Ballard Power Systems Reviews 2001 Results, Provides 2002 Goals.

Business Editors

VANCOUVER, Canada--(BUSINESS WIRE)--March 4, 2002

Ballard Power Systems (Nasdaq:BLDP) (TSE:BLD) today reviewed its achievements against its goals for 2001, reported its financial results for the fourth quarter and the year ending December 31, 2001 and reviewed its goals for 2002.

All amounts reported are in U.S. Dollars.

A conference call will be held to discuss the results for the fourth quarter and year ending December 31, 2001 on Monday, March 4, 2002 at 2:00 p.m. PT (5:00 p.m. ET). Access to the call may be obtained by calling the operator at 416/640-4127 before the scheduled start time. A playback version of the call will be available for 24 hours after the call at 416/640-1917. The confirmation number to access the playback version is 172298#. The live webcast can be accessed at Ballard's web site at www.ballard.com. and will be archived for replay for a two-week period.

"Ballard's accomplishments in 2001 form the foundation for our success as we begin to commercialize BALLARD(R) fuel cells," said Firoz Rasul, Ballard's Chairman and Chief Executive Officer. "We achieved our financial goals, we received orders for our products totalling more than $157-Million, we exceeded our transportation fuel cell cost reduction target, we simplified our corporate structure and expanded our business, and we undertook a number of actions to make our global operations more efficient."

Ballard achieved all 11 of its published corporate goals for 2001. The goals and related achievements for 2001 are described below.

Launch power module product for portable power application. This goal was completed in September when Ballard launched the Nexa(TM) power module, Ballard's first commercial fuel cell product.

Establish additional customer relationships for portable power products. At year end Ballard had 13 customers for its portable power products.

Demonstrate next generation portable power engineering prototype. Ballard developed its next generation prototype and will continue to reduce its cost and improve its manufacturability, durability and reliability.

Demonstrate portable engineering prototype using Direct Methanol Fuel Cell technology. Ballard completed and demonstrated a 1-kW portable generator prototype in the fall. While this technology shows promise, it is still in the research and development stage.

Deliver fuel cells for use in California Fuel Cell Partnership vehicles. In addition to the vehicles delivered by DaimlerChrysler and Ford in 2000, Nissan and Honda delivered a number of fuel cell vehicles to the California Fuel Cell Partnership powered by BALLARD(R) fuel cells.

Secure orders for fuel cells for transportation engines. Fuel cell supply agreements were received from both Ford and Honda. DaimlerChrysler entered into a supply agreement for heavy duty bus engines.

Introduce advanced Mark 900 series fuel cell power module for transportation applications. The Mark 902 fuel cell power module introduced in October establishes a new standard of performance in the industry. It is designed for volume manufacturing and lower cost, and has enhanced reliability, power density and compatibility with customer system requirements.

Reduce variable cost of Mark 900 series fuel cells by 40 per cent. Actual variable cost reduction achieved was 51 per cent. Cost reduction is an important focus for Ballard as it moves the technology towards commercialization. The design of the new Mark 902 fuel cell platform is one factor in making these cost reductions possible.

Achieve customer acceptance of performance before delivery of five 250-kilowatt stationary generators for field trials. All nine 250-kW stationary generators have completed and passed acceptance testing.

Demonstrate 10-kilowatt engineering prototype backup stationary generator. The 10-kilowatt natural gas fuelled prototype was completed in July and will continue to be tested and evaluated in 2002.

Demonstrate 60-kilowatt engineering prototype backup stationary generator. The 60-kilowatt hydrogen fuelled prototype was completed in August and will continue to be tested and evaluated in 2002.

"Ballard's goals are carefully developed each year to challenge ourselves to move our technology forward," said Firoz Rasul, Ballard's Chairman and Chief Executive Officer. "When we achieve our goals this is confirmation that Ballard is moving towards the goal of commercializing fuel cells in its target markets."

In addition to Ballard's achievements against its stated goals, other significant accomplishments in 2001 and early 2002 are discussed below.

A key Ballard accomplishment was the acquisition of XCELLSIS Fuel Cell Engines Inc. ("XCELLSIS") and Ecostar Electric Drive Systems L.L.C. ("Ecostar") from DaimlerChrysler and Ford. The acquisition expands Ballard's strengths by providing access to new markets and earlier revenue opportunities, broadening its product range, increasing the commitment from its partners, expanding its extensive intellectual property portfolio, and increasing value capture by providing complete systems solutions.

Ballard is delivering against its integration plan. Ballard has completed a thorough analysis of its operations, prioritized key programs and aligned its resources and investments accordingly. Ballard is also implementing process enhancements and best practices throughout its global operations.

In 2001 Ballard commenced streamlining its stationary alliance to allow for an increased focus on the marketing and distribution of stationary products. Ebara Corporation ("EBARA") became a direct shareholder in Ballard and maintains its 51 per cent ownership of EBARA BALLARD Corporation ("EBARA BALLARD"), the jointly held company in Japan. FirstEnergy Corp. ("FirstEnergy"), formerly GPU International Inc., will become a distributor in the Northeast and North Central United States and will also become a direct shareholder in Ballard. Ballard is currently in discussions with ALSTOM SA ("ALSTOM") related to opportunities to further simplify its stationary alliance structure.

"During 2001 we improved Ballard's structure to allow us to develop fuel cell systems more efficiently," said Firoz Rasul, Ballard's Chairman and Chief Executive Officer. "Our purchase of XCELLSIS and Ecostar, together with the streamlining of our stationary alliance, enhances our capability to provide a complete fuel cell solution for our customers. While we fully integrate these businesses into one, we are focussed on ensuring that we meet customer deliverables."

Total orders received in 2001 exceeded $157-Million. Orders received from Ford for the year were $66 Million, in support of its goal to introduce fuel cell vehicles in California in 2004.

DaimlerChrysler unveiled a number of vehicles powered by BALLARD(R) fuel cells this year, including the methanol fuelled Necar 5.2, the Sprinter Van which is being tested by the European courier company Hermes Versand, and the Chrysler Natrium minivan that utilizes hydrogen from a sodium borohydride storage system.

Honda signed a two-year, $16.5 million supply agreement for BALLARD(R) fuel cells during the year and demonstrated its fourth generation FCX-V4 fuel cell vehicle powered by BALLARD(R) fuel cells. Honda has reaffirmed its commitment to introduce fuel cell powered cars into California in 2003.

Nissan continued its active demonstration program and unveiled its Xterra fuel cell vehicle powered by BALLARD(R) fuel cells during 2001.

Ballard established a new relationship with Osaka Gas  to develop a residential fuel cell power generator for the Japanese market in addition to Ballard's existing relationship with Tokyo Gas. Ballard is now working with two leading developers of fuel processors who are also distributors of gas and gas appliances in the two largest cities in Japan.

Early in 2002, EBARA BALLARD unveiled the second generation of its 1-kilowatt Japanese residential fuel cell system. The unit is 40 per cent smaller than the first generation while providing 81 per cent (LHV) combined heat and AC power efficiency.

In 2001, Ballard acquired the carbon products division of Textron Systems to form Ballard's Material Products Division. This division is focussed on carbon materials that can be used in several applications, including fuel cells. During the year a five-year, $50 Million contract extension was signed with an automotive manufacturer for carbon friction materials.

Each year, Ballard outlines for investors key milestones by which its progress can be judged in the year. The goals for 2002 are as follows:

Complete next generation engineering demonstration prototype 60-kilowatt fuel cell backup stationary generator. Each successive prototype generation moves the technology forward and enables Ballard to better assess market opportunities and the suitability of the design for commercialization.

Complete next generation, engineering demonstration prototype of Nexa(TM) power module. Ballard is building on its first commercial product with further refinements and improvements to lower cost and expand capabilities.

Complete next generation engineering demonstration prototype 1-kilowatt combined heat and power generator for Japanese residential market. Ballard and EBARA BALLARD continue to improve the product to meet the schedule for launch in Japan.

Commence deliveries of fuel cell engines to DaimlerChrysler for European bus program. This program will mark the first sale of fuel cells for transportation in a commercial context. Ballard will begin delivery of fuel cell bus engines in late 2002, for the 30 Mercedes-Benz Citaro buses to be used in the European Fuel Cell Bus Project. These buses will be delivered to 10 European cities beginning in 2003 as the European Union lays the groundwork for the adoption of zero-emission fuel cell technology.

Deliver fuel cell engines to customers for California Fuel Cell Partnership demonstrations. The partnership is an excellent opportunity to exhibit continued progress in the development of fuel cell vehicles while advancing fuel infrastructure. Ballard is committed to supporting its customers who are deploying fuel cell vehicles into the partnership's demonstration program.

Commence deliveries of electric drives for Ford TH!NK City automobile. These deliveries will support Ford in its commercial launch of TH!NK City cars. This program will provide Ballard with an opportunity to realize early revenues by selling components into non fuel cell applications, while providing Ballard with important manufacturing experience and opportunities to reduce component costs.

Commence deliveries of electric drive systems for airport ground support equipment to an original equipment manufacturer ("OEM"). Airport ground support equipment is a promising market for Ballard's electric drives.

Commence deliveries of power converters for backup stationary generators. This is a new market opportunity for Ballard and enables Ballard to realize early revenues by selling components into applications other than fuel cells, providing Ballard with important manufacturing experience and the ability to reduce component costs.

Complete integration of the acquired XCELLSIS and Ecostar businesses into Ballard to achieve cash burn target. To meet Ballard's customer deliverables and realize the benefits of combining the companies into one, it is critical that the integration be completed in a timely manner. This is necessary to achieve the targeted cash expenditures for 2002.

Achieve annual revenue target. Ballard is focussed on the growth of its business. Revenue is a measure of Ballard's ability to meet customer expectations with its technology and products.

OPERATING RESULTS, CAPITAL REQUIREMENTS AND RISKS

Overview

During the year Ballard made three acquisitions which significantly impacted its business. On May 25, 2001, Ballard acquired the carbon products division of Textron Systems Inc. through its wholly owned subsidiary, Ballard Material Products Inc. ("BMP"). On November 30, 2001, Ballard increased its ownership of XCELLSIS AG (subsequently changed to Ballard Power Systems AG ("BPSAG")), to 50.1% and its ownership of Ecostar Electric Drive Systems L.L.C. (subsequently changed to Ballard Power Systems Corporation ("BPSC")), to 100%. Ballard's additional interests in these companies were acquired from its Vehicular Alliance partners DaimlerChrysler AG ("DaimlerChrysler") and Ford Motor Company ("Ford") in exchange for common shares. These transactions are described in detail in note 2 to the consolidated financial statements.

The operating results of these businesses are included in Ballard's financial results from the date these companies were acquired. Ballard and DaimlerChrysler have entered into a forward sale agreement, whereby Ballard will acquire the remaining 49.9% interest in BPSAG on or before November 15, 2004 in exchange for 7,613,212 shares, such that Ballard ultimately will own 100% of BPSAG.

As at December 31, 2001 Ballard adopted the U.S. dollar as its primary currency of measurement and reporting. With the acquisition of BPSAG, BPSC and BMP during the year, the U.S. dollar has become the primary currency in which Ballard's sales are generated and the currency in which it incurs significant operating costs. In addition, the primary currency in which Ballard raises capital is the U.S. dollar. For these reasons, the U.S. dollar best reflects the primary economic environment in which Ballard operates (note 1).

On December 12, 2001 Ballard also purchased all of the shares owned by EBARA Corporation ("EBARA") in Ballard Generation Systems Inc. ("BGS") representing 10.6% of BGS's outstanding shares. This acquisition increased Ballard's ownership of BGS to 68.3%. Ballard has also entered into an agreement by which FirstEnergy Corp. ("FirstEnergy") (formerly GPU International Inc.), will exchange its shares in BGS in return for Ballard stock. Ballard will receive FirstEnergy's 12.6% interest in BGS in return for 1,366,063 Ballard shares. The transaction is subject to regulatory approval and is expected to close in the first half of 2002.

The net loss for the year ended December 31, 2001 was $96.2 million, or ($1.05) per share, compared with a net loss of $53.8 million, or ($0.61) per share, during the same period in 2000. The increased loss for the year reflects an accelerated pace of research and development activities and an increase in equity losses of associated companies before the acquisition of BPSAG and BPSC. Losses of $11.8 million from BPSAG and BPSC after their acquisition including related acquisition costs of $3.7 million, higher business systems and infrastructure expenses supporting Ballard's commercial introduction of fuel cell products, and reduced gains from subsidiaries issuing shares, were also contributing factors to the increased loss in 2001. Excluding the losses of $11.8 million from acquiring BPSAG and BPSC, Ballard's net loss for the year would have been $84.4 million or ($0.92) per share.

Results from Operations

Product and engineering service revenues increased by $10.4 million or 40% from 2000 to $36.2 million in 2001. During the year Ballard recorded revenues of $4.2 million from engineering services. The related costs of providing these services are included in research and development expenses. The improved revenues for 2001 also reflect revenues from the businesses Ballard acquired during the year, increased purchases of fuel cells by automobile manufacturers and the sale of portable fuel cells to several OEMs. Revenues in 2000 improved by $5.0 million or 24% from 1999 due to revenue recognized on 250-kW units for stationary power program field trials and higher purchases of fuel cells by Ballard's alliance partners and other OEMs.

Investment and other income declined by $3.4 million or 12% during the year as a result of lower average balances of cash and short-term investments and lower interest rates. This was partly offset by foreign exchange gains which were $4.3 million in 2001 and $1.8 million in 2000. When compared to the results of 1999, investment and other income in 2000 was higher by $18.0 million due primarily to a higher average balance of cash and short-term investments resulting from an equity offering in March 2000. Higher short term interest rates and foreign currency gains of $1.8 million in 2000, compared to a foreign currency loss of $1.8 million in 1999, also contributed to the increase in investment income.

Cost of product revenues decreased by $1.2 million during 2001 because the 2000 comparative period included substantial manufacturing costs associated with BGS's 250-kW stationary generator field trial programs. As well, based on Ballard's experience with field trial programs and because of warranty expirations, Ballard reduced its warranty provision during the year. This was partly offset by an increase in the cost of revenues from businesses acquired during 2001. Cost of product revenues increased by $15.9 million to $34.6 million during 2000 when compared to 1999. Increased sales activity associated with the stationary power generation program and fuel cell purchases by Ballard's vehicular alliance partners and other OEM's, were the primary reasons for the increase.

Research and product development expenses during 2001 increased by $28.4 million or 52.2% as compared to expenditures of $54.3 million the previous year. In 2000, research and product development expenses rose by 39.5% to $54.3 million from $38.9 million in 1999. The increases in both years were due to higher development activity related to fuel cell engineering and manufacturing processes, developing the advanced Mark 900 fuel cells, stationary generators, portable power products and fuel processing systems, investments aimed at fuel cell cost reduction, testing and preparation for commercial product launch. Research and development activity at Ballard's newly acquired businesses also contributed to the increase during 2001.

General and administrative and marketing expenses for the year increased by $6.1 million and $1.5 million, respectively, compared to the corresponding period in 2000. During 2000, general and administrative expenses rose $1.7 million from 1999 to $9.0 million while marketing expenses remained relatively unchanged. The increases reflect costs associated with implementing the business systems processes and capabilities required to support Ballard's commercial introduction of fuel cell products, and expenses from businesses acquired during the year.

Business integration and restructuring costs of $3.7 million during 2001 relates to expenditures associated with the acquisition of BPSAG and BPSC and consists primarily of termination payments to certain Ballard employees and business integration and restructuring costs.

Equity in loss of associated companies for the year ended December 31, 2001 increased by $1.6 million relative to 2000. Equity in loss in associated companies increased in 2000 to $21.9 million from $12.8 million in 1999. The higher losses are primarily the result of increased investment in research and development activities undertaken by associated companies.

Minority interest for the year ended December 31, 2001 was $8.0 million compared to $10.5 million in 2000. The $2.5 million decline results from lower net losses from BGS. This was partly offset by minority interest in losses of BPSAG. Minority interest increased by $6.2 million in 2000 when compared to 1999 due to higher losses in BGS and an increase in the minority ownership of BGS. The minority interest of BGS increased to 40.5% in 2000 from 32.2% in 1999 as a result of the completion of milestone investments by FirstEnergy and ALSTOM SA ("ALSTOM").

Gain on the issuance of shares by subsidiary relates to the issuance of shares of BGS to FirstEnergy and ALSTOM during 2001 and to FirstEnergy, ALSTOM and EBARA in 2000.

License and royalty income (fees) were $1.8 million for the year and relate to the granting of manufacturing rights by BGS to EBARA BALLARD Corporation ("EBARA BALLARD"). License and royalty fees of $7.7 million and $1.6 million for 2000 and 1999 respectively include license fees for access to ALSTOM's manufacturing technology and know-how. The 2000 amount also included the prepayment of a royalty fee made to an unassociated company to access intellectual property.

Financial Condition

Cash and short-term investments were $421.2 million as at December 31, 2001, compared to $483.3 million at the end of 2000. Net losses, capital spending and additional investments, including acquisitions during the year, were partly offset by the issuance of share capital, including $34.5 million to DaimlerChrysler and Ford, $2.4 million by BGS and $12.8 million from the exercise of options and warrants.

Accounts receivable increased by $2.8 million from the beginning of the year, to $17.3 million. The increase is due to $8.1 million of accounts receivable related to business acquisitions made during the year, partly offset by improved collections.

Inventory increased by $17.0 million from the beginning of the year to $28.0 million as at December 31, 2001. Of this increase, $10.2 million represents the inventory of business acquired during 2001 and the remainder reflects the timing of finished product shipments and the level of raw materials required for planned increases in production for portable and automotive fuel cells.

Property, plant & equipment increased to $109.0 million from $54.5 million at the beginning of year. The increase primarily reflects the acquisitions made during the year, accounting for $46.8 million of the increase. Capital spending of $18.3 million, partially offset by depreciation of $10.0 million and disposals, accounted for the remaining increase. Capital spending was primarily for manufacturing processes, testing equipment and facility improvements at Ballard's initial manufacturing facility.

Intangible assets increased by $143.6 million as a result of fuel cell technology, systems and other technology, in-process research and development and trades names of $1.0 million, $134.7 million, $11.3 million and $1.2 million respectively resulting from the acquisitions made during the year. This was partly offset by amortization of $4.6 million. Ballard's determination of the allocation of the purchase price of the intangible and certain tangible assets of BPSAG and BPSC is based on a valuation provided by an independent public accounting firm.

Goodwill of $184.9 million as at December 31, 2001 reflects the excess of the purchase price over the net of the amounts assigned to assets and liabilities of businesses acquired during the year. On July 1, 2001, Ballard adopted the Canadian Institute of Chartered Accountants' recommendations on business combinations. The new recommendations require that goodwill recorded from an acquisition be subject to an impairment test instead of being amortized over its useful life. The acquisitions completed after June 30, 2001 have been recorded in accordance with the new recommendations.

Investments decreased by $47.5 million during the year as BPSAG and BPSC were fully consolidated after the acquisition, whereas in 2000 these companies were accounted for on an equity basis. This was partly offset by investments made in Ballard's associated company EBARA BALLARD of $3.7 million and investments made in MicroCoating Technologies Inc., Graftech Inc. and QuestAir Technologies Inc. of $6.6 million, $5.1 million and $1.3 million, respectively.

Accounts payable and accrued liabilities increased by $41.0 million from the beginning of the year, of which $21.7 million reflects the liabilities of companies acquired during the year. Accrued costs related to the acquisitions during the year accounted for $17.8 million of the increase and other changes including milestone liabilities to development partners accounted for the remaining $1.5 million.

Accrued warranty liabilities increased by $0.2 million to $16.6 million during the year. Warranty liabilities of $2.0 million assumed from acquired companies, were partly offset by a reduction in warranty for fuel cells. Based on positive experience with respect to reliability on stationary generator field trials and the expiration of warranty periods for our transportation fuel cells, Ballard has reduced its warranty provision accordingly.

Minority interest increased by $26.2 million to $36.5 million during the year. The increase reflects DaimlerChrysler's 49.9% ownership of BPSAG, partly offset by a $4.9 million reduction in the minority interest related to BGS. The reduction in BGS's minority interest is due to its losses during the year and the decline in the minority interest ownership of BGS resulting from the purchase of EBARA's interest in BGS.

Long-term liabilities include $5.0 million of deferred revenues, $2.1 million of pension liabilities and $0.6 million of other liabilities compared to $3.8 million of deferred revenue and $0.1 million of other liabilities in 2000. The increase in deferred revenue during the year resulted from the sale of manufacturing rights by BGS to EBARA BALLARD, which resulted in a gain of $3.4 million. Of this, 49% or $1.6 million, representing Ballard's interest in EBARA BALLARD, is deferred and recognized in income over five years. Pension liabilities reflect the defined benefit plans for BPSAG and BPSC acquired on November 30, 2001.

Share capital increased by $317.6 million from the beginning of the year to $1,051.8 million. The increase is primarily due to the issuance of $235.2 million in common shares to DaimlerChrysler and Ford on the closing of the acquisition of BPSAG and BPSC and a private placement of $34.5 million as part of the acquisition agreement with DaimlerChrysler and Ford. Shares issued as consideration for investments in BGS, MicroCoating Technologies Inc. and Graftech Inc. ($25.7 million, $4.5 million and $4.9 million, respectively), the exercise of $9.9 million of employee stock options and the exercise of $2.9 million of warrants granted to joint development partners in prior years accounted for the remainder of the increase. As at December 31, 2001, there were 104,814,074 common shares issued and outstanding 7,257,429 options outstanding, and 450,000 warrants outstanding.

CAPITAL REQUIREMENTS, RESOURCES AND LIQUIDITY

As of December 31, 2001, Ballard had cash, cash equivalents and short-term investments totaling $421.2 million. Ballard will use its funds to meet its capital needs to fund the commercialization of Ballard's products for its target markets, including research and product development for PEM fuel cells, PEM fuel cell systems, PEM fuel cell engines, electric drives and power conversion products, the purchase of equipment for Ballard's manufacturing facilities and the further development of high-volume manufacturing processes and business systems. Ballard's actual funding requirements will vary depending on a variety of factors, including the success of integrating BPSAG and BPSC, the progress of Ballard's research and development efforts, its relationships with its strategic partners, its commercial sales and the results of its development and demonstration programs.

Ballard expects to incur net losses for the next several years as it continues to make significant investments in research and product development activities required to commercialize its products. Ballard expects the acquisitions made during the year, and resulting expansion of its business, will increase its cash requirements. In 2002, Ballard expects its cash requirements for ongoing operations and capital expenditures, excluding business integration and restructuring costs and merger and acquisition activities, to be between $122 million and $142 million.

During 2002, Ballard expects to fund an additional $36 million in cash requirements related to acquisition, business integration and restructuring costs as a result of the acquisition of BPSAG and BPSC. Of that amount, $18 million is related to paying accruals of costs made in 2001. The 2002 expenditures will be for severance, the closure of redundant facilities and other costs associated primarily with realizing synergies from the acquisition of BPSAG and BPSC.

Based on Ballard's current business strategy, as BPSAG and BPSC are fully integrated into Ballard, it expects its 2003 and 2004 total cash requirements, excluding any cash required for merger and acquisition activity, to decline relative to its expectations for 2002.

Ballard also expects that, with the recent of acquisitions of BPSAG and BPSC, its revenues (excluding investment income) in 2002 will increase to $82 million from $36 million in 2001. The increase in revenues during 2002 will be primarily attributable to fuel cell systems and engines, electric drives, power electronics and engineering service revenues.

Ballard believes that its cash, cash equivalents and short-term investments will provide it with sufficient capital to fund its operations through 2004. In addition, Ballard expects to raise additional capital by 2004 to continue to expand its business and production capacity beyond 2004. In addition to $34.5 million provided on November 30, 2001, DaimlerChrysler and Ford have agreed to invest at least an additional $34.5 million ($18.8 million by DaimlerChrysler and $15.7 million by Ford) if Ballard undertakes any equity offering before November 30, 2004. If external sources of financing are not available when needed or on acceptable terms, or if Ballard experiences significant cost overruns on any of its programs for which it cannot obtain additional funds, certain of its research and development activities or investments in manufacturing capacity may be delayed or eliminated, resulting in potential delays in the commercialization of its products. In addition, Ballard regularly reviews acquisition opportunities (including those relating to intellectual property) and, depending on the size of the transaction, Ballard may be required to raise additional capital through the issuance of equity or debt. If Ballard is unable to raise additional capital on acceptable terms, it may be unable to pursue these acquisition opportunities.

RISKS & UNCERTAINTIES

Ballard's development and commercialization plans for BALLARD(R) fuel cells, fuel cell systems, electric drives and power conversion products which are presented in this News Release are forward-looking statements as contemplated by the Safe Harbor provisions of the US Private Securities Litigation Reform Law of 1995. Forward-looking statements are subject to risks and uncertainties including those detailed below.

Ballard is a development stage company and its business entails risks and uncertainties that affect its outlook and eventual results of its business and commercialization plan. The primary risks relate to meeting Ballard's product development and commercialization milestones, which require that Ballard's products exhibit the cost, durability, and performance required in a commercial product. There is also a risk that market acceptance might take longer to develop than anticipated. Ballard's business plan recognizes and, to the extent possible, attempts to manage these risks by pursuing diverse end markets for its stationary, transportation, portable, and other products. Within these markets, Ballard's commercialization plan is focused on products that Ballard believes have a competitive advantage. Ballard is developing components and subsystems for fuel cell systems that it is leveraging into non-fuel cell applications to further its technology, generate near term revenues, reduce costs by increasing volumes and to develop the operating disciplines required to manufacture and sell commercial products. Additionally, the plan for product and market development is to work closely with strategic partners and key customers who together have the capability and understanding of their specific markets to develop products that incorporate Ballard's products to meet consumer requirements.

The demonstration programs in stationary, transportation, and other applications that are required for development and testing of Ballard's products in actual field operations entail significant risks. These risks include problems or delays in demonstrations due to technical difficulties, inability to meet design performance goals, including power output, life and reliability, and for transportation applications, the risk of motor vehicle accidents. Ballard mitigates these risks to the extent possible by having detailed project management, formal design reviews, reviews by external experts, contingency plans which anticipate likely problems, safety reviews, training and testing programs related to the operation and maintenance of the fuel cell engines for transportation, stationary generators, and portable power products, and by carrying appropriate liability insurance. However, there can be no assurance that the demonstrations will be successful in meeting their product development, market development and commercialization objectives.

Ballard is currently aware of over 50 companies located in Europe, the United States, and Japan that are developing PEM fuel cells and PEM fuel cell systems. Each of these competitors has the potential to capture market share in various markets to Ballard's detriment. Many of these companies are very large in comparison to Ballard and have extensive manufacturing, marketing, and sales capabilities. Ballard seeks to maintain its technology lead through its strong intellectual property position, which will act as a barrier against competitors, and by continuing to invest in technology development. However, there can be no assurance that the present or future issued patents will protect Ballard's technology lead. Ballard's patents that have been obtained or applied for will expire during the period from 2009 to 2020.

Ballard also relies upon know-how and trade secrets to maintain its technology lead. However, there is no assurance that this information can be completely protected.

In addition to the competition faced from other fuel cell manufacturers, BALLARD(R) fuel cell products must also compete with alternative power products (such as advanced batteries and internal combustion engine hybrid engine systems) and existing, established combustion engines, including internal combustion engines and turbines, which are currently in wide use and have established operating and cost features. Ballard's commercialization plan seeks to overcome this competition by focusing on fuel cell products where a competitive advantage exists and by relying on the large overall size of the transportation, stationary, and portable markets to ensure a sufficient market for Ballard's products. Additionally, Ballard is leveraging its components and subsystems into non-fuel cell markets to create early revenue and further develop its fuel cell technology.

One of Ballard's markets is for stationary generators, a market that is being driven by deregulation and restructuring of the electric utility industry globally and the requirements of utilities, independent power producers, and end users. The deregulation of the electric utility industry is subject to government policies that will, over time, determine its pace and extent. Changes in government and public policy over time could impact deregulation and therefore adversely affect Ballard's schedule for commercializing stationary generators. Ballard seeks to manage this risk by focusing on fuel cell products where a clear competitive advantage over conventional power sources exists and by relying on the large overall size of the international stationary markets, many of which are already deregulated, to mitigate the effects of government policy changes in any one jurisdiction.

The market for Ballard's fuel cell transportation products is driven by environmental policies and is therefore subject to the risk of unfavorable government action related to these policies which could have an effect on Ballard's outlook and result in delays in the introduction of its products. California is leading the changes with the requirement that automakers earn zero emission vehicle credits totaling 10% of vehicles sold beginning in 2003 with at least 2% of the requirement being met by zero emission vehicles alone. Ballard plans to have fuel cells available to meet auto companies' requirements, many of which target 2003-2005 for the introduction of their first fuel cell vehicles. Any changes in the California regulations may affect the timing of this introduction. The market for transit bus engines is not affected by the ZEV requirement, as this market is presently not subject to these regulations. Rather, it is driven by the requirements to phase-in lower emission mass transit vehicles under US Clean Air legislation. In addition, transit authorities are taking the lead in providing solutions to the air quality problems cities face, although there can be no assurance that transit authorities will purchase buses powered by Ballard's fuel cell engines when available.

The acquisition of BPSAG and BPSC poses many challenges to Ballard's business, including developing and implementing a unified business plan and administrative structure, consolidating complementary development programs, developing common processes and coordinating Ballard's expanded business operations. Ballard has not completed an acquisition of this size or scope and the integration may divert the attention of its management and disrupt Ballard's current operations. Ballard seeks to mitigate this risk by having an integration management team that is responsible for implementing detailed integration plans.

As described under "Capital Requirements, Resources and Liquidity", Ballard is subject to the risk that if sufficient funds from internal or external sources are not available to Ballard to meet the requirements of its development and commercialization programs, certain research and development activities and the addition of manufacturing capacity may be delayed or eliminated, resulting in changes to Ballard's commercialization plans. Ballard seeks to mitigate this risk by securing funding commitments from a variety of sources, by maintaining a substantial cash reserve, by being financially conservative in its expenditures and by maintaining good communications with investors and investment bankers to gain access to the public equity markets.

Ballard is also subject to normal operating risks such as credit risks and foreign currency risks. Ballard's credit risks are minimal, as its customers are mainly large corporations and governments. Foreign currency sales and purchases are made mainly in Euros and Canadian dollars. Over time Euro and Canadian cash balances are matched, to the extent possible, to planned purchases in Euro or Canadian dollars. In addition, where Ballard has large foreign currency purchase commitments, which exceed its Euro or Canadian cash balances, Ballard will enter into forward contracts to hedge Ballard's position. This approach reduces Ballard's exposure to material foreign currency exchange fluctuation risk.

Quarterly Financial Data (Unaudited)
                                             Three Months Ended
(Expressed in thousands of U.S. dollars,
 except per share amounts)      Dec. 31   Sep. 30   Jun. 30   Mar. 31
----------------------------------------------------------------------
Year ended December 31, 2001
Revenue                        $ 13,321  $  9,666  $  9,376  $  3,841
Net loss                       $(36,026) $(20,352) $(25,721) $(14,063)
Net loss per share             $  (0.37) $  (0.22) $  (0.28) $  (0.16)
Weighted average common shares
 outstanding (000s)            $ 96,559  $ 90,483  $ 90,309  $ 89,462
Year ended December 31, 2000
Revenue                        $ 12,035  $  8,566  $  2,671  $  2,525
Net loss                       $(29,301) $ (3,584) $(11,690) $ (9,257)
Net loss per share             $  (0.33) $  (0.04) $  (0.13) $  (0.11)
Weighted average common shares
 outstanding (000s)            $ 87,902  $ 88,592  $ 88,296  $ 85,477
----------------------------------------------------------------------

Consolidated Balance Sheets
Unaudited (Expressed in thousands of U.S. dollars)
December 31, 2001 and 2000
----------------------------------------------------------------------
                                                       2001      2000
----------------------------------------------------------------------
Assets                                   (Change in currency - note 1)

Current assets:
 Cash and cash equivalents                        $ 140,774 $ 181,294
 Short-term investments                             280,475   301,987
 Accounts receivable                                 17,312    14,476
 Inventories                                         28,046    11,078
 Prepaid expenses                                       873       419
 ---------------------------------------------------------------------
                                                    467,480   509,254
Property, plant and equipment (note 3)              109,006    54,480
Intangible assets (note 4)                          170,453    26,849
Goodwill (note 2)                                   184,930         -
Investments (note 5)                                 26,241    73,697
Other long-term assets                                1,209     1,067
----------------------------------------------------------------------
                                                  $ 959,319 $ 665,347
----------------------------------------------------------------------
Liabilities and Shareholders' Equity

Current liabilities:
 Accounts payable and accrued liabilities         $  59,307 $  18,336
 Deferred revenue                                     1,944       492
 Accrued warranty liabilities                        16,622    16,387
 ---------------------------------------------------------------------
                                                     77,873    35,215
Long-term liabilities                                 7,723     3,881
Minority interest                                    36,517    10,294
----------------------------------------------------------------------
                                                    122,113    49,390
Shareholders' equity:
 Share capital                                    1,051,811   734,165
 Accumulated deficit                               (214,369) (118,208)
 Cumulative translation adjustment                     (236)        -
 ---------------------------------------------------------------------
                                                    837,206   615,957
----------------------------------------------------------------------
                                                  $ 959,319 $ 665,347
----------------------------------------------------------------------

      See accompanying notes to consolidated financial statements.



Consolidated Statements of Operations and Accumulated Deficit
Unaudited (Expressed in thousands of U.S. dollars, except per share
amounts)
Years ended December 31, 2001, 2000 and 1999
----------------------------------------------------------------------
                       Three months ended
                           December 31        Year ended December 31
----------------------------------------------------------------------
                         2001      2000      2001      2000      1999
----------------------------------------------------------------------
                                 (Change in currency - note 1)
Product revenues     $ 12,635  $ 12,035  $ 32,050  $ 25,797  $ 20,815
Engineering service
 revenue                  686         -     4,154         -         -
Investment and other
 income                 4,655     7,428    24,529    27,902     9,893
----------------------------------------------------------------------
                       17,976    19,463    60,733    53,699    30,708
Cost of revenues and
 expenses:
Cost of product
 revenues              16,344    17,587    33,415    34,578    18,695
Research and product
 development           23,559    16,787    82,686    54,315    38,945
General and
 administrative         5,961     3,099    15,046     8,952     7,281
Marketing                 477       793     3,450     1,973     1,862
Amortization of
 intangible assets      2,809       576     4,550     2,302     2,301
Capital taxes             378       348       444       677       298
----------------------------------------------------------------------
                       49,529    39,189   139,591   102,797    69,382
----------------------------------------------------------------------
Loss before
 undernoted           (31,553)  (19,726)  (78,858)  (49,098)  (38,674)
Equity in loss of
 associated companies  (5,096)  (10,313)  (23,541)  (21,947)  (12,814)
Minority interest       4,312     4,360     8,002    10,526     4,277
Business integration
 and restructuring
 Costs (note 2)        (3,700)        -    (3,700)        -         -
Gain on issuance of
 shares by subsidiary      58       328       997    15,561     2,721
License and royalty
 income (fees)
  (note 5)                 82    (3,718)    1,797    (7,687)   (1,614)
----------------------------------------------------------------------
Loss before income
 taxes                (35,898)  (29,071)  (95,303)  (52,645)  (46,104)
Income taxes              128       230       858     1,187       480
----------------------------------------------------------------------
Net loss for period   (36,025)  (29,301)  (96,161)  (53,832)  (46,584)
Accumulated deficit,
 beginning of period (178,344)  (88,907) (118,208)  (64,376)  (17,792)
----------------------------------------------------------------------
Accumulated deficit,
 end of period      $(214,369)$(118,208)$(214,369)$(118,208) $(64,376)
----------------------------------------------------------------------
Net loss per share  $   (0.37)$   (0.33)$   (1.05)$   (0.61) $  (0.56)
----------------------------------------------------------------------
Weighted average number
 of shares outstanding
 (000s)                96,559    87,901    91,382    87,801    83,765
----------------------------------------------------------------------

      See accompanying notes to consolidated financial statements.



Consolidated Statements of Cash Flows
Unaudited (Expressed in thousands of U.S. dollars)
Years ended December 31, 2001, 2000 and 1999
----------------------------------------------------------------------
                                             2001      2000      1999
----------------------------------------------------------------------
Cash provided by (used for):             (Change in currency - note 1)
Operating activities:
 Net loss                                $(96,161) $(53,832) $(46,584)
 Items not affecting cash:
  Gain on issuance of shares by subsidiary   (997)  (15,561)   (2,721)
  Depreciation and amortization            14,638     8,440     6,403
  License and royalty income (fees)        (1,797)    5,427     1,614
  Equity in loss of associated companies   23,541    21,947    12,814
  Minority interest                        (8,002)  (10,526)   (4,277)
  Other                                      (144)      437         -
----------------------------------------------------------------------
                                          (68,922)  (43,668)  (32,751)
Changes in non-cash operating working capital:
  Accounts receivable                      11,020     2,175    (8,035)
  Inventories                              (3,884)   (5,647)   (1,276)
  Prepaid expenses                            (73)      345      (239)
  Accounts payable and accrued liabilities  5,714     4,498      (175)
  Deferred revenue                          1,122      (313)   (1,118)
  Accrued warranty liabilities                235     5,259     2,527
  --------------------------------------------------------------------
                                           14,134     6,317    (8,316)
----------------------------------------------------------------------
 Cash used by operations                  (54,788)  (37,351)  (41,067)

Investments:
 Net decrease (increase) in short-term
  investments                              21,512  (131,141) (112,510)
 Additions to property, plant and
  equipment                               (18,329)  (20,153)  (16,061)
 Proceeds on sale of fixed assets             722         -         -
 Proceeds on licensing of manufacturing
  rights                                    3,362         -         -
 Investments                              (14,444)  (25,335)        -
 Acquisition of other companies           (27,714)        -         -
 Other long-term assets                      (142)     (848)     (220)
 Long-term liabilities                       (110)        -         -

 ---------------------------------------------------------------------
                                          (35,143) (177,477) (128,791)
Financing:
 Net proceeds on issuance of share
  capital                                  47,331   318,169     3,637
 Proceeds on issuance of shares by
  subsidiary                                2,352    23,737     1,819
 Other                                        (77)      (74)      (68)
 ---------------------------------------------------------------------
                                           49,606   341,832     5,388
----------------------------------------------------------------------
Foreign exchange loss on cash and cash
 equivalents denominated in a foreign
 currency                                    (195)        -         -
----------------------------------------------------------------------
Increase (decrease) in cash and cash
 equivalents                              (40,520)  127,004  (164,470)
Cash and cash equivalents, beginning of
 year                                     181,294    54,290   218,760
Cash and cash equivalents, end of year   $140,774  $181,294  $ 54,290
----------------------------------------------------------------------

      See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

Unaudited (Tabular amounts in thousands of U.S. dollars except per share amounts and number of shares)

1. Change in measurement and reporting currency:

As at December 31, 2001, Ballard adopted the U.S. dollar as its primary currency of measurement and reporting. In prior years, Ballard's financial statements were measured and reported in Canadian dollars. Over the past few years, and specifically with the acquisition in 2001 of Ballard Material Products Inc., XCELLSIS AG, and Ecostar Electric Drive Systems L.L.C. in 2001, Ballard's exposure to the U.S. dollar has increased significantly. Consequently, a high percentage of the cash generated and expended by Ballard is in U.S. dollars. In addition, the primary currency in which Ballard raises capital is the U.S. dollar. For these reasons, the U.S. dollar best reflects the primary economic environment in which Ballard operates. In accordance with Canadian GAAP, all financial statements amounts for 2001 and prior years have been translated into U.S. dollars using the exchange rate in effect at December 31, 2001 which was U.S.$1.00 equals CAN$1.5926.

As a result of the change in Ballard's currency of measurement, foreign currency risk has changed from non-Canadian dollar denominated monetary assets and liabilities to non-U.S. dollar denominated monetary assets and liabilities, and the impact of exchange rate changes relative to the U.S. dollar. The ultimate effects of the change on Ballard's financial position and results of operations will only be determinable in the future based on exchange rate changes that occur in such periods.

2. Business acquisitions:

(a) Acquisition of XCELLSIS AG and Ecostar Electric Drive Systems

L.L.C.

On November 30, 2001, Ballard increased its ownership of XCELLSIS AG (subsequently changed to Ballard Power Systems AG ("BPSAG")) to 50.1% from 26.7% and its ownership of Ecostar Electric Drive Systems L.L.C. (subsequently changed to Ballard Power Systems Corporation ("BPSC")) to 100% from 20.9%. Ballard's additional interests in these companies were acquired from Ballard's Vehicular Alliance partners DaimlerChrysler AG ("DaimlerChrysler") and Ford Motor Company ("Ford") in exchange for shares. BPSAG is primarily engaged in the development, production and sale of proton exchange membrane fuel cell engines and sub-systems for transportation purposes. BPSC is primarily engaged in the development, production and sale of electric drive systems for use in vehicles and power electronic products. The aggregate purchase price is estimated at $252,316,000 ($83,420,000 for BPSAG and $168,896,000 for BPSC) which includes the issuance of 10,790,311 shares valued at $235,237,000 and payments totalling $17,079,000 for estimated acquisition costs. The value of each common share issued was $21.80 which is based on the average quoted market price of Ballard's common shares around the announcement date of the acquisition, being October 2, 2001.

Notes to Consolidated Financial Statements

Unaudited (Tabular amounts in thousands of U.S. dollars except per share amounts and number of shares)

2. Business acquisitions (continued):

Included in the liabilities assumed on the acquisition of BPSAG is $4,260,000 of severance and lease termination costs relating to certain employees of BPSAG and the closure of certain buildings used by a former subsidiary of BPSAG. The termination and closure plan is expected to be completed during 2002. As at December 31, 2001 no costs have been charged against the liability recorded on acquisition.

Ballard has incurred $3,700,000 of business integration and restructuring costs associated with the acquisition of BPSAG and BPSC which have been expensed in the year. These costs consist primarily of termination benefits paid to certain Ballard employees and employee and public communication costs related to the transaction.

The acquisition of BPSAG and BPSC has been accounted for under the purchase method with Ballard identified as the acquirer, accordingly, the results of operations of BPSAG and BPSC have been consolidated from the date of acquisition.

In order to complete the acquisition of BPSAG in an efficient manner under German tax law, Ballard and DaimlerChrysler have entered into a forward sale agreement, whereby Ballard will acquire the remaining 49.9% interest in BPSAG on or before November 15, 2004 in exchange for 7,613,212 shares, such that Ballard ultimately will own 100% of BPSAG.

The cost of acquisition has been allocated to the acquired assets and liabilities assumed as follows:

                                         BPSAG       BPSC       Total
                                         -----       ----       -----
Current assets                       $  17,092  $   9,356   $  26,448
Property, plant and equipment           25,446     15,156      40,602
Intangible assets                       56,748     78,177     134,925
Goodwill                                66,224    102,724     168,948
----------------------------------------------------------------------
                                       165,510    205,413     370,923
Current liabilities                    (28,417)    (6,122)    (34,539)
Other liabilities                       (2,173)      (925)     (3,098)
Minority interest                      (33,273)         -     (33,273)
----------------------------------------------------------------------
                                       101,647    198,366     300,013
Less: Ballard's existing equity
 investment                            (18,227)   (29,470)    (47,697)
----------------------------------------------------------------------
Purchase price                       $  83,420  $ 168,896   $ 252,316
----------------------------------------------------------------------

On November 30, 2001, as part of this transaction, DaimlerChrysler and Ford purchased, by way of a private placement, 1,103,549 common shares of Ballard for $18,837,000 and 919,624 common shares of Ballard for $15,698,000, respectively, for a total investment of $34,535,000.

On December 31, 2001, Ballard acquired the remaining 49.9% of two subsidiaries of BPSAG. The amount of goodwill resulting from this transaction was $2,663,000.

(b) Acquisition of Ballard Material Products, Inc. ("BMP")

On May 25, 2001, Ballard purchased the carbon products division of Textron Systems Inc. for cash of $13,507,000, plus estimated acquisition costs of $924,000. The purchase price allocation has been assigned to the specific assets acquired and liabilities assumed. The acquisition of BMP has been accounted for using the purchase method of accounting and the results of operations have been included in the financial statements since the acquisition date.

The cost of acquisition has been allocated to the acquired assets as
follows:
Current assets                            $  4,770
Property, plant and equipment                7,752
Intangible assets                              957
Goodwill                                     1,366
Other assets                                   304
---------------------------------------------------
                                            15,149
Current liabilities                           (718)
---------------------------------------------------
Purchase price                            $ 14,431
---------------------------------------------------

(c) Acquisition of 10.6% of Ballard Generation Systems Inc.

("BGS")

On December 12, 2001, Ballard purchased all BGS shares owned by EBARA Corporation ("EBARA") representing 10.6% of BGS's outstanding shares. The purchase price was $25,787,000 including $25,740,000 funded through the issuance of 1,233,566 common shares and $47,000 of transaction costs. The value of each common share issued is based on the average quoted market price of Ballard's common shares around the announcement date of the acquisition, being October 1, 2001. The acquisition of the minority interest has been accounted for by the purchase method effective December 12, 2001, the date the purchase closed. The excess of the purchase price over the fair value of the net assets acquired is $24,286,000, of which $12,012,000 has been allocated to goodwill and $12,274,000 to intangible assets. Upon the completion of this transaction, Ballard owned 68.3% of BGS and FirstEnergy Corp. ("FirstEnergy") (formerly GPU International Inc.) and ALSTOM SA ("ALSTOM") owned 31.7%.

3. Property, plant and equipment:

--------------------------------------------------------------------
                                            Accumulated     Net book
2001                                 Cost   depreciation      value
--------------------------------------------------------------------
Land                             $  4,803     $      -     $  4,803
Building                           13,620        1,318       12,302
Computer equipment                 18,492        6,168       12,324
Furniture and fixtures              5,527        1,966        3,561
Leasehold improvements             15,155        1,807       13,348
Production and test equipment      77,771       16,417       61,354
Deposits on production equipment    1,314            -        1,314
--------------------------------------------------------------------
                                 $136,682     $ 27,676     $109,006
--------------------------------------------------------------------
                                            Accumulated     Net book
2000                                 Cost   depreciation      value
--------------------------------------------------------------------
Land                             $  3,583     $      -     $  3,583
Building                            9,569          828        8,741
Computer equipment                  8,146        4,092        4,054
Furniture and fixtures              3,409        1,553        1,856
Leasehold improvements              5,747        1,177        4,570
Production and test equipment      38,668       10,096       28,572
Deposits on production equipment    3,104            -        3,104
--------------------------------------------------------------------
                                 $ 72,226     $ 17,746     $ 54,480
--------------------------------------------------------------------

The deposits on manufacturing equipment are advances to external suppliers for assets under construction. These assets will be amortized over a period of 10 years once they are placed into use by Ballard.

Included in computer equipment and furniture and fixtures above are assets under capital lease at a cost of $721,000 (2000 - $721,000). Accumulated depreciation on these assets is $588,000 (2000 - $521,000).

4. Intangible assets:

----------------------------------------------------------------------
2001                                           Accumulated    Net book
                                       Cost   depreciation      value
----------------------------------------------------------------------
Fuel cell technology               $ 35,481     $  9,976     $ 25,505
System and sub-system technology    134,689        2,039      132,650
In-process research and development  11,276          188       11,088
Trade names                           1,231           21        1,210
----------------------------------------------------------------------
                                   $182,677     $ 12,224     $170,453
----------------------------------------------------------------------
2000                                           Accumulated    Net book
                                       Cost   depreciation      value
----------------------------------------------------------------------
Fuel cell technology               $ 34,524     $  7,675     $ 26,849
----------------------------------------------------------------------

Ballard obtains protection of its intellectual property which it develops by appropriate filing for patents in Canada, the United States and other countries. Legal expenditures in 2001 of $1,965,000 (2000 - $1,199,000; 1999 - $861,000) related to such filings are included in research and product development.

5. Investments:

Investments are comprised of the following:

----------------------------------------------------------------------
                                     2001                 2000
                              -------------------  -------------------
                                       Percentage           Percentage
                                Amount  ownership    Amount  ownership
----------------------------------------------------------------------
Ballard Power Systems AG      $      -     50.1%   $ 31,358     26.7%
Ballard Power Systems
 Corporation                         -    100.0%     31,232     20.9%
ALSTOM Ballard GmbH                  -     49.0%        278     49.0%
EBARA BALLARD Corporation.       2,829     49.0%        364     49.0%
QuestAir Technologies Inc.      11,730      9.7%     10,465     10.0%
MicroCoating Technologies Inc.   6,578      3.0%          -        -
Graftech Inc.                    5,104      2.5%          -        -
----------------------------------------------------------------------
                              $ 26,241             $ 73,697
----------------------------------------------------------------------

Effective November 30, 2001, Ballard increased its ownership of BPSC from 20.9% to 100% and of BPSAG from 26.7% to 50.1%. Accordingly, the results of operations of BPSAG and BPSC have been consolidated from the date of acquisition (note 2(a)). In 2001, prior to the date of these acquisitions, Ballard invested cash of $4,855,000 (2000 - $11,867,000) in BPSAG and $2,246,000 (2000 - $3,002,000) in BPSC.

ALSTOM Ballard GmbH ("ALSTOM Ballard"), and EBARA BALLARD Corporation. ("EBARA BALLARD") are associated companies and are accounted for using the equity method. QuestAir Technologies Inc. ("QuestAir"), MicroCoating Technologies Inc. ("MCT"), and Graftech Inc. ("Graftech") are not associated companies and are carried at cost.

In June 2001, Ballard entered into a development and collaboration agreement with Graftech that included Ballard acquiring a 2.5% ownership interest in Graftech. The purchase was funded through the issuance of 92,685 common shares valued at $4,856,000. Included in investments are related acquisition costs of $248,000.

In May 2001, Ballard entered into a collaboration, license and supply agreement with MCT that included Ballard acquiring approximately 3% of the equity of MCT on a fully diluted basis in exchange for $7,000,000. The purchase was funded by the payment of $1,900,000 in cash, and $4,000,000 through the issuance of 88,963 common shares valued at $4,482,000. A remaining cash payment of $1,100,000 will be made on completion of certain performance milestones. Included in the investment are related acquisition costs of $196,000.

In March 2001, Ballard made an additional investment in QuestAir of $1,265,000 in cash including acquisition costs. During 2000, Ballard entered into a joint development agreement with QuestAir that included Ballard acquiring a 10% interest in QuestAir, on a fully diluted basis, in exchange for $10,465,000 in cash.

In 2001 BGS made an additional investment of $3,736,000 in EBARA BALLARD, representing Ballard's proportionate share of financing by EBARA BALLARD's shareholders. The additional investment was satisfied through licensing to EBARA BALLARD manufacturing rights for $3,736,000. The granting of these rights resulted in a gain of $3,362,000, of which $1,565,000 representing Ballard's 49% has been deferred and will be recognized over five years. Ballard's equity interests in EBARA BALLARD continues to be 49%.

Ballard Power Systems is recognised as the world leader in developing, manufacturing and marketing zero-emission proton exchange membrane ("PEM") fuel cells. Ballard is commercialising fuel cell engines for the transportation market, electric drives for both fuel cell and battery powered electric vehicles, power conversion equipment for microturbines and other distributed generation technologies, fuel cell power generation equipment for markets ranging from 1-kilowatt portable power products to larger stationary power generation products and is a Tier 1 automotive supplier of friction materials for power train components. Ballard Power Systems' proprietary technology is enabling automobile, electrical equipment and portable power product manufacturers to develop environmentally clean products for sale. Ballard is partnering with strong, world-leading companies, including DaimlerChrysler, Ford, ALSTOM and EBARA, to commercialise BALLARD(R) fuel cells. Ballard has supplied fuel cells to Honda, Nissan, Volkswagen, Yamaha, Cinergy, Coleman Powermate and Matsushita Electric Works, among others.

Ballard's Common shares are listed on The Toronto Stock Exchange under the trading symbol "BLD" and on the Nasdaq National Market System under the symbol "BLDP". Ballard, the Ballard logo and Power to Change the World are registered trademarks of Ballard Power Systems Inc. Nexa and Powered by Ballard are trademarks of Ballard Power Systems Inc.