"Our re-positioning of Ballard over the past year, with a sharper focus on our core fuel cell business and greater emphasis on nearer term commercial opportunities, has enabled key progress, evident in our results in the second quarter," said John Sheridan, Ballard's President and Chief Executive Officer.

2006 Q2 financial highlights include:

- Growth in revenues of $6.1 million to $15.1 million, year over year

- Reduced net loss to $17.3 million, a 41% improvement from $29.5 million in 2005

- Reduced operating cash consumption(1) to $8.1 million, a 72% improvement from $28.7 million in 2005

- Cash reserves of $213 million

Automotive markets:

Ballard began shipping early prototypes of its next generation Mark 1100 automotive fuel cell and electric drive products for testing and integration to its Alliance partners, DaimlerChrysler AG and Ford Motor Company. Compared to the previous generation, the Mark 1100 has increased power output and improved freeze start capability. Automotive engineering development revenues of $2.7 million booked in the quarter reflect the continued progress of Ballard's next generation automotive programs.

As previously announced, Ballard signed a fuel cell supply agreement for the supply of up to 20 Mark 902 automotive fuel cells to Shanghai Fuel Cell Vehicle Powertrain Co., Ltd. (Shanghai Powertrain). Ballard also signed a Memorandum of Understanding with Shanghai Powertrain to cooperate on the development of fuel cell vehicles for demonstration and field trial programs planned in China in 2006 and 2007.

Non-Automotive markets:

Ballard continued to demonstrate progress in its priority nearer term markets, residential cogeneration, forklifts and back-up power.

In the residential cogeneration market, in the second quarter, Ballard shipped 102 units of its Mark 1030 fuel cell, and booked new orders for 94 units. Year to date, Ballard has shipped or booked new orders for 216 Mark 1030 fuel cells.

Also in the quarter, Ballard began shipping early prototypes of its next generation Mark 1030 residential cogeneration fuel cell for system integration testing. Compared to the previous generation, this unit is 40% lighter, 26% smaller, features increased reliability and has a targeted lifetime of 40,000 hours.

In the fuel cell forklift market, in the second quarter, Ballard shipped 36 units of its Mark 9 SSL(TM) fuel cell, and booked new orders for two units. Year to date, Ballard has shipped or booked new orders for 76 Mark 9 SSL(TM) fuel cells. Ballard's customers are currently engaged in field trial programs with major end users. As previously indicated, subject to the continuing success of these trials, Ballard anticipates additional shipments and follow on orders for Mark 9 SSL(TM) units in the second half of 2006.

Financial Results

Ballard's revenues for the three months ended June 30, 2006 were $15.1 million, compared to $9.0 million for the same period in 2005. During the second quarter of 2006, engineering development revenue increased $4.3 million and product and service revenues increased $1.8 million, or 21%, compared to the same quarter last year. The increase in engineering development revenue resulted from work performed and achievement of the milestones under the next generation automotive fuel cell and electric drive development programs and the 1kW residential cogeneration fuel cell development program. Product and service revenue totaled $10.8 million for the current year quarter, with product revenues of $6.5 million and service revenues of $4.3 million, compared to product revenues of $6.3 million and service revenues of $2.7 million in the second quarter of 2005. The service revenue increase of $1.6 million was primarily driven by Ballard's contract to provide field service for fuel cell powered buses in Europe and non-recurring engineering activities for Power Generation customers. While overall product revenues for the quarter were up only 3%, normalizing for discontinued products of automotive fuel cell systems and electronic power converters, product sales this quarter compared to the same quarter last year were up $1.9 million dollars, or 41%, driven by higher stack sales to the automotive, residential co-generation and forklift markets. Ballard continues to expect revenues for 2006 to be in the range of $55 to 65 million.

Ballad's net loss for the three months ended June 30, 2006 was $17.3 million, or ($0.15) per share, compared with a net loss of $29.5 million, or ($0.24) per share for the same period in 2005. The lower net loss quarter over quarter resulted from a $4.3 million increase in engineering development revenues, a $2.0 million improvement in product and service margins and a $6.0 million decline in operating expenses and depreciation and amortization. Ballard's improved margins were driven by increased service revenues. The decrease in operating expenses was due to the Company's sale of Ballard Power Systems AG (BPSAG), which accounted for $6.5 million of the reduction, and cost reduction initiatives that were implemented in late 2005. These reductions were partially offset by increases in research and development expenditures for fuel cell related activities.

Operating cash consumption(1) for the three months ended June 30, 2006 decreased 72% to $8.1 million, compared to $28.7 million in 2005. The decrease in operating cash consumption was driven by lower losses and working capital requirements. Ballard continues to expect operating cash consumption for 2006 to be in the range of $50 to 65 million. Based on the Company's improved operating performance for the first half of 2006, Ballard now expects its operating cash consumption for 2006 will be in the lower end of this range.

For a more detailed discussion of Ballard's 2006 second quarter financial results, please see the company's financial statements and Management's Discussion & Analysis, which are available at www.ballard.com, www.sedar.com and www.sec.gov/edgar.shtml.

1. Operating cash consumption is a non-GAAP measure used to assist in assessing Ballard's financial performance. A description of the non-GAAP measure and reconciliation to financial statement line items follows.

Selected Consolidated Financial Information
 
 

Unaudited (Expressed in thousands of U.S. dollars except for per
share amount and number of shares)

--------------------------------------------------------------------
                Three months ended June 30  Six months ended June 30
                         2006         2005         2006         2005
--------------------------------------------------------------------
Revenues:

Product and
 service revenue  $    10,791  $     8,951  $    19,072  $    19,939
Engineering
 development
 revenue                4,301            -       p; 8,556            -
                  ---------------------------------------------------
Total revenues         15,092        8,951       27,628       19,939

Cost of revenues
 and expenses:
Cost of product
 and service
 revenues               7,168        7,326       11,514       18,935
Research
 and product
 development           15,540       19,462       30,476       39,535
General and
 administrative         3,758        4,581        7,332        8,971
Marketing
 and business
 development            2,324        2,072        4,257        4,144
Depreciation
 and amortization       5,338        6,891       10,723       13,805
                  ---------------------------------------------------
Total cost of
 revenues and
 expenses              34,128       40,332       64,302       85,390
                  ---------------------------------------------------

Loss before
 undernoted           (19,036)     (31,381)     (36,674)     (65,451)
Investment and
 other income           4,258        2,810        6,251        5,133
Loss on disposal
 and write-down
 of long-lived
 assets                (1,403)        (308)      (1,468)        (312)
Equity in loss
 of associated
 companies             (2,435)        (619)      (3,775)      (1,223)
                  ---------------------------------------------------
Loss before
 income taxes         (18,616)     (29,498)     (35,666)     (61,853)
Income taxes
 (recovery)            (1,268)           -       (1,134)          91
                  ---------------------------------------------------
Net loss
 for period           (17,348)     (29,498)     (34,532)     (61,944)
                  ---------------------------------------------------
Basic loss
 per share        $     (0.15) $     (0.24) $     (0.31) $     (0.50)
                  ---------------------------------------------------
                  ---------------------------------------------------
Weighted
 average
 number of
 common shares
 outstanding      113,187,129  123,678,338  112,886,361  123,207,634
--------------------------------------------------------------------
--------------------------------------------------------------------
Cash used by
 operations       $     6,512  $    27,775  $    17,290  $    51,713
Capital
 expenditures           1,614          973        2,948        1,444
                  ---------------------------------------------------
Operating cash
 consumption(2)   $     8,126  $    28,748  $    20,238  $    53,157
--------------------------------------------------------------------
--------------------------------------------------------------------
                                                June 30, December 31,
                                                   2006         2005
                                            ------------------------
Total cash,
 cash equivalents
 and short term
 investments                                $   213,083  $   233,033
--------------------------------------------------------------------
--------------------------------------------------------------------
  
2. Operating cash consumption is a non-GAAP measure used to assist in assessing Ballard's financial performance. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Operating cash consumption measures the amount of cash required to fund the operating activities of Ballard's business and excludes financing and investing activities except for additions to property, plant and equipment.

Second Quarter Conference Call

A conference call for investors and analysts will be held at 7:00 a.m. PST (10:00 a.m. EST) on Wednesday, July 26, 2006 to discuss the results for the second quarter. Access to the call may be obtained by calling the operator at 604-638-5340 before the scheduled start time. A playback version of the call will be available for 24 hours after the call at 412-317-0095. The confirmation number to access the playback is 7375#. The simultaneous audio web cast can be accessed on Ballard's website at www.ballard.com and will be archived for replay.

About Ballard

Ballard Power Systems (TSX:BLD)(NASDAQ:BLDP) is recognized as a world leader in the development, manufacture and sale of zero-emission proton exchange membrane fuel cells. Ballard's mission is to make fuel cells a commercial reality. To learn more about what Ballard is doing with Power to Change the World(R), visit www.ballard.com.

This release contains forward-looking statements that are based on the beliefs of Ballard's management and reflect Ballard's current expectations as contemplated under section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. When used in this release, the words "estimate", "project", "believe", "anticipate", "intend", "expect", "plan", "predict", "may", "should", "will", the negative of these words or such other variations thereon or comparable terminology are intended to identify forward-looking statements. Such statements reflect the current views of Ballard with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in those forward-looking statements.

Ballard, the Ballard logo, Power to Change the World and Mark 9 SSL are registered trademarks of Ballard Power Systems Inc.