Condensed Consolidated Interim Financial Statements

(Expressed in U.S. dollars)

BALLARD POWER SYSTEMS INC.

Three and nine months ended September 30, 2014 and 2013

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

		September 30,			December 31,
	Note	2014			2013
Assets
Current assets:
Cash and cash equivalents		$	32,702		$	30,301
Trade and other receivables			19,776			15,471
Inventories	7		15,189			14,087
Prepaid expenses and other current assets			1,157			852
Total current assets			68,824			60,711
Non-current assets:
Property, plant and equipment			17,578			19,945
Intangible assets	8		24,651			2,716
Goodwill			36,291			36,291
Investments	17		6			157
Long-term trade receivables			-			219
Other long-term assets			173			175
Total assets		$	147,523		$	120,214
Liabilities and Equity
Current liabilities:
Trade and other payables	9	$	16,596		$	11,484
Deferred revenue and other recoveries			1,628			6,160
Provisions	10		5,448			6,819
Finance lease liability	11		1,242			1,399
Debt to Dantherm Power A/S non-controlling interests			-			566
Total current liabilities			24,914			26,428
Non-current liabilities:
Finance lease liability	11		9,594			10,772
Deferred gain on finance lease	11		4,389			4,734
Provisions	10		4,707			4,857
Debt to Dantherm Power A/S non-controlling interests			543			-
Employee future benefits			3,137			3,169
Total liabilities			47,284			49,960
Equity:
Share capital	12		914,786			866,574
Treasury shares	12		-			(118	)
Contributed surplus	12		288,899			296,368
Accumulated deficit			(1,101,341	)		(1,091,187	)
Foreign currency reserve			131			9
Total equity attributable to equity holders			102,475			71,646
Dantherm Power A/S non-controlling interests			(2,236	)		(1,392	)
Total equity			100,239			70,254
Total liabilities and equity		$	147,523		$	120,214

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

“Ed Kilroy”	“Ian Bourne”
Director	Director

BALLARD POWER SYSTEMS INC.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Unaudited (Expressed in thousands of U.S. dollars, except per share amounts and number of shares)

		Three months ended						Nine months ended
					September 30,						September 30,
	Note		2014			2013			2014			2013
Revenues:
Product and service revenues		$	20,611		$	17,003		$	53,074		$	43,935
Cost of product and service revenues			15,403			12,312			39,795			33,070
Gross margin			5,208			4,691			13,279			10,865
Operating expenses:
Research and product development			3,230			4,090			9,784			13,528
General and administrative			2,419			2,551			8,095			8,420
Sales and marketing			1,867			1,869			5,762			5,727
Total operating expenses			7,516			8,510			23,641			27,675
Results from operating activities			(2,308	)		(3,819	)		(10,362	)		(16,810	)
Finance income (loss) and other	13		181			(382	)		388			(331	)
Finance expense	13		(232	)		(298	)		(708	)		(1,218	)
Net finance expense			(51	)		(680	)		(320	)		(1,549	)
Loss on sale of property, plant and equipment			(3	)		(219	)		(2	)		(176	)
Impairment loss on investment	17		-			-			(149	)		(363	)
Loss before income taxes			(2,362	)		(4,718	)		(10,833	)		(18,898	)
Income tax expense			(368	)		(318	)		(894	)		(318	)
Net loss from continuing operations for period			(2,730	)		(5,036	)		(11,727	)		(19,216	)
Net earnings from discontinued operations for period	6		-			66			320			24
Net loss for period			(2,730	)		(4,970	)		(11,407	)		(19,192	)
Other comprehensive income (loss):
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences			320			(339	)		332			(119	)
Net loss on hedge of forward contracts			(278	)		-			(48	)		-
Other comprehensive income (loss), net of tax for period			42			(339	)		284			(119	)
Total comprehensive loss for period		$	(2,688	)	$	(5,309	)	$	(11,123	)	$	(19,311	)
Net income (loss) attributable to:
Ballard Power Systems Inc. from continuing operations		$	(2,423	)	$	(4,574	)	$	(10,721	)	$	(17,714	)
Ballard Power Systems Inc. from discontinued operations			-			66			320			24
Dantherm Power A/S non-controlling interest			(307	)		(462	)		(1,006	)		(1,502	)
Net loss for period		$	(2,730	)	$	(4,970	)	$	(11,407	)	$	(19,192	)
Total comprehensive loss attributable to:
Ballard Power Systems Inc.		$	(2,537	)	$	(4,684	)	$	(10,279	)	$	(17,738	)
Dantherm Power A/S non-controlling interest			(151	)		(625	)		(844	)		(1,573	)
Total comprehensive loss for period		$	(2,688	)	$	(5,309	)	$	(11,123	)	$	(19,311	)
Basic and diluted loss per share attributable to Ballard Power Systems Inc.
Continuing operations		$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.18	)
Discontinued operations			0.00			0.00			0.00			0.00
Net loss for period		$	(0.02	)	$	(0.05	)	$	(0.08	)	$	(0.18	)
Weighted average number of common shares outstanding		132,049,229				99,364,066			125,795,764			96,969,725

See accompanying notes to consolidated financial statements.

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

																Dantherm
	Ballard Power Systems Inc. Equity															Power A/S
													Foreign			Non-
	Number of	Share		Treasury			Contributed			Accumulated			currency			controlling				Total
	shares	capital		shares			surplus			deficit			reserve			interests				equity
Balance, December 31, 2013	110,133,901	$	866,574	$	(118	)	$	296,368		$	(1,091,187	)	$	9		$	(1,392	)	$	70,254
Net loss	-		-		-			-			(10,401	)		-			(1,006	)		(11,407	)
Acquisition of intangible assets (note 8)	5,121,507		20,307		-			-			-			-			-			20,307
Warrants exercised (note 12)	7,939,937		12,299		-			-			-			-			-			12,299
Exercise of convertible promissory note	4,761,905		4,000		-			(4,000	)		-			-			-			-
(note 12)
Sale of treasury shares (note 12)	-		-		118			-			247			-			-			365
RSUs redeemed	583,084		866		-			(2,829	)		-			-			-			(1,963	)
Options exercised (note 12)	3,563,782		10,740		-			(3,946	)		-			-			-			6,794
Share distribution plan	-		-		-			3,306			-			-			-			3,306
Other comprehensive income:
Foreign currency translation for foreign	-		-		-			-			-			170			162			332
operations
Net loss on hedge of forward contracts	-		-		-			-			-			(48	)		-			(48	)
Balance, September 30, 2014	132,104,116	$	914,786	$	-		$	288,899		$	(1,101,341	)	$	131		$	(2,236	)	$	100,239
																Dantherm
	Ballard Power Systems Inc. Equity															Power A/S
													Foreign			Non-
	Number of	Share		Treasury			Contributed			Accumulated			currency			controlling				Total
	shares	capital		shares			surplus			deficit			reserve			interests				equity
Balance, December 31, 2012	91,801,477	$	845,630	$	(313	)	$	291,184		$	(1,074,181	)	$	92		$	(4,410	)	$	58,002
Net loss	-		-		-			-			(17,690	)		-			(1,502	)		(19,192	)
Additional investment in Dantherm Power A/S	-		-		-			-			-			-			1,319			1,319
Net Offering proceeds (note 12)	7,275,000		6,839		-			-			-			-			-			6,839
Proceeds on issuance of convertible	-		-		-			4,000			-			-			-			4,000
promissory note (note 12)
Purchase of treasury shares	-		-		(4	)		-			-			-			-			(4	)
DSUs redeemed	26,652		21		-			(53	)		-			-			-			(32	)
RSUs redeemed	540,239		718		201			(1,727	)		106			-			-			(702	)
Options exercised	127,067		205		-			(67	)		-			-			-			138
Share distribution plan	-		-		-			2,412			-			-			-			2,412
Other comprehensive income:
Foreign currency translation for foreign	-		-		-			-			-			(48	)		(71	)		(119	)
operations
Balance, September 30, 2013	99,770,435	$	853,413	$	(116	)	$	295,749		$	(1,091,765	)	$	44		$	(4,664	)	$	52,661

See accompanying notes to consolidated financial statements.

BALLARD POWER SYSTEMS INC.
Consolidated Statement of Cash Flows
Unaudited (Expressed in thousands of U.S. dollars)

		Nine months ended September 30,
	Note		2014			2013
Cash provided by (used for):
Operating activities:
Net loss for the period		$	(11,407	)	$	(19,192	)
Adjustments for:
Compensatory shares			2,616			2,773
Employee future benefits			(33	)		60
Depreciation and amortization			4,162			4,174
Gain on decommissioning liabilities			(149	)		(22	)
Loss on sale of property, plant and equipment			2			176
Reversal of impairment loss on property, plant and equipment	6		(320	)		(45	)
Impairment loss on investment	17		149			363
Unrealized loss on forward contracts			97			-
			(4,883	)		(11,713	)
Changes in non-cash working capital:
Trade and other receivables			(4,429	)		(2,937	)
Inventories			(1,161	)		(4,442	)
Prepaid expenses and other current assets			(351	)		(56	)
Trade and other payables			3,810			1,864
Deferred revenue			(4,335	)		1,258
Warranty provision			(1,127	)		(518	)
			(7,593	)		(4,831	)
Cash used by operating activities			(12,476	)		(16,544	)
Investing activities:
Net decrease in short-term investments			-			12,068
Additions to property, plant and equipment			(575	)		(328	)
Net proceeds on sale of property, plant and equipment and other			-			198
Additions to intangible assets	8		(3,199	)		-
Net proceeds from disposition of Material Products division	6		-			9,085
Net investments in associated company			-			(4	)
			(3,774	)		21,019
Financing activities:
Sale (purchase) of treasury shares	12		365			(4	)
Payment of finance lease liabilities	11		(722	)		(751	)
Net repayment of bank operating line			-			(6,305	)
Net proceeds on issuance of share capital from stock option exercises	12		6,794			138
Net proceeds on issuance of share capital from warrant exercises	12		12,299			-
Net Offering proceeds	12		-			6,839
Proceeds on issuance of share capital to Dantherm Power A/S			-			1,360
non-controlling interests
Proceeds on issuance of convertible promissory note	12		-			4,000
Proceeds on issuance of debt to Dantherm Power A/S non-controlling			-			1,165
interests
			18,736			6,442
Effect of exchange rate fluctuations on cash and cash equivalents held			(85	)		(257	)
Increase in cash and cash equivalents			2,401			10,660
Cash and cash equivalents, beginning of period			30,301			9,770
Cash and cash equivalents, end of period		$	32,702		$	20,430

Supplemental disclosure of cash flow information (note 15).
See accompanying notes to consolidated financial statements.

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

1.	Reporting entity:
	The principal business of Ballard Power Systems Inc. (the “Corporation”) is the design, development, manufacture, sale and service of fuel cell products for a variety of applications, focusing on “commercial stage” markets of Telecom Backup Power and Material Handling, and on “development stage” markets of Bus and Distributed Generation, as well as the provision of Engineering Services and the license and sale of the Corporation’s extensive intellectual property portfolio and fundamental knowledge for a variety of fuel cell applications. A fuel cell is an environmentally clean electrochemical device that combines hydrogen fuel with oxygen (from the air) to produce electricity. The Corporation’s technology is based on proton exchange membrane (“PEM”) fuel cells.
	The Corporation is a company domiciled in Canada and its registered office is located at 9000 Glenlyon Parkway, Burnaby, British Columbia, Canada, V5J 5J8. The condensed consolidated interim financial statements of the Corporation as at and for the three and nine month periods ended September 30, 2014 comprise the Corporation and its subsidiaries.
2.	Basis of preparation:
(a)	Statement of compliance:
	These condensed consolidated interim financial statements of the Corporation have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”), on a basis consistent with those followed in the most recent annual consolidated financial statements, except as described in note 3 below. As described in note 3, the Corporation has adopted new IFRS standards effective January 1, 2014. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements.
	The condensed consolidated interim financial statements were authorized for issue by the Audit Committee of the Board of Directors on October 28, 2014.
(b)	Basis of measurement:
	The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:
	Financial instruments classified as fair value through profit or loss and available-for-sale are measured at fair value; Derivative financial instruments are measured at fair value; and Employee future benefits liability is recognized as the net total of the present value of the defined benefit obligation, less the fair value of plan assets.

6

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

2.	Basis of preparation (cont’d):
(c)	Functional and presentation currency:
	These condensed consolidated interim financial statements are presented in U.S. dollars, which is the Corporation’s functional currency.
(d)	Use of estimates:
	The preparation of the condensed consolidated interim financial statements in conformity with International Financial Reporting Standards (“IFRS”) requires the Corporation’s management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Significant areas having estimation uncertainty include revenue recognition, asset impairment, warranty provision, inventory provision, employee future benefits, and income taxes. These estimates and judgments are discussed further in note 4.
(e)	Future operations:
	The Corporation is required to assess its ability to continue as a going concern and whether substantial doubt exists as to the Corporation’s ability to continue as a going concern into the foreseeable future. The Corporation has forecast its cash flows for the foreseeable future and despite the ongoing volatility and uncertainties inherent in the business, the Corporation believes it has adequate liquidity in cash and working capital to finance its operations. The Corporation’s ability to continue as a going concern and realize its assets and discharge its liabilities and commitments in the normal course of business is dependent upon the Corporation having adequate liquidity and achieving profitable operations that are sustainable. There are various risks and uncertainties affecting the Corporation including, but not limited to, the market acceptance and rate of commercialization of the Corporation’s products, the ability of the Corporation to successfully execute its business plan, and general global economic conditions, certain of which are beyond the Corporation’s control. The Corporation’s strategy to mitigate these risks and uncertainties is to execute a business plan aimed at continued focus on revenue growth, improving overall gross margins, and managing operating expenses and working capital requirements. Failure to implement this plan could have a material adverse effect on the Corporation’s financial condition and or results of operations.

7

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

3.	Changes in accounting policies:
	The accompanying financial information reflects the same accounting policies and methods of application as the Corporation’s consolidated financial statements for the year ended December 31, 2013, with the exception of the following new accounting standards that were issued by the IASB and adopted by the Corporation, effective January 1, 2014. Certain comparative figures have been reclassified to conform to the basis of presentation adopted in the current period.
(a)	Amendments to IAS 32 – Offsetting Financial Assets and Liabilities:
	Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities clarifies that an entity currently has a legally enforceable right to set-off if that right is:
	a)	not contingent on a future event; and
	b)	enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties.
	The amendments to IAS 32 also clarify when a settlement mechanism provides for net settlement or gross settlement that is equivalent to net settlement.
	The adoption of the amendments to IAS 32 does not have a material impact on the consolidated financial statements.
(b)	Amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting:
	Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting add a limited exception to provide relief from discontinuing an existing hedging relationship when a novation that was not contemplated in the original hedging documentation meets specific criteria.
	The adoption of the amendments to IAS 39 does not have a material impact on the consolidated financial statements.
4.	Critical judgments in applying accounting policies and key sources of estimation uncertainty:
	Critical judgments in applying accounting policies: Critical judgments that management has made in the process of applying the Corporation’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements are limited to management’s assessment of the Corporation’s ability to continue as a going concern (note 2(e)). The Corporation’s significant accounting policies are detailed in note 4 of the Corporation’s consolidated financial statements for the year ended December 31, 2013, with the exception of the new accounting standards adopted by the Corporation effective January 1, 2014, detailed in note 3 of these condensed consolidated interim financial statements.

8

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

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

9

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

4.	Critical judgments in applying accounting policies and key sources of estimation uncertainty (cont’d):
(d)	Inventory provision:
	In determining the lower of cost and net realizable value of inventory and in establishing the appropriate impairment amount for inventory obsolescence, management estimates the likelihood that inventory carrying values will be affected by changes in market pricing or demand for the products and by changes in technology or design which could make inventory on hand obsolete or recoverable at less than the recorded value. Management performs regular reviews to assess the impact of changes in technology and design, sales trends and other changes on the carrying value of inventory. Where it is determined that such changes have occurred and will have an impact on the value of inventory on hand, appropriate adjustments are made. If there is a subsequent increase in the value of inventory on hand, reversals of previous write-downs to net realizable value are made. Unforeseen changes in these factors could result in additional inventory provisions, or reversals of previous provisions, being required.
(e)	Employee future benefits:
	The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that have terms to maturity approximating the terms of the related pension liability.
	Determination of benefit expense requires assumptions such as the discount rate to measure obligations, expected plan investment performance, expected healthcare cost trend rate, and retirement ages of employees. Actual results will differ from the recorded amounts based on these estimates and assumptions.
(f)	Income taxes:
	Deferred tax assets and liabilities are measured using enacted, or substantively enacted, tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period that includes the substantive enactment date. Management reviews the deferred income tax assets at each reporting period and records adjustments to the extent that it is no longer probable that the related tax benefit will be realized.
5.	Recent accounting pronouncements:
	An overview of accounting standard changes that the Corporation will be required to adopt in future years was disclosed in the Corporation’s consolidated financial statements for the year ended December 31, 2013, with the exception of the following new accounting standard change (IFRS 15) and update to previously disclosed accounting standard change (IFRS 9).

10

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

5.	Recent accounting pronouncements (cont’d):
(a)	IFRS 15 – Revenue from Contracts with Customers:
	On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 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, and SIC 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.
	The new standard is effective for fiscal years ending on or after December 31, 2017 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, 2017. The extent of the impact of adoption has not yet been determined.
(b)	IFRS 9 – Financial Instruments:
	In November 2009, the IASB issued IFRS 9 Financial Instruments (“IFRS 9 (2009)”), and in October 2010, the IASB published amendments to IFRS 9 (“IFRS 9 (2010)”). In November 2013, the IASB issued a new general hedge accounting standard, which forms part of IFRS 9 Financial Instruments (“IFRS 9 (2013)”).
	IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows.
	IFRS 9 (2010) introduces additional changes relating to financial liabilities.
	IFRS 9 (2013) includes a new general hedge accounting standard which will align 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.

11

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

5.	Recent accounting pronouncements (cont’d):
(b)	IFRS 9 – Financial Instruments (cont’d):
	IFRS 9 (2013) also removed the January 1, 2015 effective date of IFRS 9. The new mandatory effective date will be determined once the classification and measurement and impairment phases of IFRS 9 are finalized; however, in February 2014, the IASB tentatively decided that IFRS 9 would be mandatorily effective for fiscal years beginning on or after January 1, 2018.
	The Corporation intends to adopt IFRS 9 in its financial statements for the fiscal year beginning January 1, 2018. The extent of the impact of adoption has not yet been determined.
6.	Discontinued operations – Disposition of Material Products division:
	On January 31, 2013, the Corporation completed an agreement to sell substantially all of the assets of its Material Products division for net cash proceeds of $9,085,000 after deducting for working capital adjustments, broker’s commissions and expenses, and legal and other expenses. In March 2014, the Corporation received additional proceeds of $320,000 payable through a product credit in 2014 and 2015 for fuel cell gas diffusion layers based on 2013 results of the former Material Products division. The additional proceeds payable have been recorded as a reversal of previously recorded impairment losses on property, plant and equipment, and were recorded in net earnings (loss) from discontinued operations.
7.	Inventories:
	During the three and nine months ended September 30, 2014, the write-down of inventories to net realizable value amounted to $124,000and $694,000 (2013 - $138,000 and $236,000), respectively. There were no reversals of previously recorded write-downs during the three and nine months ended September 30, 2014 and 2013. Write-downs and reversals are included in either cost of product and service revenues, or research and product development expense, depending on the nature of inventory.
8.	Intangible assets:
	On April 24, 2014, the Corporation acquired the transportation and stationary related fuel cell intellectual property assets of United Technologies Corporation (“UTC”) for total consideration of $22,306,775. The acquired assets consist of approximately 800 patents and patent applications, as well as patent licenses, invention disclosures and know-how primarily related to PEM fuel cell technology. As consideration for the acquired intellectual property assets, UTC received 5,121,507 of the Corporation’s common shares valued at $20,306,775, $2,000,000 in cash, a grant back license to use the patent portfolio in UTC’s existing businesses, and a portion of royalties, typically 25%, on the Corporation’s future intellectual property sale or licensing income generated from the combined intellectual property portfolio for a period of 15 years to April 2029. The acquired intellectual property is being amortized over its estimated useful life of 15 years. Since the acquisition, an additional $769,000 has been incurred to prepare the intellectual property for use, which has been capitalized and is being amortized over the estimated 15 year useful life.

12

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

8.	Intangible assets (cont’d):
	On June 29, 2014, the Corporation acquired the material handling intellectual property portfolio of H2 Logic A/S for total cash consideration of $430,000.

Intangible assets				Accumulated			Net carrying
Balance		Cost		amortization			amount
At January 1, 2014	$	46,329		$	43,613		$	2,716
Acquisition of intangible assets		23,506			-			23,506
Amortization expense		-			1,571			(1,571	)
Disposals		(519	)		(519	)		-
At September 30, 2014	$	69,316		$	44,665		$	24,651

	Amortization and impairment losses of fuel cell technology and development costs are allocated to research and product development expense. For the three and nine months ended September 30, 2014, amortization of $707,000and $1,571,000 (2013 - $390,000 and $1,087,000), respectively were recorded. There were no impairment losses recorded during the three and nine months ended September 30, 2014 and 2013.
	During the three and nine months ended September 30, 2014, patents that were fully amortized and no longer in use were written-off.
9.	Trade and other payables:

	September 30,		December 31,
	2014		2013
Trade accounts payable	$	8,258	$	2,154
Compensation payable		4,010		5,133
Other liabilities		3,572		3,819
Taxes payable		756		378
	$	16,596	$	11,484

10. Provisions:

	September 30,		December 31,
	2014		2013
Restructuring charges	$	-	$	237
Warranty		5,448		6,582
Current	$	5,448	$	6,819
Non-current decommissioning liabilities	$	4,707	$	4,857

13

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

11.	Finance lease liability:
	The Corporation has a CDN $1,830,770 capital leasing facility (“Leasing Facility”) which can be utilized to finance the acquisition and lease of operating equipment. Interest is charged on outstanding amounts at the bank’s prime rate per annum and is repayable on demand by the bank in the event of certain conditions. The Corporation leases certain assets under finance lease agreements, which have imputed interest rates ranging from 2.25% to 7.35% per annum and expire between December 2014 and February 2025. At September 30, 2014, $1,238,000 (December 31, 2013 – $1,772,000) was outstanding on the Leasing Facility which is included in the finance lease liability.
	The remaining $9,598,000finance lease liability relates to the lease of the Corporation’s head office building.
	Deferred gains were also recorded on closing of the finance lease agreements and are amortized over the finance lease term. At September 30, 2014, the outstanding deferred gain was $4,389,000 (December 31, 2013 - $4,734,000).
12.	Equity:
(a)	Share capital:
	On April 24, 2014, the Corporation issued 5,121,507 of its common shares valued at $20,306,775 to UTC as part of the consideration for acquired intellectual property assets (note 8).
	On March 26, 2013, the Corporation closed an underwritten offering (“Offering”) of 7,275,000 units at a price of $1.10 per unit for gross Offering proceeds of $8,003,000. Each unit in the Offering was comprised of one common share and one warrant to purchase one common share. Each warrant is exercisable immediately upon issuance having a 5-year term and an exercise price of $1.50 per share. Net proceeds from the Offering were $6,839,000 after deducting for underwriting discounts, commissions, and other offering expenses, legal and accounting fees, and previously incurred costs related to the 2012 base shelf prospectus under which the units were issued.

Gross Offering proceeds (7,275,000 shares at $1.10 per share)	$	8,003
Less: Underwriting expenses		(642	)
Less: Other financing expenses		(522	)
Net Offering proceeds	$	6,839
At September 30, 2014, 132,104,116 common shares were issued and outstanding.

14

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

12.	Equity (cont’d):
(b)	Share purchase warrants:
	During the three and nine months ended September 30, 2014, 25,000and 7,939,937warrants were exercised for net proceeds of $28,000and $12,299,000, respectively.

	Exercise price of			Exercise price of			Total
Warrants Outstanding	$	1.50		$	2.00		Warrants
At December 31, 2013		7,275,000			2,587,500		9,862,500
Warrants exercised		(7,027,437	)		(912,500	)	(7,939,937	)
At September 30, 2014		247,563			1,675,000		1,922,563

	At September 30, 2014, 1,922,563share purchase warrants were issued and outstanding.
(c)	Convertible promissory note:
	On March 28, 2013, the Corporation completed an agreement with Anglo American Platinum Limited (“Anglo”), under which Anglo invested $4,000,000 in the Corporation through its Platinum Group Metals Development Fund, to support continued development and commercial advancement of the Corporation’s fuel cell products in target market applications. The investment took the form of a 5-year non-interest bearing convertible promissory note (“Note”). The Note may be repaid in the form of the Corporation’s common shares at Anglo’s option on or before the loan maturity date of April 1, 2018. The conversion, or repayment price, was set at a fixed price of $0.84 per share which was equal to a 20% discount to the market price of the shares on the closing date of the agreement.
	In March 2014, Anglo exercised its option and converted the Note into 4,761,905 common shares. The conversion right and $4,000,000 proceeds received in 2013 were accounted for as a single equity instrument and originally recorded in contributed surplus, which has been reclassified to share capital upon the issuance of the common shares in March 2014.
(d)	Share options:
	During the three and nine months ended September 30, 2014, 10,999and 3,563,782 options were exercised for proceeds of $12,000 and $6,794,000, respectively.
	During the three and nine months ended September 30, 2014, options to purchase 50,000 and 1,417,507 (2013 – nil and 1,081,250) common shares were granted with a weighted average fair value of $1.95 and $1.74 (2013 – $nil and $0.63). The granted options vest annually over three years.

15

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

12.	Equity (cont’d):
(d)	Share options (cont’d):
	The fair values of the options granted during the period were determined using the Black-Scholes valuation model under the following weighted average assumptions:

	Three months ended		Nine months ended
		September 30,		September 30,
	2014	2013	2014	2013
Expected life	4 years	n/a	4 years	5 years
Expected dividends	Nil	n/a	Nil	Nil
Expected volatility	77%	n/a	69%	63%
Risk-free interest rate	2%	n/a	1%	1%

	As at September 30, 2014 and 2013, options to purchase 4,364,427and 6,995,318common shares, respectively, were outstanding. During the three and nine months ended September 30, 2014, compensation expense of $404,000and $1,075,000 (2013 - $207,000 and $671,000) was recorded in net income, respectively, based on the grant date fair value of the awards recognized over the vesting period.
(e)	Deferred share units:
	As at September 30, 2014 and 2013, 875,981and 563,472 deferred share units (“DSUs”), respectively, were outstanding. During the three and nine months ended September 30, 2014, 23,611and 259,717DSUs were issued, respectively. During the three and nine months ended September 30, 2014, $77,000and $232,000of compensation expense was recorded in net income relating to 23,611and 60,407DSUs granted during the respective periods. For the remaining 199,310 DSUs granted during the nine months ended September 30, 2014, estimated compensation expense of $737,000 was recorded in net income in 2013. Upon the issuance of the DSUs in 2014, an $18,000 adjustment increasing net income was recorded.
	During the three and nine months ended September 30, 2013, 46,961 and 156,180 DSUs were issued, respectively. During the three and nine months ended September 30, 2013, $245,000 and $584,000 of compensation expense was recorded in net income, of which $82,000 and $223,000 related to DSUs granted during the respective periods. The remaining $163,000 and $361,000 related to compensation expense expected to be earned for DSUs not yet issued.
(f)	Restricted share units:
	As at September 30, 2014 and 2013, 1,924,969 and 2,423,528 restricted share units (“RSUs”), respectively, were outstanding. During the three and nine months ended September 30, 2014, 43,478 and 588,372 (2013 – nil and 1,327,266) RSUs were issued and compensation expense of $454,000 and $1,327,000 (2013 - $504,000 and $1,518,000) was recorded in net income. Each RSU is convertible into one common share. The RSUs vest after a specific number of years from date of issuance and, under certain circumstances, are contingent on achieving specific performance criteria.

16

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

12.	Equity (cont’d):
(f)	Restricted share units (cont’d):
	In March 2014, the Corporation sold its remaining 65,441 treasury shares as no RSUs remained outstanding under the market purchase RSU plan. As of September 30, 2014, the Corporation held no treasury shares.
13.	Finance income and expense:

	Three months ended						Nine months ended
				September 30,						September 30,
		2014		2013			2014			2013
Investment income	$	38		$	25		$	95		$	87
Settlement of TPC funding obligation		-			-			-			(1,197	)
Pension costs		(138	)		(63	)		(228	)		(190	)
Foreign exchange gain (loss)		281			(344	)		521			969
Finance income (loss) and other	$	181		$	(382	)	$	388		$	(331	)
Finance expense	$	(232	)	$	(298	)	$	(708	)	$	(1,218	)

	On January 15, 2013, the Corporation reached an agreement with Technology Partnerships Canada (“TPC”) to terminate all existing and future potential royalties payable in respect of future sales of fuel cell based stationary power products under the Utilities Development Program (Phase 2) in exchange for a final repayment to TPC of CDN $1,930,000, payable in four quarterly installments in 2013. On settlement with TPC, the Corporation recorded a charge of $1,197,000 (CDN $1,209,000) to finance income (loss) and other, representing the excess of the settlement amount of CDN $1,930,000 over royalty amounts previously accrued as of the date of settlement of CDN $721,000. As of September 30, 2014, the settlement was fully paid and no liability remained outstanding.
14.	Related party transactions:
	Related parties include shareholders with a significant ownership interest in either the Corporation or Dantherm Power, together with their subsidiaries and affiliates. The revenue and costs recognized from transactions with such parties reflect the prices and terms of sales and purchase transactions with related parties, which are in accordance with normal trade practices. Transactions between the Corporation and its subsidiaries are eliminated on consolidation.

	September 30,		December 31,
Balances with related parties:	2014		2013
Trade payables	$	51	$	139
Interest payable	$	39	$	16
Revolving credit facility	$	505	$	550

17

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

14. Related party transactions (cont’d):

	Three months ended				Nine months ended
			September 30,				September 30,
Transactions during the period with related parties:	2014		2013		2014		2013
Purchases	$	38	$	18	$	137	$	87
Finance expense	$	9	$	85	$	26	$	258

15. Supplemental disclosure of cash flow information:

	Nine months ended September 30,
Non-cash financing and investing activities:		2014		2013
Compensatory shares	$	866	$	738
Shares issued for acquisition of intangible assets (note 8)	$	20,307	$	-

16.	Operating segments:
	The Corporation operates in a single segment, Fuel Cell Products and Services, which consists of the sale and service of fuel cell products for “commercial stage” markets of Telecom Backup Power and Material Handling, and for “development stage” markets of Bus and Distributed Generation, as well as the provision of Engineering Services and the license and sale of the Corporation’s extensive intellectual property portfolio and fundamental knowledge for a variety of fuel cell applications.
17.	Financial instruments:
(a)	Fair value:
	The Corporation’s financial instruments consist of cash and cash equivalents, short-term investments, trade and other receivables, investments, trade and other payables, and finance lease liability. The fair values of cash and cash equivalents, trade and other receivables, and trade and other payables approximate their carrying value because of the short-term nature of these instruments. The Corporation’s investments (note 17(c)) are not actively traded, therefore management estimates fair value using valuation techniques that require inputs that are unobservable, including inputs made available by its investees (i.e. Level 3 of the fair value hierarchy). The interest rates applied to the finance lease liability are not considered to be materially different from market rates, thus the carrying value of the finance lease liability approximates its fair value.

18

BALLARD POWER SYSTEMS INC.

Notes to Condensed Consolidated Interim Financial Statements

Three and nine months ended September 30, 2014 and 2013

Unaudited

(Tabular amounts expressed in thousands of U.S. dollars, except number of shares)

17.	Financial instruments (cont’d):
(a)	Fair value (cont’d):
	Fair value measurements recognized in the statement of financial position must be categorized in accordance with the following levels:
	(i)	Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
	(ii)	Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
	(iii)	Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	The Corporation categorized the fair value measurement of its short-term investments in Level 1 as they are primarily derived directly from reference to quoted prices (unadjusted) in active markets.
(b)	Carrying value:
	As of September 30, 2014, the carrying values of the Corporation’s financial instruments approximate their fair values. For the Corporation’s non-financial assets and liabilities measured at fair value on a non-recurring basis, no fair value measurements were made as of September 30, 2014.
(c)	Investments:
	Investments are comprised of the following:

	September 30, 2014			December 31, 2013
			Percentage			Percentage
	Amount		ownership	Amount		ownership
Chrysalix Energy Limited Partnership	$	-	0%	$	150	15.0%
Other		6			7
	$	6		$	157
The Corporation’s 15% ownership share in Chrysalix Energy Limited Partnership (“Chrysalix”) has been accounted for as an available-for-sale financial asset and recorded at fair value. In March 2014, the Corporation recorded an impairment loss of $150,000 as it wrote-off the remaining value of Chrysalix to its estimated net realizable value of $nil. On June 30, 2014, the operations of Chrysalix were formally terminated and the company was dissolved. A nominal $1,000 final cash distribution was received upon dissolution, which was recorded against the previously recognized impairment loss, resulting in a net impairment loss of $149,000 recognized during the nine months ended September 30, 2014.

19