, primarily because it does not include finance
expense, income taxes, depreciation of property, plant and equipment,
amortization of intangible assets, and goodwill impairment charges. Adjusted
EBITDA adjusts EBITDA for stock-based compensation expense, transactional gains
and losses, asset impairment charges, finance and other income, and acquisition
costs. The following tables show a reconciliation of net income attributable to
Ballard to EBITDA and Adjusted EBITDA for the three months and year ended
December 31, 2015 and 2014:

|(Expressed in thousands of U.S.
      dollars)      |  | Three months ended December
    31,
|--------------------------------------------------- |  | -----------------------------------
|EBITDA and Adjusted
      EBITDA                    |  | 2015                               
|Net (loss) from continuing operations               |  |                                    
|attributable to Ballard                             |  | $                                  
|Depreciation and
      amortization                 |  |                                    
|Finance expense                                     |  |                                    
|Income taxes                                        |  |                                    
|EBITDA attributable to Ballard                      |  | $                                  
|Stock-based compensation
      expense              |  |                                    
|(recovery)                                          |  |                                    
|Acquisition and
      integration costs             |  |                                    
|Finance and other
      (income) loss               |  |                                    
|Gain on sale of
      intellectual property         |  |                                    
|Loss on sale of property,
      plant and equipment |  |                                    
|Adjusted EBITDA                                     |  | $                                  
|                                                   
|                                                   
|(Expressed in
      thousands of U.S. dollars)      |  | Year ended December 31,            
|EBITDA and Adjusted
      EBITDA                    |  | 2015                               
|Net (loss) from continuing operations               |  |                                    
|attributable to Ballard                             |  | $                                  
|Depreciation and
      amortization                 |  |                                    
|Finance expense                                     |  |                                    
|Income taxes                                        |  |                                    
|EBITDA attributable to Ballard                      |  | $                                  
|Stock-based compensation
      expense              |  |                                    
|Acquisition and
      integration costs             |  |                                    
|Finance and other
      (income) loss               |  |                                    
|Gain on sale of
      intellectual property         |  |                                    
|Impairment of
      equity investment               |  |                                    
|Loss (gain) on sale of property, plant and          |  |                                    
|equipment                                           |  |                                    
|Adjusted EBITDA                                     |  | $                                  

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Normalized Net LossThis supplemental non-GAAP measure is
provided to assist readers in determining our financial performance. We believe
this measure is useful in assessing our actual performance by adjusting our
results from continuing operations for one-time transactional gains and losses
and impairment losses. Normalized Net Loss differs from the most comparable GAAP
measure, net loss attributable to Ballard from continuing operations, primarily
because it does not include impairment losses or recoveries on trade
receivables, transactional gains and losses, asset impairment charges, and
acquisition costs. The following table shows a reconciliation of net loss
attributable to Ballard from continuing operations to Normalized Net Loss for
the three months and year ended December 31, 2015 and 2014.

|(Expressed in thousands of U.S.
      dollars)     | Three months ended December 31,
|-------------------------------------------------- | -------------------------------
|Normalized Net Loss                                | 2015                           
|Net (loss) attributable to Ballard from continuing |                                
|operations                                         | $                              
|Impairment loss
      (recovery) on trade          |                                
|receivables                                        |                                
|Acquisition and
      integration costs            |                                
|Gain on sale of
      intellectual property        |                                
|Normalized Net
    Loss                            | $                              
|Normalized Net Loss per
      share                | $                              
|(Expressed in
      thousands of U.S. dollars)     | Year ended December 31,        
|Normalized Net Loss                                | 2015                           
|Net (loss) attributable to Ballard from continuing |                                
|operations                                         | $                              
|Impairment loss
      (recovery) on trade          |                                
|receivables                                        |                                
|Impairment of equity
      investment              |                                
|Acquisition and
      integration costs            |                                
|Gain on sale of
      intellectual property        |                                
|Normalized Net Loss                                | $                              
|Normalized Net Loss per
      share                | $                              

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

Disclosure controls and
procedures

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

As of the end of the period covered by
this report, we evaluated, under the supervision and with the participation of
management, including the CEO and the CFO, the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act).
The CEO and CFO have concluded that as of December 31, 2015, our disclosure
controls and procedures were effective to ensure that information required to be
disclosed in reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified therein,
and accumulated and reported to management to allow timely discussions regarding
required disclosure.

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Internal control over financial
reporting

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

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

Management, including the CEO and CFO,
have evaluated the effectiveness of internal control over financial reporting,
as defined in Rules 13a15(f) of the Exchange Act, in relation to criteria
described inInternal ControlIntegrated
Framework(2013)issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this
evaluation, Management has determined that internal control over financial
reporting was effective as of December 31, 2015.

As Protonex was acquired in the last
365 days, we have limited the scope of our design of disclosure controls and
procedures and internal controls over financial reporting to exclude controls,
policies and procedures of Protonex. Summary financial information of Protonex
consolidated in our year ended December 31, 2015 consolidated financial
statements are as follows:

|Select Protonex financial
      information    |      |        |  
|---------------------------------------------- | ---- | ------ | -
|(Expressed in thousands of U.S.
      dollars) | 2015 |       
|Revenues                                       | $    | 3,397  |  
|Cash Operating
      Costs (1)                 | $    | 1,518  |  
|Adjusted EBITDA (1)                            | $    | (260   | )
|Net
    loss                                   | $    | (652   | )
|Cash used by operating activities              | $    | (2,363 | )
|Cash and cash equivalents                      | $    | 303    |  
|Total assets                                   | $    | 17,802 |  

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

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KPMG LLP, our independent registered
public accounting firm, has audited our consolidated financial statements and
expressed an unqualified opinion thereon. KPMG has also expressed an unqualified
opinion on the effectiveness of our internal control over financial reporting as
of December 31, 2015.

Changes in internal control over
financial reporting

During the year ended December 31,
2015, there were no changes in internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting. Our design of disclosure
controls and procedures and internal controls over financial reporting includes
controls, policies and procedures covering Dantherm Power.

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

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

|● | We may not be able to achieve
      commercialization of our products on the timetable we anticipate, or at
      all;                                                                                                                                                                                                                                      
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | We expect our cash reserves will be reduced
      due to future operating losses and working capital requirements, and we
      cannot provide certainty as to how long our cash reserves will last or
      that we will be able to access additional capital when
  necessary;                                                                            
|● | A mass market for our products may never
      develop or may take longer to develop than we anticipate;                                                                                                                                                                                                                                                    
|● | We have limited experience manufacturing
      fuel cell products on a commercial basis;                                                                                                                                                                                                                                                                    
|● | Warranty claims could negatively impact our
      gross margins and financial performance;                                                                                                                                                                                                                                                                  
|● | We may not be able to successfully execute
      our business plan;                                                                                                                                                                                                                                                                                         
|● | Global macro-economic conditions are beyond
      our control and may have an adverse impact on our business or on our key
      suppliers and / or customers;                                                                                                                                                                                              
|● | In our Heavy-Duty Motive market, we depend
      on Chinese customers for a majority of our revenues. Global macro-economic
      conditions, including significant and recent volatility in Chinas capital
      markets, may adversely impact our Chinese customers access to capital and
      program plans which could adversely impact our business;
|● | In our Technology Solutions market, we
      depend on a single customer for the majority of our
  revenues;                                                                                                                                                                                                                                                

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|● | In our Material Handling
      market, we depend on a single customer for the majority of our
      revenues and on that customers internal stack development and commercialization plans;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | We may not be able to
      successfully conclude and realize any benefits or value from our ongoing
      review of strategic alternatives for our Telecom Backup Power
      business;   
|● | In our Portable Power market,
      defense spending volatility could have an adverse impact on our
      business;                                                                        
|● | In our Portable Power market,
      defense acquisition process changes could have an adverse impact on our
      business;                                                                
|● | Potential fluctuations in our
      financial and business results make forecasting difficult and may restrict
      our access to funding for our commercialization plan;                 
|● | We could be adversely affected
      by risks associated with acquisitions;                                                                                                                
|● | We are subject to risks
      inherent in international operations;                                                                                                                        
|● | Exchange rate fluctuations are
      beyond our control and may have a material adverse effect on our business,
      operating results, financial condition and profitability;            
|● | Commodity price fluctuations
      are beyond our control and may have a material adverse effect on our
      business, operating results, financial condition and
    profitability;      
|● | We are dependent upon Original
      Equipment Manufacturers and Systems Integrators to purchase certain of our
      products;                                                            
|● | We are dependent on third
      party suppliers for the supply of key materials and components for our
      products and services;                                                        
|● | We currently face and will
      continue to face significant competition;                                                                                                                 
|● | We could lose or fail to
      attract the personnel necessary to run our business;                                                                                                        
|● | Public Policy and regulatory
      changes could hurt the market for our products;                                                                                                         
|● | We depend on our intellectual
      property, and our failure to protect that intellectual property could
      adversely affect our expected future growth and success;                   
|● | We could be liable for
      environmental damages resulting from our research, development or
      manufacturing operations; and                                                         
|● | Our products use flammable
      fuels and some generate high voltages, which could subject our business to
      product liability claims.                                                

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

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In particular, these forward-looking
statements are based on certain factors and assumptions relating to our
expectations with respect to the generation of new sales, producing, delivering
and selling the expected product and service volumes at the expected prices,
controlling our costs, and obtaining the expected benefits arising from the
Protonex acquisition. They are also based on a variety of general factors and
assumptions including, but not limited to, our expectations regarding product
development efforts, manufacturing capacity, product and service pricing, market
demand, and the availability and prices of raw materials, labour and supplies.
These assumptions have been derived from information available to the Company
including information obtained by the Company from third parties. These
assumptions may prove to be incorrect in whole or in part. In addition, actual
results may differ materially from those expressed, implied, or forecasted in
such forward-looking statements. Factors that could cause our actual results or
outcomes to differ materially from the results expressed, implied or forecasted
in such forward-looking statements include, but are not limited to: the
condition of the global economy; the rate of mass adoption of our products;
changes in product or service pricing; changes in our customers' requirements,
the competitive environment and related market conditions; product development
delays; changes in the availability or price of raw materials, labour and
supplies; our ability to attract and retain business partners, suppliers,
employees and customers; changing environmental regulations including subsidies
or incentives associated with the adoption of clean energy products; our access
to funding and our ability to provide the capital required for product
development, operations and marketing efforts, and working capital requirements;
our ability to protect our intellectual property; risks relating to the
Companys successful integration of Protonex and its operations, such as the
loss of key personnel due to the transaction, the disruption to the operations
of the Company and Protonex respective businesses, the cost of integration
exceeding that projected by Ballard, and the integration failing to achieve the
expected benefits of the transaction; risks related to our ongoing strategic
review of our telecom backup power business, including our ability to identify,
pursue and realize the benefits of strategic alternatives being explored by us
(which could include possible joint ventures, strategic partnerships or
alliances, a sale of the business or other possible transactions), as well as
the risk that uncertainty relating to the strategic review process may impact
our business, existing and future relationships with business partners and
customers, and ability to attract and retain key employees; the magnitude of the
rate of change of the Canadian dollar versus the U.S. dollar; and the general
assumption that none of the risks identified in the Risks and Uncertainties
section of this report or in our most recent Annual Information Form will
materialize. Readers should not place undue reliance on Ballard's
forward-looking statements.

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

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