UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 20-F



[     ]

Registration statement pursuant to Section 12(b) of the Securities Exchange Act of 1934



[ X ]

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003



[     ]

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________________ to _________________



Commission file number 0-29614





TRIANT TECHNOLOGIES INC.

(Exact name of Registrant as specified in its charter)





NOT APPLICABLE

(Translation of Registrants name into English)





BRITISH COLUMBIA, CANADA

(Jurisdiction of incorporation or organization)





20 Townsite Road, 2nd Floor

Nanaimo, British Columbia

CANADA V9S 5T7

(Address of principal executive offices)





Securities registered or to be registered pursuant to Section 12(b) of the Act:

NONE



Securities registered or to be registered pursuant to Section 12(g) of the Act:



Common Shares Without Par Value

(Title of Class)



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

NONE



Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.



As at December 31, 2003, there were 41,402,675 Common Shares Without Par Value outstanding



Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes

[ X ]

No

[     ]



Indicate by check mark which financial statement item the registrant has elected to follow.



Item 17

[     ]

Item 18

[ X ]





































TABLE OF CONTENTS



|PART I                                                                                  | 
|--------------------------------------------------------------------------------------- | 
|ITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANANGEMENT AND ADVISORS                      | 
|ITEM 2.     OFFER STATISTICS AND EXPECTED TIMETABLE                                     | 
|ITEM 3.     KEY INFORMATION                                                             | 
|ITEM 4.     INFORMATION ON THE COMPANY                                                  | 
|ITEM 5.     OPERATING AND FINANCIAL REVIEW PROSPECTS                                    | 
|ITEM 6.     DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                  | 
|ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                           | 
|ITEM 8.     FINANICAL INFORMATION                                                       | 
|ITEM 9.     LISTING                                                                     | 
|ITEM 10.   ADDITIONAL INFORMATION                                                       | 
|ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 
|ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 
|PART II                                                                                 | 
|ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 
|PART III                                                                                | 
|ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 
|ITEM 15.   CONTROLS AND PROCEDURES                                                      | 
|ITEM 16.                                                                                | 
|ITEM 17.   FINANCIAL STATEMENTS                                                         | 
|ITEM 18.   FINANCIAL STATEMENTS                                                         | 
|ITEM 19.   EXHIBITS                                                                     | 





Forward-looking statements



This Annual Report on Form 20-F contains forward-looking statements about Triant Technologies Inc. (the Company) and its business.  Forward-looking statements are statements that are not historical facts and are generally, but not always identified by the words expects, anticipates, believes, intends, estimates, projects and similar expressions, or that events or conditions will, may, could or should occur.



The forward-looking statements in this Annual Report are subject to various risks, uncertainties and other factors that could cause the Companys actual results or achievements to differ materially from those expressed in or implied by forward-looking statements.  These risks, uncertainties and other factors include, without limitation, uncertainty as to the Companys ability to achieve the goals and satisfy the assumptions of management; uncertainties as to the availability and cost of financing; uncertainty as to the demand for the Companys products; the development of competing technologies and the possibility of increased competition; the effect of slow growth in the Canadian, United States and international economies generally and other economic trends and conditions in the markets that the Company and its customers serve; the effect of the risks associated with technical difficulties or delays in product introductions, improvements, implementations, product development, product pricing or other initiatives of the Company and its competitors; factors that may result in a reduction in capital expenditures and/or delayed buying decisions affecting demand for the Companys products; the threat or reality of war in certain of the Companys geographic markets; the possibility that the Company will pursue additional development projects or other business opportunities and other factors more specifically set forth under Item 3.D. Risk Factors.



Forward-looking statements are based on the beliefs, opinions and expectations of the Companys management at the time they are made, and the Company does not assume any obligation to update its forward-looking statements if those beliefs, opinions or expectations, or other circumstances, should change.  Readers should not place undue reliance on forward-looking statements. Precautionary statements made herein should be read as being applicable to all related forward-looking statements wherever they appear in this Annual Report.

























PART I



GLOSSARY AND INTERPRETATION



|algorithm                 | a set of mathematical calculations solving a particular problem                                                                                                                                                                                                                                                                                                                                                           
|------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|APC                       | Advanced Process Control                                                                                                                                                                                                                                                                                                                                                                                                  
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|DOS                       | a single task, single-user operating system for IBM-format personal computers                                                                                                                                                                                                                                                                                                                                             
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|excursion                 | single or sensor reading that exceeds the limits of normal processing range                                                                                                                                                                                                                                                                                                                                             
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Fabs                      | semiconductor manufacturing facilities that perform the wafer fabrication process                                                                                                                                                                                                                                                                                                                                         
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|faults                    | processing errors, such as increase in temperature or pressure, that cause defective semiconductor wafers                                                                                                                                                                                                                                                                                                                 
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|GAAP                      | Generally Accepted Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                  
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|IC                        | integrated circuits  the chips or semiconductor products that are created in the wafer fabrication process                                                                                                                                                                                                                                                                                                           
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|OEM                       | Original Equipment Manufacturer  refers to a company which integrates another companys technology into its product for resale to its markets/customers                                                                                                                                                                                                                                                                
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|psychometrics             | the ability to measure and classify human characteristics                                                                                                                                                                                                                                                                                                                                                                 
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|real-time                 | instantaneous response or activity, or as it happens                                                                                                                                                                                                                                                                                                                                                                    
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|SEMATECH                  | U.S. semiconductor industry and government consortium organized to conduct research and development in advanced semiconductor manufacturing competitiveness in the international marketplace                                                                                                                                                                                                                              
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|tool                      | semiconductor manufacturing equipment or machines                                                                                                                                                                                                                                                                                                                                                                         
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|VAR                       | Value-Added Reseller  refers to a company which integrates another companys technology into its product for resale to its markets/customers                                                                                                                                                                                                                                                                           
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|wafer                     | disc-shaped silicon or gallium arsenide wafer (usually 3 to 8 inches in diameter) on which integrated circuits are created                                                                                                                                                                                                                                                                                                
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|wafer fabrication process | a process consisting of a number of manufacturing steps (usually over 200) where several layers of materials are deposited or grown on the surface of the wafer through a series of thermal or electro-chemical processes to define circuit patterns.  The wafers are eventually separated into indivisual integrated circuits and then packaged, assembled and tested.  The whole process usually takes from 4 to 6 weeks
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                           
|yield                     | total number of good wafers divided by the total number of wafers processed                                                                                                                                                                                                                                                                                                                                               





Unless otherwise indicated, all references herein are to Canadian dollars (Cdn.$).



































ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



Not applicable.





ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.





ITEM 3.

KEY INFORMATION



A.

Selected Financial Data



The selected financial information set forth below is derived in part from the Consolidated Financial Statements of the Company. This information should be read in conjunction with such Consolidated Financial Statements that have been prepared in accordance with Canadian GAAP. For a reconciliation to United States GAAP, see Note 9 to the Consolidated Financial Statements included elsewhere herein. Reference should also be made to Item 5. Operating and Financial Review and Prospects.



| | As at and for the years ended
December 31,
(all amounts in Canadian Dollars)
| | ----------------------------------------------------------------------------
| | 2003                                                                        



|Revenue under Canadian and U.S. GAAP                                              | $         6,575,280        | $         6,547,077        | $         4,240,355        | $         2,027,262     | $     1,354,657    
|--------------------------------------------------------------------------------- | -------------------------- | -------------------------- | -------------------------- | ----------------------- | -------------------
|                                                                                  |                            |                            |                            |                         |                    
|Loss from operations under
Canadian GAAP
under U.S. GAAP                          | (2,087,753)(2)
(2,487,480) | (4,662,346)(2)
(4,337,712) | (5,450,915)(2)
(5,471,977) | (2,593,727)
(2,611,718) | (894,652)
(905,127)
|                                                                                  |                            |                            |                            |                         |                    
|Net Loss
under Canadian GAAP
under U.S. GAAP                                      | (2,789,645)(2)
(2,487,480) | (4,331,237)(2)
(4,337,712) | (4,463,238)(2)
(4,848,300) | (1,995,938)
(1,996,369) | (987,287)
(925,727)
|                                                                                  |                            |                            |                            |                         |                    
|Loss per share
under Canadian GAAP
under U.S. GAAP                                | (0.07)(2)
(0.06)           | (0.10)(2)
(0.10)           | (0.11)(2)
(0.11)           | (0.06)
(0.06)           | (0.05)
(0.05)      
|                                                                                  |                            |                            |                            |                         |                    
|Total assets under Canadian and U.S. GAAP                                         | 11,319,517                 | 14,312,793                 | 17,639,804                 | 21,876,546              | 2,308,792          
|                                                                                  |                            |                            |                            |                         |                    
|Long-term debt(1)
under Canadian GAAP
under U.S. GAAP                             | -(2)
-                     | -(2)
-                     | -(2)
-                     | -(2)
-                  | 532,729
775,000    
|                                                                                  |                            |                            |                            |                         |                    
|Capital stock under Canadian and U.S. GAAP                                        | 36,208,578                 | 36,208,578                 | 36,341,337                 | 36,267,337              | 14,865,773         
|                                                                                  |                            |                            |                            |                         |                    
|Net assets
under Canadian GAAP
under U.S. GAAP                                    | 8,745,194(2)
8,745,194     | 11,534,839(2)
11,534,839   | 15,998,835(2)
15,998,835   | 20,388,073
20,388,073   | 1,403,697
1,161,426
|                                                                                  |                            |                            |                            |                         |                    
|Weighted average number of common shares outstanding under Canadian and U.S. GAAP | 41,402,675                 | 41,492,242                 | 41,524,504                 | 31,589,469              | 20,276,771         

___________________________________

(1)

Long-term debt consisted of $775,000 principal amount of unsecured convertible debentures due August 12, 2002. Effective March 21, 2000, these debentures were converted by the holders into 310,000 common shares with a carrying value of $950,289 under Canadian GAAP, comprised of debentures having a carrying value of $550,289 and the remaining portion of the equity component of $400,000.



(2)

Since the selected financial data above is presented in accordance with Canadian GAAP, the following items have been reconciled to U.S. GAAP as follows: loss from operations for the year ended December 31, 2003 - $(2,087,753), net loss for the year ended December 31, 2003 - $(2,789,645), no long-term debt as at December 31, 2003 and net assets of $8,745,194 as at December 31, 2003; loss from operations for the year ended December 31, 2002 - $(4,668,821), net loss for the year ended December 31, 2002 - $(4,337,712), no long-term debt as at December 31, 2002 and net assets of $11,534,839 as at December 31, 2002; and loss from operations for the year ended December 31, 2001 - $(5,471,977), net loss for the year ended December 31, 2001 - $(4,484,300), no long-term debt as at December 31, 2001 and net assets of $15,998,835 as at December 31, 2001. The adjustment to loss from operations for the year ended December 31, 2003 and the resulting adjustment to net loss does not change basic and diluted loss per share of $(0.07); the adjustment to loss from operations for the year ended December 31, 2002 and the resulting adjustment to net loss does not change basic and diluted loss per share of $(0.10); and the adjustment to loss from operations for the year ended December 31, 2001 and the resulting adjustment to net loss does not change basic and diluted loss per share of $(0.11).



As at December 31, 2003, there have been no dividends declared or paid.



The Companys consolidated financial statements are denominated in Canadian dollars (Cdn.$) and, except as otherwise indicated, all dollar amounts herein are expressed in Canadian dollars. On March 4, 2004 the noon rate of exchange as reported by the Federal Reserve Bank of New York for the conversion of United States dollars into Canadian dollars was $1.3326 (Cdn.$1.00 equals U.S.$0.7504). The Canadian/United States high and low exchange rates for each month during the previous six months and the average rates for each of the five most recent financial years ended December 31 and subsequent quarters, calculated by using the average of the exchange rates on the last day of each month during the financial year, are set forth below. These rates of exchange, which are expressed in Canadian dollars, are the noon buying rate in New York City for the conversion of United States dollars into Canadian dollars for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.



|Previous six months | High    | Low    
|------------------- | ------- | -------
|2004 February       | $1.3442 | $1.3108
|2004 January        | $1.3340 | $1.2690
|2003 December       | $1.3405 | $1.2923
|2003 November       | $1.3362 | $1.2973
|2003 October        | $1.3481 | $1.3043
|2003 September      | $1.3876 | $1.3469





|Quarter Ended   | Average | 
|--------------- | ------- | 
|2003December 31 | $1.3163 | 





|Years ended December 31 | Average | 
|----------------------- | ------- | 
|2003                    | $1.4013 | 
|2002                    | $1.5704 | 
|2001                    | $1.5487 | 
|2000                    | $1.4855 | 
|1999                    | $1.4858 | 





B.

Capitalization and Indebtedness



Not applicable.



C.

Reasons for the Offer and Use of Proceeds



Not applicable.



D.

Risk Factors



In addition to the other information contained in this Annual Report, investors should carefully consider the following risk factors before making any investment decisions concerning the Common Shares. The Companys business is subject to business and economic risks, and the Companys actual results of operations may differ materially from those contained in any forward-looking statements in this Annual Report.



Historic Lack of Profitability; No Assurance Company Will Ever Become Profitable



The Company has reported net losses in its last five years of operations. There can be no assurance the Company will become profitable or establish a consistent track record of profitability. While management anticipates growth in revenue from its principal product, ModelWare, and related services, there is no assurance that the Company will earn sufficient revenue to become profitable.  A relatively high percentage of the Companys expenses is typically fixed in the short term as these expense levels are based, in part, on expectations of future revenue.  To the extent that such expenses are not followed by increased revenue, losses would increase and the Companys financial condition would be materially adversely affected.  The Company will need to increase revenues to achieve profitability.  It is possible that revenues will grow more slowly than anticipated or that the Companys operating expenses will exceed the Companys expectations.



Future Capital Needs; Uncertainty of Additional Financing



The Company may have to raise additional funds in the future in order to maintain operations, particularly if it continues to incur operating losses, and to take advantage of any growth opportunities, which may require a more rapid expansion, or acquisitions of complementary businesses or technologies, the formation of new alliances, the development of new products and other responses to competitive pressures. Although the Company has been successful in raising the necessary funds in the past, there can be no assurance that the Company will have sufficient financing to meet its capital requirements or that additional financing will be available on terms acceptable to the Company in the future. If additional financing cannot be secured, the Company may be forced to curtail its market development, research and development, and operational improvement efforts. If the Company cannot raise or arrange the cash requirements necessary to meet minimum obligations on its commitments and leased facilities, these services and facilities may be forfeited. The Company believes it has the ability to raise adequate funds for its planned programs. If such funds are unavailable on terms acceptable to the Company, the Company may be unable to maintain its operations, take advantage of opportunities, develop new products, or otherwise respond to competitive pressures.



Dynamic Technology



The business of marketing high technology products, such as those the Company has developed and is developing, involves substantial risk due to rapid changes and evolution in technology. Technological developments and changing markets may rapidly render the Companys products obsolete. The Company must design its products choosing standards, protocols and applications, which will ultimately gain market acceptance and address the needs of its customers. There can be no assurance that the Company will be successful in this. Further, the Companys products to date have been developed upon existing standards and protocols of technology with which they are intended to interface. Consequently, a change of technology may render the Companys products incompatible and unmarketable.



Competitive Markets



The markets into which the Company sells its products are competitive and are characterized by rapid technological changes requiring substantial investment in research and development. Many of the Companys potential competitors are significantly larger (e.g., OEMs, semiconductor manufacturers and companies involved in Fab automation and yield management) and have greater financial, operational, and developmental resources. Much of the Companys future success will depend on its ability to introduce new products to the market and to modify existing ones to address the changing needs of its customers. There can be no assurance that the Company will be successful in this.



Single Product Dependence



Approximately 98.9% of the Companys revenue for the year ended December 31, 2003 (2002  99.5%; 2001  84.9%) was derived from sales of a single product, ModelWare. The Companys dependence on ModelWare for its sales revenue is anticipated to increase in the future. Any failure by the Company to maintain or increase its revenue from ModelWare would have a significant negative impact.



Dependence on Large Contracts and Concentration of Customers



During the year ended December 31, 2003, 87.2% of the Companys revenue was derived from sales to three customers; during the year ended December 31, 2002, 82.9% of the Companys revenue was derived from sales to three customers; and during the year ended December 31, 2001, 83.1% of the Companys revenue was derived from sales to four customers.  The Company believes that revenue derived from current and future large customers will continue to represent a significant portion of its total revenue.  The Companys success will depend in part upon its ability to obtain new orders from existing customers, as well as obtaining orders from new customers.  There can no assurance that either will occur.  The Company is significantly dependent upon a very limited number of major corporations as customers and would be severely impacted should the interest of these customers in ModelWare decline.



Lengthy Sales Cycle for ModelWare



The adoption of ModelWare by Fabs for equipment health monitoring is often an enterprise-wide decision for prospective customers and requires the Company to engage in sales efforts over an extended period of time and to provide a significant level of education to prospective customers.  As a result, the adoption of ModelWare by customers generally has a lengthy sales cycle which can range from several months to several years.  The delay of a large contract could have a material adverse effect on the Companys operating results.  If expected demand from customers does not materialize due to industry downturns, the Companys sales expectations would be materially negatively impacted.



Early Market Development Stage



The Company has committed substantial resources in the past to create and develop a market for its ModelWare product.  The market remains at an early development stage and its growth and success is heavily dependent upon the Companys ability to continue developing a market for its evolving ModelWare product.



The Company has currently developed and targeted its products for, and the majority of the Companys revenues for the foreseeable future will be derived from, its current identified market, being the semiconductor manufacturing and equipment supply market. Should this market cease to exist, fail to grow or grow more slowly than anticipated, or become saturated with competitors, the Companys business, financial condition and results of operations could be adversely affected.



Potential Fluctuations in Operating Results



The Companys results of operations have fluctuated in the past and are likely to continue to fluctuate from period to period depending on a number of factors, including the timing and receipt of significant orders, the timing of completion of contracts, changes in the demand for the Companys products and services, delays in the introduction of products or enhancements by the Company, economic uncertainty, foreign currency exchange rates and general economic and political conditions.  The Company believes that economic developments and trends have adversely affected and may continue to affect levels of capital spending by companies in the semiconductor industry.  The Company believes that these and other factors have adversely affected demand for products and services offered by the Company, as certain prospective and existing customers have delayed or deferred purchasing decisions.  While the Company believes that economic conditions in the semiconductor industry show signs of improvement, the Company believes that economic conditions and general trends are likely to continue to affect demand for the Companys products and services in 2004.



Intellectual Property



Although the Company does include copyright warnings with all of its software products, it has not registered any of its copyrights.  The Company has either obtained or is in the process of applying for trademarks to protect the Company name and the names of some of its products. The Company does not have any patents on its current products and currently relies principally on product secrecy, including non-disclosure of the source code of its products, for protection of its intellectual property. Despite the Companys efforts to protect its intellectual property rights, unauthorized third parties, including competitors, may be able to copy or reverse-engineer certain portions of the Companys products, software and source code, and use such copies to create competitive products.  The Company believes that significant protection is derived from the specialized skills required to configure, install and deploy its products, and in particular, ModelWare, which provides a degree of protection from any benefits which third parties could derive from copying or reverse-engineering the Companys products.  Although the Company believes that the quality and competence of its personnel coupled with the effectiveness of its research and development, marketing strategies and programs and market presence and penetration will be more effective in maintaining a competitive position than the various legal options which may be available to protect its products and technologies, there can be no assurance that this will be the case.



Competitors may have or develop technologies that are similar to the Companys technologies and products.  If any of the Companys technologies violated or conflicted with the proprietary rights of others, the Company may be required to obtain licences from third parties, redesign its products, or take legal action to defend its intellectual property.  Although the Company believes that its products do not infringe on the intellectual property rights of third parties, there can be no assurance that third parties will not bring infringement claims (or claims for indemnification resulting from infringement claims) against the Company with respect to copyrights, trademarks, patents and other proprietary rights.  Any such claims, whether with or without merit, can be time consuming and result in costly litigation and diversion of resources.



Volatility of Market Trading



The market price of the Common Shares is highly volatile and has ranged from a high of $5.90 to a low of $0.22 during the five years ended December 31, 2003.  See item 9  Listing. The market price of the Common Shares may continue to be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, changes in financial estimates by securities analysts or other events or factors. In addition, the financial markets have experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many high technology companies and that often have been unrelated to the operating performance of such companies or have resulted from the failure of the operating results of such companies to meet market expectations in a particular quarter. Broad market fluctuations or any failure of the Companys operating results in a particular quarter to meet market expectations may adversely affect the market price of the Common Shares.  In the past, following periods of volatility in the market price of a companys securities, class action securities litigation has been instituted against such a company.  Such litigation, whether with or without merit, could result in substantial costs and a diversion of managements attention and resources, which would have a material adverse affect on the Companys business, operating results and financial condition.



Dependence on Key Personnel



The progress and success of the Company to date has been to a significant extent dependent on the skill of its executive officers and core software development staff.  The loss of one or more of its other executive officers, or core software development staff could have a material adverse effect on the Company.  Competition for qualified personnel is intense and there can be no assurance that the Company can retain its key technical, sales and managerial employees or that it will be able to attract or retain highly qualified technical and managerial personnel in the future.



Currency Fluctuations



The Company maintains its accounts in Canadian dollars and its reporting and functional currency is Canadian dollars.  Appreciation in the value of the Canadian dollar against the U.S. dollar in 2003 resulted in a foreign exchange loss of $878,246, a variance of 14% of gross revenue. A substantial amount of the Companys revenues is now, and is expected to continue to be, realized in U.S. dollars.  As a result, fluctuations in the Canadian/U.S. dollar exchange rate will have an impact on the Companys revenue earned in U.S. dollars.  The Company does not currently engage in currency hedging activities; therefore, an appreciation in the value of the Canadian dollar against the U.S. dollar would reduce the Companys revenue. Reference should also be made to Item 5. Operating and Financial Review and Prospects.



Anti-takeover Effects



The Company is organized under the laws of British Columbia, Canada and, accordingly, is governed by the British Columbia Company Act (the Company Act).  The Company Act differs in certain material respects from laws generally applicable to United States corporations and shareholders, including the provisions relating to interested directors, mergers and similar arrangements, takeovers, shareholders suits, indemnification of directors and inspection of corporation records.



In February 2003, the Company implemented a shareholder rights plan (the Plan) pursuant to which shareholders of record at the date of adoption of the Plan received a dividend of one right to purchase, for $100, one common share.  The rights to not trade separately and do not become exercisable until the occurrence of a triggering event, defined as an accumulation by a single person or group of 20% or more of the Companys Common Shares.  Upon occurrence of a triggering event, each right will entitle the holder to receive, upon payment of the exercise price, Common Shares having a market value equal to two-times the exercise price.  The effect of the Plan is to make a potential acquisition of the Company more expensive for the acquirer if, in the opinion of the Companys board of directors, the offer is inadequate.  See item 4 - Information on the Company  Shareholder Rights Plan.



Effect of Sarbanes-Oxley Act of 2002 on the Companys Ability to Attract and Retain Officers and Directors



The Company may be unable to attract and retain qualified officers, directors and members of board committees required to provide for effective management as a result of the recent and currently proposed changes in the rules and regulations which govern publicly-held companies.  The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the Securities and Exchange Commission that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes, to the extent they apply to the Company as a foreign private issuer, may deter qualified individuals from accepting these roles.



Effect of Penny Stock Rules on Transactions in Common Shares



Certain rules impose sales practice and disclosure requirements on certain broker-dealers who engage in certain transactions involving a penny-stock.  Subject to certain exceptions, a penny stock generally includes any non-NASDAQ equity security that has a market price of less than U.S.$5.00 per share.  The market price of the Common Shares on the OTCBB during the year ended December 31, 2003 has ranged between a high $0.68 and a low $0.22 per share, and the Common Shares are considered penny stock for these purposes.  The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in the Common Shares, which could severely limit the market liquidity of the Common Shares and sales in the secondary market.



Enforcement of Certain Civil Liabilities



The Company is a company subsisting under the laws of the province of British Columbia and certain of its directors and officers are neither citizens nor residents of the United States. A substantial part of the assets of several of such persons and of the Company are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States judgment of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability against such persons and the Company in Canada, in original actions or in actions to enforce judgments of United States courts, of liabilities predicated solely upon the federal securities laws of the United States.





ITEM 4.

INFORMATION ON THE COMPANY



A.

History and Development of the Company



Triant Technologies Inc. (the Company) was incorporated under the Company Act (British Columbia) on November 23, 1983 by Memorandum. The Companys principal executive office is currently located at 20 Townsite Road, 2nd Floor, Nanaimo, British Columbia, Canada V9S 5T7. The Companys telephone number is (250) 754-4223.



Principal capital expenditures



The Company has incurred the following principal capital expenditures in the past three years on property, plant and equipment, which include computer hardware and software, furniture and equipment, and leasehold improvements:



| | Year Ended
December 31, 2003 | Year Ended
December 31, 2002 | Year Ended
December 31, 2001
| | ---------------------------- | ---------------------------- | ----------------------------



|Property, plant and equipment | $    212,851 | $    265,902 | $    275,676
|----------------------------- | ------------ | ------------ | ------------





The Company is currently incurring principal capital expenditures on property, plant and equipment consisting primarily of computer hardware and software, including an amount of $5,357 from January 1, 2004 to February 29, 2004, which was financed internally from working capital.



Normal Course Issuer Bid



During the year ended December 31, 2002, the Company purchased and cancelled 189,500 common shares, which were acquired at an average cost of $0.77 per share and a total cost of $146,509 under a normal course issuer bid that the Company had previously announced on September 4, 2001. This normal course issuer bid allowed the Company, during the period beginning September 6, 2001 and ending August 31, 2002, to purchase on the Toronto Stock Exchange (and on predecessor Canadian Venture Exchange prior to December 21, 2001) up to a maximum of 2,000,000 common shares in total, being approximately 4.8% of the Companys 41,567,175 common shares issued and outstanding as at September 4, 2001.



On August 28, 2002, the Company announced the renewal of its normal course issuer bid. This renewal allowed the Company, during the period beginning September 3, 2002 and ending August 31, 2003, to purchase on the Toronto Stock Exchange  up to a maximum of 2,000,000 common shares in total, being approximately 4.8% of the Companys 41,402,675 common shares issued and outstanding as at August 28, 2002. No additional shares were acquired under this normal course issuer bid, which the Company has not renewed.



Shareholder Rights Plan



Effective February 21, 2003, the Company adopted a shareholder rights plan. The shareholder rights plan is intended to provide the board of directors of the Company and its shareholders with a reasonable period of time to fully consider any unsolicited take-over bid. It also provides the board with more time to consider and pursue, if appropriate, other alternatives for the purpose of maximizing shareholder value. While the shareholder rights plan took effect immediately, it subsequently received regulatory approval and ratification by the shareholders of the Company at the annual general meeting held in June 2003. The shareholder rights plan is in effect for a five-year term with two five-year renewal options subject to shareholder approval.



The rights issued to the shareholders under the shareholder rights plan will be exercisable only when a person, including any related party, acquires or announces its intention to acquire more than 20 percent of the outstanding common shares of the Company without complying with either the permitted bid provisions of the shareholder rights plan or without approval of the board of directors of the Company. Should such an acquisition occur, each right would, upon exercise, entitle a holder, other than the person pursuing the acquisition and related parties, to purchase common shares of the Company at a 50 percent discount to the market price of the common shares of the Company at the time.



Under the shareholder rights plan, a permitted bid is a bid made to all shareholders, which is open for acceptance for not less than 60 days. If, at the end of 60 days, more than 50 percent of the outstanding common shares of the Company, other than those owned by the person pursuing the acquisition and related parties, have been tendered, the person pursuing the acquisition may take up and pay for the shares but must extend the bid for a further 10 days to allow other shareholders to tender. Under the permitted bid mechanism, shareholders will have more time to consider the bid and any other options that may be available before deciding whether or not to tender to the bid. The board of directors will also have time to consider and pursue alternatives and to make recommendations to shareholders.



The Company did not adopt the shareholder rights plan in response to any specific proposal to acquire control of the Company, nor is it aware of any such effort. The shareholder rights plan is similar to plans adopted by other Canadian companies and approved by their shareholders.



B.

Business Overview



The Company has over 20 years of experience in the design, development, production and marketing of computer hardware and software focused on real-time equipment monitoring and fault detection, primarily for customers in the marine, rail and semiconductor industries.



Since its inception, the Company has developed, or acquired and enhanced, hardware and software technologies that can be classified into two main categories:



•

monitoring and control systems

•

advanced modeling software



During the 1980s, the monitoring and control systems were primarily hardware-based, on-board computer systems that were originally developed from the Companys patented designs and deployed on marine vessels and trains to monitor for fault and alarm conditions for a wide variety of signals, such as fuel usage, pressure and temperature.



In 1990, the Company began shifting its focus to developing advanced modeling software to predict the behaviour of any system that can be represented by numbers, using the Companys proprietary core Universal Process Modeling (UPM) technology. UPM is an advanced mathematical algorithm that can be used to model the behaviour of any correlated system or process. UPM overcomes many of the problems associated with conventional modeling techniques, which makes it especially useful in such applications as equipment health monitoring and advanced fault detection. UPM is a pattern recognition-based modeling technology that is able to judge the interactions of hundreds of variables and predict an outcome based on previous experience by referring to a reference library containing examples of previous normal operation. UPM technology has many applications, including fault detection, sensor validation, data classification, machine fingerprinting (determining whether, for example, a machine operates the same after an event as it did before) and correlation discovery (determining the influence sensors have on each other). UPM is also able to detect faults in real-time thus providing timely information to assist operators of complex and costly industrial processes. UPM is applicable to a very broad set of industry data analysis problems, whether it be predicting the differential core coolant temperature in an experimental nuclear reactor, tracking the trends of a mutual fund, analyzing the inventory movements of retail products or monitoring semiconductor manufacturing equipment for abnormal behaviour.



The Company is currently in the commercialization stage for its equipment health monitoring and advanced fault detection solutions, primarily to the semiconductor industry and concentrated on wafer fabrication manufacturing facilities (Fabs). The Company also plans to provide solutions for other industries, including the area of psychometrics. See also Item 5. Operating and Financial Review and Prospects.



During the last several years, the Company has concentrated on marketing its products in the following geographical areas: Americas, Europe and Asia (Japan and Asia-Pacific). The Company attributes revenue among geographical areas based on the location of its customers. Approximate percentages of revenue, indexed by geographical areas for the past three years, are set forth below for the years indicated:





|Geographical Areas | Year Ended
December 31, 2003 | Year Ended
December 31, 2002 | Year Ended
December 31, 2001
|------------------ | ---------------------------- | ---------------------------- | ----------------------------



|Asia     | 74% | 38% | 50%
|-------- | --- | --- | ---
|Americas | 14% | 56% | 28%
|Europe   | 12% | 6%  | 22%





Revenue, indexed by the category of the product that has been sold in the past three years, is set forth below for the years indicated:



|Product Category(1) | Year Ended
December 31, 2003 | Year Ended
December 31, 2002 | Year Ended
December 31, 2001
|------------------- | ---------------------------- | ---------------------------- | ----------------------------



|ModelWare | $         6,502,187 | $      6,515,064 | $      3,598,501
|--------- | ------------------- | ---------------- | ----------------
|VHM       | 222                 | 10,511           | 603,121         
|Other     | 72,871              | 21,502           | 38,733          



| | $         6,575,280 | $      6,547,077 | $      4,240,355
| | ------------------- | ---------------- | ----------------

__________________________________

(1)

See product definitions below.





ModelWare



The Companys current principal product for the semiconductor industry, ModelWare, is based on its UPM core technology.



The Company originally developed and marketed the first version of ModelWare as a commercial implementation of its UPM technology for pattern recognition-based predictive modeling software in 1991. This DOS-based product was developed and marketed as a non-real-time pre-packaged software modeling tool for solving data analysis problems to a diverse range of industries. An enhanced version was released in 1992. The Company sold over 1,000 licenses of basic and customized versions of these products to over 600 customers worldwide. The Company, although not actively marketing these versions of ModelWare, continues to fulfil occasional customer requests for these products.



After a few years of strong demand for these early versions of ModelWare, the Company determined that the products future opportunity for success was in higher value-added, integrated and real-time industrial environments rather than competing with hundreds of similar static (non-real-time) pre-packaged software products.  The semiconductor industry was the first industry the Company decided to penetrate with a high value-added real-time advanced modeling software solution.



The Company signed a joint development agreement with Motorola in late 1994 to develop a real-time version of ModelWare for use in one of their wafer fabrication facilities in Mesa, Arizona.  The outcome of this project was a real-time equipment fault detection software solution tailored for wafer fabrication equipment and designed to increase equipment performance. Its real-time display shows faults or excursions beyond the normal variations in selected equipment parameters (normal variations in the equipment parameters are those variations which are due to equipment tolerances and which do not affect the quality of the end product) and provided an indication of overall equipment health. By using an easy to understand green/yellow/red background on the real-time display, ModelWare provides a quick and comprehensive indicator of overall equipment health. Under the Motorola joint development agreement, Motorola paid the Company approximately U.S.$175,000 in return for a license to use ModelWare on a single type of processing equipment in a specified wafer fabrication facility. The Company retained the intellectual property rights to the product.



In subsequent years, the Company has incurred additional development costs focussed primarily on functional and feature improvements of ModelWare. In 1998, version 2.9 of ModelWare was released which was designed to enhance the products ease-of-use and to simplify its installation process. These improvements included: reduction of effort required to create, deploy and maintain equipment fault detection models by using templates and by validating data using archived data; automatic generation of reports based on a fixed schedule and additional information reports to support process engineers in their wafer process analyses; and enhancement of off-line data visualization by overlaying multiple sensor readings on a single trend plot which provides easier comparison of signals to assist the investigation and resolution of equipment faults. Development work in 1998 also led to the release of version 3.0 of ModelWare in 1999. This version represented a breakthrough in equipment health monitoring and advanced fault detection software as it contained a software agent to automatically build and maintain equipment fault detection models. This capability simplified the process of setting-up and deploying ModelWare. In addition to automatic creation of models, automatic maintenance of models could be specified to enable detection of a wider range of faults from sudden catastrophic failures to slow drifts in the operation of wafer processing equipment. Development work in 2000 and 2001 focused primarily on technology improvements and applications development for ModelWare, with the release of version 4.1, and development of an original equipment manufacturer (OEM) version of ModelWare. Development work in 2002 on Version 4.2 focused primarily on increasing the ease-of-use and maintainability of ModelWare for deployment in a Fab-wide environment. This included enhanced report generation; increased performance of real-time applications; enhanced data import; and enhanced multivariate modeling. Development work in 2003 on version 5.0 focused on developing a new messaging architecture to enable ModelWare to be more easily extended in future releases and on developing enhanced analysis of archived data. The Company has also continued with research and development initiatives since 2000 to diversify into the area of psychometrics.



ModelWare in the Semiconductor Industry



Current Business Focus



Given the current business focus of the Company on high value-added products and solutions, the Companys business model is to build a global business centred on the core technology of the Company and to derive revenue from product sales, OEM licensing arrangements, professional services and web-based delivery of data analysis and reporting services. The Companys current market development efforts are primarily focused on the Companys flagship product, ModelWare, as an equipment health monitoring and advanced fault detection solution for the semiconductor industry. The Company believes that UPM provides ModelWare with the product differentiation and competitive advantage necessary for commercial success.  The Company is currently focused on the semiconductor industry because the Company believes that it can provide significant credibility for the Companys technology and also provide a sustainable and profitable business in this industry segment.



The Company considers the semiconductor industry market for equipment health monitoring and advanced fault detection, such as ModelWare, to be in the early stages of market development. It represents a new product segment which emerged over the past few years.  Previously, customers were unable to monitor overall equipment effectiveness in the manufacturing process with any degree of sophistication.  The Company views its sales of ModelWare licences to represent the initial stages of commercialization with more than 80% of sales concentrated with either three or four key customers for each year during the three-year period ending December 31, 2003. ModelWare is now deployed on approximately 4,000 pieces of equipment in major semiconductor manufacturers around the world which the Company believes makes it the leading supplier of fault detection software in the emerging market for advanced process control software.



Market Trends



Semiconductors comprise a large global industry. According to the World Semiconductor Trade Statistics (WSTS), the world semiconductor market was forecast to reach U.S.$161 billion in 2003, posting 14.2% growth over 2002 ($141 billion). WSTS projects the year 2004 to show continued and even stronger growth of 19.4% followed by slightly decelerating growth of 12.6% in 2005 and almost flat growth (-0.7%) in 2006. The compound annual growth rate over 2002 through 2006 is expected to be 11.1%, resulting in $215 billion.



According to the Semiconductor Industry Association (SIA), the industry has grown at a compound annual rate of 17% over the last 40 years, operating in a four-year cycle. The industry growth has been propelled by the demand for ICs in computers, consumer electronics, automotive electronics, and telecommunications products. The SIA believes that the industry will grow at a compound annual growth rate closer to 9% in the future.  There can be no assurance that the Companys market share or revenues will increase as a result of this activity.



The manufacturing process to fabricate the IC for these products consists of a very complex set of steps including IC design, wafer (disc-shaped silicon or gallium arsenide wafer on which ICs are created) fabrication, IC packaging, and final test.



Based on various industry sources (including the Semiconductor Business News), the Company estimates that a typical new Fab capable of processing 30,000 eight-inch wafers per month requires an investment of approximately U.S.$1.4 billion, of which over 75% represents the cost of semiconductor manufacturing equipment. Semiconductor manufacturers are faced with the challenge of producing the new generation of ICs at a competitive cost while manufacturing costs increase.



The improvement of equipment performance is a key advanced process control approach to cost reduction and increased wafer production. According to SEMATECH, wafer fabrication equipment typically processes wafers only 60% of the total available processing time. The balance of the available processing time is spent on producing test wafers, scheduled and unscheduled downtime, and idle equipment time. Consequently, the Company believes that improvements in the detection of equipment faults that can reduce the use of test wafers and unscheduled downtime, can significantly increase product throughput, and lower the costs of producing good wafers.



Currently, most of the wafer Fab suppliers provide equipment or products that focus on one specific area of the wafer fabrication process. The equipment that is currently being supplied to the market has limited process-monitoring capability. Because the usage of the equipment varies widely from one semiconductor manufacturer to the next, the onus of equipment monitoring and performance falls onto the semiconductor manufacturers process engineers and operators. Equipment manufacturers may represent an opportunity for the Company as these suppliers are seeking competitive features like fault detection to differentiate their product from their competitors and provide their customers (the semiconductor manufacturers) with added value.



Based on various industry sources (including information from the Semiconductor Equipment and Materials International), the manufacturing of ICs takes place at over 900 wafer Fabs worldwide. The potentially larger semiconductor manufacturers are the target market for the Company as these manufacturers can potentially derive significant benefit from lower manufacturing costs and increased throughput through the use of ModelWare, the Companys equipment health monitoring and advanced fault detection solution.



ModelWare Provides a Solution that the Semiconductor Industry Requires



ModelWare monitors sensor data in real-time from wafer processing equipment, and in advanced configurations can use the UPM technology to identify and diagnose equipment related problems which are logged and displayed to an operator or engineer.  In addition, ModelWare can automatically shutdown the equipment until the problem is corrected.  The purpose of ModelWare is to prevent undetected problems in wafer processing equipment that can cause thousands of dollars of processing time and materials to be lost for each wafer scrapped.



Several leading semiconductor manufacturers in the United States, Europe, Japan, Korea and Taiwan have deployed either evaluation licenses of ModelWare or have deployed ModelWare to monitor production equipment in various processing areas including etch, chemical vapour deposition (CVD), and ion implant.



The Company originally presented its development plans and project results on ModelWare with Motorola to the semiconductor industry at the formal proceedings of the SEMATECH Advanced Process Control/Advanced Equipment Control (APC/AEC) Conferences in 1994 and 1995. In  1996, SEMATECH ordered five licenses of ModelWare for use in SEMATECHs own research facility and to distribute to member companies as part of an evaluation program. At the 1999 SEMATECH APC/AEC Conference, two papers on ModelWare from Applied Materials and AMD were presented which outlined several applications of ModelWare and described the steps in implementing fault detection software. At the 2000 SEMATECH APC/AEC Conference that was co-sponsored by the Company, AMD reported that use of the Companys ModelWare helped cut scrap by 86% in one particular application. At the 2001 SEMATECH APC/AEC Conference that was co-sponsored by the Company, AMD and Samsung each presented technical papers on the use of the Companys ModelWare. At the 2002 SEMATECH APC/AEC Conference that was co-sponsored by the Company, AMD and the Company each presented technical papers on the further use of the Companys ModelWare.



Sales of ModelWare to the Semiconductor Industry



Revenue Model



Sales of ModelWare to semiconductor manufacturers are either made directly by the Company or through its distribution channels, which are responsible for sales, distribution and support. The list price for single license purchases of ModelWare ranges from U.S.$12,000 to U.S.$35,000 per tool, depending on the type and complexity of tools to be monitored. Larger deployments may be licensed on a site-wide basis. A customer is generally provided with a right of return of products provided that notice of product defects (meaning that products do not meet specifications in user documents) is received by the Company or its distributors within 30 days of receipt of products by the customer and only if the Company is unable to remedy the product defects within 180 days. No such right of return has been exercised by customers to date.



A warranty for product performance is generally negotiated ranging from none on end user sales to up to one year on major negotiated sales. Technical support by the Company is automatically provided for one year at the Companys cost (which is factored into the sale price), unless the customer negotiates a longer period. Upon expiration of technical support, the Company offers annual support for a fee based upon a percentage of the original sales price.



Distribution Channels



Strategic distribution partners are the keys to penetrating the market for equipment health monitoring and advanced fault detection in certain geographic regions. The Companys channel distribution strategy is to partner with the leading distributor for a particular geographic region, if applicable. Worldwide, there are four geographic regions where chips (i.e. integrated circuits or IC) are manufactured: the United States (22% market share), Europe (20% market share), Japan (22% market share), and Asia-Pacific (36% market share).



During 2003, the Company had international distribution agreements for the sale of ModelWare to existing Fabs in Japan and Korea, each with exclusivity provisions to prevent any competitor to the Company from using the same leading distributor. The Company moved to a direct sales and support business model to better service the needs of customers in Europe and the United States. The Company has hired local staff in both regions to provide a high-level of on-site service and support to its customers. In 1998, the Company signed an exclusive distribution agreement with Innotech Corporation of Shin-Yokohama, Japan to act as the Companys distributor of ModelWare in Japan. Innotech is the largest distributor of semiconductor technology in Japan. Also in 1998, the Company signed an exclusive distribution agreement with Master Solutions Inc. (MSI) of Seoul, Korea to act as the Companys exclusive distributor of ModelWare in Korea. In addition, the Company has appointed sales agents for other Asia-Pacific countries such as Taiwan and Singapore.



For sales of ModelWare as part of new equipment sales, the Companys strategy is to sell directly to OEMs (Original Equipment Manufacturers) on a non-exclusive basis. Under a license agreement dated June 15, 1999, Applied Materials became the exclusive value-added reseller (VAR) of the Companys equipment health monitoring and fault detection software technology in the semiconductor industry. On December 19, 2002, the Company reported that Applied Materials had elected to continue its appointment as a VAR for Triant on a non-exclusive basis.



Direct Sales and Marketing Activities



The Company is currently focusing its direct sales and marketing activities to visiting customer sites, attending major industry tradeshows and conferences such as SEMICON/West and presenting at technical conferences such as the SEMATECH-sponsored AEC/APC Symposium and Workshop. In the past, the Company has used a variety of industry media and trade journals but is currently focussing on the maintenance of its internet home page and preparation of collateral materials for industry trade shows, conferences and distribution partners.



Technical Services and Support



The Company provides a number of services to assist the implementation of ModelWare including: pre-sales services (feasibility study, data analysis and evaluation), implementation services (installation support, education & training), and post-sales services (customization of software, data mining and custom reporting, reference library maintenance, data analysis and reporting).  The cost of these services is either factored into the sales price or offered to customers at an additional cost.



The Company also provides a warranty and on-going technical support for its products through telephone support and on-line services. The Company addresses the estimated provision for warranty expenses based upon financial experience and records it at the time of the related sale.



Future Market Development Strategy



A key goal of the Company is to become the industry standard equipment health monitoring and advanced fault detection solution for the semiconductor industry. To accomplish this, the Company is deploying a strategy that focuses on customers in the semiconductor market that operate leading edge Fabs (200 millimetre and 300 millimetre production).



Products utilizing the Companys technology are currently in an early stage of commercial sales development in the semiconductor industry. The Company, either directly or through its distribution channels, will continue to pursue initial sales, follow-on sales and Fab-wide deployments with leading semiconductor manufacturers in the United States, Europe and Asia (including Japan, Korea and Taiwan). The Company, either directly or through its distributors, will also continue to pursue a number of leading semiconductor and other industry manufacturers and equipment suppliers with technology seed programs, pilots and product evaluations, as the case may be, to prove the functional capabilities and the ease of implementation of ModelWare.



Sales and Marketing Expansion



The Company intends to continue to support its distribution partners in their efforts to have ModelWare evaluated by semiconductor companies and to secure orders. The Company also intends to continue research and development activities for ModelWare to meet customer needs.



The Companys existing technical resources will be aligned to customer technical sales, support and implementation requirements. Additional resources will be recruited to fill out the technical and customer support functions within the Company and also resources of complementary suppliers will be added to sell and support the ModelWare solution.



Strategic Alliances



To broaden market coverage of the Companys solutions and to access new customers and markets, the Company intends to establish alliances with complementary companies. These relationships are expected to take the form of marketing agreements to jointly sell the Companys products to a partners customer base or to reach remote market segments. VAR and OEM licensing arrangements may also provide the integration and distribution of the Companys software products with a semiconductor equipment suppliers product. Where a deeper level of consolidation of resources and operations is required, the Company may engage in acquisitions as an alternative to strategic alliances. General criteria to be used to assess potential alliances or acquisitions include the following: industry expertise, reputation and market position, complementary technologies or products, nature and adequacy of resources, and compatibility of corporate cultures.



Competition



Currently, there are a small number of companies providing various types of real-time equipment fault detection products. Some equipment suppliers are equipping their machines with basic, single variable measurement tools that help the users of the equipment monitor various sensors during production. Some equipment suppliers have also developed more complex add-on options for their equipment that provide additional advanced fault detection capabilities. Certain software suppliers have produced external equipment monitoring programs which tend to monitor only single variables with some limit-setting alarm capability. Although most of these products monitor in real-time, they provide only basic performance analysis after the processing has occurred.



The more advanced approaches to equipment fault detection monitor multiple variables and identify faults in real-time.  The Company is aware of certain competing software products that apply standard multivariate statistical techniques to detect equipment faults in real-time. The approach taken by the Company is significantly different from competitive products in that the algorithm used by the Company to detect faults is proprietary. Potential competitors include OEMs, semiconductor manufacturers and companies involved in Fab automation and yield management.



The Company is in direct competition with Brooks Automation and SI Automation, both of which sell equipment health monitoring and fault detection systems in the semiconductor market.  MKS Instruments and Adventa are both potential competitors for the Company but, to the Companys knowledge, do not currently sell products which are in direct competition with the Company. There may also be other potential competitors with products that overlap the Companys products.



The Company believes ModelWare has certain competitive advantages.  These include the advanced modelling process provided by ModelWare which, to the Companys knowledge, is not used by any competitors, and ModelWare has succeeded in obtaining multiple Fab-wide deployments, which, again to the Companys knowledge, has not occurred with products competitive to ModelWare.  The trend in the semiconductor manufacturing industry is one of increasing manufacturing process complexity, which increases demand for fault detection, thereby attracting more competitive interest.  This results in a developing marketplace which may attract larger competitors with greater resources than those of the Company.



The Company currently differentiates itself as being a superior provider of a commercially available, real-time, multivariate equipment health monitoring and advanced fault detection software solution to the semiconductor industry.



VHM and Other Legacy Products



The Company also provides legacy products and services for applications of monitoring and control systems developed for the rail and transit industries prior to the Companys shift in focus to the research and development of products for the semiconductor industry. The Company is currently limiting its activities in this area to follow-on orders, primarily for its Vehicle Health Monitors (VHM) and support for existing customers in terms of products and product maintenance commitments, which are not expected to provide any significant revenue in future (sales in 2003 were nominal).



Vehicle health monitoring refers to the use by rail companies of a sophisticated sensor-fed on-board computer systems that identify and warn the operators of potential faults or breakdowns in any of the vehicles sub-systems, such as: braking, hydraulics, door operation, and engine. Data is used to measure the reliability of the various controller subsystems on the trains and to facilitate the location and maintenance of train-related problems.



The Company was awarded a design and supply contract in 1993 with a value of $2.9 million by Brown & Root, Booz-Allen Ltd. (BBJV), to develop a new, flexible VHM system for the Docklands Light Rail in London, England. The resulting product was a VHM system that was developed from the Companys other rail technologies. The contract was the largest in the Companys history and was completed by August 1995, on-time and on-budget with the Company having supplied 72 VHM systems to BBJV. In 1995, the Company made a strategic decision to focus on developing high value-added software products and solutions for the semiconductor industry and to discontinue the monitoring and control systems for the rail and transit line of business except to the extent necessary to support its existing monitoring and control systems customers in terms of product maintenance commitments and to supply follow-on orders to existing customers. Subsequently, in May 2000, the Company received a $600,000 follow-on order to supply 12 VHM systems as part of a new vehicle construction program for the Docklands Light Rail. In December 2000, the Company received an additional $600,000 follow-on order to supply another 12 VHM systems. The Company does not expect any further significant orders for this legacy product.



Other Market Opportunities



The Company is exploring other markets that have revenue potential for the Companys UPM and other proprietary technology and will endeavour to enter these markets. The Company believes that a number of other industries could benefit from the Companys technology.



The Company has successfully developed and introduced a psychometrics analysis process known as the Corrections Risk Analysis System (C-RAS) into the United States corrections industry.  C-RAS is a state-of-the-art system, which uses UPM technology to provide corrections agencies with valuable risk assessment information on offenders.  The Company believes that C-RAS is recognized by industry experts as the most advanced risk assessment tool available.  Purchase orders were received from three states in the United States in 2003.  While the size of these purchase orders are small, they are important in that they represent the willingness of the corrections industry to adopt more advanced approaches to risk assessment.  Several more states are evaluating C-RAS and the Company believes the opportunities for C-RAS could be significant.



C.

Organizational Structure



The Company has three wholly-owned subsidiaries: Triant Technologies Corp., a company incorporated under the laws of the State of Idaho, that provides contract services to the Company; Advanced Profiling, Inc., a company incorporated under the laws of the State of Idaho, that was acquired by the Company effective October 6, 2000 to complete the acquisition of certain technology relating to applications of multivariate modeling; and Triant Psychometrics Inc., a company incorporated under the laws of British Columbia in 2002 to license, develop and distribute certain technology and products relating to  the application of multivariate modeling in the area of psychometrics. Triant Psychometrics Inc. has one wholly-owned subsidiary: Triant Psychometrics Corp., a company incorporated under the laws of the State of Idaho to license and distribute certain technology and products relating to applications of multivariate modeling in the area of psychometrics.



D.

Property, Plant and Equipment



The Companys principal executive office is currently located at 20 Townsite Road, 2nd Floor, Nanaimo, British Columbia, Canada, V9S 5T7.  This office comprises approximately 6,000 square feet of leased space for staff. In 2002, the Company exercised its right to renew this lease for an additional five-year term that is renewable for a further five-year term in 2007.



The Company has another office at Suite #580 - 1122 Mainland Street, Vancouver, British Columbia, Canada, V6B 5L1. This office comprises approximately 7,200 square feet of leased space for staff under a lease expiring in 2005. An option to extend the term for an additional three-year period exists.



The Company believes that its current facilities will be adequate for its business requirements in a manner consistent with its business plans for the next 12 months.





ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS



The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements included elsewhere herein. These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP), which in the case of these financial statements, conform in all material respects with those in the United States (U.S. GAAP), except as disclosed in Note 9 to the Consolidated Financial Statements and discussed herein. All figures herein are expressed in Canadian dollars unless otherwise noted.



A.

Operating Results



General



The nature of operations is outlined within Note 1 to the Consolidated Financial Statements of the Company. The Company develops, markets, and supports equipment health monitoring, advanced fault detection and sophisticated data analysis technology. The revenue of the Company is derived principally from the sale of software licenses, products and services, including software updates and maintenance services provided pursuant to annual service agreements. The Company currently derives revenue primarily from a limited number of customers in the semiconductor industry. As these customers are geographically dispersed and the Company closely monitors credit granted to each customer, credit risks are considered to be minimal. The Company identifies Canada as the primary economic environment in which it operates and uses the Canadian dollar as its functional currency. A substantial amount of the revenue of the Company and receivables are denominated in U.S. dollars. The Company translates revenue and the related receivable at the prevailing exchange rate at the time of the sale. Funds denominated in U.S. dollars are translated into Canadian dollars at the rate in effect on the balance sheet date. Translation gains and losses resulting from variations in exchange rates, upon translation into Canadian dollars, are included in results of operations.



The principal product of the Company, ModelWare, is priced and sold only in U.S. dollars due to the adoption of a common software industry practice of billing worldwide customers in U.S. dollars. This policy of invoicing in U.S. dollars introduces a price risk from exposure to fluctuations in foreign exchange rates. Any increase in the relative value of the U.S. dollar to the Canadian dollar results in increased revenue and net earnings to the Company as the majority of the expenses of the Company are denominated in Canadian dollars. A decrease in the relative value of the U.S. dollar to the Canadian dollar would decrease sales revenue and net earnings of the Company. For example, if the relative value of the U.S. dollar to the Canadian dollar had increased (decreased) by an additional 1.0% for the year ended December 31, 2003, then revenue would have increased (decreased) by approximately 1.0% or $65,800, costs and expenses would have increased (decreased) by approximately 0.2% or $17,000 and loss from operations and net loss would have decreased (increased) by $48,800. The Company does not hedge foreign currency transactions nor funds held and denominated in U.S. dollars.



The operations of the Company are sensitive to fluctuations in revenue as the base of expenses is relatively fixed over the short-term. The Company has developed and continually seeks to refine its management practices to allow initiation of timely corrective actions if operating results fail to reach pre-determined objectives.



Critical Accounting Policies and Significant Estimates



The significant accounting policies are outlined within Note 2 to the Consolidated Financial Statements of the Company.  Some of those accounting policies require the Company to make estimates and assumptions that affect the amounts reported by the Company.  The following items require the most significant judgment and may involve complex estimation:



Use of estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and for the periods presented.  Estimates are used for, but not limited to, accounting for doubtful accounts, determination of the net recoverable value of assets, amortization, income taxes, and contingencies.  Actual results may differ from those estimates. Inaccurate estimates or wrong assumptions may have a material effect on the financial condition and results of operations of the Company,



Research and development costs



Research costs are expensed when incurred.  Under Canadian GAAP, development costs are capitalized to the extent that recovery of these costs is assured, and are amortized over the life of the related product. No development costs have been capitalized as at December 31, 2003 and 2002. The assessment of the extent to which development costs should be expensed or capitalized may have a material effect on the financial condition and results of operations of the Company.



Revenue recognition



Revenues from software license agreements are recognized upon delivery of software if persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable, and vendor-specific objective evidence exists to allocate the total fee to elements of the arrangement.  Vendor-specific objective evidence is typically based on the price charged when an element is sold separately, or, in the case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not change before market introduction.  Elements included in multiple element arrangements could consist of software products, upgrades, enhancements, or customer support services.  If an acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period.   The Companys agreements with its customers, value-added resellers and distributors do not contain product return rights (except for product defects as discussed under "Item 4.B. Business Overview / ModelWare in the Semiconductor Industry / Sales of ModelWare to the Semiconductor Industry / Revenue Model").



Service revenues are primarily related to training performed on a time-and-materials basis under separate service arrangements related to the use of the Companys software products.  Revenues from services are recognized as services are performed.



Where the Company enters into arrangements which require customization of hardware bundled with software, the Company recognizes revenue upon delivery and acceptance by the customer where the fee is fixed or determinable and collection is reasonably assured. If the fee is not fixed or determinable due to the existence of extended payment terms, revenue is recognized periodically as payments become due, provided all other conditions for revenue recognition are met.



If a transaction includes both license and service elements, license fee revenues are recognized on shipment of the software, provided that services do not include significant customization or modification of the base product, and the payment terms for licenses are not subject to acceptance criteria.  In cases where license fee payments are contingent on acceptance of services, the Company defers recognition of revenues from both the license and the service elements until the acceptance criteria are met. Deferred revenue on sales to distributors is recorded net of direct commissions paid.



Revenue related to maintenance agreements for supporting and maintaining the Companys products is recognized ratably over the term of the agreement, generally one year. Where the Company enters into arrangements for the sale of software licenses and maintenance, the Company accounts for such transactions as multiple element arrangements and allocates the consideration received to each element, based on vendor specific objective evidence of the price charged for elements separately. As a result, revenues recognized from maintenance and license agreements may vary depending on the allocation determined by the Company.



These revenue recognition policies and related estimates may have a material effect on the financial condition and results of operations of the Company.



Warranty



A provision for potential warranty claims is provided for at the time that the sale is recognized, based on warranty terms, and prior experience. While these estimates are determined based on product history, as well as an assessment of the potential for future claims, actual claims may have a material adverse effect on the financial condition and results of operations of the Company.



Stock-based compensation



The Company adopted the recommendations of the CICA Handbook section 3870, Stock-Based Compensation and Other Stock-Based Payments, effective January 1, 2002.  This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based awards made in exchange for goods and services. The standard requires that all stock-based awards made to non-employees be measured and recognized using a fair value based method.  The standard encourages the use of a fair value based method for all awards granted to employees, but only requires the use of a fair value based method for direct awards of stock, stock appreciation rights, and awards that call for settlement in cash or other assets.  Awards that a company has the ability to settle in stock are recorded as equity, whereas awards that the entity is required to or has a practice of settling in cash are recorded as liabilities.



The Company provides stock-based compensation to eligible persons under its 1997 Share Incentive Plan, as amended.  When bonus shares are issued under this plan, compensation expense is recognized at the fair market value of the bonus shares issued and an equivalent amount is credited to share capital.



The Company has adopted the disclosure only approach for stock-based awards to employees and directors rather than the fair value method. As a result, there is no compensatory charge for these items, which would otherwise adversely affect the financial condition and results of operations of the Company. Had compensation expense for the Companys stock-based compensation plan been determined based on the fair value based method of accounting for all awards granted, the Companys net loss and loss per share under Canadian GAAP would have been $3,387,757 and $0.08, respectively, for 2003 and $4,918,205 and $0.12, respectively, for 2002 and under U.S. GAAP would have been $3,085,592 and $0.08, respectively, for 2003 and $4,918,205 and $0.12, respectively, for 2002.



In accordance with the provisions of SFAS No. 123, Accounting for Stock-based Compensation, the Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for its stock-based awards to employees, and accordingly does not generally recognize compensation expense.  The Company has adopted the disclosure only provisions of SFAS No. 123. Compensation costs related to stock-based awards to non-employees are recognized under U.S. GAAP as an expense in the period incurred. Under U.S. GAAP, amendments to the terms of options, which extend the expiration date and/or reduce the exercise price, may also result in stock-based compensation expense. Under SFAS No. 123, options granted to employees are valued at the issuance dates using the Black-Scholes valuation model and the resultant compensation cost is recognized ratably over the vesting period.



Operating Results



Revenue for the year ended December 31, 2003 was $6,575,280 compared to $6,547,077 in 2002 and $4,240,355 in 2001. Although revenue in 2003 was only slightly ahead of revenue for 2002 in terms of Canadian dollars, in terms of U.S. dollars,  revenue increased 14% greater in 2003 compared to 2002 (as the Companys products are priced and paid for in U.S. dollars). This variance was due to the significant decrease in the relative value of the U.S. dollar to the Canadian dollar in 2003. Despite the constraints of its customers and the continuing challenges of the semiconductor markets for most suppliers, the Company has been able to make progress for its products and services with the opening up new accounts and further deployments of ModelWare in existing accounts, including one customer selecting ModelWare for multiple Fab-wide licenses. The 54% increase in revenue in 2002 compared to 2001 was a result of opening up new accounts and further deployments of ModelWare in existing accounts, including one customer ordering multiple Fab-wide licenses.  During 2003, the Company continued to pursue ModelWare licensing opportunities, through its distribution channels and directly, with various semiconductor manufacturers for use on a number of different types of wafer processing equipment. As a result of these efforts in Asia, Europe and the United States, the Company received $6.0 million in new orders in 2003 compared to $6.4 million in 2002 and $3.8 million in 2001.



Cost of revenue for the year ended December 31, 2003 was $1,473,876 compared to $1,975,695 in 2002 and $1,519,254 in 2001. These costs consist primarily of commissions, salaries and benefits, travel, allocated overhead costs, freight and brokerage and other costs directly associated with revenue. Gross margin and gross margin percentage for the year ended December 31, 2003 were $5,101,404 and 78%, respectively, compared to $4,571,382 and 70%, respectively, in 2002 and $2,721,101 and 64%, respectively, in 2001. The increase in gross margin percentage for 2003 compared to 2002 was attributable to the combined effect of changes in the distribution channel mix and the product mix, as well as a net reduction of $250,000 in the warranty provision, of which $100,000 was due to the expiration during the year of the warranty period for the VHM legacy product and $150,000 due to the current warranty provision estimate for ModelWare. The increase in gross margin percentage for 2002 compared to 2001 was attributable to the combined effect of changes in the distribution channel mix (including higher margin revenue for ModelWare from the OEM channel increasing to 19% of revenue for 2002 compared to 13% for 2001) and the product mix (including lower margin revenue from hardware-based legacy products for the rail industry decreasing to Nil% of revenue for 2002 compared to 14% for 2001).



Operating expenses for the year ended December 31, 2003 were $7,189,157 compared to $9,233,728 in 2002 and $8,172,016 in 2001. The 22% decrease in expenses in 2003 compared to 2002 was attributable primarily to decreased research and development expenses and secondarily to decreased selling, general and administrative expenses to levels that still support current and anticipated growth in business opportunities in the semiconductor industry and the area of psychometrics. The 13% increase in expenses in 2002 compared to 2001 was attributable to increased research and development expenses and selling, general and administrative expenses. This was due to increased outsourcing of development of approximately $0.4 million and approximately $0.6 million for personnel related costs.



Research and development expenses for the year ended December 31, 2003 were $4,036,648 compared to $5,785,109 in 2002 and $4,876,154 in 2001. (See also Item 5.C. Research and Development, Patents and Licenses, etc.) The 30% decrease in research and development expenses in 2003 compared to 2002 was attributable to decreased outsourcing of certain contract software development services. Development work in 2003 focused primarily on developing a new messaging architecture to enable ModelWare to be more easily extended in future releases and on developing enhanced analysis of archived data. The 19% increase in research and development expenses in 2002 compared to 2001 was attributable to increased outsourcing of certain contract software development services and increased technical staff based in the Companys new office opened during 2002 in Vancouver, Canada. Development work in 2002 focused primarily on increasing the ease-of-use and maintainability of ModelWare for deployment in a Fab-wide environment. This included enhanced report generation; increased performance of real-time applications; enhanced data import; and enhanced multivariate modeling. Research and development expenses represented the largest expense category for the Company in 2003, 2002 and in 2001.  With continuing technological change and competitive pressures characterizing the markets for the Companys products and services, the Company expensed costs relating to research and development, as recovery of such costs from future revenue was not assured.



Selling, general and administrative expenses for the year ended December 31, 2003 were $3,152,509 compared to $3,448,619 in 2002 and $3,295,862 in 2001. The 9% decrease in selling, general and administrative expenses in 2003 compared to 2002 was attributable to reduced non-core corporate and marketing activities during the year. The 5% increase in selling, general and administrative expenses in 2002 compared to 2001 included the impact of costs associated with the new office in Vancouver, Canada as a base for its marketing, sales and customer support activities and placing channel management and customer support staff on-site in Japan and Korea during the year. This increased global presence in these key markets is serving as a base for developing the significant opportunities for production-critical, Fab-wide solutions for leading semiconductor manufacturers in Asia.  Selling, general and administrative expenses represented the second largest expense category in 2003, 2002 and in 2001.



Loss from operations for the year ended December 31, 2003 was $2,087,753 compared to $4,662,346 in 2002 and $5,450,915 in 2001. The 55% decrease in loss from operations in 2003 compared to 2002 was primarily a result of lower research and development expenses and secondarily a result of lower selling, general and administrative expenses during the year. The 14% decrease in loss from operations in 2002 compared to 2001 was a result of increased revenue, while the Company continued to aggressively invest in research and development.



Net loss for the year ended December 31, 2003 was $2,789,645 compared to $4,331,237 in 2002 and $4,463,238 in 2001. The 36% decrease in net loss in 2003 compared to 2002 reflected a combination of a decreased loss from operations with a lesser decrease in interest and other income of $176,354 in 2003, compared to $331,109 in 2002 that resulted from lower interest rates and lower principal amounts during 2003 compared to 2002, as well as the effect of a foreign exchange loss of $878,246 in 2003 compared to a foreign exchange gain of $15,142 in 2002 that resulted from changes in the relative value of the Canadian dollar to the U.S. dollar on working capital denominated in U.S. dollars. The 3% decrease in net loss in 2002 compared to 2001 reflected a combination of a decreased loss from operations with a lesser decrease in interest and other income of $331,109 in 2002 compared to $987,677 in 2001 that resulted from lower interest rates and lower principal amounts during 2002 compared to 2001, as well as the effect of a foreign exchange gain of $15,142 in 2002 compared to a foreign exchange loss of $202,762 in 2001 that resulted from changes in the relative value of the Canadian dollar to the U.S. dollar on working capital denominated in U.S. dollars.



Loss per share for the year ended December 31, 2003 was $0.07 compared to $0.10 in 2002 and $0.11 in 2001. The 30% decrease in loss per share in 2003 compared to 2002 resulted from a combination of decreased net loss and decreased weighted average number of shares outstanding. The 9% decrease in loss per share in 2002 compared to 2001 resulted from a combination of decreased net loss and decreased weighted average number of shares outstanding.



In order to conform Canadian GAAP to U.S. GAAP, net loss would be increased by $Nil, $6,475, and $21,062 for each of the years ended December 31, 2003, 2002 and 2001, respectively, for consulting expense as compensation costs related to stock-based awards to non-employees are recognized under U.S. GAAP as an expense in the period incurred. Net loss would be decreased by $302,165, $Nil, and $Nil for each of the years ended December 31, 2003, 2002 and 2001, respectively, for severance expense not recognized under U.S. GAAP as an expense in the period incurred. As a result of these adjustments, loss from operations under U.S. GAAP would have been $1,785,588, $4,668,821 and $5,471,977 for each of the years ended December 31, 2003, 2002 and 2001, respectively, and net loss under U.S. GAAP would have been $2,487,480, $4,337,712 and $4,484,300 for each of the years ended December 31, 2003, 2002 and 2001, respectively, and basic and diluted loss per share under U.S. GAAP would have been $0.06, $0.10 and $0.11 for each of the years ended December 31, 2003, 2002 and 2001, respectively.



Recent U.S. GAAP Accounting Pronouncements include the following:



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).  FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements related to guarantees and warranties.  The initial recognition requirements of FIN 45 are effective for guarantees issued or modified after December 31, 2002.  The adoption of this Statement does not have a material impact on the Companys financial statements.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.  SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation.  It also amends the disclosure provisions of that statement.  The disclosure provisions of this statement are effective for financial statements issued for fiscal periods beginning after December 15, 2002. The adoption of this Statement does not have a material impact on the Companys financial statements.



In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financing interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003; however, earlier adoption is permitted.  The adoption of this Statement does not have a material impact on the Companys financial statements.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.  SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133.  In particular, SFAS No. 149  (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133,  (2) clarifies when a derivative contains a financing component,  (3) amends the definition of an underlying derivative to conform it to the language used in FASB Interpretation No. 45, Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and  (4) amends certain other existing pronouncements.  SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003.  The adoption of this Statement does not have a material impact on the Companys financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.  SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  Many of those instruments were previously classified as equity.  Some of the provisions of this statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements.  This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The adoption of this Statement does not have a material impact on the Companys financial statements.



The Company believes the demand for APC products and services will continue to increase on a year-over-year basis as customers realize their benefits. According Semiconductor Industry Association, 2004 is expected to be another year of strong double-digit growth for the semiconductor industry and is now expected to exceed 19%. The Company is optimistic that this will have a positive effect on its business. For 40 years the semiconductor industry has sustained a remarkable growth due to a variety of design and manufacturing improvements that have resulted in the proliferation of electronics. Because of these improvements, the industry has managed a 30% per year cost reduction per chip function and has managed to grow at a compound annual rate of 17% per year during this period. However, the industry is facing some tough challenges, which include: increasingly complex factories due to the rapid changes in semiconductor technologies, business requirements and market conditions; the efficiency of the equipment used to manufacture chips is not keeping up with industry-specific targets, which has a significant impact on capital and operating costs; and with respect to the conversion to 300mm factories, the Industry must quickly ramp 300mm production to high volumes and it must achieve its efficiency targets. APC can help the semiconductor industry meet these and other challenges it currently faces. APC is the Companys business.



B.

Liquidity and Capital Resources



At December 31, 2003, cash, cash equivalents and short-term investments were $7,354,044 compared to $12,442,039 at December 31, 2002; working capital was $8,192,230 compared to $11,017,628 at December 31, 2002; assets were $11,319,517 compared to $14,312,793 at December 31, 2002; and shareholders equity was $8,745,194 compared to $11,534,839 at December 31, 2002.



At December 31, 2003, 2.2% of cash, cash equivalents and short-term investments were denominated in U.S. dollars compared to 60.2% as at December 31, 2002 and 100% of trade accounts receivable were denominated in U.S. dollars compared to 98.6% as at December 31, 2002 (since the Company invoices its products primarily in U.S. dollars). Any increase (decrease) in the relative value of the U.S. dollar to the Canadian dollar would increase (decrease) cash, cash equivalents and short-term investments and would impact the net earnings of the Company. For example, if the relative value of the U.S. dollar to the Canadian dollar had increased (decreased) by an additional 1.0% for the year ended December 31, 2003, then cash, cash equivalents and short-term investments would have increased (decreased) and net loss would have decreased (increased) by approximately $1,600 and accounts receivable would have increased (decreased) and net loss would have decreased (increased) by approximately $30,000. The Company does not hedge funds denominated in U.S. dollars.



During the year ended December 31, 2003, the Company had a net outflow of cash and cash equivalents of $3,169,018 compared to a net outflow of $4,213,908 for 2002 and a net outflow of $6,006,145 for 2001. In 2003, cash and cash equivalents were used in operating activities (outflow of $4,882,339) and used in investing activities for property, plant and equipment (outflow of $212,851). The principal components for operating activities include an outflow of $2,789,645 for net loss for the year and an outflow of $2,262,597 for changes in operating assets and liabilities, primarily consisting of an outflow of $1,792,575 resulting from an increase in trade accounts receivable due to the timing of billings for licenses, products, services and maintenance contracts and an outflow $408,936 resulting from a decrease in deferred revenue due to the timing of revenue recognition for licenses, products, services and maintenance contracts. In 2002, cash and cash equivalents were used in operating activities (outflow of $4,136,036), used in financing activities for acquisition of treasury stock less issuances of common shares (outflow of $132,759), and used in investing activities for property, plant and equipment (outflow of $265,902). The principal components for operating activities include an outflow of $4,331,237 for net loss for the year and an inflow of $113,328 for changes in operating assets and liabilities, primarily consisting of an outflow of $953,153 resulting from an increase in trade accounts receivable due to the timing of billings for licenses, products, services and maintenance contracts and an inflow of $825,862 resulting from an increase in deferred revenue due to the timing of revenue recognition for licenses, products, services and maintenance contracts. In 2001, cash and cash equivalents were used in operating activities (outflow of $3,788,926), resulted from financing activities for the issuances of common shares (inflow of $74,000), and used in investing activities for property, plant and equipment (outflow of $275,676). The principal components for operating activities include an outflow of $4,463,238 for net loss for the year and an inflow of $269,057 for changes in operating assets and liabilities, primarily consisting of an inflow of $178,152 resulting from an decrease in trade accounts receivable due to the timing of billings for licenses, products, services and maintenance contracts and an outflow $537,144 resulting from a decrease in deferred revenue due to the timing of revenue recognition for licenses, products, services and maintenance contracts.



During the years ended December 31, 2003, 2002 and 2001, the distribution of securities has been a source of net cash for the Company for financing activities of $Nil, $13,750 and $74,000, respectively. In 2003, the Company did not issue any common shares. In 2002, the Company issued common shares pursuant to stock option exercises that resulted in financing activities of $13,750. In 2001, the Company issued common shares pursuant to share purchase warrant exercises and stock option exercises that resulted in financing activities of $74,000.



During the years ended December 31, 2003, 2002 and 2001, the Company did not have any lines of credit or debt facilities.



During the year ended December 31, 2002, the purchase of 189,500 of the Companys shares under a normal course issuer bid at an average cost of $0.77 per share and a total cost of $146,509 was an outflow of cash by the Company for financing activities for acquisition of treasury stock. These shares were cancelled on July 15, 2002.



The Company believes that its existing cash resources are sufficient to fund expected capital requirements and operating losses for the next 12 months. The Company intends to use its existing cash resources to fund research and development of existing and new technologies; to fund new business development programs, including sales and marketing of existing and new products; and for general corporate purposes, including possible future acquisitions and investments. While management anticipates continued growth in revenue from its products and services, there is no assurance that the Company will earn sufficient revenue to maintain future operations and fund the growth of the Company. Consequently, the Company may raise additional funds through financings in the future in order to take advantage of any growth opportunities, which may require a more rapid expansion, or acquisitions of complementary businesses or technologies, the formation of new alliances, the development of new products, and other responses to competitive pressures.  There can be no assurance that additional financing will be available, if at all, on terms favourable to the Company.  If such funds are unavailable or are not available on acceptable terms, the Company may be unable to maintain its future operations, take advantage of opportunities, develop new products, or otherwise respond to competitive pressures.



Summary



The management and strategic focus of the Company is to be the market-leading provider of equipment health monitoring, advanced fault detection and sophisticated data analysis technology by offering our customers best-of-breed solutions. ModelWare is a complex software system that has to operate 24 hours a day, 365 days a year, be deployable on a Fab-wide scale, provide solutions to the tough manufacturing problems of customers, and do so with an attractive return on investment and low cost of ownership. The Company firmly believes that for it to be a market-leader in the semiconductor industry and compete with other larger companies, it must continue to invest in research and development and market development activities to position the Company for future growth.



The total commitment of the Company to developing and commercializing world-class products is needed to enable the Company to further strengthen its relationships with existing and to win new customers in the semiconductor industry, as well as in other markets where the Company believes significant opportunities exist. This will enable the Company to successfully commercialize its products by using its financial strength for its research and development and market development activities.



In addition to the above-noted risks, the Company faces other risks in its business that are identified in Item 3. D. Risk Factors. The occurrence of one or more of the events described therein may have a material adverse effect upon the Companys results of operations, financial condition and future prospects.



C.

Research and Development, Patents and Licenses, etc.



Research and development is a critical factor for the Companys long-term success as a leading provider of equipment health monitoring and advanced fault detection solutions for the semiconductor industry, the most complex manufacturing industry in the world today. The Company believes that success in this complex, changing, and technology-driven industry can lead to a sustainable and profitable business and provide significant credibility for the Company as it researches, develops and applies its technology to other vertical markets, including the area of psychometrics. The benefit of developing these other market opportunities includes the reduced reliance on the cyclical semiconductor industry and the prospect of further accelerating the Companys growth.



The Company researches, designs, develops and tests software products for individual customer and market-driven application requirements. The Companys business policy with respect to research and development activities is to create or acquire and enhance software technologies. The Companys accounting policy with respect to research and development costs is to expense research costs when incurred and to capitalize development costs to the extent that recovery of these costs is assured and amortize any capitalized development costs over the life of the related product. No development costs have been capitalized during the years ended December 31, 2003, 2002 and 2001.



The Company has spent the following amounts in the past three years on research and development:



| | Year Ended
December 31, 2003 | Year Ended
December 31, 2002 | Year Ended
December 31, 2001
| | ---------------------------- | ---------------------------- | ----------------------------



|Research and development | $    4,036,648 | $    5,785,109 | $    4,876,154
|------------------------ | -------------- | -------------- | --------------





As discussed in Item 3. A. Operating Results and Item 3. B. Liquidity and Capital Resources, the Company significantly lowered its level of investment in research and development for 2003 compared to prior years, primarily reflecting the Companys transition during 2002 away from outsourced software development services. The Company believes that the current level of expenditures on research and development activities supports the Companys commitment to meeting the demand for equipment health monitoring and advanced fault detection solutions for the semiconductor industry and to exploring other market opportunities for the research, development and application of the Companys technology, including the area of psychometrics.



Research and development work in 2003 focused primarily on developing a new messaging architecture to enable ModelWare to be more easily extended in future releases and on developing enhanced analysis of archived data, as well as continued research and development in the area of psychometrics. Research and development work in 2002 focused primarily on increasing the ease-of-use and maintainability of ModelWare for deployment in a Fab-wide environment, including enhanced report generation; increased performance of real-time applications; enhanced data import; and enhanced multivariate modeling, as well as continued research and development in the area of psychometrics. Research and development work in 2001 focused primarily on technology and architecture improvements for ModelWare as well as researching and developing new ways to solve complex problems related to the challenge of manufacturing semiconductor chips. This included development of an original equipment manufacturer (OEM) version of ModelWare, as well as conducting new research and development initiatives in the area of psychometrics.



The Company has a comprehensive product roadmap for ModelWare that was developed through an extensive collaborative effort between the Company and its key customers. To achieve the Companys product roadmap goals, a significant amount of on-going research and development work is needed to meet the semiconductor industrys requirements for a Fab-wide equipment health monitoring and advanced fault detection solution that is highly reliable, maintainable and scalable. The major focus of the Companys product roadmap is on the collection, analysis, archiving and visualization of data related to the operation of the highly complex wafer processing equipment used in the semiconductor industry.



The Company distributes its software with explicit warnings and instructions regarding its use and the illegality of unauthorized duplication in an attempt to protect its property rights in the software. Although the Company has not registered any of its copyrights, it does include copyright warnings with all of its software products. The Company protects its trademarks by seeking trademark registrations. The Company has registered in Canada and the United States its trademarks ModelWare and Triant. Although the Company presently does not have any patents, it is implementing a patent strategy with a goal of protecting its core technology and intellectual property.  The Company currently has two patents pending in each of the United States and Canada and is also working on filing additional patents for other inventions under development. The Company currently relies principally on product secrecy and confidentiality provisions in licensing and other agreements with its customers, including non-disclosure of the source code of its product. The Company also requires its employees and consultants to enter into non-disclosure agreements.



D.

Trend Information



The semiconductor industry has, for the last 40 years, grown at an average annual rate of around 17% per year. It has achieved this growth through continually reducing the costs of manufacturing chips by an average of 25-30% per year. According to the Semiconductor Industry Association (SIA), the productivity of equipment on average was only 58% in 2002 and the SIA has identified the need to improve equipment productivity to 70% by 2007 and on to 75% by 2016. To continue to reduce these costs and improve productivity, the semiconductor industry must focus on ways to improve the overall effectiveness of the capital equipment used to manufacture chips. A long-term market opportunity is developing in the area of advanced process control (APC) to address the industrys needs to improve equipment effectiveness. ModelWare, the Companys equipment health monitoring and advanced fault detection solution for the semiconductor industry, is designed to help improve equipment productivity by reducing scrap, lowering the use of non-product wafers and increasing equipment uptime.



The Company achieved a slight revenue increase in 2003 despite the very challenging market conditions and the significant decrease in the relative value of the U.S. dollar to the Canadian dollar on its U.S. denominated revenue. The Company currently does not have good visibility into its likely performance in 2004 and is dependent on a small number of key accounts purchasing ModelWare for the Company to achieve continued revenue growth.



While the Companys focus remains on forging a successful business in the semiconductor industry, new initiatives have been launched to diversify into other vertical markets. The Companys goal is to offer best-of-breed solutions in equipment health monitoring, advanced fault detection and sophisticated data analysis technology. The Company plans to achieve this goal through a business model centered on its core technology and intellectual property, using a combination of product sales, original equipment manufacturer (OEM) licensing, professional services, and web-based delivery of data analysis and reporting services.



E.

Off Balance Sheet Arrangements



The Company does not have any "off-balance sheet transactions," as defined in Item 5.E. of Form 20-F.



F.

Tabular Disclosure of Contractual Obligations



The following table sets forth the contractual obligations of the Company to make future payments as of December 31, 2003.



|Contractual Obligations | Payments due by period
|----------------------- | ----------------------
|                        |                       



| | Total | 2004 | 2005-2006 | 2007-2008 | 2009 and
after
| | ----- | ---- | --------- | --------- | --------------



|Operating lease obligations(1) | $     768,714  | $  332,891  | $   395,307    | $     40,516   | $          Nil
|------------------------------ | -------------- | ----------- | -------------- | -------------- | --------------
|Purchase obligations(2)        | $       15,124 | $    13,845 | $          930 | $          349 | $          Nil



|Total(3) | $      783,838 | $   346,736 | $   396,237 | $     40,865 | $          Nil
|-------- | -------------- | ----------- | ----------- | ------------ | --------------

_________________________

(1)

Operating lease obligations include leases for office facilities as described in Item 4.D. Property, Plant and Equipment.



(2)

Purchase obligations include outstanding purchase orders for goods and services not received or accrued for as at December 31, 2003.



(3)

The above table excludes accounts payable and accrued liabilities that are payable in the normal course of business and which are included in current liabilities at December 31, 2003; directors fees (see Item 6.B. Compensation / Directors Fees); legislative or contractual obligations to employees (gross wages for employees in 2003 amounted to approximately $5,1 million); and contractors on a month to month basis (which in 2003 amounted to less than $100,000).





ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



A.

Directors and Senior Management



The directors and senior management of the Company as at February 29, 2004 are as follows:



|Name | Positions and Offices with the Company and Period Served
|---- | --------------------------------------------------------



|Robert Heath            | Director since February 2000; Chairman of the Board from June 2001 to December 31, 2003 and Chief Executive Officer since August 2001                                                                                                                                                 
|----------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                        |                                                                                                                                                                                                                                                                                       
|Paul OSullivan         | Director since August 1991; Officer since May 1989, holding at various times the positions of General Manager, Vice President, Secretary, Chief Executive Officer, and currently, President and Chief Operating Officer; Mr. OSullivan is also a Director of Synex International Inc.
|                        |                                                                                                                                                                                                                                                                                       
|David Baird(1)(3)(5)    | Director since May 1989; Mr. Baird is Director and Executive Vice President of Dixon Networks Corporation                                                                                                                                                                             
|                        |                                                                                                                                                                                                                                                                                       
|Richard Deininger(2)    | Director since May 2003; Mr. Deininger is also a Director of Semitool, Inc.                                                                                                                                                                                                           
|                        |                                                                                                                                                                                                                                                                                       
|Brian Harrison(2)(4)(6) | Director since February 2002; Chairman of the Board since January 2004                                                                                                                                                                                                                
|                        |                                                                                                                                                                                                                                                                                       
|Brian Piccioni(2)(5)    | Director since February 2001; Mr. Piccioni is Managing Director, High Technology, Equity Research of BMO Nesbitt Burns                                                                                                                                                                
|                        |                                                                                                                                                                                                                                                                                       
|Mark Stephens           | Chief Financial Officer and Corporate Secretary since December 1994                                                                                                                                                                                                                   
|                        |                                                                                                                                                                                                                                                                                       
|Francis St-Pierre       | Vice President, Worldwide Sales & Marketing since February 2000                                                                                                                                                                                                                       

_________________________________________

(1)

Chairman of Audit Committee

(2)

Member of Audit Committee

(3)

Audit Committee Financial Expert

(4)

Chairman of Corporate Governance Committee

(5)

Member of Corporate Governance Committee

(6)

Effective January 1, 2004, the appointment of a non-management director as Chairman of the Board superseded the appointment of a non-management director as Lead Director. See also Item 6.A. Directors and Senior Management / Lead Director.



There are no family relationships between any director or executive officer and any other director or executive officer.



During 2003, Indemnification Agreements between the Company and its directors and officers were signed. These indemnification agreements provide for indemnification for all of the directors and officers of the Company as permitted pursuant to Section 128 of the Company Act (British Columbia) (the Act). Without limiting the generality of the foregoing, this includes the Company indemnifying and saving indemnified parties harmless from and against any and all costs, charges and expenses, however arising or incurred by the indemnified parties, directly or indirectly, in relation to the affairs of the Company by reason of the indemnified parties being (or previously having been) a director or officer of the Company, provided that the indemnified parties acted honestly and in good faith with a view to the best interests of the Company and, in the case of a criminal or administrative action or proceeding, the indemnified parties had reasonable grounds for believing that their conduct was lawful.  These indemnification agreements continue in effect after the indemnified parties cease to be a director or officer of the Company.



B.

Compensation



The following table discloses information on compensation from the Company and its subsidiaries received by executive officers of the Company whose total annual salary and bonus exceeded $100,000 during the year ended December 31, 2003 (the Named Executive Officers) and by all other directors and officers as a group (excluding the Named Executive Officers).



SUMMARY COMPENSATION TABLE



|                                     | Annual Compensation | Long-Term Compensation |                               
|------------------------------------ | ------------------- | ---------------------- | ------------------------------
|                                     | Awards              | Payouts                |                               
|Name and Principal Position or Group | Salary
($)          | Bonus
($)              | Other Annual Compen-sation
($)



|ROBERT HEATH
Chairman and Chief Executive Officer             | $   175,000 | $     78,205 | (1) | 110,000 | N/A | N/A | N/A
|------------------------------------------------------------- | ----------- | ------------ | --- | ------- | --- | --- | ---
|                                                              |             |              |     |         |     |     |    
|PAUL OSULLIVAN
President and Chief Operating Officer         | $   150,000 | $     58,654 | (1) | 110,000 | N/A | N/A | N/A
|                                                              |             |              |     |         |     |     |    
|MARK STEPHENS
Chief Financial Officer and Corporate Secretary | $   140,000 | $     37,333 | (1) | 75,000  | N/A | N/A | N/A
|                                                              |             |              |     |         |     |     |    
|FRANCIS ST-PIERRE
Vice President, Worldwide Sales & Marketing | $   130,000 | $     46,667 | (1) | 55,000  | N/A | N/A | N/A
|                                                              |             |              |     |         |     |     |    
|All Other Directors and Officers as a Group                   | Nil         | Nil          | (1) | 150,000 | N/A | N/A | N/A

_________________________________

(1)

The aggregate amount of all perquisites or other personal benefits paid or given to the Named Executive Officers during the year did not exceed 10 percent of the total salary and bonus in 2003.



Directors Fees



During the year ended December 31, 2003, directors of the Company, including those who were not executive officers or employees of the Company (non-management directors), did not receive fees or other cash compensation in their capacity as directors, except as follows: Lead Director (see also Item 6.C. Board Practices / Lead Director) - $10,000 per year, payable quarterly; Audit Committee Chairman - $5,000 per year, payable quarterly; and Corporate Governance Committee Chairman - $5,000 per year, payable quarterly.



Directors were reimbursed for transportation and other out-of-pocket expenses incurred for attendance at directors meetings.



Stock Incentives



The Company has a 1997 Share Incentive Plan, as last amended on July 23, 2003 (the Plan) for its directors, officers, employees and consultants. The Plan provides for equity participation in the Company by such persons through the acquisition of Common Shares pursuant to the grant of options to purchase such Common Shares (the Option Shares) and through the award of bonuses in the form of Common Shares (the Bonus Shares). The board of directors of the Company may grant options to purchase Common Shares on terms that the directors may determine, within the limitations of the Plan and subject to the rules of applicable regulatory authorities. The Plan authorizes the issuance of an aggregate of 8,310,000 Common Shares, 8,267,500 of which may be issued upon exercise of stock options and 42,500 of which may be issued as Bonus Shares.



The Plan provides for automatic option grants of 50,000 Option Shares to each non-management director as of the initial election or appointment as a director of the Company, and 15,000 Option Shares to non-management directors on each subsequent election or re-election at successive annual general meetings. Under the Plan, non-management directors are also automatically granted options to purchase Common Shares, for the number indicated as follows, upon any initial appointment to serve in the following capacities and upon any subsequent appointment after successive annual general meetings to so serve: Chairman of the Board - 10,000 Shares; Chairman of a Committee of the Board - 5,000 Shares; Member of a Committee of the Board - 2,500 Shares.



The exercise price for an option granted under the Plan is determined by the board of directors of the Company but may not be less than the closing trading price of the Common Shares on the Toronto Stock Exchange on the day immediately preceding the date of the option grant. Options are exercisable for such term, determined by the Board of Directors of the Company, of up to ten years (up to five years for consultants options), subject to earlier termination in the event of death or cessation of service to the Company. Options are also subject to such vesting conditions as may be determined by the Board of Directors.



The following table sets out information for the financial year ended December 31, 2003 with respect to stock option grants to the Named Executive Officers and to all other directors and officers as a group (excluding the Named Executive Officers).



OPTION GRANTS



|Name | Securities Under Options Granted
(#) | Exercise or Base Price
($/Security) | Market Value of Securities Underlying Options of the Date of Grant(1)
($/Security) | Expiration Date
|---- | ------------------------------------ | ----------------------------------- | ---------------------------------------------------------------------------------- | ---------------



|ROBERT HEATH                                | 110,000        | $0.325      | $0.325      | June 30, 2007              
|------------------------------------------- | -------------- | ----------- | ----------- | ---------------------------
|PAUL OSULLIVAN                             | 110,000        | $0.325      | $0.325      | June 30, 2007              
|MARK STEVENS                                | 75,000         | $0.325      | $0.325      | June 30, 2007              
|FRANCIS ST-PIERRE                           | 55,000         | $0.325      | $0.325      | June 30, 2007              
|                                            |                |             |             |                            
|All Other Officers and Directors as a Group | 50,000
100,000 | $0.26
$0.37 | $0.26
$0.37 | June 30, 2008
June 30, 2008

________________________________

(1)

Represents the closing price prior to the option grant date in accordance with the Plan.



The following table sets out information with respect to stock options exercised and held during the financial year ended and as at December 31, 2003 by the Named Executive Officers and all other directors and officers as a group (excluding the Named Executive Officers).





AGGREGATE OPTION EXERCISES AND FINANCIAL YEAR-END OPTION VALUES



|Name | Securities Acquired on Exercise
(#) | Aggregate Value Realized
($) | Unexercised Options at
FY-END
(#)
Exersisable/
Unexercisable | Value of Unexercised in-the-Money Options at FY-End
($)
Exercisable/
Unexercisable
|---- | ----------------------------------- | ---------------------------- | ------------------------------------------------------------ | ----------------------------------------------------------------------------------



|ROBERT HEATH                   | Nil | N/A | 684,200 exercisable
148,300 unexercisable | $3,487 exercisable
$6,964 unexercisable
|------------------------------ | --- | --- | ----------------------------------------- | ---------------------------------------
|                               |     |     |                                           |                                        
|PAUL OSULLIVAN                | Nil | N/A | 661,700 exercisable
148,300 unexercisable | $3,487 exercisable
$6,964 unexercisable
|                               |     |     |                                           |                                        
|MARK STEVENS                   | Nil | N/A | 400,000 exercisable
95,000 unexercisable  | $2,375 exercisable
$4,750 unexercisable
|                               |     |     |                                           |                                        
|FRANCIS ST-PIERRE              | Nil | N/A | 288,300 exercisable
66,700 unexercisable  | $1,739 exercisable
$3,487 unexercisable
|                               |     |     |                                           |                                        
|ALL OTHER DIRECTORS AS A GROUP | Nil | N/A | 542,500 exercisable
Nil unexercisable     | $13,000 exercisable
N/A unexercisable  





Pension Benefits



The Company does not provide any pension, retirement or similar benefits for its directors and officers.



Employment Contracts and Termination Arrangements



During the year ended December 31, 2003, the Company had an employment contract dated as of June 29, 2001 with Robert Heath as Chief Executive Officer of the Company, effective from August 1, 2001 to December 31, 2004.  Pursuant to the employment contract, Mr. Heath is paid a base salary of $175,000 per annum. Mr. Heath is also eligible to receive a bonus of up to $150,000 annually, to be granted at the Boards discretion, subject to performance criteria set by the Board through its corporate governance committee. Mr. Heath is also entitled to participate in the Plan on such terms and conditions as would be commensurate with his position with the Company. See "Stock Incentives". The terms of all such options or bonuses are subject to any necessary shareholder and regulatory approvals. Pursuant to the employment agreement, if the Company should terminate the employment of Mr. Heath, without cause, the Company is to pay him, in lieu of notice, an amount equal to 15 months salary, less all deductions required by law, and continuation of all benefits for the 15-month period.



During the year ended December 31, 2003, the Company had an employment contract dated as of August 1, 2002 with Paul OSullivan as President and Chief Operating Officer of the Company, effective from August 1, 2002 to December 31, 2005.  Pursuant to the employment contract, Mr. OSullivan is paid a base salary of $150,000 per annum. Mr. OSullivan is also eligible to receive a bonus of up to $112,500 annually, to be granted at the Boards discretion, subject to performance criteria set by the Board through its corporate governance committee. Mr. OSullivan is also entitled to participate in the Plan on such terms and conditions as would be commensurate with his position with the Company. See "Stock Incentives". The terms of all such options or bonuses are subject to any necessary shareholder and regulatory approvals. Pursuant to the employment agreement, if the Company should terminate the employment of Mr. OSullivan, without cause, the Company is to pay him, in lieu of notice, an amount equal to 18 months salary, less all deductions required by law, and continuation of all benefits for the 18-month period.



C.

Board Practices



Term of Office



Each director of the Company is elected to serve until the next annual general meeting of shareholders of the Company or until his successor is elected or appointed, or unless his office is earlier vacated under any of the relevant provisions of the articles of the Company or the Company Act (British Columbia). The last annual general meeting of shareholders was held on June 19, 2003 and the next annual general meeting of shareholders is expected to be held in for June 2004.



Executive officers are appointed to serve at the pleasure of the Board of Directors.



Directors Service Contracts



Neither the Company nor any of its subsidiaries is a party to any directors service contract providing for benefits upon termination of employment for directors of the Company acting in that capacity.  See Item 6.B. Compensation for information on employment contracts with directors who are also executive officers of the Company.



Board Committees



The Board of Directors has an Audit Committee, which consists of non-management directors only. See Item 6.A. Directors and Senior Management. The mandate of the Audit Committee is to make recommendations to the Board of Directors on all financial reporting matters, including: appointment of auditors, financials statements, quarterly and annual reports to regulatory authorities and other financial reporting matters.  The Audit Committee is also mandated to pre-approve all non-audit services requested of the auditors.



The Board of Directors also has a Corporate Governance Committee that consists of non-management directors only. See Item 6.A. Directors and Senior Management.  The mandate of the Corporate Governance Committee is to make recommendations to the Board of Directors on all corporate governance matters, including: nominees for directors, compensation of directors, performance reviews of directors, compensation of the Chief Executive Officer, the President and Chief Operating officer and other officers of the Company, share incentive plans and other corporate governance matters.



Lead Director and Chairman



On February 28, 2003, the Board of Directors created the position of Lead Director, which was held by a non-management director, Frank Judge, only during 2003. See Item 6.A. Directors and Senior Management. The mandate of the Lead Director was to enhance the corporate governance of the Company. This was achieved by ensuring the independence of the Board of Directors from Management (as the position of Chairman of the Board was also concurrently held by Robert Heath, Chief Executive Officer, during 2003), and by enhancing communication between the Board and Management through regular and direct contact between the Lead Director and the Chief Executive Officer. Effective January 1, 2004, Frank Judge, the non-management director who held this position, retired from the Board of Directors. Also effective January 1, 2004, this role was superseded by the appointment of a non-management director, Brian Harrison, as Chairman of the Board, following the resignation as Chairman of the Board by Robert Heath, Chief Executive Officer.



D.

Employees



The number of employees at the end of December 31, 2003, 2002 and 2001 was 61, 56, and 50, respectively, and they were all full-time employees. As at December 31, 2003, three of the Companys employees were based in the United States, one was based in Ireland and the balance were based in Canada. None of the Companys employees are unionized.



E.

Share Ownership



Information on the Common Shares of the Company beneficially owned, to the knowledge of the Company, by each of the directors and officers of the Company, as at January 31, 2004, is as follows:



|Name of Person or Group | Common Shares Owned | Percentage of Common Shares
|----------------------- | ------------------- | ---------------------------
|                        |                     |                            
|Robert Heath            | 10,000              | (1)                        
|Paul OSullivan         | 403,900             | (1)                        
|David Baird             | 54,000              | (1)                        
|Richard Deininger       | Nil                 | N/A                        
|Brian Harrison          | 38,500              | (1)                        
|Brian Piccioni          | 10,000              | (1)                        
|Mark Stephens           | 102,100             | (1)                        
|Francis St-Pierre       | 13,000              | (1)                        

______________________________

(1)

Less than 1% of outstanding Common Shares.



The Company provides for equity participation in the Company by its directors, officers, employees and consultants through the grant of options to purchase common shares of the Company and through the grant of bonuses payable in common shares of the Company, pursuant to its 1997 Share Incentive Plan, as last amended on July 23, 2003. See Item 6.B. Compensation-Stock Incentives. Information regarding outstanding stock options held by the directors and officers of the Company, as at January 31, 2004, is as follows:



|Name              | Number of Optioned Shares | Exercise Price Per Share | Expiration Date
|----------------- | ------------------------- | ------------------------ | ---------------
|                  |                           |                          |                
|Robert Heath      | 50,000                    | $1.36                    | December 31/04 
|                  | 22,500                    | $2.15                    | June 30/05     
|                  | 650,000                   | $1.00                    | June 30/06     
|                  | 110,000                   | $0.325                   | June 30/07     
|                  |                           |                          |                
|Paul OSullivan   | 250,000                   | $0.82                    | June 30/04     
|                  | 300,000                   | $1.00                    | December 31/05 
|                  | 150,000                   | $1.00                    | June 30/06     
|                  | 110,000                   | $0.325                   | June 30/07     
|                  |                           |                          |                
|David Baird       | 20,000                    | $0.82                    | June 30/04     
|                  | 22,500                    | $2.15                    | June 30/05     
|                  | 22,500                    | $1.00                    | June 30/06     
|                  | 45,000                    | $0.56                    | June 30/07     
|                  | 22,500                    | $0.37                    | June 30/08     
|                  |                           |                          |                
|Richard Deininger | 50,000                    | $0.26                    | June 30/08     
|                  | 17,500                    | $0.37                    | June 30/08     
|                  |                           |                          |                
|Brian Harrison    | 50,000                    | $1.00                    | June 30/06     
|                  | 40,000                    | $0.56                    | June 30/07     
|                  | 22,500                    | $0.37                    | June 30/08     
|                  |                           |                          |                
|Brian Piccioni    | 50,000                    | $1.00                    | December 31/05 
|                  | 17,500                    | $1.00                    | June 30/06     
|                  | 40,000                    | $0.56                    | June 30/07     
|                  | 20,000                    | $0.37                    | June 30/08     
|                  |                           |                          |                
|Mark Stephens     | 150,000                   | $0.82                    | June 30/04     
|                  | 180,000                   | $1.00                    | December 31/05 
|                  | 90,000                    | $1.00                    | June 30/06     
|                  | 75,000                    | $0.325                   | June 30/07     
|                  |                           |                          |                
|Francis St-Pierre | 150,000                   | $0.82                    | June 30/04     
|                  | 90,000                    | $1.00                    | December 31/05 
|                  | 60,000                    | $1.00                    | June 30/06     
|                  | 55,000                    | $0.325                   | June 30/07     



The Company also has an Employee Share Ownership Plan (the ESOP) Registration Number 0048 under the Province of British Columbia Employee Investment Act. The Province of British Columbia, through its escrow agent, normally holds in escrow for a three-year period shares distributed under the ESOP, which are eligible and claimed for a 20% investment tax credits under the Province of British Columbia Employee Investment Act. As at February 29, 2004, there were no shares issued pursuant to the Companys Employee Share Ownership Plan (ESOP) that were held in escrow.





ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



A.

Major Shareholders



To the knowledge of the Company, no person beneficially owns more than 10% of the Companys issued and outstanding Common Shares as at February 29, 2004, except as follows:



|Name                        | Number of Shares | Percentage of Outstanding Shares
|--------------------------- | ---------------- | --------------------------------
|                            |                  |                                 
|APPLIED MATERIALS, INC.(1)  | 5,476,500        | 13.2%                           
|Santa Clara, California     |                  |                                 
|                            |                  |                                 
|TERA CAPITAL CORPORATION(2) | 7,493,900        | 18.1%                           
|Toronto, Ontario            |                  |                                 

______________________________________

(1)

Applied Materials is listed on the NASDAQ National Market System. To the best of the Companys knowledge, no person beneficially owns 10% or more of Applied Materials common stock. Applied Materials became a major shareholder on June 15, 1999.

(2)

Tera Capital Corporation exercises control or direction over 7,493,900 Common Shares as portfolio manager, on behalf of two funds. Tera Capital Corporation became a major shareholder on October 11, 2000.



The Companys major shareholders do not have different voting rights.



As at February 29, 2004, the Company had 61 shareholders of record with an address in the United States holding approximately 29.2% (12,093,827 Common Shares) of the outstanding Common Shares of the Company.



There are no arrangements, known to the Company, the operation of which may at a subsequent date result in a change in control of the Company.



B.

Related Party Transactions



Since January 1, 2003, none of the directors or officers of neither the Company, nor any associate or affiliate of a director or officer, has had any direct or indirect material interest in any transaction or proposed transaction that has materially affected or would materially affect the Company.



Revenue for the year ended December 31, 2003 did not include any related party transactions.



C.

Interests of Experts and Counsel



Not applicable.





ITEM 8.

FINANCIAL INFORMATION



A.

Consolidated Statements and Other Financial Information



The Company has elected to provide financial statements pursuant to Item 18.



The financial statements filed as part of this Annual Report are listed in Item 18. Financial Statements.



All financial statements herein, unless otherwise stated, are presented in accordance with generally accepted accounting principles (GAAP) applicable in Canada. Such financial statements have been reconciled to United States GAAP. For information regarding applicable exchange rates that were in effect for Canadian dollars against United States dollars, see Item 3. Key Information. For information regarding export sales, see Item 4. Information on the Company.



Neither the Company nor any of its subsidiaries is subject or has recently been subject to any legal or arbitration proceeding, including any bankruptcy, receivership or similar proceedings and those involving any third-party, which may have or have had in the recent past, significant effect on the Companys financial position or profitability.  To the knowledge of the Company, there are no such legal or arbitration proceedings contemplated.



The Company did not declare or pay any cash dividends in any of the periods indicated in Item 3.A Selected Financial Data. Other than requirements imposed under applicable corporate law, there are no other restrictions on the Companys ability to pay dividends under the Companys memorandum or articles or pursuant to any agreement by which the Company is bound. The Company has no present intention of paying dividends on its Common Shares in the foreseeable future. The Company plans to retain earnings, if any, for the operation and expansion of the business of the Company.



B.

Significant Changes



No significant change has occurred since December 31, 2003.





ITEM 9.

LISTING



A.

Listing details



The Common Shares of the Company are listed and traded on the Toronto Stock Exchange under the symbol TNT. The following table sets forth the reported high and low closing prices of the Common Shares on the Toronto Stock Exchange (and on predecessor Canadian Venture Exchange prior to December 21, 2001 and Vancouver Stock Exchange prior to November 29, 1999) for each of the last five financial years ended December 31, 2003.



|Years ended December 31 | High  | Low  
|----------------------- | ----- | -----
|2003                    | $0.68 | $0.22
|2002                    | $1.35 | $0.32
|2001                    | $1.04 | $0.37
|2000                    | $5.90 | $0.35
|1999                    | $0.98 | $0.25





The following table sets forth the reported high and low closing prices of the Common Shares on the Toronto Stock Exchange  (and on predecessor Canadian Venture Exchange prior to December 21, 2001) for each quarterly period within each of the two most recent full financial years ended December 31, 2003 and 2002 and for each full financial quarter in the subsequent period.



|Quarter ended      | High   | Low  
|------------------ | ------ | -----
|December 31, 2003  | $0.68  | $0.39
|September 30, 2003 | $0.59  | $0.33
|June 30, 2003      | $0.39  | $0.22
|March 31, 2003     | $0.415 | $0.26
|December 31, 2002  | $0.49  | $0.34
|September 30, 2002 | $0.65  | $0.43
|June 30, 2002      | $0.95  | $0.55
|March 31, 2002     | $1.35  | $0.61





The following table sets forth the reported high and low closing prices of the Common Shares on the Toronto Stock Exchange for each month of the most recent six months ended January 31, 2004.



|Month ended        | High   | Low  
|------------------ | ------ | -----
|January 31, 2004   | $0.63  | $0.43
|December 31, 2003  | $0.465 | $0.39
|November 30, 2003  | $0.58  | $0.43
|October 31, 2003   | $0.68  | $0.45
|September 30, 2003 | $0.59  | $0.39
|August 31, 2003    | $0.49  | $0.33





C.

Markets



The Common Shares are listed and traded on the Toronto Stock Exchange under the symbol TNT. The Common Shares are not currently listed on any stock exchange in the United States or traded through any public securities trading market in the United States. The Common Shares have real-time quotes on the OTC Bulletin Board under the symbol TNTTF.





ITEM 10.

ADDITIONAL INFORMATION



A.

Share Capital



Not applicable.



B.

Memorandum and Articles of Association



Corporate Information and Objects and Purposes



The Company is incorporated under the Company Act (British Columbia) (the Company Act) under incorporation no. 271209.



The Memorandum of the Company places no restrictions on the Companys objects and purposes.



Directors Matters



Section 15.1 of the Articles of the Company (the Articles) provides that a director of the Company who (i) is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company, or (ii) holds any office or possesses any property whereby, directly or indirectly, a duty or interest may be created to conflict with the directors duty or interest as a director, shall declare the nature and extent of the directors interest in such contract or transaction or of the conflict or potential conflict with the directors duty and interest as a director, as the case may be, in accordance with the Company Act.  A director interested in a contract or transaction shall be counted in the quorum at a meeting of the directors at which the proposed contract or transaction is approved, if present at the meeting, and such director may vote in respect of the approval of the contract or transaction.  If the director votes the director may be liable to account for any profit in accordance with the provisions of the Company Act.



Section 12.2 of the Articles provides that the remuneration of the directors of the Company as such may from time to time be determined by the directors or, if the directors shall so decide, by the members of the Company.  There are no restrictions in the Articles on the directors power, in the absence of an independent quorum, to vote compensation to themselves or any member of their body.



Section 8.1 of the Articles provides that, subject to the Company Act, the directors of the Company may authorize and cause the Company to:



(i)

borrow money in such manner and amounts, on such security, or without security, from such sources and upon such terms and conditions as they think fit,



(ii)

guarantee the repayment of money by any other person or the performance of any obligation of any other person,



(iii)

issue debt obligations, or other evidences of obligations or indebtedness, either outright or as security for any liability or obligation of the Company or any other person,



(iv)

mortgage, charge, whether by way of specific or floating charge, or both, or give other security on the undertaking, or on the whole or any part of the property and assets, of the Company (both present and future), and



(v)

for the purposes of the Special Corporate Powers Act of the Province of Quebec and without in any way limiting the powers conferred upon the Company and the directors by the foregoing or by any other provisions of the Articles, or by the Memorandum, or by the Company Act, for the purpose of securing any notes, bonds, debentures or debenture stock which it is by law entitled to, issue, hypothecate, mortgage or pledge, and cede and transfer, any property, moveable or immovable, present or future, which it may own in the Province of Quebec.



Section 8.2 of the Articles provides that any debt obligations of the Company may be issued at a discount, premium or otherwise, and with any special privileges as to redemption, surrender, drawings, allotment of or conversion into or exchange for shares or other securities, attending and voting at general meetings of the Company, appointment or election of directors, or otherwise, and may by their terms be assignable free from any equities between the Company and the person to whom they are issued or any other person who subsequently acquires the same, all as the directors may determine.



The borrowing powers of the directors set forth in the Articles can be varied by amending the Articles.  The Company Act provides that a Company may alter its Articles by filing with the British Columbia Registrar of Companies a certified copy of a special resolution altering the Articles.  A special resolution is defined in the Company Act as a resolution passed by a majority of not less than three-quarters of the votes cast by those members of a company who, being entitled to do so, vote in person or by proxy at a general meeting of the company, or consented to in writing by every member of a company who would have been entitled to vote in person or by proxy at a general meeting of the company.



There is no provision in the Memorandum or Articles of the Company regarding retirement or non-retirement of directors under an age limit requirement.



Section 12.3 of the Articles provides that a director shall not be required to hold a share in the capital of the Company as qualification for the directors office but shall be qualified, as required by the Company Act, to become or act as a director.  The Company Act does not require a director to hold any shares for directors qualification.



Share Rights



The authorized capital of the Company consists of 200,000,000 shares, divided into 100,000,000 Common Shares without par value and 100,000,000 Preferred Shares without par value.



The special rights and restrictions attached to the shares of the Company are set out in the Articles of the Company and are summarized below.



Common Shares



The holders of the Common Shares are entitled to one vote per share for matters voted on by shareholders of the Company, to receive dividends if, as and when declared by the directors of the Company and, subject to the rights of holders of any shares ranking in priority to or on a parity with the Common Shares, to participate rateably in any distribution of property or assets in the event of the liquidation, dissolution, or winding-up of the Company.



Preferred Shares



The Preferred Shares as a class may be issued from time to time in one or more series, each series comprising the number of shares, designation, privileges, restrictions and conditions which the directors of the Company determine by resolution.  Holders of Preferred Shares shall be entitled, on the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or on any other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, to receive before any distribution shall be made to holders of Common Shares or any other shares of the Company ranking junior to the Preferred Shares with respect to repayment of capital, the amount paid up with respect to each Preferred Share held by them, together with the fixed premium (if any) thereon, all accrued and unpaid cumulative dividends (if any and if preferential) thereon, and all declared and unpaid non-cumulative dividends (if any and if preferential) thereon.  After payment to the holders of Preferred Shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Company except as specifically provided in the special rights and restrictions attached to any particular series of Preferred Shares.  Except for such rights relating to the election of directors on a default in payment of dividends as may be attached to any series of Preferred Shares by the directors of the Company, holders of Preferred Shares shall not be entitled to receive notice of, or to attend or vote at, any general meeting of the shareholders of the Company.



Modification of Share Rights



Pursuant to the Company Act, the members of the Company may, by special resolution (defined as described above), and by otherwise complying with the Memorandum and Articles of the Company, vary or abrogate any special rights or restrictions attached to any shares, whether issued or unissued.  However, a right attached to issued shares must not be prejudiced or interfered with under the Company Act or the Memorandum or Articles of the Company unless



(a)

if the right prejudiced or interfered with is attached to a class of shares, members holding shares of that class, and



(b)

if the right prejudiced or interfered with is attached to a series of shares and the rights attached to that series are affected differently from those attached to another series of the same class, members holding shares of that series,



consent by a separate resolution of the members of that class or series, as the case may be, requiring a majority of three-quarters of the votes cast.



Shareholder Meetings



The Company Act provides that the Company must hold an annual general meeting at least once in every calendar year and not more than 13 months after the date the last annual general meeting was held.  The Company may hold an extraordinary general meeting at any time.  The Company Act also provides that one or more members of a company holding not less than 5% of the issued voting shares of the Company may give notice to the directors requiring them to call and hold a general meeting.  Every general meeting of a company subsisting under the Company Act must be held in the Province of British Columbia, or at a place out of British Columbia that the British Columbia Registrar of Companies may, on application, approve.



The Company must give to its members entitled to receive notice of a general meeting not less than 21 days notice of any general meeting of the Company, but those members may waive or reduce the period of notice for a particular meeting by unanimous consent in writing.  The Company Act provides that for the purpose of determining members, or members of a class of members, entitled to notice of, or to vote at, a general meeting or class meeting, the directors may set in advance a record date which may not be more than 49 days before the meeting date.



The Company Act requires the directors of a reporting company (such as the Company) to provide with notice of the meeting a form of proxy for use by every member entitled to vote at such meeting as well as an information circular containing prescribed information regarding the matters to be dealt with and conduct of the general meeting.  Prior to each annual general meeting of its members, the directors of the Company must place comparative financial statements, made up to a date not more than six months before the annual general meeting, the report of the auditor, and the report of the directors to the members.



Limitations on Ownership of Securities



There are no limitations on the right to own securities of the Company, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on securities, imposed by law or by the Memorandum or Articles of the Company.



Change in Control of the Company



No provision of the Companys Memorandum or Articles would have the effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries). Effective February 21, 2003, the Company adopted a shareholder rights plan.  See "Item 4.A. Information on the Company - History and Development of the Company - Shareholder Rights Plan".



Ownership Threshold



No provision of the Companys Memorandum or Articles governs the ownership threshold above which shareholder ownership must be disclosed.



C.

Material Contracts



The following is a summary of each material contract, other than contracts entered into in the ordinary course of business, to which the Company or any of its subsidiaries is a party, for the past two years:



1.

Employment Agreement dated August 1, 2002 between the Company and Paul OSullivan.  See Item 6.C. Board Practices  Termination Arrangements.



2.

Shareholder Rights Plan Agreement dated February 21, 2003 between the Company and Computershare Investor Services Inc. See Item 4.A. Information on the Company  History and Development of the Company  Shareholder Rights Plan.



3.

Form of Indemnification Agreement dated May 8, 2003 and entered into between the Company and its directors and officers.



4.

Amended and Restated 1997 Share Incentive Plan dated July 23, 2003



D.

Exchange Controls



The Company is not aware of any laws, decrees or regulations imposed by Canadian federal or provincial laws that restrict the export or import of capital, including but not limited to, foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-resident holders of the Common Shares. Dividends payable to non-resident holders of Common Shares are subject to withholding tax. See Item 10.E. Taxation 3⁄4 Certain Canadian Federal Income Tax Consequences 3⁄4 Dividends.



E.

Taxation



Certain Canadian Federal Income Tax Consequences



The following is a general discussion of the material Canadian federal income tax consequences applicable to a holder of Common Shares of the Company who is a resident of the United States and who is not, and is not deemed to be, a resident of Canada who holds such Common Shares as capital property and who does not use or hold such Common Shares in carrying on a business in Canada (a Non-Resident Holder).



This summary is based on the current provisions of the Income Tax Act (Canada) and regulations thereunder (the ITA) and all specific proposals to amend the ITA publicly announced prior to the date hereof by the Minister of Finance (Canada) (the Proposed Amendments) and the current administrative practices of Canada Customs and Revenue Agency (CCRA). It has been assumed that all specific proposals to amend the ITA will be enacted in substantially their present form and that no other relevant amendments to the ITA will come into force. However, no assurance can be given to this effect. Except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations which may differ from those described herein. See Certain United States Federal Income Tax Consequences.



This summary is not exhaustive of all possible Canadian federal income tax consequences to all Non-Resident Holders and in particular will not be applicable where the Non-Resident Holder is a non-resident insurer carrying on an insurance business in Canada in respect of which the Common Shares of the company are held or used in Canada. Nor should these comments be interpreted as legal or tax advice to any particular Non-Resident Holder, each of whom should consult their own tax advisors with respect to their particular circumstances.



Dividends



Dividends (including deemed dividends) paid or credited on the Common Shares of the Company to a Non-Resident Holder will be subject to withholding tax in Canada. The Canada-United States Income Tax Convention, 1980, as amended (the Treaty) provides that the normal 25% rate of withholding tax on the gross amount of such dividends is reduced to 15% if paid to a resident of the United States. The Treaty provides for a further reduction of the withholding tax rate to 5% if the beneficial owner of such dividends is a company (any entity which is treated as a body corporate for tax purposes) which is a resident of the United States and which owns at least 10% of the voting stock of the Company. A limited liability company that is not liable to tax under the laws of the United States is subject to the normal 25% rate of withholding tax.



Capital Gains



A Non-Resident Holder will not be subject to tax under the ITA in respect of a capital gain realized upon the disposition or deemed disposition (such as would arise on the death of an individual Non-Resident Holder) of a Common Share of the Company unless such share is taxable Canadian property to the Non-Resident Holder. A Common Share in the capital of the Company will be taxable Canadian property to a Non-Resident Holder if, (i) at any time within the 60-month period ending at the time of disposition of such share, the Non-Resident Holder, persons with whom the Non-Resident Holder did not deal at arms length, or the Non-Resident Holder together with all such persons owned (or had an option to acquire) 25% or more of the issued shares of any class of the capital stock of the Company; or (ii) the Non-Resident Holder made an election under the ITA to treat such Common Shares as taxable Canadian property upon ceasing to be a resident of Canada prior to October 2, 1996.



However, under the Treaty, a Non-Resident Holder to whom the Common Shares of the Company represent taxable Canadian property will not be liable to tax in Canada in respect of a capital gain realized on the disposition of such shares unless:



-

the value of such shares is derived principally from real property situated in Canada, or



-

the Non-Resident Holder was a resident of Canada for 120 months during any period of 20 consecutive years preceding the disposition of such shares and was a resident of Canada at any time during the 10 years immediately preceding such disposition and owned such shares (or property for which such shares were substituted) at the time the Non-Resident Holder ceased to be a resident of Canada.



Certain United States Federal Income Tax Consequences



The following is a general discussion of certain possible U.S. federal income tax consequences, under current law, generally applicable to a U.S. Holder (as hereinafter defined) of common shares of the Company.  This discussion is of a general nature only and does not take into account the particular facts and circumstances, with respect to U.S. federal income tax issues, of any particular U.S. Holder.  In addition, this discussion does not cover any state, local or foreign tax consequences. See Taxation - Certain Canadian Federal Income Tax Consequences.



The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations, published Internal Revenue Service (IRS) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations.  This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.



This discussion is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any U.S. Holder or prospective U.S. Holder of common shares of the Company, and no opinion or representation with respect to the U.S. federal income tax consequences to any such U.S. Holder or prospective U.S. Holder is made.  Accordingly, U.S. Holders and prospective U.S. Holders of common shares of the Company should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of common shares of the Company.



U.S. Holders



As used herein, a U.S. Holder means a holder of common shares of the Company who is (i) a citizen or individual resident of the U.S., (ii) a corporation or partnership created or organized in or under the laws of the U.S. or of any political subdivision thereof, (iii) an estate whose income is taxable in the U.S. irrespective of source or (iv) a trust subject to the primary supervision of a court within the U.S. and control of a U.S. fiduciary as described Section 7701(a)(30) of the Code.



Persons Not Covered



This summary does not address the U.S. federal income tax consequences to persons (including persons who are U.S. Holders) subject to special provisions of U.S. federal income tax law, including (i) tax-exempt organizations, (ii) qualified retirement plans, (iii) individual retirement accounts and other tax-deferred accounts, (iv) financial institutions, (v) insurance companies, (vi) real estate investment trusts, (vii) regulated investment companies, (viii) broker-dealers, (ix) persons or entities that have a functional currency other than the U.S. dollar, (x) persons subject to the alternative minimum tax, (xi) persons who own their common shares of the Company as part of a straddle, hedging, conversion transaction, constructive sale or other arrangement involving more than one position, (xii) persons who acquired their common shares of the Company through the exercise of employee stock options or otherwise as compensation for services, (xiii) persons that own an interest in an entity that owns common shares of the Company, (xiv) persons who own, exercise or dispose of any options, warrants or other rights to acquire common shares of the Company, or (xv) persons who own their common shares of the Company other than as a capital asset within the meaning of Section 1221 of the Code.



Distribution on Common Shares of the Company



U.S. Holders receiving distributions (including constructive distributions) with respect to common shares of the Company are required to include in gross income for U.S. federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions.  Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holders U.S. federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder's U.S. federal taxable income by those who itemize deductions.  See more detailed discussion at Foreign Tax Credit below.  To the extent that distributions from the Company exceed current or accumulated earnings and profits of the Company, such distributions will be treated first as a return of capital, to the extent of the U.S. Holders adjusted basis in the common shares, and thereafter as gain from the sale or exchange of the common shares of the Company.  See more detailed discussion at Disposition of Common Shares of the Company below.



In the case of foreign currency received as a distribution that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt.  Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss.  However, an individual whose realized gain does not exceed $200 will not recognize that gain, to the extent that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.



Dividends paid on the common shares of the Company generally will not be eligible for the dividends received deduction allowed to corporate shareholders receiving dividends from certain U.S. corporations.  Under certain circumstances, a U.S. Holder that is a corporation and that owns shares representing at least 10% of the total voting power and the total value of the Companys outstanding shares may be entitled to a 70% deduction of the U.S. source portion of dividends received from the Company (unless the Company qualifies as a Foreign Personal Holding Company or a Passive Foreign Investment Company as defined below).  The availability of the dividends received deduction is subject to several complex limitations which are beyond the scope of this discussion, and U.S. Holders of common shares of the Company should consult their own financial advisor, legal counsel or accountant regarding the dividends received deduction.



Certain information reporting and backup withholding rules may apply with respect to certain payments related to the Companys common shares. In particular, a payor or middleman within the U.S., or in certain cases outside the U.S., will be required to withhold 30% (which rate is scheduled for periodic adjustment) of any payments to a U.S. Holder of the Companys common shares of dividends on, or proceeds from the sale of, such common shares within the U.S., if a U.S. Holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, the backup withholding tax requirements. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holders U.S. federal income tax liability, provided the required information is furnished to the IRS.  U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the information reporting and backup withholding rules applicable to the Companys common shares.



Foreign Tax Credit



A U.S. Holder who pays (or has withheld from distributions) Canadian or other foreign income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for U.S. federal income tax purposes with respect to such foreign tax paid or withheld.  Generally, it will be more advantageous to claim a credit because a credit reduces U.S. federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayers income subject to U.S. federal income tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from distributions to) the U.S. Holder during that year.



There are significant and complex limitations that apply to the foreign tax credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holders U.S. income tax liability that the U.S. Holders foreign source income bears to his or its worldwide taxable income.  In applying this limitation, the various items of income and deduction must be classified as either foreign source or U.S. source.  Complex rules govern this classification process.  In addition, this limitation is calculated separately with respect to specific classes of income such as passive income, high withholding tax interest, financial services income, shipping income, and certain other classifications of income.  Dividends distributed by the Company will generally constitute foreign source income, and will be classified as passive income or, in the case of certain U.S. Holders, financial services income for these purposes.



In addition, U.S. Holders that are corporations and that own 10% or more of the voting stock of the Company may be entitled to an indirect foreign tax credit under Section 902 of the Code with respect to the payment of dividends by the Company under certain circumstances and subject to complex rules and limitations.The availability of the foreign tax credit and the application of the limitations with respect to the foreign tax credit are fact specific, and each U.S. Holder of common shares of the Company should consult their own financial advisor, legal counsel or accountant regarding the foreign tax credit rules.



Disposition of Common Shares of the Company



A U.S. Holder will recognize gain or loss upon the sale or other taxable disposition of common shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholders tax basis in the common shares of the Company.  This gain or loss will be capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder, which will be long-term capital gain or loss if the common shares of the Company are held for more than one year.



Preferential tax rates apply to long-term capital gains of U.S. Holders that are individuals, estates or trusts.  There are currently no preferential tax rates for long-term capital gains for a U.S. Holder that is a corporation (other than a corporation subject to Subchapter S of the Code). Deductions for net capital losses are subject to significant limitations.  For U.S. Holders that are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted.  For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.



Other Considerations for U.S. Holders



In the following circumstances, the above sections of this discussion may not describe the U.S. federal income tax consequences to U.S. Holders resulting from the ownership and disposition of common shares of the Company:



Foreign Personal Holding Company



If at any time during a taxable year (i) more than 50% of the total voting power or the total value of the Companys outstanding shares is owned, directly or indirectly, by five or fewer individuals who are citizens or residents of the U.S. and (ii) 60% (or 50% in certain cases) or more of the Companys gross income for such year is foreign personal holding company income as defined in Section 553 of the Code (e.g., dividends, interest, royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions), the Company may be treated as a Foreign Personal Holding Company (FPHC)  In that event, U.S. Holders of common shares of the Company would be required to include in gross income for such year their allocable portions of such foreign personal holding company income to the extent the Company does not actually distribute such income.



The Company does not believe that it currently qualifies as a FPHC.  However, there can be no assurance that the Company will not be considered a FPHC for the current or any future taxable year.



Foreign Investment Company



If (i) 50% or more of the total voting power or the total value of the Companys outstanding shares is owned, directly or indirectly, by citizens or residents of the U.S., U.S. partnerships or corporations, or U.S. estates or trusts (as defined by the Code Section 7701(a)(30)), and (ii) the Company is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, the Company may be treated as a "Foreign Investment Company" (FIC) as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares of the Company to be treated as ordinary income rather than capital gain.



The Company does not believe that it currently qualifies as a FIC.  However, there can be no assurance that the Company will not be considered a FIC for the current or any future taxable year.



Controlled Foreign Corporation



If more than 50% of the total voting power or the total value of the Companys outstanding shares is owned, directly or indirectly, by citizens or residents of the U.S., U.S. partnerships or corporations, or U.S. estates or trusts (as defined by the Code Section 7701(a)(30)), each of which own, directly or indirectly, 10% or more of the total voting power of the Companys outstanding shares (each a 10% Shareholder), the Company could be treated as a Controlled Foreign Corporation (CFC) under Section 957 of the Code.



The classification of the Company as a CFC would effect many complex results, including that such 10% Shareholders would generally (i) be treated as having received a current distribution of the Companys Subpart F income, and (ii) would also be subject to current U.S. federal income tax on their pro rata shares of the Companys earnings invested in U.S. property.  The foreign tax credit may reduce the U.S. federal income tax on these amounts for such 10% Shareholders.  See more detailed discussion at Foreign Tax Credit above.  In addition, under Section 1248 of the Code, gain from the sale or other taxable disposition of common shares of the Company by a U.S. Holder that is or was a 10% Shareholder at any time during the five-year period ending with the sale is treated as ordinary income to the extent of earnings and profits of the Company attributable to the common shares sold or exchanged.



If the Company is classified as both a Passive Foreign Investment Company as described below and a CFC, the Company generally will not be treated as a Passive Foreign Investment Company with respect to 10% Shareholders.  This rule generally will be effective for taxable years of 10% Shareholders beginning after 1997 and for taxable years of the Company ending with or within such taxable years of 10% Shareholders.



The Company does not believe that it currently qualifies as a CFC.  However, there can be no assurance that the Company will not be considered a CFC for the current or any future taxable year.  The CFC rules are very complicated, and U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the CFC rules and how these rules may impact their U.S. federal income tax situation.



Passive Foreign Investment Company



Certain U.S. income tax legislation contains rules governing Passive Foreign Investment Companies (PFIC) which can have significant tax effects on U.S. Holders of foreign corporations.  Section 1297 of the Code defines a PFIC as a corporation that is not formed in the U.S. and, for any taxable year, either (i) 75% or more of its gross income is passive income or (ii) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of passive income is 50% or more.  Passive income includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.  However, gains resulting from commodities transactions are generally excluded from the definition of passive income if substantially all of a merchants, producers or handlers business is as an active merchant, producer or handler of such commodities.



For purposes of the PFIC income test and the assets test, if a foreign corporation owns (directly or indirectly) at least 25% by value of the stock of another corporation, such foreign corporation shall be treated as if it (a) held a proportionate share of the assets of such other corporation, and (b) received directly its proportionate share of the income of such other corporation.  Also, for purposes of such PFIC tests, passive income does not include any interest, dividends, rents or royalties that are received or accrued from a related person to the extent such amount is properly allocable to the income of such related person which is not passive income.  For these purposes, a person is related with respect to a foreign corporation if such person controls the foreign corporation or is controlled by the foreign corporation or by the same persons that control the foreign corporation.  For these purposes, control means ownership, directly or indirectly, of stock possessing more than 50% of the total voting power of all classes of stock entitled to vote or of the total value of stock of a corporation.



U.S. Holders owning common shares of a PFIC are subject to the highest rate of tax on ordinary income in effect for the applicable taxable year and to an interest charge based on the value of deferral of tax for the period during which the common shares of the PFIC are owned with respect to certain excess distributions on and dispositions of PFIC stock under Section 1291 of the Code.  However, if the U.S. Holder makes a timely election to treat a PFIC as a qualified electing fund ("QEF") with respect to such shareholder's interest therein, the above-described rules generally will not apply.  Instead, the electing U.S. Holder would include annually in his gross income his pro rata share of the PFIC's ordinary earnings and net capital gain regardless of whether such income or gain was actually distributed.  A U.S. Holder of a QEF can, however, elect to defer the payment of U.S. federal income tax on such income inclusions.  In addition, subject to certain limitations, U.S. Holders owning, actually or constructively, marketable (as specifically defined) stock in a PFIC will be permitted to elect to mark that stock to market annually, rather than be subject to the tax regime of Section 1291 of Code as described above.  Amounts included in or deducted from income under this alternative (and actual gains and losses realized upon disposition, subject to certain limitations) will be treated as ordinary gains or losses.



The Company believes that it was not a PFIC for its fiscal year ended December 31, 2003, and does not believe that it will be a PFIC for the fiscal year ending December 31, 2004.  It is possible that the Company qualified as a PFIC in prior fiscal years.  There can be no assurance that the Company's determination concerning its PFIC status will not be challenged by the IRS, or that it will be able to satisfy record keeping requirements that will be imposed on QEFs in the event that it qualifies as a PFIC.



The PFIC rules are very complicated, and U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the PFIC rules and how these rules may impact their U.S. federal income tax situation.



F.

Dividends and Paying Agents



Not applicable.



G.

Statement by Experts



Not applicable.



H.

Documents on Display



Documents concerning the Company that are referred to herein may be inspected at the principal executive office of the Company located at 20 Townsite Road, 2nd Floor, Nanaimo, British Columbia, Canada V9S 5T7.



I.

Subsidiary Information



Not applicable.





ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Companys revenue is derived principally from the sale of software licences and related software support services, including software updates and maintenance services provided pursuant to annual service agreements. The Company currently derives a substantial amount of its revenue from a limited number of customers in the semiconductor industry. However, these customers are geographically dispersed and the Company closely monitors credit granted to each customer. Therefore, credit risks are considered to be minimal. The Company identifies Canada as the primary economic environment in which it operates and uses the Canadian dollar as its functional currency. A substantial amount of the Companys revenues and receivables are denominated in U.S. dollars. The Company translates revenue and the related receivable at the prevailing exchange rate at the time of the sale. Funds denominated in U.S. dollars are translated into Canadian dollars at the rate in effect on the balance sheet date. Translation gains and losses resulting from variations in exchange rates, upon translation into Canadian dollars, are included in results of operations.



The Companys principal product, ModelWare, is priced and sold only in U.S. dollars due to the adoption of a common software industry practice of billing worldwide customers in U.S. dollars. This policy of invoicing in U.S. dollars introduces a price risk from exposure to fluctuations in foreign exchange rates. Any increase in the relative value of the U.S. dollar to the Canadian dollar results in increased revenue and income to the Company as the majority of the Companys expenses are denominated in Canadian dollars. A decrease in the relative value of the U.S. dollar to the Canadian dollar would decrease sales revenue and would impact the Companys net income.



The Companys earnings are sensitive to fluctuations in revenue as the base of expenses is relatively fixed over the short term. The Company has developed and continually seeks to refine its management practices to allow initiation of timely corrective actions if operating results fail to reach pre-determined objectives.



The Company raises equity funding through the sale of securities denominated in Canadian dollars, whereas the majority of the Companys revenue, obligations and expenditures will be incurred in U.S. dollars. Variations in the exchange rate may give rise to foreign exchange gains or losses that may be significant. Interest and other income for the year ended December 31, 2003 included $878,246 of foreign exchange losses (December 31, 2002  $15,142 of foreign exchange gains; and December 31, 2001  $202,762 of foreign exchange losses). The Company does not use financial instruments for trading purposes and is not a party to any leverage derivatives. The Company does not currently engage in hedging transactions.



The Companys interest income from cash and cash equivalents are sensitive to changes in interest rates as these balances are subject to interest rate changes and therefore interest income will fluctuate directly with changes in interest rates.



As at December 31, 2003, the Company had no long-term debt.



See also Item 3.D. Risk Factors  Currency Fluctuations and Item 5.A. Operating Results and Item 5.B. Liquidity and Capital Resources for further discussion and sensitivity analysis for fluctuations in foreign exchange rates.





ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



Not applicable.





PART II



ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



Not applicable.





PART III



ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS



Not applicable.





ITEM 15.

CONTROLS AND PROCEDURES



Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 20-F, the principal executive officer and principal financial officer of the Company have concluded that the disclosure controls and procedures of the Company as defined in §§240.13a-15(c) and 240.15d-15(c) of the Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commissions rules and forms.



There were no significant changes in internal controls or in other factors of the Company that could significantly affect these controls subsequent to the date of their evaluation and up to the filing date of this Annual Report on Form 20-F. There were no significant deficiencies or material weaknesses, and therefore no corrective actions were taken or may occur and not be detected.





ITEM 16.



Item 16A  Audit Committee Financial Expert



The Companys board of directors have determined that it has at least one audit committee financial expert serving on its audit committee.  David Baird satisfies the criteria as an audit committee financial expert.  Mr. Baird is an independent director as that term is defined in the current listing standards applicable to issuers listed for trading on the Toronto Stock Exchange.



Safe Harbour



A person who is determined to be an audit committee financial expert will not be deemed an Expert for any purpose, including without limitation for purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert pursuant to this Item 16A.  The designation or identification of a person as an audit committee financial expert pursuant to this Item 16A does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.  The designation or identification of a person as an audit committee financial expert pursuant to this Item 16A does not affect the duties, obligations or liability of any other member of the audit committee or board of directors.



Item 16B. Code of Ethics



The Company is in the process of adopting a Code of Business Conduct and Ethics that applies to all directors, officers and employees, including its principal executive officer and principal financial officer.



The Company does not plan to grant any waiver, including an implicit waiver, from a provision of the Code of Business Conduct and Ethics to any person.



Item 16C.  Principal Accountant Fees and Services



During the past two fiscal years, the Company has paid its auditors, Deloitte & Touche LLP, the following fees:



| | December 31
| | -----------
| | 2003       



|Audit fees         | $              68,000    | $            65,325   
|------------------ | ------------------------ | ----------------------
|Audit related fees | $                    Nil | $                  Nil
|Tax fees(1)        | $                   500  | $                 750 
|All other fees(2)  | $                3,424   | $            38,027   

____________________________

(1)

Tax fees include tax compliance services.

(2)

All other fees include consultancy services.



The above listed services were approved by the Company's audit committee.



The Companys Audit Committee reviews and pre-approves the scope and the cost of all audit and permissible non-audit services performed by the independent auditors, other than those for de minimus services which are approved by the Audit Committee prior to the completion of the audit.



Item 16D.  Exemption from the Listing Standards for Audit Committee



Not applicable.



Item 16E.  Purchase of Equity Security by the Issuer and Affiliate Purchaser



None





ITEM 17.

FINANCIAL STATEMENTS



The Company has elected to provide financial statements pursuant to Item 18.





ITEM 18.

FINANCIAL STATEMENTS



The Company has elected to provide financial statements pursuant to Item 18.



The following audited financial statements are filed as part of this Annual Report:



Consolidated balance sheets of the Company as at December 31, 2003 and 2002, together with Consolidated statements of operations and shareholders equity and cash flows for each of the years in the three-year period ended December 31, 2003, together with notes to such consolidated financial statements for the years indicated, and the independent auditors reports of Deloitte & Touche LLP, Chartered Accountants, thereon.



All financial statements herein, unless otherwise stated, are presented in accordance with generally accepted accounting principles (GAAP) applicable in Canada. Such financial statements have been reconciled to United States GAAP. See Note 9 to the Canadian GAAP financial statements of the Company. For information regarding applicable exchange rates that were in effect for Canadian dollars against United States dollars, see Item 3. Key Information. For information regarding export sales, see Item 4. Information on the Company.





ITEM 19.

EXHIBITS



The following exhibits are filed as part of this Annual Report, including exhibits incorporated by reference:



1.1

Memorandum of the Registrant (incorporated by reference to Exhibit 1.1 of the Companys Registration Statement on Form 20-F dated February 13, 1998).



1.2

Articles of the Registrant (incorporated by reference to Exhibit 1.2 of the Companys Registration Statement on Form 20-F dated February 13, 1998).



4.1

Employment Agreement dated as of June 29, 2001 between the Company and Robert Heath (incorporated by reference to Exhibit 4.4 of the Companys Form 20-F for the year ended December 21, 2001).



4.2

Employment Agreement dated as of August 1, 2002 between the Company and Paul OSullivan.



4.3

Shareholder Rights Plan Agreement dated February 21, 2003 between the Company and Computershare Investor Services Inc.



4.4

Form of Indemnification Agreement dated May 8, 2003 and entered into between the Company and its directors and officers.



4.5

Amended and Restated 1997 Share Incentive Plan dated July 23, 2003.



8.1

List of Subsidiaries (incorporated by reference to Exhibit 8.1 of the Companys Form 20-F for the year ended December 31, 2000).



12.1

Certifications required by Rule 13a-14a or 15d-14a.



12.2

Certifications required by Rule 13a-14a or 15d-14a.



13.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



13.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



































Reports and Consolidated Financial Statements of





TRIANT TECHNOLOGIES INC.





December 31, 2003 and 2002

(Expressed in Canadian Dollars)



































MANAGEMENTS REPORT





To the Shareholders of

Triant Technologies Inc.





The accompanying consolidated financial statements of the Company were prepared by management in accordance with Canadian generally accepted accounting principles.



Management is responsible for the integrity of these financial statements.  Financial statements generally include estimates which are necessary when transactions affecting the current accounting year cannot be finalized with certainty until future years.  Based on careful judgements by management, such estimates have been properly reflected in the accompanying financial statements.



Systems of internal control are designed and maintained by management to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and to produce reliable accounting records for financial reporting purposes.



The external auditors conduct an independent audit of the consolidated financial statements in accordance with Canadian generally accepted auditing standards and generally accepted auditing standards in the United States of America in order to express their opinion on these consolidated financial statements.  These standards require that the external auditors plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.



The Board of Directors is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control.  The Board exercises this responsibility through the Audit Committee of the Board.  This Committee meets with management and the external auditors to satisfy itself that managements responsibilities are properly discharged and to review the consolidated financial statements before they are presented to the Board of Directors for approval.





(Signed) Robert Heath

(Signed) Mark A. Stephens



Robert Heath

Mark A. Stephens

Chief Executive Officer

Chief Financial Officer and Corporate Secretary

Nanaimo, Canada

Nanaimo, Canada

January 30, 2004

January 30, 2004



































AUDITORS REPORT



To the Shareholders of

Triant Technologies Inc.



We have audited the consolidated balance sheets of Triant Technologies Inc. as at December 31, 2003 and 2002 and the consolidated statements of operations, shareholders equity and cash flows for each of the years in the three year period ended December 31, 2003.  These financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with Canadian generally accepted auditing standards and auditing standards generally accepted in the United States of America.  These standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.



In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2003 in accordance with Canadian generally accepted accounting principles.  As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a consistent basis.



[form20f002.jpg]



Chartered Accountants

Vancouver, Canada

January 30, 2004

































TRIANT TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS

December 31

(Expressed in Canadian Dollars)



| | 2003 | 2002
| | ---- | ----



|Assets                                         |                     |                    
|---------------------------------------------- | ------------------- | -------------------
|                                               |                     |                    
|Current                                        |                     |                    
|Cash and cash equivalents                      | $         7,354,044 | $        10,523,062
|Short-term investments (Note 3)                | -                   | 1,918,977          
|Accounts receivable, net                       |                     |                    
|Trade (net of allowance for doubtful accounts: |                     |                    
|2003 and 2002 - $Nil)                          | 3,002,297           | 1,209,722          
|Other                                          | 7,814               | 6,511              
|Prepaid expenses and deposits                  | 144,878             | 137,310            
|Inventory (Note 3)                             | 257,520             | -                  



|Total current assets | 10,766,553 | 13,795,582
|-------------------- | ---------- | ----------



|Property, plant and equipment (Note 3) | 552,964            | 517,211            
|-------------------------------------- | ------------------ | -------------------
|Total assets                           | $       11,319,517 | $        14,312,793



|Liabilities                  |                       |                       
|---------------------------- | --------------------- | ----------------------
|                             |                       |                       
|Current                      |                       |                       
|Accounts payable             | $             873,824 | $              187,449
|Accrued liabilities (Note 3) | 1,235,999             | 1,717,069             
|Deferred revenue             | 464,500               | 873,436               



|Total current liabilities | 2,574,323 | 2,777,954
|------------------------- | --------- | ---------



|Commitments (Note 8)                               |              |             
|-------------------------------------------------- | ------------ | ------------
|                                                   |              |             
|Shareholders equity                               |              |             
|                                                   |              |             
|Capital stock (Note 4)                             |              |             
|Preferred shares                                   |              |             
|Authorized: 100,000,000 without par value          |              |             
|Issued and outstanding: 2003 and 2002  Nil        |              |             
|Common shares                                      |              |             
|Authorized: 100,000,000 without par value          |              |             
|Issued and outstanding: 2003 and 2002  41,402,675 | 36,208,578   | 36,208,578  
|Deficit                                            | (27,463,384) | (24,673,739)



|Total shareholders equity | 8,745,194 | 11,534,839
|-------------------------- | --------- | ----------



|Total liabilities and shareholders equity | $       11,319,517 | $        14,312,793
|------------------------------------------ | ------------------ | -------------------







Approved by the Board of Directors:



(Signed) Robert Heath

(Signed) David L. Baird

___________________________________

_________________________

Robert Heath, Director

David L. Baird, Director





See accompanying Notes to the Consolidated Financial Statements.

































TRIANT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31

(Expressed in Canadian Dollars)



| | 2003 | 2002 | 2001
| | ---- | ---- | ----



|Revenue                  |                     |                     |                   
|------------------------ | ------------------- | ------------------- | ------------------
|Licenses and products    | $         5,574,111 | $         6,107,578 | $        4,050,614
|Services and maintenance | 1,001,169           | 439,499             | 189,741           



|                | 6,575,280 | 6,547,077 | 4,240,355
|--------------- | --------- | --------- | ---------
|Cost of revenue | 1,473,876 | 1,975,695 | 1,519,254



|Gross margin | 5,101,404 | 4,571,382 | 2,721,101
|------------ | --------- | --------- | ---------



|Operating expenses                  |           |           |          
|----------------------------------- | --------- | --------- | ---------
|Research and development            | 4,036,648 | 5,785,109 | 4,876,154
|Selling, general and administrative | 3,152,509 | 3,448,619 | 3,295,862



| | 7,189,157 | 9,233,728 | 8,172,016
| | --------- | --------- | ---------



|Loss from operations                            | (2,087,753) | (4,662,346) | (5,450,915)
|----------------------------------------------- | ----------- | ----------- | -----------
|Interest and other (expense) income (Note 2(k)) | (701,892)   | 331,109     | 987,677    



|Net loss for the year | $        (2,789,645) | $       (4,331,237) | $     (4,463,238)
|--------------------- | -------------------- | ------------------- | -----------------



|Loss per common share | $                 (0.07) | $                (0.10) | $             (0.11)
|--------------------- | ------------------------ | ----------------------- | --------------------



|Weighted average number of common shares outstanding | 41,402,675 | 41,492,242 | 42,524,504
|---------------------------------------------------- | ---------- | ---------- | ----------







See accompanying Notes to the Consolidated Financial Statements.





































TRIANT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

Years ended December 31

(Expressed in Canadian Dollars)



| | Common Shares | Treasury Stock |       
| | ------------- | -------------- | ------
| | Shares        | Amount         | Shares



|Balance at January 1, 2001    | 41,442,175 | $36,267,337 | - | $                 - | $(15,879,264) | $20,388,073
|----------------------------- | ---------- | ----------- | - | ------------------- | ------------- | -----------
|Issued for cash               |            |             |   |                     |               |            
|Share purchase warrants       | 15,000     | 13,500      | - | -                   | -             | 13,500     
|Share Incentive Plan, options | 110,000    | 60,500      | - | -                   | -             | 60,500     
|Net loss for the year         | -          | -           | - | -                   | (4,463,238)   | (4,463,238)



|Balance at December 31, 2001  | 41,567,175 | 36,341,337 | -         | -         | (20,342,502) | 15,998,835 
|----------------------------- | ---------- | ---------- | --------- | --------- | ------------ | -----------
|Issued for cash               |            |            |           |           |              |            
|Share Incentive Plan, options | 25,000     | 13,750     | -         | -         | -            | 13,750     
|Purchase of common shares     | -          | -          | (189,500) | (146,509) | -            | (146,509)  
|Cancellation of common shares | (189,500)  | (146,509)  | 189,500   | 146,509   | -            | -          
|Net loss for the year         | -          | -          | -         | -         | (4,331,237)  | (4,331,237)



|Balance at December 31, 2002 | 41,402,675 | 36,208,578 | - | - | (24,673,739) | 11,534,839 
|---------------------------- | ---------- | ---------- | - | - | ------------ | -----------
|Net loss for the year        | -          | -          | - | - | (2,789,645)  | (2,789,645)



|Balance at December 31, 2003 | 4,402,675 | $36,208,578 | - | $                 - | $(27,463,384) | $8,745,194
|---------------------------- | --------- | ----------- | - | ------------------- | ------------- | ----------











See accompanying Notes to the Consolidated Financial Statements.



































TRIANT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31

(Expressed in Canadian Dollars)



| | 2003 | 2002 | 2001
| | ---- | ---- | ----



|Operating activities                                 |                    |                     |                  
|---------------------------------------------------- | ------------------ | ------------------- | -----------------
|Net loss for the year                                | $      (2,789,645) | $       (4,331,237) | $     (4,463,238)
|Items not affecting cash                             |                    |                     |                  
|Accrued interest on short-term investments           | (7,195)            | (23,457)            | (144,682)        
|Gain on sale of short-term investments               | -                  | (56,084)            | -                
|Amortization                                         | 177,098            | 161,414             | 549,937          
|Changes in operating assets and liabilities (Note 5) | (2,262,597)        | 113,328             | 269,057          



|Net cash used in operating activities | (4,882,339) | (4,136,036) | (3,788,926)
|------------------------------------- | ----------- | ----------- | -----------



|Financing activities                              |   |           |       
|------------------------------------------------- | - | --------- | ------
|Common shares issued for cash, net of issue costs | - | 13,750    | 74,000
|Acquisition of treasury stock                     | - | (146,509) | -     



|Net cash (used in) provided by financing activities | - | (132,759) | 74,000
|--------------------------------------------------- | - | --------- | ------



|Investing activities                                    |           |             |            
|------------------------------------------------------- | --------- | ----------- | -----------
|Net acquisition of short-term investments               | -         | (1,897,420) | (2,015,543)
|Net proceeds from disposition of short-term investments | 1,926,172 | 2,218,209   | -          
|Acquisition of property, plant and equipment            | (212,851) | (265,902)   | (275,676)  



|Net cash provided by (used in) investing activities | 1,713,321 | 54,887 | (2,291,219)
|--------------------------------------------------- | --------- | ------ | -----------



|Net cash outflow                             | (3,169,018) | (4,213,908) | (6,006,145)
|-------------------------------------------- | ----------- | ----------- | -----------
|Cash and cash equivalents, beginning of year | 10,523,062  | 14,736,970  | 20,743,115 



|Cash and cash equivalents, end of year | $         7,354,044 | $       10,523,062 | $     14,736,970
|-------------------------------------- | ------------------- | ------------------ | ----------------



|Cash and cash equivalents are comprised of: |                     |                     |                 
|------------------------------------------- | ------------------- | ------------------- | ----------------
|Cash                                        | $         3,671,838 | $         7,927,754 | $      4,021,917
|Cash equivalents                            | 3,682,206           | 2,595,308           | 10,715,053      



| | $         7,354,004 | $       10,523,062 | $    14,736,970
| | ------------------- | ------------------ | ---------------







See accompanying Notes to the Consolidated Financial Statements.





































TRIANT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, 2001

(Expressed in Canadian Dollars)



1.

NATURE OF OPERATIONS



The Company develops, markets, and supports equipment health monitoring, advanced fault detection and sophisticated data analysis technology. The Company provides innovative software solutions that help its customers improve the productivity of their manufacturing equipment and is focused on the application of its technology primarily to the semiconductor industry and secondarily to other industries. The core technology of the Company is UPM (Universal Process Modeling), a proprietary advanced mathematical algorithm that can be used to model the behavior of any correlated system or process. To address the emerging market opportunity in the semiconductor industry, the Company has developed ModelWare, an equipment health monitoring and advanced fault detection software solution, based on its core UPM technology. The Company also provides legacy products and services for other industries.





2.

SIGNIFICANT ACCOUNTING POLICIES



These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP) and reflect the significant accounting policies outlined below.  These policies conform, in all material respects, with accounting principles generally accepted in the United States of America (U.S. GAAP), except as discussed in Note 9.



(a)

Consolidation



These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.



(b)

Foreign exchange



The Companys functional currency is the Canadian dollar.  The accounts of the Company and its subsidiaries are expressed in Canadian dollars.   Monetary assets and liabilities denominated in other than the Canadian dollar are translated into Canadian dollars at the exchange rates in effect at the balance sheet dates.  Other balance sheet items and revenues and expenses are translated at the rates prevailing on the respective transaction dates.  Translation gains and losses relating to monetary items are included in operations.



(c)

Use of estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and for the periods presented.  Estimates are used for, but not limited to, accounting for doubtful accounts, determination of the net recoverable value of assets, amortization, income taxes, and contingencies.  Actual results may differ from those estimates.



(d)

Cash and cash equivalents



The Company invests certain of its excess cash in cash equivalents which are highly liquid money market instruments with an original maturity of 90 days or less.



(e)

Short-term investments



The Company invests certain of its excess cash in short-term investments.  Short-term investments consist of investment grade securities which are capable of prompt liquidation and are carried at the lower of cost plus accrued interest and quoted market value.



(f)

Inventory



Inventory is valued at the lower of cost and estimated net realizable value.



(g)

Research and development costs



Research costs are expensed when incurred.  Development costs are capitalized to the extent that recovery of these costs is assured, and are amortized over the life of the related product.  No development costs have been capitalized as at December 31, 2003 and 2002.



(h)

Property, plant and equipment and amortization



Property, plant and equipment are recorded at cost and amortized over the estimated useful lives of the assets on the following basis:



Computer hardware and software

30% per annum declining balance basis

Furniture and equipment

20% per annum declining balance basis

Leasehold improvements

straight-line over the lesser of the lease term

and useful life of the improvements



The Company periodically evaluates the recoverability of its property, plant and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  An impairment loss would be recognized when estimates of future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount.  During the years ended December 31, 2003 and 2002, no impairment of property, plant and equipment was identified by the Company.



(i)

Fair value of financial instruments



The Company has financial instruments which include cash and cash equivalents, short-term investments, accounts receivable, deposits, and accounts payable and accrued liabilities.  The carrying value of cash and cash equivalents, short-term investments, accounts receivable, deposits, and accounts payable and accrued liabilities approximates fair value at December 31, 2003 and 2002.



(j)

Concentration of credit risk, economic dependence and related party transactions



The Company currently derives revenue primarily from customers in the semiconductor industry.  These customers are geographically dispersed and the Company closely monitors credit granted to each customer.  Therefore, credit risks are considered to be minimal.  Revenue for the year ended December 31, 2003 includes $5,731,521 (87.2%) from sales to three customers (December 31, 2002 - $5,428,603 (82.9%) from sales to three customers; and December 31, 2001 - $3,521,358 (83.1%) from sales to four customers).  Revenue for the years ended December 31, 2003, 2002 and 2001 includes $Nil, $1,216,961 and $532,980, respectively, from a related party.  The Company invests its excess cash principally in money market funds and investment grade securities.  The company has established guidelines relative to diversification and maturities that maintain safety and liquidity.  All short-term investments were sold during the year (Note 3 (a)).



(k)

Price risk



The Company undertakes transactions denominated in foreign currencies (mainly in United States dollars and British pounds) and as such is exposed to price risk due to fluctuations in foreign exchange rates.  During the years ended December 31, 2003 - 100.0% ($6,575,058); December 31, 2002 - 99.8% ($6,536,566); and December 31, 2001 - 85.8% ($3,636,464) of the Companys revenue was denominated in United States dollars.  During the years ended December 31, 2003 - 0.0% ($222); December 31, 2002 - 0.2% ($10,511); and December 31, 2001 - 14.2% ($603,121) of the Companys revenue was denominated in British pounds.  At December 31, 2003 - 100% ($3,002,297) and December 31, 2002 - 98.6% ($1,199,211) of total accounts receivable were denominated in United States dollars.  At December 31, 2003 - 0% ($0) and December 31, 2002 - 0.9% ($10,511) of total accounts receivable were denominated in British pounds.  The Company does not use derivative instruments to reduce its exposure to foreign currency risk.  Interest and other for the year ended December 31, 2003 includes $878,246 of foreign exchange losses (December 31, 2002 - $15,142 of foreign exchange gains; and December 31, 2001 - $202,762 of foreign exchange losses).



(l)

Revenue recognition



The Companys revenue is derived from the following sources:



(i)

Licences, products, and services



Revenues from software license agreements are recognized upon delivery of software if persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable, and vendor-specific objective evidence exists to allocate the total fee to elements of the arrangement.  Vendor-specific objective evidence is typically based on the price charged when an element is sold separately, or, in the case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not change before market introduction.  Elements included in multiple element arrangements could consist of software products, upgrades, enhancements, or customer support services.  If an acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period.  The Companys agreements with its customers, value-added resellers and distributors do not contain product return rights.



Service revenues are primarily related to training performed on a time-and-materials basis under separate service arrangements related to the use of the Companys products.  Revenues from services are recognized as services are performed.



Where the Company enters into arrangements which require customization of hardware bundled with software, the Company recognizes revenue upon delivery and acceptance by the customer where the fee is fixed or determinable and collection is reasonably assured. If the fee is not fixed or determinable due to the existence of extended payment terms, revenue is recognized periodically as payments become due, provided all other conditions for revenue recognition are met.



If a transaction includes both license and service elements, license fee revenues are recognized on shipment of the software, provided that services do not include significant customization or modification of the base product, and the payment terms for licenses are not subject to acceptance criteria.  In cases where license fee payments are contingent on acceptance of services, the Company defers recognition of revenues from both the license and the service elements until the acceptance criteria are met.  Deferred revenue on sales to distributors is recorded net of direct commissions paid.



(ii)

Maintenance



Revenue related to maintenance agreements for supporting and maintaining the Companys products is recognized ratably over the term of the agreement, generally one year.  Where the Company enters into arrangements for the sale of software licenses and maintenance, the Company accounts for such transactions as multiple element arrangements and allocates the consideration received to each element, based on vendor specific objective evidence of the price charged for elements separately. As a result, revenues recognized from maintenance and license agreements may vary depending on the allocation determined by the Company.



(m)

Cost of revenue



Cost of revenue consists primarily of commissions, salaries and benefits, travel, allocated overhead costs, freight and brokerage and other costs directly associated with revenue.



(n)

Warranty



A provision for potential warranty claims is provided for at the time that the sale is recognized, based on warranty terms, and prior experience and is included in cost of sales.



(o)

Stock-based compensation



The Company adopted the recommendations of the CICA Handbook section 3870, Stock-Based Compensation and Other Stock-Based Payments, effective January 1, 2002.  This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based awards made in exchange for goods and services.  The Company has adopted the disclosure only approach for stock-based awards to employees and directors rather than the fair value method.



(p)

Income taxes



Future income taxes relate to the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax values.  Future tax assets, if any, are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized.  Future income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment or substantive enactment.



(q)

Loss per common share



Basic loss per share is computed using the weighted average number of common shares outstanding during the period.  Diluted loss per share is computed using the weighted average number of common and common equivalent shares outstanding during the period using the treasury stock method.  Common equivalent shares consist of the incremental common shares issuable upon the exercise of stock options and warrants unless their effect is antidilutive.  The Company had a net loss for all years presented herein; therefore, none of the options and warrants outstanding during each of the periods presented were included in the computation of diluted loss per share as they were antidilutive.



(r)

Comparative figures



Comparative figures have been reclassified, where applicable, to conform to the current years presentation.





3.

BALANCE SHEET DETAILS



(a)

Short-term investments



| | 2003       | 2002        
| | ---------- | ------------
| | Book
Value | Market
Value



|Commercial paper | $                    - | $                     - | $      1,918,977 | $     1,918,977
|---------------- | ---------------------- | ----------------------- | ---------------- | ---------------





(b)

Inventory



| | 2003 | 2002
| | ---- | ----



|Work in progress | $         134,520 | $                  -
|---------------- | ----------------- | --------------------
|Finished goods   | 123,000           | -                   



| | $         257,520 | $                  -
| | ----------------- | --------------------





(c)

Property, plant and equipment



| | 2003 | 2002                    
| | ---- | ------------------------
| | Cost | Accumulated
Amortization



|Computer hardware and software | $         962,584 | $         501,827 | $         460,757 | $       429,554
|------------------------------ | ----------------- | ----------------- | ----------------- | ---------------
|Furniture and equipment        | 114,515           | 48,824            | 65,691            | 71,915         
|Leasehold improvements         | 139,297           | 112,781           | 26,516            | 15,742         



| | $      1,216,396 | $         663,432 | $         552,964 | $       517,211
| | ---------------- | ----------------- | ----------------- | ---------------





(d)

Accrued liabilities



| | 2003 | 2002
| | ---- | ----



|Compensation payable | 969,219 | 1,060,000
|-------------------- | ------- | ---------
|Warranty provision   | 75,000  | 325,000  
|Other                | 191,780 | 332,069  



| | $      1,235,999 | $    1,717,069
| | ---------------- | --------------





4.

CAPITAL STOCK



(a)

Private placements



Private placements of securities of the Company, including the Companys Employee Share Ownership Plan (see Note 4 (b)), are based on market price as approved by the Toronto Stock Exchange.



(b)

Employee share ownership plan



The Company has an Employee Share Ownership Plan (the ESOP) Registration Number 0048 under the Province of British Columbia Employee Investment Act. The Province of British Columbia, through its escrow agent, normally holds in escrow for a three-year period shares distributed under the ESOP which are eligible and claimed for a 20% investment tax credit under the Province of British Columbia Employee Investment Act. During the year ended December 31, 2002, a total of 60,405 common shares, issued pursuant to the ESOP during the years ended December 31, 1999, 1998 and 1997, were released as scheduled from escrow.



(c)

Shareholder protection rights plan



Effective February 21, 2003, the Company adopted a Shareholder Rights Plan (the Rights Plan).  The Rights Plan is intended to provide the Board of Directors (the Board) of the Company and its shareholders with a reasonable period of time to fully consider any unsolicited take-over bid.  It also provides the Board with more time to consider and pursue, if appropriate, other alternatives for the purpose of maximizing shareholder value.  While the Rights Plan took effect immediately, it subsequently received regulatory approval and ratification by the shareholders of the Company on June 19, 2003.  The Rights Plan is in effect for a five year term, with two five year renewal options subject to shareholders approval.



(d)

Share purchase warrants



The following table summarizes the status of share purchase warrants at December 31, 2003, 2002 and 2001, and the changes during the years ended December 31, 2003, 2002 and 2001:



|                        | 2003             | 2002                             | 2001            
|----------------------- | ---------------- | -------------------------------- | ----------------
|Share Purchase Warrants | Number of Shares | Weighted Average Exercise Prices | Number of Shares



|Outstanding, beginning of year | - | $                - | - | $                - | 973,805   | $          1.43   
|------------------------------ | - | ------------------ | - | ------------------ | --------- | ------------------
|Issued                         | - | $                - | - | $                - | -         | $                -
|Exercised                      | - | $                - | - | $                - | (15,000)  | $          0.90   
|Lapsed                         | - | $                - | - | $                - | (958,805) | $          1.44   



|Outstanding, end of year | - | $                - | - | $                - | - | $                -
|------------------------ | - | ------------------ | - | ------------------ | - | ------------------





(e)

Stock based compensation



(i)

1997 Share incentive plan, as amended



The Company provides for equity participation in the Company by its directors, officers, employees and consultants through the grant of options to purchase common shares of the Company and through the grant of bonuses payable in common shares of the Company, pursuant to its 1997 Share Incentive Plan, as amended.  This plan, as approved by the shareholders, authorizes the directors to grant options and bonus shares within the limitations of this plan and subject to the rules of applicable regulatory authorities.  The exercise price of options granted under this plan is at not less than fair market value as approved by the Toronto Stock Exchange, and the price of bonus shares is at market.  The options generally  may be exercisable for a period of up to five years and generally vest over three years.



At December 31, 2003, the Company had available 1,927,750 shares for future grants of options and no shares for future awards of bonus shares.



The following table summarizes the status of options at December 31, 2003, 2002 and 2001, and the changes during the years then ended:



|        | 2003             | 2002                             | 2001            
|------- | ---------------- | -------------------------------- | ----------------
|Options | Number of Shares | Weighted Average Exercise Prices | Number of Shares



|Outstanding, beginning of year | 4,479,750 | $           0.93    | 3,524,250 | $           0.98 | 1,690,500 | $          0.93
|------------------------------ | --------- | ------------------- | --------- | ---------------- | --------- | ---------------
|Granted                        | 924,000   | $           0.37    | 1,500,000 | $           0.86 | 1,972,500 | $          1.00
|Exercised                      | -         | $                 - | (25,000)  | $           0.55 | (110,000) | $          0.55
|Lapsed                         | (646,500) | $           0.77    | (519,500) | $           1.04 | (28,750)  | $          1.66



|Outstanding, end of year | 4,757,250 | $           0.84 | 4,479,750 | $           0.93 | 3,524,250 | $         0.98
|------------------------ | --------- | ---------------- | --------- | ---------------- | --------- | --------------



| | 3,564,350 | $            0.91 | 2,794,250 | $           0.94 | 1,901,750 | $         0.96
| | --------- | ----------------- | --------- | ---------------- | --------- | --------------





The following table summarizes information about options outstanding and exercisable at December 31, 2003:



|Exercise price range | Weighted-average remaining years of contractual life | Number of options outstanding | Weighted-average exercise price | Number of options exercisable | Weighted-average exercise price
|-------------------- | ---------------------------------------------------- | ----------------------------- | ------------------------------- | ----------------------------- | -------------------------------



|$ 0.26  0.65 | 3.8 years | 1,260,000 | $ 0.41 | 557,100   | $ 0.41
|------------- | --------- | --------- | ------ | --------- | ------
|$ 0.82  2.15 | 1.9 years | 3,497,250 | $ 1.00 | 3,007,250 | $ 1.00



| | 2.4 years | 4,757,250 | $ 0.84 | 3,564,350 | $ 0.91
| | --------- | --------- | ------ | --------- | ------





Subsequent to the year ended December 31, 2003, options were granted for 10,000 shares at an exercise price of $0.42 which expire on June 30, 2008, options were exercised for 2,600 shares at an exercise price of $0.325 per share for proceeds of $845 and options lapsed for 95,200 shares at exercise prices ranging from $0.325 to $1.00.



(ii)

When stock-based compensation awards are granted to employees, no compensation expense is recognized when their exercise price exceeds or equals the fair value of the Companys common shares at the date of grant.  Accordingly, no compensation expense has been recognized for each of the three years in the three year period ended December 31, 2003.  Had compensation expense for the Companys stock-based compensation plan been determined based on the fair value based method of accounting for all awards granted, the Companys net loss and loss per common share would have been increased to the pro forma amounts indicated below:



| | Year ended December 31, 2003 | Year ended December 31, 2002
| | ---------------------------- | ----------------------------



|Net loss the year     |                     |                   
|--------------------- | ------------------- | ------------------
|As reported           | $    (2,789,645)    | $   (4,331,237)   
|Pro forma             | $    (3,387,757)    | $   (4,918,205)   
|                      |                     |                   
|Loss per common share |                     |                   
|As reported           | $            (0.07) | $           (0.10)
|Pro forma             | $            (0.08) | $           (0.12)





The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model assuming no dividends are to be paid, a weighted average volatility of the Companys share price of 66%, a weighted average annual risk free interest rate of 3.4%, and a weighted average expected life of 2.4 years.  The weighted average fair value of options granted under the 1997 Share Incentive Plan during the year ended December 31, 2003 amounted to $0.16 per share.





5.

CHANGES IN OPERATING ASSETS AND LIABILITIES



The effect on cash flows from changes in operating assets and liabilities for the years ended December 31, 2003, 2002 and 2001 are as follows:



| | 2003 | 2002 | 2001
| | ---- | ---- | ----



|Accounts receivable           |                     |                    |                   
|----------------------------- | ------------------- | ------------------ | ------------------
|Trade                         | $       (1,792,575) | $        (953,153) | $          178,152
|Other                         | (1,303)             | 45,459             | (44,859)          
|Prepaid expenses and deposits | (7,568)             | (115,963)          | (16,732)          
|Inventory                     | (257,520)           | -                  | -                 
|Accounts payable              | 686,375             | (158,886)          | 128,400           
|Accrued liabilities           | (481,070)           | 470,009            | 561,240           
|Deferred revenue              | (408,936)           | 825,862            | (537,144)         



| | $      (2,262,597) | $          113,328 | $         269,057
| | ------------------ | ------------------ | -----------------







6.

SEGMENTED AND OTHER INFORMATION



The Company operates in one segment for developing, marketing, and supporting equipment health monitoring, advanced fault detection and sophisticated data analysis technology.



Information related to geographical areas is as follows:



| | 2003 | 2002 | 2001
| | ---- | ---- | ----



|Revenue       |                     |                     |                  
|------------- | ------------------- | ------------------- | -----------------
|Asia          | $         4,887,265 | $         2,507,891 | $       2,135,694
|United States | 905,789             | 3,686,371           | 1,164,103        
|Europe        | 782,226             | 352,815             | 939,788          
|Canada        | -                   | -                   | 770              



| | $         6,575,280 | $         6,547,077 | $       4,240,355
| | ------------------- | ------------------- | -----------------





The Company attributes revenue among geographical areas based on the location of its customers.  Long-lived assets consist of property, plant and equipment, substantially all of which are located in Canada.





7.

INCOME TAXES



The reported income tax recovery differs from the amount computed by applying the Canadian basic statutory rates to the net loss.  The reasons for this difference and the related tax effects are as follows:



| | 2003 | 2002 | 2001
| | ---- | ---- | ----



|Canadian basic statutory tax rate | 35.62% | 39.62% | 45.00%
|--------------------------------- | ------ | ------ | ------



|Expected income tax (recovery)          | $        (993,672) | $     (1,716,036) | $    (2,008,457)
|--------------------------------------- | ------------------ | ----------------- | ----------------
|Losses producing no current tax benefit | 919,300            | 1,612,780         | 1,878,783       
|Other                                   | 74,372             | 103,256           | 129,674         



| | $                     - | $                     - | $                    -
| | ----------------------- | ----------------------- | ----------------------





Future income taxes result principally from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes.  Significant components of the Companys future tax assets and liabilities are as follows:



| | 2003 | 2002
| | ---- | ----



|Future income tax assets                         |                     |                   
|------------------------------------------------ | ------------------- | ------------------
|Tax loss carry forwards                          | $         5,976,646 | $        6,477,457
|Research and development expenses                | 1,729,003           | 1,564,240         
|Book and tax base differences on assets          | 968,246             | 783,752           
|Valuation allowance for future income tax assets | (8,673,895)         | (8,852,449)       



|Net future income tax assets | $                       - | $                     -
|---------------------------- | ------------------------- | -----------------------



|Future income tax liabilities           |                          |                       
|--------------------------------------- | ------------------------ | ----------------------
|Book and tax base differences on assets | $                      - | $                    -



|Net future income tax liabilities | $                      - | $                    -
|--------------------------------- | ------------------------ | ----------------------





Due to the uncertainty surrounding the realization of the future income tax assets in future income tax returns, the Company has a 100% valuation allowance against its future income tax assets.



In Canada and as at December 31, 2003, the Company has $16,779,000 of losses for tax purposes available at various dates until 2010, to be carried forward and applied against future income for tax purposes; $840,000 of investment tax credits available at various dates until December 31, 2011, to be carried forward and applied against future taxes payable; and $4,854,000 of unutilized scientific research and experimental development expenditures available to reduce future income for tax purposes.  In the United States and as at December 31, 2003, the Company has US$340,461 of losses for tax purposes available at various dates until 2023.  The potential future tax benefits relating to these items has not been reflected in these consolidated financial statements.





8.

COMMITMENTS



The aggregate minimum future payments under operating leases for the years ended December 31 are as follows:



|2004 | 332,891
|---- | -------
|2005 | 233,242
|2006 | 162,065
|2007 | 40,516 







9.

UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES



These consolidated financial statements have been prepared in accordance with Canadian GAAP which, in the case of these financial statements, conforms in all material respects with U.S. GAAP except as follows:



Statements of operation

| | 2003 | 2002 | 2001
| | ---- | ---- | ----



|Net loss under Canadian GAAP | $      (2,789,645) | $       (4,331,237) | $     (4,463,238)
|---------------------------- | ------------------ | ------------------- | -----------------
|Consulting expense (a)       | -                  | (6,475)             | (21,062)         
|Severance expense (b)        | 302,165            | -                   | -                



|Net loss under U.S. GAAP | $      (2,487,480) | $       (4,337,712) | $     (4,484,300)
|------------------------ | ------------------ | ------------------- | -----------------



|Basic and diluted loss per share under Canadian GAAP | $              (0.07) | $                (0.10) | $             (0.11)
|---------------------------------------------------- | --------------------- | ----------------------- | --------------------



|Basic and diluted loss per share under U.S. GAAP | $              (0.06) | $                (0.10) | $            (0.11)
|------------------------------------------------ | --------------------- | ----------------------- | -------------------





(a)

In accordance with the provisions of SFAS No. 123, Accounting for Stock-based Compensation,the Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for its stock-based awards to employees, and accordingly does not generally recognize compensation expense.  The Company has adopted the disclosure only provisions of SFAS No. 123. Compensation costs related to stock-based awards to non-employees are recognized under U.S. GAAP as an expense in the period incurred.  During the years ended December 31, 2000 and 1998, the Company issued options to individuals other than employees and directors which under SFAS 123 resulted in consulting expense for the year ended December 31, 2003 of $Nil (2002 - $6,475;  2001 - $21,062).  Under U.S. GAAP, amendments to the terms of options, which extend the expiration date and/or reduce the exercise price, may also result in stock-based compensation expense.



Under SFAS No. 123, options granted to employees are valued at the issuance dates using the Black-Scholes valuation model and the resultant compensation cost is recognized ratably over the vesting period.  Had compensation cost for this item been determined based on the Black-Scholes value at the issuance dates as prescribed by SFAS No. 123, pro forma net loss and basic loss per share would have been as follows:



| | 2003 | 2002 | 2001
| | ---- | ---- | ----



|Net loss under U.S. GAAP                                                     |                    |                     |                   
|---------------------------------------------------------------------------- | ------------------ | ------------------- | ------------------
|As reported                                                                  | $      (2,487,480) | $       (4,337,712) | $      (4,484,300)
|Employee stock compensation expense included in net loss under Canadian GAAP | -                  | -                   | -                 
|Employee stock compensation expense included in net loss under U.S. GAAP     | -                  | 6,475               | 21,062            
|Additional employee compensation expense under the fair value method         | (598,112)          | (586,968)           | (313,990)         



|Pro forma net loss under U.S. GAAP | $       (3,085,592) | $       (4,918,205) | $     (4,777,228)
|---------------------------------- | ------------------- | ------------------- | -----------------



|Basic loss per common share under U.S. GAAP           |                        |                        |                    
|----------------------------------------------------- | ---------------------- | ---------------------- | -------------------
|As reported                                           | $               (0.07) | $               (0.10) | $            (0.11)
|Pro forma basic loss per common share under U.S. GAAP | $               (0.07) | $               (0.12) | $            (0.12)





The weighted average Black-Scholes option-pricing model value of options granted under the 1997 Share Incentive Plan during the years ended December 31, 2003, 2002 and 2001 were $0.16, $0.52 and $0.40, per share respectively.  The Company uses the Black-Scholes option-pricing model to estimate the value of the options at the date of grant using the following weighted average assumptions:



| | 2003 | 2002 | 2001
| | ---- | ---- | ----



|Assumptions:                                                       |           |           |          
|------------------------------------------------------------------ | --------- | --------- | ---------
|Volatility factor of expected market price of the Companys shares | 66%       | 91%       | 95%      
|Dividend yield                                                     | 0%        | 0%        | 0%       
|Weighted average remaining years of contractual life of options    | 2.4 years | 2.9 years | 3.4 years
|Risk free interest rate                                            | 3.4%      | 4.4%      | 4.6%     





(b)

Under U.S. GAAP, the liability for a cost associated with an exit or disposal activity should be recognized at its fair value when the liability is incurred in accordance with SFAS No. 145, Accounting for Costs Associated with Exit or Disposal of Activities.  Under Canadian GAAP, these costs should be recognized as a liability and expense when the event that obligates the Company occurs.  In the fourth quarter of fiscal 2003, the Companys management decided to restructure its operations to reduce operating expenses.  The Company reduced its overall headcount and provided affected employees with severance packages.  However, this decision was not communicated to the affected employees until after December 31, 2003.



(c)

Under U.S. GAAP, costs incurred in the development of products are expensed as incurred until the product is established as technologically feasible in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.  Under Canadian GAAP, these costs may be capitalized to the extent that they meet specified criteria for recoverability.  For all years presented, there is no difference relating to the treatment of product development costs under Canadian and U.S. GAAP.



(d)

Under Canadian GAAP, the Company includes in income, gains and losses resulting from the translation of the accounts of its foreign subsidiary.  Under U.S. GAAP, where an entitys functional currency is a foreign currency, the translation adjustment resulting from the process of translating the entitys financial statements into the reporting currency is reported separately as a component of equity.  For all years presented, there is no material difference relating to the translation of the foreign subsidiarys financial statements under Canadian and U.S. GAAP.



Under Canadian GAAP, the Company includes gains and losses from its foreign currency transactions in operations.  Under U.S. GAAP, a change in exchange rates between the functional currency and the currency in which the transaction is denominated results in a transaction gain or loss that is included in operations, unless the transactions are designated as effective hedges against foreign currency investments or commitments.  For all years presented, there is no difference relating to foreign currency transactions under Canadian and U.S. GAAP.



(e)

Under U.S. GAAP, SFAS No. 109, Accounting for Income Taxes, the Company would calculate its future income taxes using only enacted tax rates.  This differs from Canadian GAAP which uses substantially enacted tax rates.  Since any change in the carrying value of the Companys future income tax assets would be offset by a 100% valuation allowance, there would be no effect on the Companys financial position or results of operations.



(f)

Under U.S. GAAP, SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company would have classified its short-term securities as held-to- maturity.  Investments classified as held-to-maturity securities are stated at amortized cost with corresponding premiums or discounts amortized against interest income over the life of the investment.  For all years presented, there is no effect on the Companys financial position or results of operations.



(g)

Recent accounting pronouncements



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).  FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements related to guarantees and warranties.  The initial recognition requirements of FIN 45 are effective for guarantees issued or modified after December 31, 2002. The adoption of this Statement does not have a material impact on the Companys financial statements.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.  SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation.  It also amends the disclosure provisions of that statement.  The disclosure provisions of this statement are effective for financial statements issued for fiscal periods beginning after December 15, 2002.  The adoption of this Statement does not have a material impact on the Companys financial statements.



In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financing interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003;  however, earlier adoption is permitted.  The adoption of this Statement does not have a material impact on the Companys financial statements.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.  SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133.  In particular, SFAS No. 149  (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133,  (2) clarifies when a derivative contains a financing component,  (3) amends the definition of an underlying derivative to conform it to the language used in FASB Interpretation No. 45, Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and  (4) amends certain other existing pronouncements.  SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003.  The adoption of this Statement does not have a material impact on the Companys financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.  SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  Many of those instruments were previously classified as equity.  Some of the provisions of this statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements.  This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The adoption of this Statement does not have a material impact on the Companys financial statements.







































SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.





TRIANT TECHNOLOGIES INC.







By:  (signed)

ROBERT HEATH

Chief Executive Officer







By:  (signed)

MARK A. STEPHENS

Chief Financial Officer and Corporate Secretary





Date:  March 24, 2004