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**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549








**FORM
      20-F/A**








(Mark
      One)


o
            REGISTRATION
                STATEMENT PURSUANT TO SECTION 12(B) OR (G) 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,
                2004





o
            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 0-31481


**ASTRIS
      ENERGI INC.**


(Exact
      name of Registrant as specified in its charter)




Not
      Applicable


(Translation
      of Registrant's Name into English)




ONTARIO


(Jurisdiction
      of incorporation or organization)




2175
      DUNWIN DRIVE, UNIT 6


MISSISSAUGA,
      ONTARIO L5L 1X2 CANADA


(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


(Title
      of
      Class)




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




NONE


(Title
      of
      Class)




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.




26,316,551
      COMMON SHARES




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 reporting requirements
      for the past 90 days.


Yes x              No o




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




Item
      17 x          Item
      18 o




(Applicable
      only to Issuers involved in Bankruptcy proceedings during the past five years)
      Indicate by check mark whether the registrant has filed all documents and
      reports required to be filed by Sections 12, 13 or 15(d) of the Securities
      Exchange Act of 1934 subsequent to the distribution of securities under a plan
      confirmed by a court.


Yes o             No o









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TABLE
      OF CONTENTS


Part
                IItem
                1. Identity of Directors, Senior Management and
                AdvisersItem
                2. Offer Statistics and Expected
                TimetableItem
                3. Key InformationItem
                4. Information on the CompanyItem
                5. Operating and Financial Review and
                ProspectsItem
                6. Directors, Senior Management and
                EmployeesItem
                7. Major Shareholders, Related Party Transactions and
                Non-Related Party Common Stock TransactionsItem
                8. Financial InformationItem
                9. The Offer and ListingItem
                10. Additional InformationItem
                11. Quantitative and Qualitative Disclosures About
                Market RiskItem
                12. Description of Securities Other than Equity
                SecuritiesPart
                IIItem
                13. Defaults, Dividend Arrearages and
                DelinquenciesItem
                14. Material Modifications to the Rights of Security
                Holders and
                Use of ProceedsItem
                15. Controls and ProceduresItem
                16.Part
                IIIItem
                17. Financial StatementsItem
                18. Financial StatementsItem
                19.
                Exhibits






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FORWARD
      LOOKING STATEMENTS Certain statements in this annual report are based upon
      the
      beliefs of management of Astris Energi Inc., as well as assumptions made by
      and
      information currently available to management, and such statements may
      constitute "forward-looking statements" within the meaning of the U. S. Private
      Securities Litigation Reform Act of 1995. Investors should note that many
      factors, some of which are discussed elsewhere in this Report, could affect
      the
      future operations and the future financial results of the Company and could
      cause future operations and future financial results to differ materially from
      those expressed in such forward-looking statements.





PART
      I.





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
      following table sets forth, in Canadian dollars, selected historical information
      concerning the Company presented in accordance with Canadian GAAP and is
      qualified by reference to the consolidated financial statements and notes
      thereto. See "Item 17. Financial Statements".




As
                at
            
            As
                at
            
            As
                at
            
            As
                at
            
            As
                atDecember
                31,
            
            December
                31,
            
            December
                31,
            
            December
                31,
            
            December
                31,2004
            
            2003
            
            2002
            
            2001
            
            2000(RESTATED)
            
            (RESTATED)
            
            (RESTATED)Revenue
            
            $
            88,798
            
            $
            67,870
            
            $
            180,168
            
            $
            35,104
            
            $
            22,824Net
                Loss from Operations
            
            
            (3,462,257
            )
            
            (2,206,969
            )
            
            (620,654
            )
            
            (743,644
            )
            
            (412,228
            )Net
                Loss
            
            
            (3,462,257
            )
            
            (2,206,969
            )
            
            (743,472
            )
            
            (705,555
            )
            
            (35,580
            )Basic
                and Diluted Loss per
                Share
            
            
            (0.16
            )
            
            (0.12
            )
            
            (0.05
            )
            
            (0.06
            )
            
            (0.00
            )Total
                Assets
            
            
            509,124
            
            
            435,235
            
            
            676,500
            
            
            190,376
            
            
            281,705Net
                Assets
            
            
            253,294
            
            
            (135,975
            )
            
            135,620
            
            
            (207,150
            )
            
            (249,870
            )Long
                Term Obligations
            
            
            —
            
            
            100,000
            
            
            120,400
            
            
            114,000
            
            
            114,000Share
                Capital
            
            
            6,227,074
            
            
            3,343,853
            
            
            2,525,239
            
            
            1,979,201
            
            
            1,397,923Number
                of Shares
            
            
            26,316,551
            
            
            19,230,425
            
            
            16,106,403
            
            
            12,936,178
            
            
            11,733,743Cash
                Dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —







3
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EXCHANGE
      RATES




The
      following table sets out the exchange rates for the conversion of Canadian
      dollars into United States dollars.  The exchange rates used are the
      closing rates provided by The Bank of Canada.  The table lists the rate in
      effect at the end of the following periods, the average exchange rates (based
      on
      the average of the exchange rates for the closing rate of each month in such
      periods), and the range of high and low exchange rates for such
      periods.





Year
                ended December 31,
            
            2004
            
            2003
            
            2002End
                of Period
            
            
            .83
            
            
            .77
            
            
            .63Average
                for Period
            
            
            .77
            
            
            .71
            
            
            .63High
                for Period
            
            
            .85
            
            
            .78
            
            
            .65Low
                for Period
            
            
            .71
            
            
            .64
            
            
            .63





The
      following table sets out the range of high and low exchange rates, for the
      conversion of Canadian dollars into United States dollars for each of the
      corresponding months during 2005.  The exchange rates used are the closing
      rates as provided by the Bank of Canada.





Month
            
            High
            
            LowJanuary
                2005
            
            
            .83
            
            
            .80February
                2005
            
            
            .82
            
            
            .79March
                2005
            
            
            .83
            
            
            .80





The
      exchange rate on December 31, 2004 for the conversion of United States dollars
      into Canadian dollars was $1.2020 (CDN$1.00 = US$.83). As of April 1, 2005
      the
      close rate of exchange for the conversion of United States dollars into Canadian
      dollars was 1.2151 (CDN$1.00 = US$.82).  The exchange rates used are the
      closing rates as provided by the Bank of Canada.





B. CAPITALIZATION
      AND
      INDEBTEDNESS.




Not
      Applicable.





C. REASON
      FOR
      THE OFFER AND USE OF PROCEEDS.




Not
      Applicable.





D. RISK
      FACTORS.
      An investment in the securities of the Company involves a high degree of risk.
      The following risk factors should be considered carefully in evaluating the
      Company and its business. If any of the risks described below occurs, the
      business, results of operations and financial condition of the Company could
      be
      adversely affected.




HISTORY
      OF LOSSES SINCE INCEPTION, EXPECTATION OF LOSSES IN THE IMMEDIATE FUTURE, AND
      POSSIBILITY THAT THE COMPANY MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY. The
      Company has incurred net losses each year since inception. The accumulated
      deficit of the Company was CDN$8,990,427 as of December 31, 2004. It expects
      to
      continue to incur net losses at least through fiscal year 2005, and these losses
      may be substantial. To implement the current business strategy, the Company
      will
      have to incur a high level of fixed operating expenses and will continue to
      incur considerable research and development expenses and capital expenditures.
      Accordingly, if additional capital, revenues and positive cash flows cannot
      be
      generated, to which no assurance can be given, the Company will not achieve
      profitability. Even if profitability is achieved, it may not be sustained or
      increased on a quarterly or annual basis.




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THE
      AUDITED ANNUAL REPORT OF THE COMPANY STATES THAT THE ABILITY OF THE COMPANY
      TO
      CONTINUE AS A GOING CONCERN IS IN SUBSTANTIAL DOUBT. Whether the Company
      continues as a going concern is dependent upon the Company's ability to raise
      additional capital, the successful commercialization of one or more of the
      Company's research projects, and the attainment of profitable operations. The
      ability to generate future revenues will depend on a number of factors, many
      of
      which are beyond control of the Company. These factors include the rate of
      market acceptance of its fuel cell products, competitive activities, regulatory
      developments and general economic trends.




ABILITY
      TO OBTAIN ADDITIONAL CAPITAL, THEREBY RESULTING IN CURTAILMENT OR CESSATION
      OF
      OPERATIONS.  The ability of the Company to realize its objectives depends
      in large part upon obtaining additional capital. The Company has a present
      need
      for capital in connection with its fuel cell development activities and
      transition to commercial operations. The Company believes that it will require
      up to US$10 million over the next three to five years to establish production
      and subsequently market the fuel cells and fuel cell products developed by
      the
      Company.  There is no assurance that any additional financing will be
      available on commercially attractive terms, in a timely fashion, in sufficient
      amounts, not substantially dilutive to shareholders, or at all. If adequate
      funds are not available, the Company would have to scale back its operations,
      including its product development, manufacturing and marketing activities,
      all
      of which could lead ultimately to cessation of operations.




LACK
      OF
      EXPERIENCE IN MANUFACTURING AND MARKETING PRODUCTS. To date, the Company has
      derived revenues principally from sales of demonstrators or small ancillary
      products, contract research and government grants. Sales have been limited
      to
      demonstration products and prototype models. The Company's prototypes are
      pre-commercial production products assembled on a one-off basis, by hand. The
      Company is not yet adequately financed to produce commercial products. The
      Company has produced its fuel cells on a semi- automated basis but has not
      designed a proven automated assembly facility. In addition, the Company still
      has not been able to determine whether or not its prototypes can be assembled
      through automation or if there is a sufficient level of product acceptance
      for
      the Company to sell fuel cells in sufficient volume to become
      profitable.





The
      Company may not be able to produce or commercialize any of its products in
      a
      cost-effective manner and it may not be able to successfully market these
      products. Production costs of the initial commercial units may be higher than
      their sales price.  There can be no assurance that higher production levels
      will occur or that sales prices will ever exceed production costs.




MARKET
      ACCEPTANCE OF THE FUEL CELL PRODUCTS MAY TAKE LONGER TO ACHIEVE OR MAY NEVER
      BE
      ACHIEVED. The Company's alkaline fuel cell products represent a new technology
      and any success will depend on this technology achieving market acceptance.
      Because the Company's products are designed to capitalize on markets that
      presently utilize or are serviced by products from traditional and
      well-established power generation sources, such as engine-generators or
      batteries, the Company may face significant resistance from end-users to adopt
      a
      new and alternative power source technology. Fuel cell products for portable
      and
      mobile applications represent an emerging market. The Company does not know
      whether its targeted customers will purchase such products.




ABILITY
      TO MEET PROJECTED DEMAND FOR THE COMPANY'S PRODUCTS. Locating and establishing
      new manufacturing facilities, if required, will place significant demands on
      the
      Company's managerial, technical, financial and other resources.





The
      Company's business plan contemplates significant growth in sales and personnel
      which may place a strain upon its current management systems and resources,
      as
      well as its ability to obtain capital. As of April 1, 2005, the Company had
      fewer than 25 employees. The Company's business plan and anticipated product
      sales will require the Company to hire, train and manage additional employees
      and to establish or contract for production capacity. If the Company is unable
      to hire the skilled employees it needs or to establish its production capacity
      in a timely manner, it might be unable to fulfill orders for its products or
      meet its business plans. There can be no assurance that the Company will be
      able
      to effectively manage its anticipated growth.




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ABILITY
      TO COMPETE SUCCESSFULLY IN A HIGHLY COMPETITIVE MARKET. The development and
      marketing of fuel cells and fuel cell systems is extremely competitive. A number
      of firms throughout the world have established fuel cell development programs.
      The Company competes directly with alternative energy and entrenched
      power-generation and power-storage technologies. Competitors range from
      development stage companies to major domestic and international companies.
      Other
      companies may succeed in developing and bringing to market products or
      technologies that are more cost-effective than those being developed by the
      Company, or that would render its products and technology obsolete or
      non-competitive in the marketplace. The Company's competitors have greater
      name
      recognition, larger customer bases and significantly greater financial,
      technical, marketing, public relations, sales, distribution and other resources
      than the Company. There can be no assurance that the Company will be able to
      compete effectively with such companies. In addition, the Company expects that
      additional competition will develop, from both existing businesses in the energy
      industry and from new entrants.




DEPENDENCE
      ON THIRD-PARTY MANUFACTURERS. Until the Company has adequate capital resources
      and sufficient demand for its products, the Company will depend on third parties
      for the manufacture of its products and for parts necessary to manufacture
      its
      products. If manufacturers or suppliers are unable or unwilling to manufacture
      or provide the materials and components to manufacture the Company's products
      on
      commercially reasonable terms, or at all, delays in identifying and contracting
      for alternative manufacturing and supply sources could adversely affect the
      ability to market the products.




POSSIBLE
      LIABILITY FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS AND
      DIFFICULTIES IN PROTECTING THE COMPANY'S INTELLECTUAL PROPERTY.  Despite
      the Company's efforts to protect its proprietary rights, unauthorized parties
      may attempt to copy aspects of the Company's products and product designs,
      or to
      obtain and use information that the Company regards as proprietary. If required,
      policing unauthorized use of the Company's proprietary technology may be
      difficult, time-consuming and costly. In addition, the laws of certain countries
      in which the Company's products may be sold or licensed do not protect its
      products and related intellectual property rights to the same extent as the
      laws
      of Canada or the United States. The Company does not believe that any of its
      products infringe the proprietary rights of any third parties.  From time
      to time, however, third parties may contest the Company's rights to use its
      intellectual property. Any such claims, with or without merit, could be
      time-consuming, result in costly litigation, cause product shipment delays
      or
      require the Company to enter into royalty or licensing agreements. Such royalty
      or licensing agreements, if required, may not be available on terms acceptable
      to the Company.





ASTRIS’
      PRODUCTS MAY NOT MEET PERFORMANCE EXPECTATIONS IN FIELD TESTS, WHICH COULD
      NEGATIVELY AFFECT ITS CUSTOMER RELATIONSHIPS AND INCREASE ITS MANUFACTURING
      COSTS.  The components of its fuel cell products may contain defects or
      errors that could negatively affect its customer relationships and increase
      its
      manufacturing and warranty costs. In internal bench tests, the POWERSTACKTM MC250
      has performed at up to 60% over the original design specification and the E8
      Portable AFC power generator has operated at an electrical efficiency in excess
      of 50%. These results do not guarantee similar or greater performance in future
      independent field tests.




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ASTRIS
      MAY NOT BE ABLE TO MANAGE SUCCESSFULLY THE EXPANSION OF ITS OPERATIONS.
 Astris will need to recruit, train and retain key management and other
      qualified personnel to successfully expand its business **.** Astris
      has been gradually expanding its management and technical team to meet customer
      demand and pilot production requirements. Transition to pilot production is
      a
      critical one to meet demand for its products, and validate its ability to
      produce the POWERSTACKTM MC250 in volume leading to
      commercialization.




NEED
      FOR
      COMPATIBILITY WITH THE PRODUCTS OF THIRD-PARTY MANUFACTURERS OR POTENTIAL
      CUSTOMERS. The Company's success will depend in large part upon its ability
      to
      make its products compatible with the products of third-party manufacturers.
      The
      Company's products will be successful only if manufacturers redesign or modify
      their existing products to fully incorporate the Company's products and
      technologies. The Company's failure to make its products and technologies
      compatible with the products of third-party manufacturers, or the failure of
      potential customers to redesign or make necessary modifications to their
      existing products to accommodate the Company's products would significantly
      impair or preclude its ability to sell its products.




ACCIDENTS
      INVOLVING THE FLAMMABLE FUELS USED WITH THE PRODUCTS COULD IMPAIR THEIR MARKET
      ACCEPTANCE. The fuel cell products use hydrogen, which typically is generated
      from gaseous and liquid fuels such as propane, natural gas or methanol, in
      a
      process known as reforming. While the Company's fuel cell products do not use
      these fuels in a combustion process, natural gas, propane and hydrogen are
      flammable fuels that could leak into a residence or commercial location and
      combust, if ignited by another source. Since the Company's products have not
      yet
      gained widespread market acceptance, any accidents involving the Company's
      systems, or other fuel cell-based products, could materially impede demand
      for
      the products. At
      present, the Company does not carry insurance to cover such
      accidents.




THE
      COMPANY'S PRODUCTS MAY FROM TIME TO TIME CONTAIN DESIGN DEFECTS THAT ARE
      DIFFICULT TO DETECT AND CORRECT. Although the Company does not know of any
      existing design defects, there can be no assurance that defects or flaws will
      not be found in new products after commencement of commercial shipments or,
      if
      discovered, that the Company will be able to successfully correct such defects
      or flaws in a timely manner or at all. The occurrence of defects or flaws in
      the
      Company's products could result in loss of, or delay in, market acceptance
      of
      the Company's products.  Correcting such defects or flaws could require
      significant expenditures by the Company.




DEPENDENCE
      ON ATTRACTING AND RETAINING KEY PERSONNEL. The success of the Company is largely
      dependent on the performance of its key employees, particularly Jiri K. Nor.
      Mr.
      Nor founded Astris in 1983 and is the principal developer of Astris' alkaline
      fuel cell technology. Additionally, the Company is dependent on a small number
      of employees who have been with Astris for numerous years and who actually
      construct Astris' technological components and are familiar with its proprietary
      designs. Loss of the services of Mr. Nor or the failure to attract and retain
      additional key employees with necessary skills could have a material adverse
      impact upon the Company's growth and profitability. Competition for highly
      skilled management, technical, research and development and other employees
      is
      intense and the Company may not be able to obtain key person life insurance
      policies on any of its employees.




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RISKS
      INHERENT IN INTERNATIONAL OPERATIONS INCLUDING CURRENCY EXCHANGE RATE
      FLUCTUATIONS AND TARIFF REGULATIONS. A substantial portion of the Company's
      revenues is expected to be realized in currencies other than Canadian dollars.
      The Company's operating expenses are primarily paid in Canadian dollars.
      Fluctuations in the exchange rate between the Canadian dollar and such other
      currencies may have a material effect on the Company's results of operations.
      In
      particular, the Company may be adversely affected by a significant strengthening
      of the Canadian dollar against the U.S. dollar, the Euro and the Czech Republic
      koruna. In addition, the Company does not intend to enter into any hedging
      or
      other similar agreements or arrangements to protect it against any of these
      currency risks. The Company may also be subject to tariff regulations and
      requirements for export licenses, particularly with respect to certain
      technologies, unexpected changes in regulatory requirements, difficulties in
      managing international operations, potentially adverse tax consequences,
      restrictions on repatriation of earnings and the burdens of complying with
      a
      wide variety of foreign laws.




POSSIBLE
      DIFFICULTIES BY UNITED STATES PERSONS TO EFFECT SERVICE OF PROCESS WITHIN THE
      UNITED STATES UPON THE COMPANY OR ITS DIRECTORS OF OFFICERS, OR TO REALIZE
      IN
      THE UNITED STATES UPON JUDGMENTS. The Company is an Ontario corporation with
      its
      principal place of business in Canada. Most of its Directors and Officers are
      residents of Canada and most of the assets of such persons and of the Company
      are located outside the United States. US Persons should not assume that
      Canadian courts (i) would enforce judgments of United States courts obtained
      in
      actions against the Company or its Officers and Directors predicated upon the
      civil liability provisions of the United States federal securities laws or
      the
      securities or "blue sky" laws of any state within the United States or (ii)
      would enforce, in original actions, liabilities against the Company or its
      Officers and Directors predicated upon the United States federal securities
      laws
      or any such state securities or blue sky laws.




THE
      COMPANY HAS NEVER PAID DIVIDENDS AND IT DOES NOT ANTICIPATE PAYING DIVIDENDS
      IN
      THE FORESEEABLE FUTURE. The Company has never declared any cash dividends on
      its
      Common Shares, and if the Company were to become profitable, it would be
      expected that most or all of such earnings would be retained to support the
      business. As a result, shareholders must rely on stock appreciation for any
      return on their investment in the Common Shares.




VOLATILE
      AND LIMITED MARKET FOR THE COMPANY'S COMMON SHARES. The Company's Common Shares
      are not actively traded.  The Company's Common Shares began trading on the
      Over The Counter Bulletin Board Exchange (“OTC.BB”) on June 20, 2001.  The
      Common Shares traded in 2004 from a high of US$0.70 to a low of US$0.30 per
      share. The Common Shares are not presently publicly traded in Canada. There
      can
      be no assurance given that trading activity will increase investor
      recognition.




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APPLICATION
      OF THE SEC PENNY STOCK REGULATIONS AND RESTRICTIONS. The Securities and Exchange
      Commission has adopted regulations which generally define Penny Stocks to be
      an
      equity security that has a market price less than $5.00 per share or an exercise
      price of less than US$5.00 per share. This subject to certain exemptions based
      upon minimum assets or revenues. As of April 1, 2005, the closing bid and asked
      prices for the Common Shares were US$.26 and US$.29 per share. As a Penny Stock,
      the Company's Common Shares may become subject to Rule 15g-9 under the
      Securities Exchange Act of 1934, as amended, or the Penny Stock Rule. This
      Rule
      imposes additional sales practice requirements on broker-dealers that sell
      such
      securities to persons other than established customers and "accredited
      investors" (generally defined as individuals with a net worth in excess of
      US$1,000,000 or annual incomes exceeding US$200,000, or combined annual income
      with spouse of US$300,000).  For transactions covered by Rule 15g-9, a
      broker-dealer must make a special suitability determination for the purchaser
      and have received the purchaser's written consent to the transaction prior
      to
      sale. As a result, this Rule may affect the ability of broker-dealers to sell
      the Company's securities and may affect the ability of purchasers to sell any
      of
      the Company's securities in the secondary market.




For
      any
      transaction involving a Penny Stock, unless exempt, the Rule requires that
      prior
      to any transaction in a Penny Stock, a disclosure schedule prepared by the
      SEC
      relating to the Penny Stock market is delivered. Disclosures about sales
      commissions payable to both the broker-dealer and the registered representative
      and about current quotations for the securities are also required. Finally,
      monthly statements are required to be sent disclosing recent price information
      for the Penny Stock held in the account and information on the limited market
      in
      penny stock.





FORWARD
      LOOKING INFORMATION ****





The
      following discussion, as well as other sections within this annual report,
      contains forward-looking information which is based on current expectations
      and
      entails various risks and uncertainties. These risks and uncertainties could
      cause or contribute to actual results that are materially different from those
      expressed or implied. The forward-looking information contained in this document
      is current only as of the date of the document. There should not be an
      expectation that such information will in all circumstances be updated,
      supplemented or revised whether as a result of new information, changing
      circumstances, future events or otherwise.





ITEM
      4. INFORMATION ON THE COMPANY.





A. HISTORY
      AND
      DEVELOPMENT OF THE COMPANY.




Astris
      Energi Inc. ("AEI" or the "Company") was incorporated as Kayty Exploration
      Ltd.
      on March 18, 1981, pursuant to the Companies Act of the Province of Alberta,
      Canada to engage in oil and gas exploration activities. The Company subsequently
      changed its name to Kayty Inc. in August 1987, changed the place of
      incorporation to the Province of Ontario, Canada, and effected a one-for-ten
      reverse split of its Common Shares. In December 1994, the Company changed its
      name to WLD Inc. ("WLD") and effected a one-for-three reverse split of its
      Common Shares, reducing the outstanding Common Shares to 5,000,000 shares.
      By
      1995, WLD had ceased exploration activities and sought other business
      activities. In February 1996, the Company acquired Astris Inc. in exchange
      for
      1,500,000 Common Shares and warrants for the purchase of 3,500,000 Common
      Shares, which warrants were subsequently exercised in 1997 at an exercise price
      of CDN$0.05 per warrant. Additionally, in June 1995, the Company changed its
      name to Astris Energi Inc. The purpose of the acquisition was for the Company
      to
      obtain a potentially promising business activity, and Astris Inc. was seeking
      to
      be part of a public company to facilitate raising working capital to further
      the
      development of its fuel cell research.  AEI began trading on the OTC.BB
      under the trading symbol “ASRNF” on June 20, 2001.




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The
      Company's principal business office is located at 2175 Dunwin Drive, Unit 6,
      Mississauga, Ontario, Canada L5L 1X2 and its telephone number is (905)608-2000.
      The Company's e-mail address is questions@astris.ca. The Company maintains
      a
      website at www.astris.ca. The Company is not incorporating, by reference in
      this
      Form 20-F, the information on its website.




B.
            BUSINESS
                OVERVIEW.





THE
      COMPANY'S PURPOSE




The
      Company's mission is to become the leading provider of affordable fuel cells
      and
      fuel cell power generators. The Company’s near term priority is to achieve the
      required business partnerships and financing to successfully achieve pilot
      production leading to commercialization. The Company’s business plan calls for
      commercialization within three years provided that adequate funding can be
      secured.




DESCRIPTION
      OF THE COMPANY'S BUSINESS ACTIVITIES




Astris
      Energi Inc. is a Canadian (Mississauga, Ontario) company that since 1983 has
      been pioneering the development of alkaline fuel cells (“AFCs”) and AFC
      generators and now has a series of such power systems tested and ready for
      commercialization. While most fuel cell companies are targeting the eventual
      car-truck-bus market or large utility type generating stations, Astris has
      specialized, in one-to-ten kilowatt systems which have tremendous global market
      potential and anticipated earlier adoption. The company also anticipates linking
      modules together in larger units for larger applications.




Since
      1995, the Company has been engaged in the design, production and
      commercialization of alkaline fuel cell systems for industrial, commercial
      and
      retail markets. Specifically, the Company's main focus has been to develop
      and
      market an AFC system which could be used to provide backup or off-grid power,
      portable power or small niche vehicles. In December 2004, the Company completed
      its second version of an operating golf car powered by its new Model E7 AFC
      fuel
      cell system and during 2004 tested the Model E8 Portable Power Generator that
      provides 2.4 kW for backup of off-grid power requirements.




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Working
      closely together with the company's development and manufacturing subsidiary
      in
      the Czech Republic,  the
      Company has completed a series of alkaline fuel cell generators
      including:




A
      1-kilowatt portable system for extensive testing by the Czech
      military




A
      1-kilowatt fuel cell power generator capable of powering golf cars, in-plant
      delivery vehicles and other small vehicles required at airports, warehouses,
      retirement communities among others. This system was further integrated into
      the
      AFC Powered Golf Car. A second version of the AFC Powered Golf Car with 1.8
      kilowatt of fuel cell power was completed in December 2004.




A
      4-kilowatt power unit capable of providing electricity, heat and hot water
      for
      individual homes, motor homes and boats.




A
      2.4-kilowatt portable power unit that can deliver backup power or portable
      power
      for a variety of applications.




The
      company continues to demonstrate the world's first alkaline fuel cell-powered
      golf car fueled by hydrogen.  To realize the full potential of these
      markets, Astris intends to partner with or license to major manufacturers in
      each field.




In
      addition, assuming success with the current fuel cell projects, in the future
      the Company will also seek to develop and market AFC systems up to ten or more
      kilowatts for other uses, such as powering small vehicles, power supplies in
      individual homes and emergency, uninterruptible power supplies for larger
      telecommunication needs, hospital emergency rooms and computers.




The
      past
      three years have yielded exceptional progress for Astris and its worldwide
      leadership in alkaline fuel cell technology. With prospects targeted, Astris
      has
      a series of systems ready for independent field tests.





Improvements
      towards automated manufacturing are required to both reduce costs and allow
      volume production. We expect to be able to sell commercially within 36 months,
      as long as the necessary financing is available. There are no specific
      requirements for certification for the sale of fuel cells at this time. However,
      Astris participates in the workings of the CSC/IEC TC 105 (Canadian
      Sub-Committee to the International Electrotechnical Commission, Technical
      Committee 105) which has been set up to create such future standards. Astris
      will comply with all the relevant standards as they come into force. For
      specific applications standards that apply to certain fuel cell systems are
      of
      some interest such as: ANSI/CSA America FC 1-2004 American National Standard/CSA
      America Standard for Stationary Fuel Cell Power Systems, and ANSI/CSA America
      FC
      3-2004 American National Standard/CSA America Standard for Portable Fuel Cell
      Power Systems.





In
      Astris’ facilities, we comply with the NFPA 55 (National Fire Protection
      Association - U.S.) standard for handling gases (hydrogen). No part of this
      standard pertains to usage of hydrogen in the quantities used in Astris’ fuel
      cell products.




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DESCRIPTION
      OF FUEL CELLS




Fuel
      cells are electrochemical devices that supply electricity directly from hydrogen
      without combustion and the associated noise and pollution. Applications are
      numerous and include three broad categories including portable, stationary
      and
      mobile. Astris fuel cells have excellent potential in all three market segments
      and current development is focused on those market segments that are expected
      to
      have earliest adoption. These early markets include stationary, portable and
      select mobile applications. Currently, many portable and stationary applications
      are served by a combination of batteries and gasoline or diesel generators.
      Since fuel cells generate electricity in an efficient and clean manner from
      the
      electrochemical reaction of hydrogen and oxygen, many early applications are
      available where existing technologies are otherwise eliminated. The fuel cell
      is
      a potential substitute for both mobile and stationary applications currently
      using a battery backup or internal combustion engine today. Examples of these
      applications included all kinds of vehicles, home energy requirements,
      commercial buildings, remote sites and situations requiring electricity that
      are
      not connected to distributed power supplies. Hydrogen can be derived from a
      variety of sources including conventional fuels such as natural gas or propane,
      through chemical reactions and through electrolysis of water. Oxygen for Astris
      fuel cells is drawn from the air.




Astris
      fuel cells are environmentally cleaner and designed to be more cost-effective
      than power generation using fossil fuels. Fuel cells produce little noise,
      some
      heat and water as a waste product. These benefits offer great advantages over
      gasoline generators, as such generators are often responsible for producing
      large amounts of air and noise pollution. In addition, fuel cells are nominally
      at least two times more energy efficient than current gasoline generators and
      perform at high efficiency over a wide range of power requirements.




All
      Astris fuel cells and related products have been offered for sale and have
      been
      selling for years on a demonstration basis only, from cells to complete
      generators and golf cars. They have not been sold commercially because they
      have
      not been certified for commercial sales as of yet and improvements are still
      being made to the products so that they can be sold on a commercial basis.
      The
      products have been tested over a number of years.




Currently,
      Astris Energi products fall into three categories. These categories
      are:





1.
            Fuel
                Cell Modules such as the LABCELLTM LC50, LABCELLTM LC200 and POWERSTACKTM
                MC250





2.
            Fuel
                Cell Systems such as models E1, E2, E3, E4B, E5, E6, E7 and
                E8





3.
            Test
                Equipment such as TL5 Test Load, TESTMASTERTM Data Acquisition and Control
                Software Suite and the QUICKCELLTM
QC200






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The
      state
      of commercialization is slightly different between the three  different
      groups although products in all three categories have been  sold
      to a
      variety of customers on a demonstration basis. Specifically  sales
      from the three categories are summarized as follows:





1.
            Fuel
                Cell Modules are available through a number of sales channels that
                include
                our direct channel (through our website atwww.astris.caunder “ONLINE SALES”) and through a select number of resellers including
                the Fuel Cell Store. Current sales volumes of fuel cells are small
                but
                increasing.





2.
            Fuel
                Cell Systems prior to the E7 and E8 are based on our earlier fuel
                cell
                stacks and were delivered to a small number of end-users including
                academic institutions and the military. The feedback provided through
                these interactions allowed Astris to better understand the requirements
                of
                a commercial system and lead to the development of the POWERSTACKTM MC250
                and generators based on this stack technology including the E7 and
                E8. The
                current systems (E7 and E8) are available on a demonstration basis
                to a
                variety of selected organizations that are seen as potential partners
                in
                bringing our technology to commercial success. As described elsewhere
                the
                strategy of Astris is to partner with organizations that have specific
                knowledge of manufacturing, certification and customer requirements
                in a
                variety of end-user applications. Complete fuel cell systems are
                made
                available to these potential partners in order to allow them to evaluate
                and validate the technology.





3.
            Test
                Equipment is available through the same sales channels as our Fuel
                Cell
                Modules. Sales are immaterial but with a ready product we are currently
                planning a targeted advertising campaign for
                September.




There
      are
      currently five basic types of fuel cell technologies: Alkaline ("AFCs"), Proton
      Exchange Membrane ("PEMFCs"), Phosporic Acid ("PAFCs"), Molten Carbonate
      ("MCFCs"), and Solid Oxide ("SOFCs"). All of these fuel cell chemistries are
      considered to have a variety of viable commercial applications. The five fuel
      cell types are divided into two groups; Low temperature (AFC, PEMFC) and High
      temperature (PAFC, MCFC, SOFC). The Company believes that low temperature fuel
      cells are the only fuel cells that currently have relevance for applications
      that require quick start-up and smaller size.  This premise is based on the
      fact that AFCs and PEMFCs operate at temperatures of 0 to 100 degrees Celsius
      and deliver power that is suited for smaller to mid-size
      applications.




The
      largest issue hindering fuel cell production today is that fuel cells are still
      relatively expensive to produce. The high cost of manufacturing fuel cells
      is
      primarily due to the low volume of production that does not allow for economies
      of scale. Direct material costs are currently higher than incumbent
      technologies. As demand for fuel cells increases and research and development
      continues, the cost of the fuel cell and manufacturing should be reduced to
      make
      them more competitive with traditional energy sources.




In
      addition, while fuel cells can produce energy more efficiently and are
      environmentally cleaner than traditional sources of power, other energy sources
      are more entrenched in the world economy. For instance, all golf cars currently
      being manufactured are designed to be powered from batteries or internal
      combustion engines. In order for fuel cells to be used in such products,
      manufacturers must adjust their current designs to be compatible with the fuel
      cell design.




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However,
      due to new government pollution regulations, increased energy costs and a
      growing demand for "off-grid" power supplies, demand for fuel cells is
      increasing at a fast pace. As fuel cells become better known to the public
      and
      more cost competitive with other energy sources, this demand is expected to
      increase.





AFCs
      vs.
      PEMFCs




Astris
      engineers have been engaged in development of AFCs since 1983, deciding early
      that this technology had both technical and economic advantages over the PEMFC
      technology that was being pursued by most other companies in the field. Both
      NASA and the Russian space program had chosen AFCs over PEMFCs to provide
      electricity, heat and pure water for all manned space vehicles.  This
      certainly supported the Astris choice as a credible option. Additionally,
      developers in nearly all foreign countries have pursued alkaline
      technology.




Originally,
      critics said only governments with deep pockets could afford AFCs, that they
      could never be "brought down to earth" and be commercially competitive. In
      fact,
      AFCs are inherently more economical to produce and operate than PEMFCs. AFCs
      also provide the highest electrochemical conversion efficiency.  Their
      advantage of instant start, wide temperature range, even in sub-freezing weather
      gives AFC technology great credibility. Broad range of low-cost electrocatalysts
      (not platinum that PEMFCs require) can be built from inexpensive materials
      -
      plastics, carbon, base metals and metal oxides, etc. As well, AFCs allow for
      easier heat and water management.





ASTRIS
      FUEL CELL SYSTEM




Fuel  cells
      are
      like batteries that can be connected to a fuel source and therefore will not
      run
      down as long as fuel is supplied. They generate electric power in a chemical
      reaction between hydrogen and oxygen from the air. They are odorless, noiseless
      and produce no polluting emissions - their only by-products are water and heat.
      The fuel cells designed and built by the Company are AFCs. While both AFC and
      PEMFC fuel cells have potential environmental and efficiency advantages over
      traditional power sources, the Company believes that AFCs can be manufactured
      less expensively, operated more efficiently and therefore are more practical
      in
      small and medium sized applications.




This
      alkaline system will start and operate at temperatures under 0 degrees
      centigrade. This ability to work in extreme temperatures is one of several
      advantages AFCs have over the competing PEMFC fuel cells being developed by
      others.




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ALKALINE
      FUEL CELLS




An
      AFC
      system is an assembly comprised of fuel cell "stack(s)", which generate
      electricity, together with ancillary components.  In an integrated
      assembly, these “stack(s)” constitute a complete, operating fuel cell
      system.




The
      Company believes that all principal material developmental issues in alkaline
      fuel cell technology have been resolved by both the Company and the industry
      at
      large. However, the Company believes that continued research and development
      will improve alkaline fuel cell catalysts and electrode materials. This should
      improve the cost/performance ratio of alkaline fuel cells relative to more
      traditional energy sources.




The
      ancillary components to the AFC system supply, filter and re-circulate hydrogen,
      air and liquid electrolyte to the stack(s), deliver electricity to the end-use
      application, remove the aqueous by-product of the fuel cell operation, and
      electrically and electronically control, coordinate and integrate all the
      functions of the system into a single operating whole.




The
      following comments are supported by information from the following published
      books and papers, although it appears in numerous other sources:





1.
            P.
                Gouérec, L. Poletto, J. Denizot, E. Sanchez-Cortezon, J.H.
                Miners,


The
      evolution of the performance of alkaline fuel cells with circulating
      electrolyte


Journal
      of Power Sources: Volume 129, 2004, pp 193-204, Elsevier Publishers





2.
            Erich
                Gülzow,


Alkaline
      fuel cells: a critical view


Journal
      of Power Sources: Volume 61, 1996, pp 99-104, Elsevier Publishers





3.
            Eddy
                De Geeter, Michael Mangan, Staf Spaepen, William Stinissen, Georges
                Vennekens,


Alkaline
      fuel cells for road traction


Journal
      of Power Sources: Volume 80, 1999, pp 207-212, Elsevier Publishers





4.
            K.
                Kordesch, M. Cifrain,


Handbook
      of Fuel Cells - Fundamentals, Technology and Applications


Pp
      789-793, 2003, John Wiley & Sons, Ltd, Chichester





5.
            G.F.
                McLean, T. Niet, S. Prince-Richard, N.
                Djilali,


An
      assessment of alkaline fuel cell technology


International
      Journal of Hydrogen Energy: Volume 27, 2002, pp 507-526, Pergamon
      Press





6.
            K.
                Kordesch inComprehensive
                Treatise of Electrochemistry,


Vol.
      3,
      editor J. O’M. Bockris, Plenum Press, New York - London, 1985.





7.
            T.G.Benjamin,
                E.H.Camara,


The
      Fuel Cell: Key to Practically Unlimited Energy


Foote
      Prints Vol. 48, No. 2, Foote Mineral Co., Exton, PA 19341.





8.
            Fuel
                Cells: A Handbook


U.S.
      Department of Energy, Morgantown Energy Technology Center, Morgantown, West
      Virginia.




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The
      current E8 Generator has an electrical efficiency of ~55-60% based on the LHV
      (depending on power output being considered). This number is slightly better
      than the 51% (LHV) value that was recently published by Eident Energy in
      reference #1. References #7 and #8 give the efficiency range of gasoline
      electric generators (1 - 100 kW) as 7 - 22 %; for 1 - 10 kW generators as 7
      - 18
      %. Comparing these numbers it is clear that the statement of “...at least two
      times...” is in fact conservative. The real value when comparing the low-end range
      of the Astris system with the high range of an internal combustion generator
      is
      in the range of 55% / 15% = 3.7 times.




The
      basis
      of the statement that AFCs are inherently more economical to produce than PEMFCs
      are based on three major cost items required for PEMFCs; platinum catalyst,
      expensive membrane (eg Nafion) and expensive graphite flow field plates that
      must be machined. Comparatively, the AFC system developed by Astris requires
      no
      platinum, replaces the membrane with a very inexpensive solution of potassium
      hydroxide and replaces graphite plates with inexpensive epoxy or plastic frames.
      All of the references listed above (among others) make statements to support
      the
      cost advantages of AFCs. Some of these statements are included here as
      supporting material (important items highlighted):




i)
            “The
                inherent performance and cost advantages of a fuel cell with an alkaline
                electrolyte may be ascribed to two key factors. The higher kinetics
                for
                the oxygen reduction reaction (ORR) in alkaline over acidic media
                permits
                the use of a lower quantity of precious metals for a given overpotential.
                This results in a greater efficiency for the AFC when compared to
                the PEM
                as well as a large margin for the cost reduction. Secondly the alkaline
                media (i.e. KOH) is less aggressive/corrosive to metal and carbon
                than
                acid. The less-corrosive nature of an alkaline environment ensures
                a
                potential greater longevity and allows the implementation of non-noble
                catalysts, both for the cathode and the anode [6,7]. Low cost structural
                materials such as nickel current collectors and plastic composite
                frames
                are also stable in contact with KOH.” Reference #1, pp
                193


ii)
              “In
                  practice, the alkaline cell is very well developed, simple to operate
                  with
                  a built-in cooling system, has excellent reliability, and is inexpensive
                  to manufacture, even in small quantities.” Reference #3, pp
                  207


iii)
            “Alkaline
                fuel cells are excellent and efficient performers with an excellent
                pedigree of reliability and life. While the AFC s used in space
                applications are complex and costly, the terrestrial versions, operating
                as hybrid systems with buffer battery, are not. Furthermore, the
                AFC does
                not rely on high volume manufacture to reduce the cost to an affordable
                level since the materials are inexpensive and the processing is
                straightforward.” Reference #3, pp
                212






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The
      lower
      operating cost of AFCs when compared to PEMFCs are based on three facts; 1-
      The
      higher electrochemical efficiency described above results directly in lower
      consumption of hydrogen, 2- Balance of plant for the AFC system is simple and
      does not include components that have a consume considerable energy (humidifier
      and compressor) required for a PEMFC system and 3- having eliminated the
      Platinum catalyst the systems is not susceptible to carbon-monoxide (CO)
      poisoning and therefore can run on lower grade, hence less expensive hydrogen.
      Commercially available hydrogen for Astris AFCs (99.9%) costs ~$80 CAD per
      cylinder and a cylinder of same size, containing the same quantity of hydrogen
      required for platinum catalyzed fuel cells costs ~$360 CAD. Combining the lower
      fuel cost with higher efficiency the end result is a very substantial difference
      in fuel costs during operational life.




iv)
            For
                the PEMFC systems air must be supplied at high pressures to ensure
                sufficient partial pressure of Oxygen. Therefore “Air supplied by a
                controlled compressor can only solve such problems at a considerable
                over-all system efficiency loss and a high cost increase. The alkaline
                system produces the reaction water at the hydrogen anode, the acidic
                membrane system at the air-cathode. Hydrogen can be efficiently circulated
                in a closed system with a simple condenser arrangement.” Reference #4, pp
                791


v)
              From
                  the Department of Energy Website: “The platinum catalyst is also extremely
                  sensitive to CO poisoning, making it necessary to employ an additional
                  reactor to reduce CO in the fuel gas if the hydrogen is derived
                  from an
                  alcohol or hydrocarbon fuel. This also adds cost.”http://www.eere.energy.gov/hydrogenandfuelcells/fuelcells/fc_types.html





In
      a
      hydrogen-oxygen fuel cell the theoretical limit of cell voltage is 1.23 V.
      Therefore a cell that produces a voltage of 1.23 V would be considered 100%
      efficient. In practice this voltage limit cannot be reached due to the peroxide
      reaction on the oxygen electrode. Reduction of oxygen takes place in two steps,
      via peroxide, in which some of the energy is irreversibly converted into heat.
      In reference #6 Kordesch shows the “Pourbaix Diagram” (after M. Pourbaix) for
      hydrogen-oxygen that characterizes the electrode voltages as a function of
      pH.
      The voltage differential between hydrogen and peroxide is constant in the range
      of pH 0 - 10, acidic (this includes PEMFC) to mild basic. At about pH = 10
      the
      effect of the peroxide reaction begins to be less pronounced, and by the time
      we
      reached pH = 15, the operation point of alkaline fuel cell, some 100 mV have
      been gained. Everything else being equal, alkaline cell will exhibit higher
      voltage. If the typical cell voltage is 0.6 - 0.7 V, the difference of 100
      mV
      represents 14 - 16 % advantage. This is purely a gift from mother nature, not
      a
      man’s doing. In addition to the aforesaid reference #6, this fact is supported
      by a number of publications including the two presented here:




vi)
            “Alkaline
                hydrogen/air fuel cells have an operating voltage of about 0.8V at
                300mAcm−2. Assuming that PEM fuel cells deliver 600mAcm−2 at 0.7V, this is
                a loss of 10-15% in efficiency.” Reference #4, pp
                791


vii)
              “The
                  higher kinetics for the oxygen reduction reaction (ORR) in alkaline
                  over
                  acidic media permits the use of a lower quantity of precious metals
                  for a
                  given overpotential. This results in a greater efficiency for the
                  AFC when
                  compared to the PEM as well as a large margin for the cost reduction.”
                  Reference #1, pp 193






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In
      addition to the advantages that have been described thus far including; higher
      electrochemical efficiency, lower cost to manufacture and lower cost to operate
      which are critical to the widespread acceptance the AFC has a number of distinct
      advantages over the PEMFC:




·
            Quick
                start-up and shutdown even in subfreezing temperatures (due to the
                fact
                that the electrolyte (KOH) freezes at below -40oC at concentrations used
                in the Astris system versus the need for water (freezes at 0oC) for
                membrane hydration in the PEMFC


·
              Better
                  reaction dynamics and therefore better performance and easier start
                  at low
                  temperatures and pressures, noticeable already at room temperature
                  and
                  even more pronounced at still lower
                  temperatures


·
            Wide
                range of humidity tolerance which again is related to the membrane
                hydration requirement of the PEMFC.




“Furthermore,
      the circulating electrolyte used in an AFC results in a simple and rapid
      start-up and shutdown procedures [4] and has the additional advantage of
      simplifying the water and the heat management [8].” Reference # 1, pp
      195





Glossary
      of terms





LHV
      -  lower
      heating value, amount of energy of oxidation of fuel, excluding the heat of
      condensation of product water (this is a correct basis of comparison as the
      engines in question such as fuel cell systems and internal combustion engines
      do
      not recover the heat of condensing the product water)





HHV
      -
      higher heating value, amount of energy of oxidation of fuel, including the
      heat
      of condensation of the product water





KOH-  potassium
      hydroxide





CO-  carbon
      monoxide





pH-  measure
      of acidity/alkalinity. pH=7 denotes a neutral solution; pH less than seven
      denotes acidic solutions, pH greater than seven denotes basic (alkaline)
      solutions





THE
      COMPANY'S PRODUCTS




The
      Company presently offers products ranging from demonstration and educational
      fuel cells and accessories, to scientific products such as electrochemical
      test
      cells, associated electronic and computer based test equipment. This test
      equipment is useful in research and development and the testing of electrodes,
      fuel cells and batteries, and sub-kilowatt fuel cells and stacks.




In
      2003
      the Company unveiled a new, further optimized proprietary alkaline fuel cell
      stack, the POWERSTACK MC250 that could be used for fuel cell systems up to
      10
      kilowatts or more for use in uninterrupted power supplies, portable generators
      and small vehicles such as forklifts. The Company anticipates that such a fuel
      cell will be ready for commercial application within the next one to three
      years.




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The
      Company's principal fuel cell products are the POWERSTACKTM MC250, E8 generator
      and Astris II golf car. These demonstrator units are pre-commercial products
      provided on a limited basis to individual customers and assembled by hand.
      These
      demonstration units are in contrast to "pilot production" systems, which are
      systems manufactured in a pilot production facility not on a full commercial
      basis, and to commercial systems, which are manufactured by volume production
      methods. The Company has begun test runs of its pilot production line to produce
      the POWERSTACKTM MC250.




The
      Company contracted Claude L. Rivoire, an internationally recognized fuel cell
      specialist, to lead the development of the Company’s pilot production facility.
      Mr. Rivoire has an outstanding track record in industrial automation, production
      technology and plant management, spanning the transportation industry (buses
      and
      industrial vehicles), the food and high-tech rubber industries and, since 1997,
      the fuel cell industry.




POWERSTACKTM
      MC250 is a 250 square centimeter, medium size alkaline fuel cell. In early
      test
      results the POWERSTACK MC250 performed 60% over the original design
      specification.  The POWERSTACK MC250 makes a large step in increasing power
      density and overall performance when compared to its predecessor the LABCELL.





MODEL
      E8
      PORTABLE AFC GENERATOR





MODEL
      E8 Portable Power Generator is an advanced touch start fuel cell system that
      offers up to 2.4kW of power primarily targeted for back up power requirements.
      The E8 fuel cell generator was partially developed by the Company's Czech
      Republic subsidiary in a joint project partially funded by the Czech Ministry
      of
      Industry and Trade. Astris sold its first E8 generator in December 2004 under
      a
      value added reseller agreement with Alternate Energy Corp.





ASTRIS
      II
      GOLF CAR





The
      Astris II is the Company’s second-generation golf car. The new, faster golf car
      is powered by Astris’ recently completed 1.8kW, Model E7 AFC Generator, which
      gives Astris II double the power and double the acceleration of the original
      model which was the world’s first alkaline fuel cell powered golf car using
      hydrogen. Subsequent to year end, the Company sold its first Astris II. The
      intellectual property of the actual golf car belongs to the supplier from whom
      AEI bought the golf car, E-Z-Go. AEI simply bought the golf car and added its
      E8
      generator to replace the existing battery engine.




In
      addition to the Company's principal fuel cell products, the Company has several
      small fuel cells and products, primarily for educational purposes and testing,
      for sale through its website.




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SMALL
      FUEL CELLS AND RELATED PRODUCTS




In
      addition to developing fuel cells, the Company presently sells by mail order
      small fuel cells, test cells and electronic test equipment. They are described
      briefly, as follows:




LABCELLTM
      LC50 is a 50 square centimeter, small alkaline fuel cell for laboratory
      demonstration and experimentation which produces 1.5 to 6 volts.




LABCELLTM
      LC200 is a 200 square centimeter, medium size alkaline fuel cell for laboratory
      experimentation and small power applications which produces .75 to 12
      volts.




QUICKCELLTM
      QC200 is an electrochemical test cell designed for the testing of gas diffusion
      or solid electrodes in a controlled laboratory environment for fuel cell and
      battery research, development and quality control.




MODEL
      TL5
      TEST LOAD is a monitor for fuel cells and batteries with a built-in
      microprocessor. It functions to briefly interrupt the current and take
      resistance-free cell readings up to 40 volts.




TESTMASTERTM
      is a powerful, integrated software package designed for testing fuel cells
      and
      batteries. TESTMASTER performs all the tasks required for short-term or
      long-term testing of fuel cells or batteries, monitoring, control, data
      collection and storage, and graphical data representation.




Astris
      s.r.o. produces and ships electrodes on behalf of the Company. The Company
      does
      not presently have any insurance on these products. Insurance is obtained at
      the
      customer's request and expense. Astris s.r.o. does not maintain a substantial
      inventory of electrodes or fuel cells.




The
      Company currently derives minor amounts of revenues from the sale of small
      products. It remains unknown whether the Company will be able to further develop
      a market for these products. The Company is not aware of any other entity,
      which
      markets products similar to its small products.




The
      Company is primarily targeting markets in North America and Europe for the
      sale
      of small stationary, portable and select mobile applications including light
      vehicles and emergency power supplies.





RESEARCH
      AND DEVELOPMENT




AEI
      has
      been involved in fuel cell research since its formation in 1995. Almost CDN$9
      million has been expended since then.  AEI had entered into the 1995
      acquisition with WLD to be in a better position to raise capital for additional
      research and development. As sufficient financing was not obtained as part
      of
      the AEI acquisition, some of the research and development activities in Canada
      were curtailed. Because labor costs are significantly lower in the Czech
      Republic than in Canada, and the capital needs of Astris s.r.o. for research
      and
      development activities are less than what would have been required in Canada,
      the Company's research and development on fuel cells had primarily been carried
      out in the Czech Republic, through the Company's now wholly owned subsidiary,
      Astris s.r.o.




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Astris
      s.r.o. has been engaged in fuel cell research and development since 1992. Its
      current research and development efforts are primarily focused on electrode
      technology to improve the electrochemical efficiency, durability and economy
      of
      alkaline fuel cells.  These research and development efforts have also been
      focused on reduction of production costs, improving product quality and
      consistency, and on identifying new features and innovations for future product
      development. Funds advanced from the Company for expenditures on manufacturing
      and research and development at Astris s.r.o. were approximately CDN$700,000
      for
      2004. For the years ended December 31, 2004, 2003 and 2002, the Company expended
      a total of approximately CDN$1,343,695, CDN$1,229,184, CDN$197,488 on research
      and development. The research and development budget for 2005 is contingent
      upon
      the Company's ability to raise capital.




Since
      "going public" in Canada in December 1995, the Company's research and
      development activities have been performed both at the Mississauga, Ontario
      headquarters and at the Astris s.r.o. facility in the Czech Republic. Of the
      research and development completed in Canada during 2004, the Company received
      or received notification of investment tax credit refunds of
      $203,626.




The
      Company has also completed the initial research in the development of an
      advanced fuel cell stack design for systems of up to 25 kilowatts or larger
      for
      use in commercial buildings and automobiles. Such fuel cells will be developed
      initially as prototypes and will later be developed as commercial
      products.




The
      Company's projected initial manufacturing and research and development budget
      for 2005 is CDN$1.6 million subject to financing. Such amount will be used
      to
      continue development and production of the POWERSTACK MC250 fuel cell power
      module. If less than CDN$2.5 million is obtained from financing, the Company
      will reduce its research and development budget and the development and
      production of the fuel cell power module will continue, albeit at a slower
      pace.
      If no adequate funding is secured, the research and development of the Company's
      fuel cell products will have to be deferred until such financing is in
      place.





INTELLECTUAL
      PROPERTY




In
      1986,
      Josef V. Soltys of Mississauga, Canada (a shareholder and former director of
      the
      Company), assigned to AI a Canadian patent application for QUICKCELL, a test
      cell structure for fuel cell technology. The patent, Canadian Patent #1,295,679,
      issued February 11, 1992, expires February 11, 2009. The Company also holds
      a
      United States patent, #5,0008,162, which was issued on April 16, 1991, and
      expires on April 16, 2008, for the same product. A former employee of AI, who
      was a co-inventor of such technology, did not assign any right in such patents
      to the Company prior to his departure.  Management does not believe that
      these patents are material to the development of the intended business goal
      and
      the Company ceased maintaining the patent.




In
      December 2004, AEI filed two US patent applications in preparation for the
      sale
      of its POWERSTACKTM MC250 and E7 and E8 generators. Application serial
      #11/004,988 is on its electrode structure for stacked alkaline cells.
      Application serial #10/905,148 is on the alkaline fuel cell systems. However,
      the Company's policy is still to maintain the confidentiality of its products
      through trade secrecy.




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The
      Company has unregistered trademarks on some of its products, including LABCELLTM
LC50, LABCELLTM LC200, QUICKCELLTM QC200, POWERSTACKTM MC250 and
      TESTMASTERTM.




The
      Company has copyright protection on its TL5 Testload and TESTMASTERTM
software.




The
      alkaline fuel cell electrode technology which has been developed by the
      Company’s affiliate, Astris s.r.o., is solely owned by Astris s.r.o. No other
      party has rights to the electrode technology developed by Astris s.r.o. The
      Company, which had 30% beneficial ownership of Astris s.r.o. prior to the
      acquisition subsequent to year end, has full ownership of Astris s.r.o and
      its
      technology. Revenues attributable to products that rely on the electrode
      technology of Astris s.r.o. were $84,011 in 2004, $35,191 in 2003 and $39,900
      in
      2002.





MARKETING




The
      Company has a limited production capacity for its demonstration and scientific
      products. While direct sales efforts will continue through the Internet, Astris'
      principal strategy is to form joint ventures with leading manufacturers of
      the
      products that can use fuel cell power.  Manufacturers in the back up power
      and UPS industries are believed to be the primary targets. Manufacturers in
      the
      golf car, NEV and/or recreational vehicle industries are believed to be
      secondary targets.  As an alternative, the Company is also considering
      licensing such manufacturers to both produce and market the Astris power sources
      on an O.E.M. basis, with Astris collecting both license fees and royalties
      based
      on sales.




Such
      established industry specific companies already have manufacturing facilities
      and marketing organizations in place and provide an intimate knowledge of their
      respective markets. These types of strategic business relationships will allow
      Astris to continue specializing in its business expertise, which is the
      development of new products for the burgeoning international fuel cell
      field.




In
      October 2000, the Company entered into an agreement with FuelCellStore.com,
      Inc.
      for the inclusion of the Company's products on the FuelCellStore.com internet
      website on a non-exclusive basis for sales anywhere in the world.
      FuelCellStore.com, Inc. receives a ten percent (10%) commission based upon
      sales
      of the Company's products over its internet website.




Currently,
      the Company's fuel cell products are shipped to the customer from Canada. It
      is
      expected that the future customers of the Company's fuel cell systems will
      be
      manufacturers of all types of products which will be adapted to utilize the
      Company's fuel cell technology. The Company expects such fuel cell systems
      will
      be shipped directly from its facilities to such manufacturers or through a
      network of distributors and agents to such manufacturers.




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RAW
      MATERIALS AND SUPPLIES




The
      principal raw materials that the Company uses are common and widely available
      from numerous suppliers. The Company's principal materials are largely various
      types of plastics, carbons, metals and their compounds and conventional
      components, which are all relatively inexpensive to obtain and which currently
      do not present supply problems.





COMPETITION




Fuel
      cells are a competitive business. Competition arises from other fuel cell
      companies and from entities engaged in offering existing conventional energy
      services. The Company competes with companies that are developing all types
      of
      fuel cells. While there are currently five basic types of fuel cell technologies
      (see "Description of Fuel Cells" above), the Company believes that AFCs and
      PEMFCs are the only fuel cells that are presently of competitive relevance
      for
      the relatively small power, stationary and portable applications that the
      Company intends to focus upon. This is because AFCs and PEMFCs operate at
      ambient temperatures (above 0 degrees Celsius to 100 degrees Celsius) and
      deliver kilowatts, which are more suited to meet the needs of small, off-grid
      applications. The Company constructs only AFCs. While both AFC and PEMFC fuel
      cells have potential environmental and efficiency advantages over traditional
      power sources, the Company believes that AFCs can be manufactured less
      expensively, more efficiently and more practically than PEMFCs in small-scale
      applications.




Astris
      has essentially no competition in any application area using alkaline fuel
      cells
      where its 1 kilowatt to 10 kilowatt power systems are targeted. Other AFC
      companies in the early R&D stages include Apollo Energy Systems and Ovonic
      Fuel Cell Company .
      The
      Company is focusing on the potential market in back up and UPS applications
      of
      small-capacity fuel cells, as are other PEMFC fuel cell companies. There are
      several competitors in this market including Ballard, Hydrogenics, Plug Power
      and ReliOn. There are no barriers to Ballard, or any other known or unknown
      competitor of the Company, entering the market covering the industries that
      the
      Company is focusing on.




Apart
      from specific market competition, the Company believes that AFCs have inherent
      advantages over PEMFCs, regardless of specific applications. AFCs use potassium
      hydroxide electrolyte, a chemically basic substance, while PEMFCs are chemically
      acidic, requiring platinum as a catalyst. They also use an expensive membrane
      as
      an electrolyte. In addition, AFCs have been scientifically proven to be 10%
      more
      energy-efficient than PEMFCs and offer a higher electricity yield from a given
      quantity of fuel. That is to say, while PEMFCs might be 40-50% efficient, AFCs
      are 50-60% efficient. This provides a significant advantage in terms of raw
      energy consumption and cost savings. In addition, AFCs are able to start
      instantly, without warm-up, and operate at low temperatures, even below
      freezing, to minus 30-40 degrees Celsius. PEMFCs can only operate above freezing
      from 0 degrees Celsius to 80 degrees Celsius unless a heating mechanism is
      added, causing significant loss of efficiency and extra cost.




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LEGAL
      PROCEEDINGS




On
      November 10, 1999, E. Roy Birkett, a former director and officer of the Company,
      instituted an action against the Company in the Superior Court of Justice
      (Ontario) (File No. 99-CV-179868) seeking recovery of CDN $315,000 he had
      advanced on behalf of the Company. Mr. Birkett was President of the Company
      in
      1995 when it acquired Astris Inc. Included in a March 1995 Letter of Intent
      for
      the acquisition of Astris Inc. was the binding obligation of Mr. Birkett and
      the
      other then principals of the Company to advance funds to keep AEI operating
      until such time as they had raised or arranged a financing for the Company
      of a
      minimum of US$10,000,000. Such financing was never obtained. Mr. Birkett
      originally sought actual damages in excess of CDN $315,000, plus
      costs.




In
      February 2001, Mr. Birkett's counsel requested the Company to consent to an
      expansion of Mr. Birkett's initial claim to CDN $1,942,301 in order to cover
      additional expenses he allegedly incurred on behalf of the Company in 1995
      with
      regards to the proposed financing.




The
      trial
      occurred on October 7, 2002. Subsequent to quarter ended September 30, 2002,
      the
      lawsuit was dismissed by the Superior Court of Justice of Ontario. The Company
      was successful in its defense and the entire claim was dismissed.




On
      December 18, 2002, the court ordered Mr. Birkett to pay CDN$81,000 to the
      Company as partial indemnity for the legal costs it incurred in its successful
      defence.  Mr. Birkett appealed to the Ontario Court of Appeal from the
      judgment dismissing his claim.  The Ontario Court of Appeal unanimously
      dismissed the appeal on June 15, 2004.  The Company was awarded additional
      costs in the amount of CDN$20,000.




On  June
      30,
      2004 the Quebec Superior Court ruled in Astris’ favour and supported its
      application to immediately wind up and liquidate Astris Transportation Systems
      Inc. (“ATSI”), a corporation that was formed jointly with Care Automotive
      Inc.(“Care”). A
      liquidator was selected to dissolve ATSI. To date, the liquidator has been
      unable to fully perform his duties to liquidate ATSI due to the inability to
      obtain certain corporate and financial records from the President of ATSI.





GOVERNMENTAL
      REGULATION




The
      Company knows of no governmental license or approval required in connection
      with
      the manufacture or sale of the Company's current products. There are no
      extraordinary governmental regulations known to the Company that affects its
      ability to sell or produce its products. The Company does not believe that
      it
      will be subject to existing regulations governing traditional electric
      utilities.




The
      Company knows that its products must comply, where applicable, with the existing
      rules and regulations for electrical and electronic products, and is prepared
      to
      meet such requirements.




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The
      Company anticipates that its products and their installation may be subject
      to
      oversight and regulation related to their safety due to their use of hydrogen,
      which is flammable and regarded as a hazardous gas. However, hydrogen is a
      commonplace industrial gas, which is produced in enormous quantities every
      day
      in numerous industrial facilities around the world. Regulations have been in
      place for decades regarding hydrogen, which provide routine specifications
      for
      manufacturers of hydrogen-using equipment.  Therefore, the Company does not
      anticipate any new regulations regarding hydrogen, or any difficulties in
      complying with existing regulations.





ENVIRONMENTAL
      COMPLIANCE




There
      are
      no environmental laws known to the Company, which may affect any of its
      operations as they are currently constituted. The Company is not involved in
      a
      business which involves the use of materials which are likely to result in
      a
      violation of any existing environmental laws, rules or regulations, nor does
      it
      own any real property which would lead to liability as a land
      owner.





C.
            ORGANIZATIONAL
                STRUCTURE.




The
      Company had a subsidiary, Astris Inc. ("AI") which was amalgamated with Astris
      Energi Inc. ("AEI") effective January 1, 2005. AI was incorporated initially
      as
      Astris Science Inc. on April 8, 1983, in the Province of Ontario, and changed
      its name to Astris Inc. in 1986. AEI also owns 100% of holding company 2062540
      Ontario Inc.("Holdco"), incorporated in the Province of Ontario on January
      12,
      2005. Holdco owns 100% of Astris s.r.o., which was organized under the laws
      of
      the Czech Republic.  The Company, up until January 27, 2005 owned a 30%
      minority interest in Astris s.r.o. The Company transferred its 30% ownership
      to
      Holdco as part of the acquisition of the remaining 70% of Astris s.r.o. The
      remaining 70% interest in Astris s.r.o. was owned by Macnor Corp., an Ontario
      corporation that is wholly owned by Jiri K. Nor, an Executive Officer, Director
      and principal shareholder of the Company. Unless otherwise indicated or outside
      the context of the disclosure, all references to the Company shall include
      AI,
      2062540 Ontario Inc. and Astris s.r.o.





D.
            PROPERTY,
                PLANT AND EQUIPMENT (FIXED ASSETS).




AEI
      has
      leased a 3,750 square foot industrial unit located at 2175 Dunwin Drive,
      Mississauga, Ontario, Canada for a period of three years ending October 31,
      2005.  The minimum annual lease payments under the terms of the existing
      lease are CDN$33,800 to October 31, 2005, plus proportionate share of common
      costs.




Astris
      s.r.o. purchased an industrial building in the town of Vlasim, Czech Republic
      with approximately 8,000 square feet of manufacturing and office space on two
      floors.  The building is situated on a 1.5 acre lot, allowing for future
      expansion, if necessary. The value of the building is CDN$235,400 and the
      property is CDN$128,935.




The
      Company believes that the present premises are suitable for its present
      requirements.




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ITEM
      5. OPERATING AND FINANCIAL REVIEW AND
      PROSPECTS.




The
      following is a discussion of the results of operations and financial condition
      of the Company for the fiscal years ended December 31, 2004, 2003 and 2002.
       The financial statements are prepared in accordance with Canadian
      generally accepted accounting principles (“GAAP”) and are presented in Canadian
      dollars.  Differences between Canadian GAAP and United States GAAP can be
      found in Note 13 of Item 17 of this filing.  This discussion should be read
      in conjunction with the consolidated financial statements and notes thereto
      forming a part of this annual report.





The
      Company restated its fiscal 2004 financial statements. The net effect of the
      adjustments was an increase of $100,000 in the cash (used) in operating
      activities in 2004, to $(2,102,906) as of December 31, 2004.





The
      Company restated its fiscal 2002 Canadian financial statements. The net effect
      of the adjustments was an $83,354 increase in the net loss in 2002, to $743,472
      and a $78,644 increase in the deficit as of January 1, 2003 to
      $3,321,201.





Adjustments
      to the financials include the expensing of non-employee stock-based
      compensation, accounting for warrants attached to private placements as
      contributed surplus and reversal of a previously recorded $315,287 advance
      from
      related parties, first recorded in 1995 as a liability. In 2003, the Company
      began expensing all employee stock-based compensation.




The
      auditors’ reports to the Company's audited financial statements note that the
      Company's ability to continue as a going concern is in substantial doubt. It
      is
      dependent on the ability of the Company to raise additional long-term financing,
      either from its own resources or from third parties, the successful
      commercialization of one or more of the Company's research projects, and
      attaining profitable operations.




As
      noted
      under “Liquidity and Capital Resources” herein, the future of the Company is
      dependent upon its ability to raise additional capital to fund the commencement
      of the commercialization of products based upon the Company’s fuel cell
      technology. Management is of the opinion that the Company should continue to
      exist and grow, based upon encouraging results of research and development
      to
      date, recent world-wide interest in fuel cell technology and the completion
      of
      the golf car program. With the advancement of this research and development
      program, and the completion of the Company’s POWERSTACK MC250 program, the
      Company is in a better position to pursue financing in the form of private
      placements of its Common Shares.





The
      following discussion, as well as other sections within this annual report,
      contain forward-looking information which is based on current expectations
      and
      entails various risks and uncertainties. These risks and uncertainties could
      cause or contribute to actual results that are materially different from those
      expressed or implied.  The forward-looking information contained in this
      document is current only as of the date of the document. There should not be
      an
      expectation that such information will in all circumstances be updated,
      supplemented or revised whether as a result of new information, changing
      circumstances, future events or otherwise.




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The
      only
      critical accounting policy is income taxes. Because there is uncertainty when
      the Company will make sufficient profits in future years to absorb the losses
      before they expire, the Company takes a valuation allowance which results in
      no
      tax being recovered.





A.
            OPERATING
                RESULTS.





The
      financial statements included in this report are stated in Canadian
      dollars.




REVENUE




For
      the
      year ended December 31, 2004, revenue from the sale of fuel cells and related
      products and contract work was $88,798 compared with $67,870 for the same period
      in 2003. The 30% increase in sales year over year was attributable only to
      the
      sale of its first E8 Generator to Alternate Energy Corporation under a value
      added reseller agreement signed in May 2004. Sales of fuel cells and related
      products to unrelated parties in 2004 amounted to $7,508 to Canada, $4,310
      to
      the Czech Republic and $76,980 to the rest of the world; in 2003, sales amounted
      to $7,008 to Canada, $45,901 to the Czech Republic and $14,961 to the rest
      of
      the world. The main source of revenue in 2004 was from the sale of fuel cells
      and an E8 generator.




In
      2003,
      revenue from the sale of fuel cells and related products and contract work
      was
      $67,870 compared with $180,168 in 2002. In 2003, there was a $94,674 decrease
      in
      contract work due to the completion of the golf car generator balance of plant
      work in 2002 and sale of products to its affiliate Astris s.r.o. which
      contributed to the main decline in sales. Another reason for the decline in
      sales was the Company’s devotion to developing its POWERSTACKTM MC250 power
      module and E8 power generator and not on sales of existing products. Paid
      contract work for Astris s.r.o. amounted to $45,901 in 2003 and $140,575 in
      2002. Sales of fuel cells and related products to unrelated parties in 2003
      amounted to $7,008 in Canada and $14,961 internationally; in 2002, sales
      amounted to $591 in Canada and $39,002 internationally.




EXPENSES




For
      the
      year ended December 31, 2004, expenses totaled $3,551,055, compared with
      $2,274,839 for the same period in 2003. The main increases were in General
      and
      Administrative expenses to $1,943,799 in 2004 compared with $880,585 in 2003;
      and in Research and Development, to $1,343,695 in 2004 compared with $1,229,184
      in 2003. The small increase in Research and Development reflects primarily
      an
      increase in work on the Company’s POWERSTACKTM MC250 power module, the 1.8kW
      model E7 power generator Astris II project, the 2.4 kW model E8 portable power
      generator project, and the equipment purchase, assembly and tests for pilot
      production.




The
      significant increase in G&A expenses reflect stock option expensing,
      additions to management, higher consulting expenses to raise additional funding
      and the hiring of additional technical and administrative staff to support
      the
      fast growth of the Company.




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Professional
      fees were $243,076 compared with $145,100 in 2003, reflecting the Company’s
      increased corporate activity, legal activity, accounting and compliance
      activity.




Expenses
      totaled $2,274,839 in 2003, compared with a restated amount of $800,822 in
      2002.
      The main increase was in subcontract work, to $1,229,184 in 2003 from a restated
      amount of $197,488 in 2002. The increase reflects primarily an increase in
      research and development work on the Company’s POWERSTACKTM MC250 power module
      and 2.4 kW model E8 portable power generator project, readying them for pilot
      production in 2004.




General
      and administrative expenses were also significantly higher, at $880,585 compared
      with a restated $332,831 in 2002. This reflects mainly additions to management,
      and the expensing of employee stock-based compensation commenced in 2003.




Professional
      fees were $145,100 compared with restated $254,487 in 2002, reflecting the
      Company’s increasing internal resources.




NET
      LOSS
      FOR THE YEAR ENDED DECEMBER 31, 2004




The
      Company reported a net loss of $3,462,257 (a loss of $0.16 per share basic
      and
      diluted) for the year ended December 31, 2004, compared with a loss of
      $2,206,969 ($0.12 per share basic and diluted) in 2003. The increase in the
      loss
      primarily reflects the increased expenses due to ramping up support for
      production.




The
      Company reported a net loss of $2,206,969 (a loss of $0.12 per share basic
      and
      diluted) in 2003, compared with a restated loss of $743,472 ($0.05 per share
      basic and diluted) in 2002. The increase in the loss primarily reflects the
      combination of reduced revenue and increased expenses.




As
      at
      December 31, 2004, the Company has non-capital loss carry forwards of
      approximately $5,449,000. If unused, the tax losses will expire as
      follows:


2005
            
            $
            6,0002006
            
            $
            61,0002007
            
            $
            188,0002008
            
            $
            294,0002009
            
            $
            323,0002010
            
            $
            1,734,0002014
            
            $
            2,843,000





In
      addition, the company has undeductible scientific research and development
      expenditures amounting to $1,520,417, which have no expiry date.





B.
            LIQUIDITY
                AND CAPITAL RESOURCES.





The
      Company had a restated operating cash flow deficit of $2,102,906 in 2004,
      compared with an operating cash flow deficit of $1,156,031 in 2003, and compared
      with a restated operating cash flow deficit of $380,285 in 2002. The company
      invested $16,807 in plant and equipment in Mississauga, advanced $700,000 to
      Astris s.r.o. to build the pilot production facility and incurred $48,190 in
      pre-acquisition costs in 2004. Expenses were offset by financings through
      private placements totaling $2,076,041 for a net decrease in cash at year end
      of
      $169,434, resulting in cash at year end of $178,351, providing the Company
      with
      2 months operating capital at current burn rates.




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At
      year
      end, the Company had $509,124 of assets, and a shareholders’ equity of $253,294
      compared to a shareholders’ deficiency of $135,975 in 2003 and compared to a
      shareholders’ equity of $135,620 in 2002.





The
      company plans to finance operations including pilot production through the
      continuing sale of fuel cells, related products and contract work, new business
      partnerships with early adopters of the fuel cell, and additional long-term
      financing through private placements.  The company additionally will
      capitalize on available government incentives for alternative energy
      development. Government incentives recoverable in 2004 amounted to $199,586
      compared to nil in 2003 and $216,608 in 2002.





The
      Company’s cash position and working capital requirements mean that the company
      will require continuing external financing until it becomes cash flow positive
      through commercialization of one or more of its products.





The
      Company does not have any off-balance sheet arrangements.





During
      2004, the Company raised $2,076,041 through private placements of shares and
      warrants. During 2003, the Company raised $1,193,165 through private placements
      of shares and warrants. During 2002, the Company raised $628,631 through private
      placements of shares and warrants.





Subsequent
      to the year end, the Company engaged the services of investment banker Fraser
      Mackenzie to raise capital. These services are provided on an exclusive basis. On
      March
      28, 2005, the Company announced that it had closed a convertible debenture
      financing for gross proceeds of CDN$420,000. The debenture was available for
      subscription to “Canadian accredited investors” only and included a coupon for
      6%, payable in common shares upon conversion or maturity. Each debenture is
      convertible into Common Shares at a conversion rate that in no case shall be
      less than USD$0.20 or more than USD$0.70. Warrants may be issued to the
      debenture holders depending on the terms of a second larger equity financing.
      The debentures mature on December 10, 2005, 270 days from the date of issuance.
      Total net proceeds were CDN$378,000. Fraser Mackenzie Limited, for facilitating
      the funding, also received 156,000 broker warrants at CDN$0.27 exercisable
      until
      March 24, 2007.





The
      Company will continue to seek to enter into private placements, strategic
      partnerships and joint ventures in order to further finance the on-going
      development and commercialization of its fuel cell technology. There is no
      assurance that the Company will be able to find or enter into any private


placements,
      strategic partnerships or finalize the proposed joint venture, on terms
      acceptable to the Company or not highly dilutive to shareholders.





As
      with
      most technology companies, Astris needs to conserve as much cash as practical
      while maintaining its operations for the core R&D work. It does have a need
      for other functions such as raising financing, office expenses, rent, legal
      and
      audit fees, investor relations etc. As noted in our Statement of Cash Flow,
      we
      use equity to pay non related parties who bring financial expertise, consulting
      and certain professional fees. The company uses cash to pay its engineers,
      which
      are the heart of the company’s research and development activities; also its
      daily administrative staff such as the administrative assistants and the
      bookkeeper; also certain operating expenses for which shares are not usually
      accepted such as rent, office supplies, travel, etc.




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            Statements**





We
      use
      options to pay non employees who provide services to us. Also all of our senior
      management is willing to support the company through accepting part cash and
      part equity for their services provided.





C.
            PROSPECTS





Currently
      management is in discussions with a number of parties that are interested in
      becoming customers and/or joint venture partners.





In
      August
      2003, the Company announced it had signed a letter of intent (LOI) with
      Alternate Energy Corporation (AEC), a Nevada based corporation to form a joint
      venture.  The proposed joint venture planned to combine the Company’s fuel
      cell and hydrogen technologies to produce and sell complete back up stationary
      electric power systems for household and business markets.





In
      May
      2004, a value-added reseller agreement was signed between the two companies.
       AEC will act as a value-added reseller for Astris generators. All products
      that include any part of Astris technology will be appropriately identified
      with
      Astris logos or trademarks.  Astris will provide necessary publicity
      material and training to AEC representatives as required.  In the event any
      intellectual property is created as a result of this agreement, the property
      created with respect to Astris generator will be owned by Astris and property
      created with respect to AEC hydrogen generator will be owned by AEC. Any other
      intellectual property will be the owned by the creator. In December 2004, the
      Company sold the first E8 generator to AEC under the terms of the reseller
      agreement. The agreement is on a non-exclusive basis and has an initial term
      of
      1 year with the option for extension for 1 additional year unless terminated
      upon 30-day written notification by either party.





In
      May
      2004, the Company approved the blueprint for its manufacturing facility to
      produce the POWERSTACKTM MC250 and E8 generator on a pilot production basis. The
      production line was completed in October 2004 in the Czech Republic and trial
      runs have been ongoing to perfect the product.





On
      October 19, 2004, the company announced that it signed a Cooperation Agreement
      with Italy’s Electronic Machining s.r.l. (El.Ma.). El.Ma. is a privately held
      company with offices and technical development facilities in Rovereto, Trento,
      Italy. El.Ma. has particular interest in the development of alkaline fuel cells
      for stationary and distributed generation of electrical power. Their fuel cell
      and hydrogen usage R&D is funded by the Provincia Autonoma di Trento, which
      is committed to the development of these technologies with an eye to early
      market opportunities in Europe. As well, El.Ma. specializes in research and
      advancement of manufacturing processes, an expertise applicable to Astris’
current AFC production line initiative. Under the terms of the agreement, Astris
      will licence the use of its AFC technology and market its products and
      consulting services to El.Ma. All goods and services provided by Astris will
      be
      purchased by El.Ma. El.Ma will apply its research and manufacturing expertise
      to
      the development of Astris technology in the areas of production. Any
      intellectual property resulting from the execution of the agreement will be
      owned exclusively by Astris. The agreement has an initial term of 3 years,
      extension upon mutual consent. Either party can terminate upon 60-day written
      notification to the other party. Astris may terminate immediately if El.Ma
      is in
      breach of the agreement and does not remedy within 15-days. Compensation
      in the amount of 50,000 stock options in the Company is due to Energie
      Rinnovabili Italia srl for assisting in co-ordinating the agreement with
      El.ma.




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Subsequent
      to year end the Company announced that it has signed a non-exclusive Teaming
      Agreement with Plasma Environmental Technologies Inc. (PET) (TSXV: PE) of
      Burlington, Ontario for the development of a real-world installation utilizing
      PET’s hydrogen-producing waste processing system and Astris’ AFC technology.
      There was no compensation paid to any party for this agreement. The agreement
      has an initial term of 5 years with the potential for an additional 5 years
      upon
      mutual consent. The agreement may be terminated upon 30-day written notification
      by either party.





The
      first
      of three phases outlined in the agreement will be to determine the suitability
      of the hydrogen gas produced in the PAG waste destruction process for use in
      Astris’ hydrogen AFC systems and for PET to make adjustments, if necessary to
      their current PAG.





Upon
      completion of Stage 1, Stage 2 of the Agreement calls for PAG installations
      that
      will be developed to demonstrate the practical application of the PAG process
      in
      conjunction with Astris’ AFC-powered generators. It is anticipated that this
      Stage will be financed by appropriate stakeholders such as local, provincial
      or
      federal governments, or special interest groups.





In
      addition, PET has agreed to introduce Astris to any of its current or future
      clients who might desire to purchase or use Astris’ services or products. For
      this, PET will be paid a mutually agreed to commission.




D.
            RESEARCH
                AND DEVELOPMENT, PATENTS AND LICENSES,
                ETC.




See
      "Research and Development" in Section 4.





E.
            TREND
                INFORMATION.





Independent
      researchers forecast that fuel cells will prove to be a transformational
      technology, once remaining cost, technical and public acceptance hurdles are
      overcome.





The
      fuel
      cell industry is evolving gradually, with the pace of demand determined by
      a
      number of factors including:


Capital
      available to fund further development of technology




The
      level
      of government commitment to develop a clean energy economy, which currently
      is
      greater in Europe, Japan and Canada than in the U.S.




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The
      price, availability and long-term security of conventional power sources, which
      affect the demand for fuel cells as an alternative energy source





There
      are
      a number of factors contributing to growing demand for fuel cells,
      including:





Increasing
      demand for reliable power accentuated by power blackouts of recent
      years





Deregulation
      of power markets and introduction of competition





Environmental/political
      concerns





Developing
      regions without power grids





Geographic
      considerations/remote power





Distributed
      power generation; and





Increasing
      price of oil




In
      December 2003, the Company cleared its POWERSTACKTM MC250 power module for pilot
      production commencing in 2004, and unveiled its 2.4 kW model E8 portable power
      generator which was co-financed by the Czech Republic.




CONTRACTUAL
      OBLIGATIONS





There
      are
      no contractual obligations to be disclosed.





ITEM
      6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.




A.
            DIRECTORS
                AND SENIOR MANAGEMENT.




The
      following table sets forth the name, age and office held with the Company as
      of
      April 1, 2005 and the period during which such person has served as a Director,
      Executive Officer and/or senior management.





Name
            
            Age
            
            Office
                Held
            
            Director
                SinceJiri
                K. Nor
            
            65
            
            President,
                Chief Executive Officer and Director
            
            1996Arthur
                Laudenslager (1)
            
            78
            
            Director
            
            2003Anthony
                Durkacz
            
            29
            
            Vice
                President Finance
            
            2003H.
                David Ramm
            
            53
            
            Managing
                Director
            
            2004Brian
                Clewes (1) (2)
            
            46
            
            Director
            
            2004Michael
                Liik (2)
            
            45
            
            Director
            
            2004Peter
                Nor
            
            34
            
            Vice
                President Marketing
            
            Not
                a Director





Notes:





(1)
            Members
                of the Company's Audit Committee.


(2)
            Members
                of the Company’s Compensation
                Committee.






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Jiri
      K.
      Nor has been a Director and the President of the Company since March 1996.
      He is
      a trained engineer, with particular expertise in mechanics, aeronautics,
      electronics and electrochemistry. He is the principal inventor/developer of
      the
      Company's AFC fuel cell technology. Mr. Nor is also an entrepreneur with
      extensive business experience and the President and sole stockholder of Macnor
      Corp. He was the founder of Sonotek, an electronics company, inventor of the
      Minitcharger  ̈ fast battery charging technology and founder of the Norvik group
      of companies. For more than five years until August 1997, he was Vice President
      of Research for Norvik Technologies and Norvik Traction, companies in the
      business of developing fast battery chargers.





Arthur
      E.
      Laudenslager was formerly a senior officer and director of several public and
      private corporations, is currently Vice President, First Energy Advisors Inc.,
      and a business consultant who brings to the Astris Energi Board a great deal
      of
      experience and knowledge in corporate structure and financing.




Anthony
      Durkacz, Vice President Finance, is a graduate of Brock University in Business
      Administration, and joined the Astris team in summer 2002. He served previously
      as Manager of Foreign Exchange on the capital market trading floor with TD
      Securities in Toronto, and as President of Fortius Research and Trading
      (“Fortius”), an investment company servicing high net worth
      clients.




H.
      David
      Ramm **,** MBA, is
      a widely experienced corporate executive in the field of alternate energy
      systems. He was formerly Chairman and CEO of International Fuel Cells (now
      UTC
      Fuel Cells, a division of United Technologies Corporation), Managing Director
      of
      Enron's renewable energy business and former President and CEO and Director
      of
      Integrated Electrical Services (a Fortune 1000 firm). Under Mr. Ramm’s
      leadership, UTC developed the first-ever commercialized fuel cell, a 200kW
      phosphoric acid fuel cell power plant sold under warranty as the power source
      of
      back-up generators for mission critical applications. The Company hired H.
      David
      Ramm **** as
      Executive Vice President, heading up business development. On October 22, 2004
      his position changed to managing director, his focus still maintained on
      business development.





Brian
      D.
      Clewes is a twenty-year veteran of the insurance industry, he is currently
      a
      principal in Clewes & Associates Life Insurance Consultancy Inc., the
      largest supplier of benefits consulting services to Ontario Chartered Accounting
      firms.   Mr. Clewes is an outstanding entrepreneur with solid connections
      in the angel financing community.





Michael
      Liik, P. Eng, MBA is currently
      President of Liikfam Holdings Inc., an investment/venture capital company.
      He
      has a successful record of investing in and leading both early-stage and
      high-growth Canadian public companies including Cymat Corp. and Slater Steel.
      He
      brings to the Board extensive merchant banking skills to assist in raising
      investment financing for Astris' next stage of development.





Peter
      K.
      Nor **,** P.Eng,
      MBA, is the son of Jiri Nor and is a professional engineer with solid experience
      in both technical marketing and research and development.  He has
      professional experience as a Network and Business Planner for Nortel Networks
      and as a Research Council Officer at the Institute for Aerospace Research of
      the
      National Research Council-Canada.  Mr. Nor joined Astris in
      2004.




There
      are
      no other family relationships between any of the persons above, nor are there
      any arrangements or understandings with major shareholders, customers, suppliers
      or others, pursuant to which any person referred to above was selected as a
      Director or member of senior management.




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B.
            COMPENSATION





Under
      the
      current financial circumstances, executives and directors or their affiliate
      companies often elect to take all or part of their compensation in the form
      of
      restricted common stock. An individual or entity that receives common stock
      of
      the Company in lieu of cash is still responsible to pay tax on the income earned
      in the current fiscal year even though the shares issued are restricted from
      trading for a minimum of one year or longer. In Canada, the personal income
      tax
      rate is higher in most cases than the corporate tax rate. This benefit does
      not
      limit the Company’s ability to deduct the compensation in any way.




(1)
                Paid
                    in Cash





2004
            
            2003
            
            2002Macnor
                Corp (Note 1)
            
            
            115,279
            
            
            101,610
            
            
            25,480Fortius
                Research & Trading(Note 2)
            
            
            47,500
            
            
            3,437
            
            
            9,231Total
            
            
            162,779
            
            
            105,047
            
            
            34,711





Note
      1.
      Macnor Corp is an Ontario Corporation owned and controlled by Jiri Nor, the
      CEO
      and Director of Astris. Macnor also provides research and development services
      by Jiri Nor and marketing services by his son Peter Nor, who is an Officer
      of
      Astris.




Note
      2.
      Fortius Research & Trading Corporation is an Ontario Corporation owned and
      controlled by Anthony Durkacz, an Officer and Director of Astris.





(2)
                Paid
                    in Shares





In
      2002,
      we issued to related parties 657,925 common shares for a value of $187,456
      for
      consulting services and expense reimbursements rendered to the following
      entities or individuals:





Individual
                or Entity
            
            #
                of Shares
            
            $
                ValueMacnor****Corp
                (Note 1)
            
            
            300,700
            
            
            94,520Director
                - Gordon Emerson
            
            
            141,375
            
            
            23,984Fortius
                Research & Trading(Note 2)
            
            
            60,500
            
            
            19,230Director
                - D. Blenkarn
            
            
            77,800
            
            
            24,906Director
                - G. Crawford
            
            
            25,750
            
            
            8,242Director
                - J. Nor
            
            
            51,800
            
            
            16,574Total
            
            
            657,925
            
            
            187,456






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In
      2003,
      we issued to related parties 412,825 common shares for a value of $266,247
      for
      consulting services and expense reimbursements rendered to the following
      entities or individuals:





Individual
                or Entity
            
            #
                of Shares
            
            $
                ValueMacnor
                Corp(Note 1)
            
            
            79,815
            
            
            52,000Director
                - Gordon Emerson
            
            
            188,220
            
            
            115,079Director
                - David Ramm
            
            
            3,500
            
            
            2,604Fortius
                Research & Trading(Note 2)
            
            
            141,290
            
            
            96,563Total
            
            
            412,825
            
            
            266,247





In
      2004,
      we issued to related parties 586,592 common shares for a value of $332,360
      for
      consulting services rendered and 293,751 shares for $128,000 to pay down debt
      and accrued interest on that debt for a total of 880,343 shares for a total
      of
      $473,060. These shares and amounts were issued to the following entities or
      individuals:





Individual
                or Entity
            
            #
                of Shares
            
            $
                ValueJiri
                Nor as an individual
            
            
            117,500
            
            
            51,200Macnor
                Corp. (Note 1)
            
            
            266,263
            
            
            144,455Fortius
                Research & Trading (Note 2)
            
            
            95,880
            
            
            52,500Director
                - David Ramm
            
            
            57,445
            
            
            34,422Director
                - Gordon Emerson
            
            
            118,032
            
            
            81,443Director
                - Gerald Crawford
            
            
            89,793
            
            
            46,435Director
                - Donald Blenkarn
            
            
            117,500
            
            
            51,200Director
                - Arthur Laudenslager
            
            
            17,930
            
            
            11,405Total
            
            
            880,343
            
            
            473,060





Note
      1.
      Macnor Corp is an Ontario Corporation owned and controlled by Jiri Nor, the
      CEO
      and Director of the Company. Macnor also provides research and development
      services by Jiri Nor and marketing services by his son Peter Nor, who is an
      Officer of Astris.




Note
      2.
      Fortius Research & Trading Corporation is an Ontario Corporation owned and
      controlled by Anthony Durkacz, an Officer and Director of Astris.





(3)
            Directors





There
      does not currently exist any compensation arrangement for any of the Directors
      except for Michael Liik, nor does the Company have any pension, retirement
      or
      similar plan for its Executive Officers or Directors. Michael Liik is
      compensated $8,333 per month billed through Liikfam Holdings Inc., an Ontario
      Corporation, for financial consulting services.




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(4)
            Governance





An
      executive compensation committee was appointed in January 2005 to study and
      determine appropriate levels of compensation and to structure employment
      agreements for officers. The compensation committee will also determine
      appropriate levels of compensation for Board members in the near
      future.





(5)
            Stock
                Option Plan




The
      Company has stock option plans for its employees and consultants who are
      regarded as integral to the benefit and progress of the Company and its
      operations.  Options are normally issued as a bonus of employment or are
      tied into performance related compensation.  Performance related
      compensation includes completion of research and development projects within
      specific timeframes and budget, achieving financial targets on behalf of the
      Company or introduction/referral/ completion of business agreements or
      arrangements. In general, the minimum vesting requirement of options issued
      is
      one year. The maximum term of options is five years from the grant date.
 Normally the exercise price of the option is determined using the five-day
      closing average of the shares prior to the grant date.




On
      October 22, 2004, the Board of Directors passed a resolution authorizing an
      amendment to a stock option plan dated September 25, 2001 and amended October
      30, 2002 increasing the number of shares available in the plan by 2,600,000
      shares, to a total of 5,100,000 shares.  The amendment was adopted by the
      Company’s shareholders at its annual and special meeting of shareholders held on
      October 22, 2004.  All features of the plan remain unchanged.





(6)
            Options
                and Warrants outstanding as at April 1,
                2005





The
      following table outlines the options and warrants that are outstanding as of
      April 1, 2005 of the directors and senior management or their affiliates of
      the
      Company:





Name
            
            Number
                of Shares
            
            Exercise
                Price
            
            ExpiryJiri
                Nor
            
            
            50,000
            
            $
            US0.505
            
            
            08/15/05Jiri
                Nor
            
            
            300,000
            
            $
            US0.24
            
            
            11/12/06Macnor
                Corp.
            
            
            5,000,000
            
            
            CDN$1.06
            
            
            01/27/08Michael
                Liik (1)
            
            
            500,000
            
            $
            US0.36
            
            
            12/11/09Liikfam
                Holdings Inc. (2)
            
            
            500,000
            
            $
            US0.37
            
            
            12/09/07Peter
                Nor
            
            
            100,000
            
            $
            US0.36
            
            
            12/06/09Anthony
                Durkacz
            
            
            112,500
            
            $
            US0.50
            
            
            04/24/05Anthony
                Durkacz
            
            
            250,000
            
            $
            US0.20
            
            
            07/22/07H.
                David Ramm
            
            
            250,000
            
            $
            US0.50
            
            
            09/09/08






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            Statements**


Options
      to M. Liik of 500,000 at $U.S. 0.36 will become vested as follows:




1.
            (i)   
                200,000 upon raising a minimum of $U.S. 1 million in
                equity


(ii)
            300,000
                upon raising additional minimum of $US 5 million inequity




2.
            Warrants
                to Liikfam Holdings Inc. of 500,000 at $U.S. 0.37 will become
                vestedas
                follows:


(i)
                200,000
                    upon raising a minimum of $U.S. 1 million in
                    equity


(ii)
            300,000
                upon raising additional minimum of $US 5 million inequity




C.
            BOARD
                PRACTICES.




The
      Board
      of Directors may consist of from three to ten members, and currently consists
      of
      six members. Each Director is elected by the shareholders to serve until the
      next annual meeting or until a successor is elected or appointed. The next
      annual meeting is expected to take place sometime in June 2005.




For
      a
      list of the Directors and the period during which the current Directors have
      served in that office, please see Section 6A above.




The
      Directors of the Company do not currently have any service contracts with the
      Company providing for benefits upon termination of employment. There does not
      currently exist any compensation arrangement for any of the Directors. The
      Company does not have any pension, retirement or similar plan for its
      Directors.




Arthur
      Laudenslager and Brian Clewes are members of the Company's Audit Committee.
      Michael Liik and Brian Clewes are members of the Company’s Compensation
      Committee. There are no additional committees of the Board.





D.
            EMPLOYEES.




AEI
      presently has one managing director, four Officers and eight-teen other
      employees, including full-time lab technicians, a bookkeeper, and two part-time
      technical experts. The President is also the General Manager of the current
      projects on a full-time basis. Job descriptions for employees in small,
      entrepreneurial companies such as the Company tend to be rather flexible, but
      clearly the principal role of the General Manager is to oversee the progress
      of
      the current projects to ensure they are completed satisfactorily, on budget
      and
      on time. The executive assistants are responsible for reception and other
      details of general office administration, including assisting the executives.
       The present employees are not represented by a labor union. The Company
      considers its relationship with its employees to be satisfactory.




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            Statements**





E.
            SHARE
                OWNERSHIP.




The
      following table lists, as of April 1, 2005, the beneficial share holdings (see
      (4)) in the Common Shares, which are the only outstanding voting securities
      of
      the Company, of (i) each of the Company's Executive Officers and Directors
      of
      the Company; and (ii) all of the Company's Executive Officers and Directors
      as a
      group:





Name
            
            Options,
                Warrants or Agreements Vested
            
            Directly
              Owned
            
            Total
                Owned included Vested Amounts
            
            Percent
              of
                ClassJiri
                K. Nor (1)
            
            
            5,350 ̧000
                (5
            )
            
            7,596,884
            
            
            12 ̧946 ̧884
            
            
            34.82
            %Brian
                Clewes
            
            
            —
            
            
            100,390
            
            
            100 ̧390
            
            
            0.27
            %Arthur
                Laudenslager (2)
            
            
            —
            
            
            102,430
            
            
            102 ̧430
            
            
            0.28
            %Michael
                Liik
            
            
            —
            
            
            0
            
            
            0
            
            
            0.00
            %Anthony
                Durkacz (3)
            
            
            362 ̧500(5
            )
            
            279,670
            
            
            642 ̧170
            
            
            1.74
            %H.
                David Ramm
            
            
            250 ̧000(5
            )
            
            60,945
            
            
            310 ̧945
            
            
            0.84
            %Peter
                Nor
            
            
            100 ̧000(5
            )
            
            0
            
            
            100 ̧000
            
            
            0.27
            %All
                Executive Officers and Directors as a group (4)
            
            
            6,062 ̧500
            
            
            8,140,319
            
            
            14 ̧202 ̧819
            
            
            38.19
            %





(1)
            Includes
                (i) 117,500 Common Shares held by Jiri K. Nor and (ii) 7,479,384
                Common
                Shares held by Macnor Corp. (iii) 5,000,000 warrants held by Macnor
                Corp.


(2)
            Includes
                (i) 95,430 Common Shares held by Arthur Laudenslager and (ii) 7,000
                Common
                Shares held by First Energy
                Advisors.


(3)
                Includes
                    (i) 98,100 Common Shares by Anthony Durkacz and (ii) 181,570
                    Common Shares
                    by Fortius Research and Trading
                    Corp.


(4)
                All
                    the individuals included in the table above are beneficial owners
                    as
                    defined in General Instruction F to this form 20-F. Each person
                    in the
                    above table either owns or has the right to acquire the common
                    shares
                    within 60 days by options, warrants or other agreement except
                    for Michael
                    Liik, whose 500,000 options and 500,000 warrants do not begin
                    to vest
                    until a minimum of USD $1 million in financing has been
                    arranged.


(5)
                Options
                    and Warrants outstanding as at April 1,
                    2005





The
      following table outlines the options and warrants exercisable into common shares
      of the Company that are outstanding as of April 1, 2005 of the directors and
      senior management or their affiliates:





Name
            
            Number
                of Shares
            
            Exercise
                Price
            
            ExpiryJiri
                Nor
            
            
            50,000
            
            $
            US0.505
            
            
            08/15/05Jiri
                Nor
            
            
            300,000
            
            $
            US0.24
            
            
            11/12/06Macnor
                Corp.
            
            
            5,000,000
            
            
            CDN$1.06
            
            
            01/27/08Peter
                Nor
            
            
            100,000
            
            $
            US0.36
            
            
            12/06/09Anthony
                Durkacz
            
            
            112,500
            
            $
            US0.50
            
            
            04/24/05Anthony
                Durkacz
            
            
            250,000
            
            $
            US0.20
            
            
            07/22/07H.
              David Ramm
            
            
            250,000
            
            $
            US0.50
            
            
            09/09/08






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            Statements**




ITEM
      7.MAJOR
      SHAREHOLDERS AND RELATED AND NON-RELATED PARTY TRANSACTIONS.





A.
            MAJOR
                SHAREHOLDERS.




The
      following table lists, as of April 1, 2005, the beneficial share holdings in
      the
      Common Shares, which are the only outstanding voting securities of the Company,
      of all persons who are known to the Company to beneficially own, directly or
      indirectly, five percent or more of the issued and outstanding Common
      Shares:





Amount
                and Nature
            
            PercentName
            
            of
                Beneficial Owner
            
            of
                ClassJiri
                K. Nor (1)
            
            
            12,946,884
            
            
            34.82
            %





(1)
            Includes
                (i) 117,500 Common Shares and 350,000 warrants held by Jiri K. Nor
                and
                (ii) 7,479,384 Common Shares and 5,000,000 warrants held by Macnor
                Corp.




There
      has
      been significant change in the percentage ownership held by the major
      shareholder during the past three years due to dilution incurred by private
      placements, the issuance of Common Shares to reduce debt and the issuance of
      common shares for the acquisition of Astris s.r.o.




The
      Company's major shareholder does not have any different voting rights than
      other
      holders of the Common Shares.




For
      a
      discussion of the number of shares of Common Stock held in Canada, please see
      Item 9 below.




To
      the
      Company's knowledge, it is not directly or indirectly owned or controlled by
      another corporation(s), by any foreign government or by any other natural or
      legal person(s). The Company does not know of any arrangement that may, at
      a
      subsequent date, result in a change in control of the Company.





B.
            RELATED
                PARTY TRANSACTIONS.




**(1)**
            **Compensation
                to related parties**.





During
      2004, the following amounts were expensed as consulting fees to directors and
      officers:


Macnor
                Corp.
            
            $
            166,279
            
            
            (2003
                - $143,331;
            
            
            2002
                - $120,000
            )Gordon
                Emerson,Gerald
                CrawfordDavid
                Ramm
            
            $
            80,875
            
            
            (2003
                - $115,080;
            
            
            2002
                - $80,299
            )Arthur
                LaudenslagerFortius
                Research & Trading
            
            $
            100,000
            
            
            (2003
                - $100,000;
            
            
            2002
                - $28,461
            )Peter
                Nor
            
            $
            93,455
            
            
            (2003
                - $ 10,279;
            
            
            2002
                - $nil
            )






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            Statements**




**(2)**
            **Liabilities
                to related parties**





Included
      in payables and accruals as at December 31, 2004 to individual or entity as
      follows:




$13,826
      to Macnor Corp


$17,441
      to three directors: Anthony Durkacz $69, Fortius Research &
      Trading $14,250, Jiri Nor $3,121


$1,043
      to
      an officer: Peter Nor





Peter
      Nor’s, Jiri Nor’s and Anthony Durkacz’s liabilities represent their December
      2004 expenses which were paid for personally and for which the Company will
      reimburse after year end. Macnor’s and Fortius’ liabilities are the cash portion
      of their consulting fees due to them as at December 31, 2004.





**(3)**
            **Transactions
                with 30% owned affiliate Astris
                sro:**





The
      Company has a 30% ownership interest in s.r.o., a Czech company, in which the
      remaining 70% is owned by Macnor Corp., a company controlled by Jiri Nor.
 The Company’s 30% interest in losses of s.r.o. has been applied to its
      investment.  As the Company’s share of losses is in excess of the original
      investment, the investment was written down to nil in 1996.





The
      Company has not recorded any further share of the losses of s.r.o. over and
      above the original investment as the Company has not guaranteed the obligations
      of s.r.o., and the Company is not otherwise committed to provide further
      financial support to s.r.o.





The
      following summarizes the cumulative unrecognized losses of s.r.o. as a result
      of
      this treatment:





**2004**
            
            **2003**
            
            **2002**Unrecognized
                income during the year
            
            $
            22,992
            
            $
            6,924
            
            $
            6,331Unrecognized
                cumulative profits (losses)
            
            
            ($
                1,648
            )
            
            ($24,640
            )
            
            ($31,564
            )





The
      Company regularly subcontracts portions of its research and development
      activities to s.r.o. In addition, the Company sells its products to s.r.o.,
      as
      required.





**2004**
            
            **2003**
            
            **2002**As
              at December 31:Balance
                of funds paid included in prepaid expenses and deposits
            
            $
            —
            
            $
            30,000
            
            $
            146,074Included
                in payables and accruals
            
            
            588
            
            
            137,480
            
            
            123,919Year
                ended December 31:Total
                funds advanced
            
            
            700,000
            
            
            416,000
            
            
            23,000Sales
            
            
            —
            
            
            45,901
            
            
            140,575Purchases
                included in subcontract
            
            $
            563,108
            
            $
            151,001
            
            $
            89,159






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            Statements**




The
      large
      amount of funds advanced to sro in 2003 and 2004 were for operating expenses,
      the purchase of land and a building as well as equipment for the new electrode
      production facility.





Subsequent
      to the acquisition of Astris s.r.o., any funds advanced to Astris s.r.o. and
      any
      trade receivables and payables will be eliminated on consolidation.





**(4)**
            **Agreements
                with Macnor Corp**





As
      of
      September 13, 1999, the Company entered into a royalty arrangement with Macnor
      Corp., an Ontario corporation ("Macnor"), which is wholly-owned by Jiri K.
      Nor,
      President, Chief Executive Officer and Director of the Company. This arrangement
      called for Macnor to sell certain fuel cell products, developed and manufactured
      by Astris s.r.o. (small fuel cells), through a website and mail order opened
      and
      operated by Macnor. Macnor was paid an annual royalty equal to five percent
      (5%)
      from all sales of such goods, based upon gross revenues. In the year 2002 the
      Company recognized revenues of CDN$2,476 related to this arrangement and CDN$837
      in the year 2003. This agreement was terminated as of May 31, 2003. The
      management of the Company believes that this transaction was on terms as fair
      to
      the Company at the time as any which could have been made with unaffiliated
      parties.





Macnor
      has a verbal agreement with Astris. Macnor bills Astris Energi Inc. monthly
      for
      services provided at the rates approved by the Astris Board or its Compensation
      Committee from time to time. Macnor is presently paid by Astris CDN $13,333
      per
      month plus expenses at cost for the services of Jiri Nor and CDN $8,000 per
      month for the services of Peter Nor. Payment is in the form of both cash and
      common shares depending on the financial condition of the Company as determined
      by the Board . The proportions are stated in the above table. The services
      of
      Jiri Nor include acting as CEO and to perform any duties necessary by the
      Company related to the position, as well as, Chief Technology Officer and any
      duties necessary by the Company related to the position. All technology has
      been
      assigned to Astris Energi Inc as shown in Exhibit 10.17. The services of Peter
      Nor include acting as Vice President of Marketing and Business Development
      and
      to perform any duties necessary by the Company related to the
      position.




**(5)**
            **Individual
                Contract with Gordon
                Emerson**





Gordon
      Emerson had a verbal agreement as the CFO of the Company between January 2000
      and July 2003 for services provided at the rates approved by the Astris Board.
      He was paid CDN $2,500 per month plus expenses at cost. On
      August
      11, 2003 the Company issued 19,750 shares of common stock as a severance
      package.




On
      May
      26, 2003 the Board of Directors approved a compensation package whereby he
      would
      receive commission on funds raised through First Energy Advisors. The commission
      schedule was as follows: 5% paid on the first $1 million, 4% on the second
      $1
      million, 3% on the third $1 million, 2% on the fourth million and 1% on all
      money raised afterward. During the year, the following amounts were paid to
      Mr.
      Emerson: $51,140(2003 - $29,735). He was not re-appointed as a director at
      a
      shareholder meeting held on October 22, 2004. At a Board Meeting subsequent
      to
      the year-end, the Board terminated this compensation package.




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            Statements**





First
      Energy Advisors, an Ontario Corporation, performed financial consulting from
      May
      2003 until November 2004. In consideration of First Energy putting forth its
      best efforts to assist in raising capital for Astris, Astris agreed to pay
      First
      Energy, its successors or assigns, a fee in the amount of CDN$5,000 per month
      plus travel expenses not to exceed CDN$2,000 per month plus airfare, payable
      on
      the 22 nd day of
      each month commencing on May 22 nd ,
      2003.
      The fee would be increased to CDN$10,000 per month when the first CDN$150,000
      has been received by Astris, and to CDN$15,000 per month when US$l ,000,000
      had
      been received in the aggregate. The payments were for 6 months and then
      continued on a month to month basis, with either party being able to terminate
      the agreement with 60 days notice. See exhibit 10.16.




**(6)**
            **Agreement
                with Fortius Research and
                Trading**





Fortius
      Research and Trading Corp. has a verbal agreement with Astris. Fortius bills
      Astris Energi Inc. quarterly for services provided at the rates approved by
      the
      Astris Board or its Compensation Committee from time to time. Fortius is
      presently paid CDN $8,333 per month plus expenses at cost by Astris for the
      services of Anthony Durkacz. Payment is in the form of both cash and common
      shares depending on the financial condition of the Company as determined by
      the
      Board. The services of Anthony Durkacz include acting as CFO, Vice President
      of
      Finance and the principal accounting officer and to perform any duties necessary
      by the Company related to the positions.





**(7)**
            **Debenture
                Transaction with Directors and Advances from Related
                Parties**





At
      year
      end December 31, 2003, the Company owed CDN$100,000 in principal and CDN$21,000
      of accrued interest to Mr. Blenkarn, a Former Director (CDN$8,400), Mr. Crawford
      (CDN$4,200) and Mr. Nor (CDN$8,400), as payment for advances made by them to
      the
      Company under the terms of a debenture, dated September 30, 1996. The amount
      owed was secured and bore interest at twelve percent (12%) per annum. Mr.
      Blenkarn, Mr. Crawford and Mr. Nor agreed that they would not demand repayment
      of the principal and interest until after January 1, 2005. The amount owed
      was
      collateralized by a lien on all of the assets and business of Astris Inc. On
      August 4, 2004, the debenture and all accrued interest was repaid in full by
      the
      issuance of 260,175 common shares of the Company. The shareholders released
      the
      security on the liability. During 2004, the following amounts were expensed
      as
      interest to these shareholders:


J.
                Nor
            
            $
            2,800
            
            
            (2003
                - $4,800,
            
            
            2002
                - $4,800
            )D.
                Blenkarn
            
            $
            2,800
            
            
            (2003
                - $4,800,
            
            
            2002
                - $4,800
            )G.
                Crawford
            
            $
            1,400
            
            
            (2003
                - $2,400,
            
            
            2002
                - $2,400
            )





Advances
      from related parties at December 31, are summarized as follows:





**2004**
            
            **2003**
            
            **2002**Advances
                from directors
            
            $
            —
            
            $
            —
            
            $
            20,400Debenture
                due to shareholders
            
            
            —
            
            
            100,000
            
            
            100,000$
            —
            
            $
            100,000
            
            $
            120,400






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            Statements**





**(8)**
            **Transactions
                subsequent to December 31,
                2004**





**Amalgamation
      of Astris Inc with Astris Energi Inc.**





We
      make
      reference to the amalgamation of Astris Inc. and Astris Energi Inc. in Note
      12
      to our financial statements. The merger of Astris Energi Inc. and Astris Inc.
      was a simple amalgamation to simplify our administrative procedures since all
      operational activities previously carried out by Astris Inc. were transferred
      to
      Astris Energi Inc. By amalgamating, we no longer need to keep a separate set
      of
      ledgers, separate invoices nor file separate Federal and Provincial Tax returns.
      Astris Inc. was 100% owned by Astris Energi Inc. There were no minority
      shareholders.





**The
      Acquisition of the remaining 70% of the outstanding shares of Astris
      sro**





Subsequent
      to the year end, effective January 2, 2005, the Company acquired the remaining
      outstanding shares of its foreign affiliate in the Czech Republic, Astris s.r.o.
      The aggregate purchase price was CDN$2,209,000 compensated by issuing 5,000,000
      common shares of the Company for CDN$1,955,000 and 5,000,000 warrants for
      CDN$254,000. 2,500,000 common shares will be held in escrow for one year until
      January 2, 2006. Each warrant entitles the holder to one common share
      exercisable as follows:





2,000,000
      warrants at CDN$0.90; 2,000,000 warrants at CDN$1.10 and 1,000,000 warrants
      at
      CDN$1.30 expiring on January 27, 2008. The transaction closed on January 27,
      2005.





Macnor
      Corporation (owned by the CEO and President) was the related party who sold
      70%
      of the shares of Astris sro to Astris Energi Inc. The company created a Special
      Committee of the Board of Directors composed of independent directors of the
      Company, who hired its own legal counsel and who hired a US and Canadian
      qualified third party  valuator
      by the name of Corporate Valuation Services Limited (CVS).  The
      valuator physically visited the site in Vlasim, Czech Republic and went through
      an extensive analysis of our history and financial transactions with Astris
      sro
      and analyzed our Financial Statements as well as those other companies in the
      Fuel Cell industry considered to be comparable. On September 16, 2004, CVS
      issued a formal 100 page report determining the fair market value of Astris
      sro
      as at June 30, 2004. CVS’s extensive analysis resulted in using three methods to
      determine the value of the Company including the Guidelines method, the Market
      Capitalization method and the Research and Development Index. Since the formal
      closing of the transaction did not take place until January 27, 2005, the
      Special Committee asked for and received an updated fairness opinion which
      was
      received on January 14, 2005 and became the basis for the values
      used.





Mr.
      Jiri
      Nor, President and CEO, holds Engineering Degrees from the Czech Technical
      University in Prague and from the University of Toronto (Aerospace). In the
      1960’s and 70’s, he was involved in projects that supplied high tech satellite
      instruments for NASA to measure environmental pollution and other data. This
      is
      where he became interested in the impact of pollution on our environment. In
      1983, this interest brought him to work with the research team of David Scott
      at
      the Institute for Hydrogen Systems at the University of Toronto. At that time
      he
      incorporated a private Ontario Company, Astris Science Inc. for the purpose
      of
      pursuing R&D with a particular focus on fuel cells. In mid 1986, the company
      name was shortened to Astris Inc. (AI).




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Between
      1988 and 1992, Mr. Nor established a new company, Norvik Inc., for the
      development of fast battery charging technology and he made contact with the
      Czech Academy of Sciences to pursue collaboration for electrochemical R&D
      relating to both batteries and fuel cells.





In
      May of
      1992, Norvik Inc. and AI incorporated Astris sro as a “window” into the Czech
      Republic by providing an electrochemical R&D facility for both batteries and
      fuel cells. It also became evident that the cost of doing research in the Czech
      Republic was significantly lower than in Canada. Both Norvik and AI provided
      funding. The ownership of sro was split 70:30 between Norvik and AI based on
      Mr.
      Nor’s split of services between the two companies. Norvik eventually changed its
      name to Macnor Corp, which continues today.





In
      1995,
      AI was the object of an acquisition by WLD Inc. (a reverse takeover by AI)
      and
      WLD Inc. was renamed Astris Energi Inc. (AEI). At that time, AEI started trading
      on the Over-the-Counter Bulletin Board (OTCBB).





A
      significant breakthrough occurred in the mid nineties, when the Company was
      able
      to produce AFC’s using only cheap materials like carbon, plastic, base metals
      and metal oxide instead of the more expensive platinum used by other fuel
      cells.





Several
      attempts were made over the ensuing years to raise financing which had only
      a
      limited success. It became obvious that the Company could operate more
      efficiently if all senior management took direct control in managing the
      combined operations centrally. Also, as Astris sro had bought substantial hard
      assets such as land, building and equipment through funding from AEI, Norvik
      and
      grants from the Czech government agencies (thereby having more assets than
      AEI),
      it made practical business sense that AEI have ownership of sro. Therefore,
      a
      business decision was made to buy the remaining 70% of the shares of Astris
      sro.





C.
            NON-RELATED
                PARTY COMMON STOCK TRANSACTIONS.





On
      March
      27, 2002, the Company agreed to settle obligations owing to certain individuals
      and companies.  The following shares were issued at a price of US$0.20 per
      share:





Non-related
                parties
            79,000
              shares





On
      July
      2, 2002, the Company agreed to settle obligations owing to certain individuals
      and companies.  The following shares were issued at a price of US$0.20 per
      share:





Non-related
                parties
            131,000
              shares





For
      services provided between July and September 2002, the Company issued 135,100
      shares of common stock to settle obligations owing to certain individuals and
      companies.  The following shares were issued at a price between US$0.20 and
      US$0.25 per share:




Non-related
                parties
            135,100
              shares







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            Statements**




For
      services provided between October and December 2002, the Company issued 160,950
      shares of common stock to settle obligations owing to certain individuals and
      companies.  The following shares were issued at a price between US$0.23 and
      US$0.29 per share:





Non-related
                parties
            160,950
              shares





On
      January 10, 2003, the Company agreed to settle obligations owing to certain
      individuals and companies.  The following shares were issued at a price at
      US$0.29 per share:





Non-related
                parties
            75,000
              shares





On
      May 8,
      2003, the Company agreed to settle obligations owing to certain individuals
      and
      companies.  The following shares were issued at a price at US$0.56 per
      share:





Non-related
                parties
            30,652
              shares





On
      July
      16, 2003, the Company agreed to settle obligations owing to certain individuals
      and companies.  The following shares were issued at a price at US$0.53 per
      share:





Non-related
                parties
            48,470
              shares





On
      October 28, 2003, the Corporation agreed to settle obligations owing to certain
      individuals and companies.  The following shares were issued at a price at
      US$0.55 per share:





Non-related
                parties
            43,960
              shares





On
      December 16, 2003, the Corporation agreed to settle obligations owing to certain
      individuals and companies.  The following shares were issued at a price at
      US$0.43 per share:





Non-related
                parties
            11,000
              shares





During
      the four quarters of 2004, the company issued shares of common stock to settle
      obligations owing by the Company to certain directors and/or officers of the
      Company as follows:





First
              Quarter
            
            Second
              Quarter
            
            Third
              Quarter
            
            Fourth
              Quarter
            
            AnnualTotal
                Non-Related Parties
            
            
            306,040
            
            
            136,092
            
            
            565,535
            
            
            721,205
            
            
            1,728,872






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            Statements**




D.
            INTERESTS
                OF EXPERTS AND COUNSEL.




Not
      Applicable.





ITEM
      8. FINANCIAL INFORMATION.





A.
            CONSOLIDATED
                STATEMENTS AND OTHER FINANCIAL
                INFORMATION.




Reference
      is made to Item 17 for a list of all financial statements and notes related
      thereto filed as part of this Annual Report.





A.6.
            EXPORT
                SALE DISCLOSURE





In
      2004,
      the Company had export sales in the amount of $81,290.  In 2003, the
      Company had export sales in the amount of $60,862.  In 2002, the Company
      had export sales in the amount of $179,577.





B.
            SIGNIFICANT
                CHANGES.




There
      have been no significant changes, which have occurred since the date of the
      annual financial statements included in this Report except as reported in Item
      7B “Acquisition of Astris s.r.o.”




DIVIDEND
      POLICY.




The
      Company has not paid dividends within the last five fiscal years. For a
      description of the ability of the Board of Directors to distribute dividends,
      please see Item 10B below.





ITEM
      9. THE OFFER AND LISTING.





MARKETS
      AND PRICE HISTORY OF THE COMPANY'S STOCK.




As
      of
      April 1, 2005, the Company had approximately 277 stockholders of record for
      its
      Common Shares and 31,702,901 Common Shares were issued and outstanding. The
      Company believes that there are a considerable number of beneficial holders
      of
      the Common Shares, as a substantial number of Common Shares are held of record
      by principal depositories in Canada and the United States. As at April 1, 2005,
      the shareholder list showed 275 registered shareholders holding a total of
      10,482,227 Common Shares, 5,583,797 Common Shares in the name of Cede & Co
      and 15,636,877 Common shares in the name of CDS & Co (the depository in
      Canada).




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The
      Common Shares were previously traded in Canada on the Canadian Dealing Network
      (CDNX), but presently has an inactive listing on the CDNX. The Company would
      seek to reactivate such listing once it meets the initial listing requirements
      of the TSX Venture Exchange (TSX.V). The Company does not presently meet the
      following requirements to qualify to list on the TSX.V: net tangible assets
      of
      CDN$750,000, unallocated funds of CDN$100,000 and/or the required amount of
      working capital to cover the Company's administrative expenses for 12 months.
      Since June 20, 2001, the Company's Common Shares have been posted for trading
      on
      the O.T.C. Bulletin Board under the symbol ASRNF.  The
      quarterly high and low prices for the past two fiscal years are tabulated
      below:





High
            
            Low2003First
            
            $
            .90
            
            $
            .42Second
            
            
            .65
            
            
            .42Third
            
            
            1.11
            
            
            .35Fourth
            
            
            .87
            
            
            .402004
            
            
            High
            
            
            LowFirst
            
            $
            .61
            
            $
            .49Second
            
            
            .53
            
            
            .39Third
            
            
            .57
            
            
            .32Fourth
            
            
            .51
            
            
            .37





The
      following table sets forth the high and low market prices for each of the past
      3
      months:





High,
              US$
                /share
            
            Low,
              US$
                /shareMonth
              2005January
            
            $
            .38
            
            $
            .31February
            
            
            .40
            
            
            .26March
            
            
            .32
            
            
            .23





ITEM
      10. ADDITIONAL INFORMATION.





A.
            SHARE
                CAPITAL.




Not
      Applicable.





ITEM
      10
      B.  MEMORANDUM AND ARTICLES OF ASSOCIATION.





1.
            ORGANIZATION.




The
      Company was incorporated in the Province of Ontario, Canada as required under
      the Business Corporations Act (Ontario). The registrant’s memorandum and
      articles do not provide for any specific objects or purposes.





2.
            DIRECTORS
                POWERS.





A
      director who is a party to, or who is a director or officer of or has a material
      interest in a proposal, arrangement or contract cannot vote on any resolution
      to
      approve the potential conflict of interest. A director may not vote, in the
      absence of an independent quorum, on compensation to themselves or any members
      of their body.




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            Statements**





No
      person
      shall be qualified for election as a director if such person is less than 18
      years of age, is of unsound mind and has been so found by a court in Canada
      or
      elsewhere, is not an individual, or has the status of a bankrupt. Directors
      are
      not required to retire upon reaching a specific age. A director need not be
      a
      shareholder. A majority of the directors shall be resident Canadians.




CORPORATE
      GOVERNANCE.




The
      Company's by-laws provide that, subject to any unanimous shareholder agreement,
      the Board of Directors shall manage or supervise the management of the business
      and affairs of the Corporation. The powers of the board may be exercised at
      a
      meeting at which a quorum is present or by resolution in writing signed by
      all
      the Directors entitled to vote on that resolution at a meeting of the Board.
      Where there is a vacancy in the board, the remaining Directors may exercise
      all
      the powers of the Board, so long as a quorum remains in office.





MEETINGS
      OF THE BOARD OF DIRECTORS.




The
      Company's by-laws provide that meetings of the Board of Directors may be held
      at
      any place within or outside Ontario and in any financial year of the Corporation
      a majority of the meetings need not be held in Canada. Meetings of the board
      shall be held from time to time at such time and at such place as the Board
      of
      Directors, the Chair of the Board, the Managing Director, the President or
      any
      two Directors may determine.





BORROWING
      POWER.




The
      Company's by-laws provide that without limiting the borrowing powers of the
      Corporation, as set forth in the Business Corporation Act (Ontario) (the "Act"),
      but subject to the articles and any unanimous shareholder agreement, the Board
      of Directors may from time to time on behalf of the Corporation, without
      authorization of the shareholders:




borrow
      money upon the credit of the Corporation;




issue,
      reissue, sell or pledge bonds, debentures, notes or other evidences of
      indebtedness or guarantee of the Corporation, whether secured or unsecured;




to
      the
      extent permitted by the Act, give directly or indirectly financial assistance
      to
      any person by means of a loan, a guarantee or otherwise on behalf of the
      Corporation to secure performance of any present or future indebtedness,
      liability or obligation of any person;




and




mortgage,
      hypothecate, pledge or otherwise create a security interest in all or any
      currently owned or subsequently acquired real or personal, movable or immovable,
      property of the Corporation including book debts, rights, powers, franchises
      and
      undertakings, to secure any such bonds, debentures, notes or other evidences
      of
      indebtedness or guarantee or any other present or future indebtedness, liability
      or obligation of the Corporation.




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Nothing
      limits or restricts the borrowing of money by the Corporation on bills of
      exchange or promissory notes made, drawn, accepted or endorsed by or on behalf
      of the Corporation.




Unless
      the articles of the Corporation otherwise provide, the board
      may
      from time to time delegate to a director, a committee of the board, or an
      officer of
      the
      Corporation any or all of the powers conferred on the board to such extent
      and
      in such manner as the board may determine at the time of such
      delegation.




3.
            RIGHTS,
                PREFERENCES AND RESTRICTIONS OF PREFERRED AND COMMON
                SHARES




The
      holders of the common shares are entitled to receive notice of and to attend
      and
      vote at all meetings of shareholders of the company and to one vote in respect
      of each common share held at all such meetings, except meetings at which only
      holders of a specified class of shares (other than the common shares) are
      entitled to vote. Holders of common shares are entitled to receive, subject
      to
      the rights of holders of other classes of shares, dividends as and when declared
      by the company. Holders of common shares are entitled to receive, subject to
      the
      rights of holders of other classes of shares, the remaining property of the
      company on the liquidation, dissolution or winding up of the company, whether
      voluntary or involuntary, or any other distribution of the assets of the company
      among its shareholders for the purpose of winding up its affairs.




The
      holders of the preferred shares shall have preferred rights as to dividends
      as
      determined by the directors of the company. The preferred shares may be issued
      in one or more series, each series to consist of such number of shares as may
      before the issue thereof be determined by the directors who may by resolution
      fix before the issue thereof the designation, preference, rights, privileges,
      restrictions, conditions and limitations attached to the preferred shares of
      each series including the rate and nature of preferential dividends, the date
      of
      payment thereof, the redemption price and conditions of redemption, if any,
      conversion rights and conditions of conversion, if any, and voting rights,
      if
      any.





DIVIDENDS




The
      Company's by-laws provide that, subject to the Act, the articles and any
      unanimous shareholder agreement, the Board of Directors may from time to time
      declare dividends payable to the shareholders according to their respective
      rights and interests in the Corporation. Dividends may be paid in money or
      property or by issuing fully paid shares of the Corporation or options or rights
      to acquire fully paid shares of the Corporation. Any dividend unclaimed after
      a
      period of six years from the date on which the same has been declared to be
      payable shall be forfeited and shall revert to the Corporation.





4.
            CHANGING
                RIGHTS OF SHAREHOLDERS





The
      rights of shareholders may not be modified other than by a majority vote of
      the
      common shares voting on such modification at a special meeting. The rights
      of
      shareholders may also be modified by a unanimous shareholder
      agreement.




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5.
            ANNUAL
                GENERAL MEETINGS AND SPECIAL MEETINGS





The
      annual meeting of shareholders shall be held at such time in each year and
      at
      such place anywhere in the world as the board, chair of the board, the managing
      director or the president may from time to time determine. The board, chair
      of
      the board, the managing director or the president shall have the power to call
      a
      special meeting of shareholders at anytime. Notice of the time and place of
      each
      meeting of shareholders will be given no less than 21 and no more than 50 days
      before the date of the meeting to each director, to the auditor, and to each
      shareholder who at the close of business on the record date for notice is
      entered in the securities register as the holder of one or more shares carrying
      the right to vote.





6.
            LIMITATIONS
                TO OWN SECURITIES





There
      are
      no limitations on the rights to own securities, to hold securities or exercise
      voting rights on securities imposed by foreign law.





7.
            ISSUES
                RELATED TO MERGERS, ACQUISITIONS OR CORPORATE
                RESTRUCTURING





Currently
      there are no provisions in the company’s articles or by-laws that would have an
      effect of delaying, deferring or preventing any of item 7 above.





8.
            OWNERSHIP
                THRESHOLD





There
      are
      no bylaw provisions governing the ownership threshold above which shareholder
      ownership must be disclosed. However, in the United States, 5% ownership or
      more
      must be publicly disclosed. In Canada, 10% ownership or more must be publicly
      disclosed.





9
              & 10.
            LAW





The
      laws
      of Ontario, Canada, relating to Items 2-8 are not significantly different from
      the laws of the United States. The conditions imposed by the memorandum and
      articles of association governing changes in capital are not more stringent
      than
      is required by law.





C.
            MATERIAL
                CONTRACTS




The
      Company entered into a value added reseller agreement with Alternate Energy
      Inc.
      and a co-operation agreement with El.Ma, as previously mentioned under Item
      5C
“Prospects”.





D.
            EXCHANGE
                CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
                HOLDERS




There
      are
      no governmental laws, decrees or regulations in Canada relating to restrictions
      on the import/export of capital affecting the remittance of interest, dividends
      or other payments to non-residential holders of the Company's Common Shares.
      Any
      such remittances to United States residents, however, are subject to a 15%
      withholding tax pursuant to Article X of the reciprocal tax treaty between
      Canada and the United States. See Part E below.




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Except
      as
      provided in the Investment Canada Act (the "Act"), there are no limitations
      under the laws of Canada, the Province of Ontario or in the charter or any
      other
      constituent documents of the Company on the right of foreigners to hold and/or
      vote the Common Shares of the Company.




The
      Act
      requires a non-Canadian making an investment to acquire control of a Canadian
      business, the gross assets of which exceed certain defined threshold levels,
      to
      file an application for review with Investment Canada, the federal agency
      created by the Act.




As
      a
      result of the Canada-U.S. Free Trade Agreement, the Act was amended in January
      1989 to provide distinct threshold levels for Americans who acquire control
      of a
      Canadian business.




A
      Canadian business is defined in the Act as a business carried on in Canada
      that
      has a place of business in Canada, an individual or individuals in Canada who
      are employed or self-employed in connection with the business, and assets in
      Canada used in carrying on the business.




An
      American, as defined in the Act, includes: an individual who is an American
      national or a lawful permanent resident of the United States; a government
      or
      government agency of the United States; an American-controlled entity,
      corporation or limited partnership or trust which is not controlled in fact
      through ownership of its voting interests of which two-thirds of its Board
      of
      Directors, general partners or trustees, as the case may be, are any combination
      of Canadians or Americans.




The
      following investments by a non-Canadian are subject to review by Investment
      Canada:





(a)
                all
                    direct acquisitions of control of Canadian businesses withassets
                    of CDN$5 million or
                    more;




(b)
            all
                indirect acquisitions of control of Canadian businesses
                withassets
                of CDN$50 million or more if such assets represent lessthan
                50% of the value of the assets of the entities, the controlof
                which is being acquired; and




(c)
            all
                indirect acquisitions of control of Canadian businesses withassets
                of CDN$5 million or more if such assets represent morethan
                50% of the value of the assets of the entities, the controlof
                which is being acquired.




Review
      by
      Investment Canada is required when investments by Americans exceed CDN$150
      million for direct acquisitions of control. For the purposes of the Act, direct
      acquisition of control means: a purchase of the voting interest on a
      corporation, partnership, joint venture or trust carrying on a Canadian
      business, or any purchase of all or substantially all of the assets used in
      carrying on a Canadian business; and indirect acquisition of control means
      a
      purchase of the voting interest of a corporation, partnership, joint venture
      or
      trust, whether a Canadian or foreign entity, which controls a corporation,
      partnership, joint venture or trust carrying on a Canadian business in
      Canada.




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The
      acquisition of certain Canadian businesses is excluded from the higher
      thresholds set out for Americans. These excluded businesses include oil, gas,
      uranium, financial services (except insurance); transportation services and
      cultural services (i.e. the publication, distribution or sale of books,
      magazines, periodicals (other than printing or typesetting businesses), music
      in
      print or machine readable form, radio, television, cable and satellite services;
      the publication, distribution, sale or exhibitions of film or video recordings
      or audio or video music recordings).




Direct
      or
      indirect acquisitions of control of these excluded businesses are reviewable
      at
      the CDN$5 and CDN$50 million thresholds.




A
      non-Canadian shall not implement an investment reviewable under the Act unless
      the investment has been reviewed and the Minister responsible for Investment
      Canada is satisfied or is deemed to be satisfied that the investment is likely
      to be of net benefit to Canada. If the Minister is not satisfied that the
      investment is likely to be a net benefit to Canada, the non-Canadian shall
      not
      implement the investment or, if the investment has been implemented, shall
      divest himself of control of the business that is the subject of the
      investment.




A
      non-Canadian or American making the following investments:




(i)
            an
                investment to establish a new Canadian business;
                and




(ii)
            an
                investment to acquire control of a Canadian business whichinvestment
                is not subject to review under the Act, must notifyInvestment
                Canada, within prescribed time limits, of suchinvestments.





E.
            TAXATION.





CANADIAN
      INCOME TAX CONSEQUENCES




Management
      of the Company considers that the following discussion respecting taxation
      fairly describes the principal and material Canadian federal income tax
      consequences applicable to shareholders of the Company who are residents of
      the
      United States and are not residents of Canada and do not hold, and are deemed
      not to hold, Common Shares of the Company in connection with carrying on a
      business in Canada (a "non-resident").




Generally,
      dividends paid by Canadian corporations to non-resident shareholders are subject
      to a withholding tax of 25% of the gross amount of such dividends. However,
      Article X of the reciprocal tax treaty between Canada and the United States
      reduced to 15% the withholdings tax on the gross amount of dividends paid to
      residents of the United States. A further 10% reduction in 1997 in the
      withholding tax rates on the gross amount of dividends is applicable when a
      U.S.
      corporation owns at least 10% of the voting stock of the Canadian corporation
      paying the dividends.




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A
      non-resident who holds Common Shares as capital property will not be subject
      to
      tax on capital gains realized on the disposition of such Shares unless such
      Shares are "taxable Canadian property" within the meaning of the Income Tax
      Act
      (Canada), and no relief is afforded under any applicable tax treaty.
 However, the Common Shares of Astris are taxable Canadian property because
      they are not traded on a prescribed stock exchange.  This creates Canadian
      filing requirements for non-residents. Non-Canadian Residents would be required
      to file a special Canadian Income Tax Return for dispositions of shares in
      Astris stock and would be taxable in Canada on any Net Capital Gains earned
      on
      such dispositions.





UNITED
      STATES FEDERAL INCOME TAX CONSEQUENCES




The
      following discussion describes the United States federal income tax consequences
      of the ownership and disposition of Common Shares of the Company. The discussion
      contained in this summary is based on the Internal Revenue Code of 1986, as
      amended (the "Code"), existing and proposed Treasury Regulations, judicial
      decisions and administrative pronouncements, all of which are subject to change.
      Any such changes may be applied retroactively in a manner that could result
      in
      federal income tax consequences different from those discussed
      below.




This
      summary discusses only Common Shares of the Company held by a U.S. Holder
      (defined below) as a capital asset within the meaning of Section 1221 of the
      Code, and does not deal with special situations, such as those of banks, thrift
      institutions, real estate investment trusts, regulated investment companies,
      insurance companies, dealers in securities or commodities, tax-exempt investors,
      holders whose functional currency is not the U.S. dollar, persons who hold
      Common Shares of the Company as a position in a straddle, as part of a synthetic
      security or hedge, as part of a conversion transaction or other integrated
      investment, or persons who are not U.S. Holders (as defined below). Further,
      the
      summary does not include any description of any alternative minimum tax
      consequences or any state, local or foreign tax consequences that may be
      applicable. This summary assumes that no U.S. Holder will own, directly or
      indirectly, Common Shares of the Company representing 10% or more of the voting
      power of the Company.




HOLDERS
      OF COMMON SHARES OF THE COMPANY ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
      RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF
      SUCH
      SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE TAX
      CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AND THE POSSIBLE
      EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.




As
      used
      herein, a "U.S. Holder" means a beneficial owner of Common Shares of the Company
      who is (I) a citizen or resident of the United States, (ii) a corporation,
      partnership or other entity created or organized in or under the laws of the
      United States or any State thereof or the District of Columbia,(iii) an estate
      the income of which is subject to United States federal income taxation
      regardless of its source, or (iv) a trust the administration of which is subject
      to the primary supervision of a court within the United States and for which
      one
      or more U.S. persons have the authority to control all substantial
      decisions.




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If
      dividends were to be declared, they could be treated as dividends from a
      qualified foreign corporation and, accordingly, be subject to a 15% U.S. tax
      rate.





Dividends




Distributions
      with respect to the Common Shares (other than liquidating distributions and
      certain distributions in redemption of the Common Shares) which are paid out
      of
      current or accumulated earnings and profits, as calculated for United States
      federal income tax purposes, generally will constitute dividends taxable as
      ordinary income. To the extent the amount of any such distribution paid with
      respect to the Common Shares exceeds current and accumulated earnings and
      profits, as calculated for United States federal income tax purposes, such
      excess distribution will not constitute a dividend for United States federal
      income tax purposes, but will be treated first as a tax-free return of capital
      to the extent of the holder's adjusted tax basis in his Common Shares (with
      a
      corresponding reduction in such basis) and, to the extent the distribution
      exceeds such basis, as a capital gain.





Foreign
      Tax Credit




A
      U.S.
      Holder who pays (or has had withheld from distributions) Canadian 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 a deduction or a tax credit for
      such
      foreign tax paid or withheld. This election is made on a year-by-year basis
      and
      applies to all foreign taxes paid by (or withheld from) the U.S. Holder during
      that year. There are significant and complex limitations that apply to the
      credit, among which is the general limitation that the credit cannot exceed
      the
      proportionate share of the U.S. Holder’s United States Federal income tax
      liability that the U.S. Holder’s foreign source income bears to his worldwide
      taxable income. The availability of the foreign tax credit and the application
      of the limitations on the credit are fact specific and holders and prospective
      holders of Common Shares should consult their own tax advisors regarding their
      individual circumstances.





Dispositions,
      Including Redemptions




Any
      sale,
      exchange, redemption (except as discussed below) or other disposition of the
      Common Shares generally will result in taxable gain or loss equal to the
      difference between the amount received upon the sale, exchange, redemption
      or
      other disposition and the holder's adjusted tax basis in the Common Shares.
      Such
      gain or loss generally will be capital gain or loss and will be long-term
      capital gain or loss if the holding period for the Shares of the Company exceeds
      one year.




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In
      certain cases, a redemption of Common Shares may be treated as a dividend,
      rather than as a payment in exchange for the Shares of the Company. In such
      events, the redemption payment will be treated as ordinary dividend income
      to
      the extent that such payment is made out of current or accumulated earnings
      and
      profits, as calculated for United States federal income tax purposes. The
      determination of whether the redemption will be treated as a dividend rather
      than as payment in exchange for the Common Shares of the Company will depend
      upon whether and to what extent the redemption reduces the holder's percentage
      stock ownership interest in the Company. A redemption will be treated as an
      exchange of stock that produces a capital gain if the redemption either (1)
      completely terminates the holder's interest in the Company under Section
      302(b)(3) of the Code, (2) is "substantially disproportionate" with respect
      to
      the holder under Section 302(b)(2) of the Code, or (3) is "not essentially
      equivalent to a dividend" under Section 302(b)(1) of the Code.




A
      redemption will completely terminate the holder's interest in the Company if,
      as
      a result of the redemption, the holder no longer has any stock interest in
      the
      Company, directly or constructively after application of the attribution rules
      of Section 302(c) of the Code. A redemption will be "substantially
      disproportionate" with respect to the holder if (1) the ratio of the voting
      stock owned by the holder (including stock attributed to the holder under
      Section 302(c) of the Code) immediately after the redemption to all the voting
      stock of the Company is less than 80% of the same ratio for the voting stock
      owned by the holder immediately before the redemption, (2) there is a similar
      percentage reduction in the ownership by the holder of Common Shares of the
      Company, and (3) the holder owns less than 50% of the voting stock of the
      Company. Whether a redemption is "not essentially equivalent to a dividend"
      with
      respect to a holder will depend upon the holder's particular circumstances.
      The
      IRS has ruled that a minority shareholder in a publicly held corporation whose
      relative stock interest is minimal and who exercises no control with respect
      to
      corporate affairs is considered to have a "meaningful reduction" if such
      shareholder has a reduction in his percentage stock ownership. In determining
      whether any of the foregoing tests have been satisfied, the holder is deemed,
      under the constructive ownership rules of Section 302(c) of the Code, to own
      any
      Common Shares in the Company owned by certain related persons and entities
      and
      any Common Shares which the holder or certain related persons and entities
      have
      an option to acquire. However, because of the ambiguities in applying the
      foregoing rules, holders should consult their tax advisors to determine whether
      a redemption of Common Shares will be treated as a dividend or as a payment
      in
      exchange for the Common Shares of the Company.





F.
            DIVIDENDS
                AND PAYING AGENTS




Not
      Applicable.





G.
            STATEMENT
                BY EXPERTS




Not
      Applicable.





H.
            DOCUMENTS
                ON DISPLAY




The
      Company is subject to the informational requirements for foreign private issuers
      under the Securities Exchange Act of 1934, as amended. In accordance with these
      requirements, the Company files reports on Form 20-F and 6-K with the United
      States Securities and Exchange Commission. These materials, including this
      annual report and the exhibits thereto, may be inspected and copied at the
      Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, DC
      20549. Copies of the materials may be obtained from the Public Reference Room
      at
      prescribed rates. The public may obtain information on the operations of the
      Commission's Public Reference Room by calling the Commission in the United
      States at 1-800-SEC-0330. The Commission also maintains a web site at
      http://sec.gov that contains reports, proxy statements and other information
      regarding registrants that file electronically with the Commission.





I.
            SUBSIDIARY
                INFORMATION




Not
      Applicable.




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ITEM
      11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK





INTEREST
      RATE RISK.




The
      Company does not have any significant exposure to changes in interest
      rates.





IMPACT
      OF
      CURRENCY FLUCTUATIONS




The
      Company's operating expenses are primarily paid in Canadian dollars.
 Fluctuations in the exchange rate between the Canadian dollar and such
      other currencies may have a material effect on the Company's results of
      operations. In particular, the Company may be adversely affected by a
      significant strengthening of the Canadian dollar against the U.S. dollar or
      Euro. The Company has not previously engaged in, and does not now intend to
      enter into, any currency hedging or other similar currency hedging transactions.
      The Company may enter into such transactions on a non-speculative basis to
      the
      extent that it might in the future have substantial foreign currency
      exposure.





ITEM
      12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES




Not
      Applicable.





PART
      II.





ITEM
      13. DEFAULTS, DIVIDEND ARREARAGES AND
      DELINQUENCIES




None.





ITEM
      14.
      MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS




None.





ITEM
      15. CONTROLS AND PROCEDURES





EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES





As
      required by Rule 13a-15 under the Securities Exchange Act of 1934, as
      amended(the "Exchange Act"), the Company carried out an evaluation under the
      supervision and with the participation of the Company's management, including
      the Chief Executive Officer and President and the Chief Financial Officer,
      of
      the effectiveness of the Company's disclosure controls and procedures as of
      December 31, 2004. In designing and evaluating the Company's disclosure controls
      and procedures, the Company and its management recognize that there are inherent
      limitations to the effectiveness of any system of disclosure controls and
      procedures, including the possibility of human error and the circumvention
      or
      overriding of the controls and procedures. Accordingly, even effective
      disclosure controls and procedures can only provide reasonable assurance of
      achieving their desired control objectives. Additionally, in evaluating and
      implementing possible controls and procedures, the Company's management was
      required to apply its reasonable judgment. Furthermore, in the course of this
      evaluation, management considered certain internal control areas, including
      those discussed below, in which we have made and are continuing to make changes
      to improve and enhance controls. Based upon the required evaluation, the Chief
      Executive Officer and the Chief Financial Officer concluded that as of December
      31, 2004, the Company's disclosure controls and procedures were effective (at
      the "reasonable assurance" level mentioned above).




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From
      time
      to time, the Company and its management have conducted and will continue
      to conduct further reviews and, from time to time put in place additional
      documentation, of the Company's disclosure controls and procedures, as well
      as
      its internal control over financial reporting. The Company may from time to
      time
      make changes aimed at enhancing their effectiveness, as well as changes aimed
      at
      ensuring that the Company's systems evolve with, and meet the needs of, the
      Company's business. These changes may include changes necessary or desirable
      to
      address recommendations of the Company's management, its counsel and/or its
      independent auditors, including any recommendations of its independent auditors
      arising out of their audits and reviews of the Company's financial statements.
      These changes may include changes to the Company's own systems, as well as
      to
      the systems of businesses that the Company has acquired or that the Company
      may
      acquire in the future and will, if made, be intended to enhance the
      effectiveness of the Company's controls and procedures. The Company is also
      continually striving to improve its management and operational efficiency and
      the Company expects that its efforts in that regard will from time to time
      directly or indirectly affect the Company's disclosure controls and procedures,
      as well as the Company's internal control over financial reporting.




CHANGES
      IN INTERNAL CONTROLS OVER FINANCIAL REPORTING




There
      were no changes in the Company's internal controls over financial reporting
      that
      has materially affected or that are reasonably likely to materially affect
      the
      Company's internal controls over financial reporting during the period covered
      by this Annual Report.  We maintain evidential matter, including
      documentation, to provide reasonable support for management’s assessment of the
      effectiveness of the issuer’s internal control over financial reporting. As more
      fully described in Note 3 to the audited consolidated financial statements
      included in Item 17 of this Annual Report, during our preparation and analysis
      of our 2003 consolidated financial statements, certain errors to our previously
      reported financial information were identified and corrected. These items
      related to new accounting standards not being adopted on a timely basis and
      misinterpretation of certain circumstances related to contingent liabilities
      and
      consolidation accounting.  These corrections required restatement of
      previously issued consolidated financial statements for 2002 and 2001.





ITEM
      16.





A.
            AUDIT
                COMMITTEE FINANCIAL EXPERT





Members
      of the Audit Committee have broad financial experience which has been gained
      in
      a variety of disciplines including investment banking, supervision of finance
      functions and general management, and the Board is satisfied that collectively
      they have the requisite financial skills and expertise to enable them fully
      to
      carry out their responsibilities. However, the Board considers that no
      individual member of the committee qualifies as a “financial expert” within the
      terms of the definition set out in the Sarbanes-Oxley Act of 2002.





C.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES





For
      the
      year ended 2004 and 2003, the audit fees were CDN$22,000 and CDN$50,000.
 For the year ended 2004 and 2003, the audit-related fees for the principal
      accountants were CDN$nil and CDN$nil.  For the year ended 2004 and 2003,
      the tax related fees for the principal accountants were CDN$nil and CDN$nil.
       The Company’s audit committee’s pre-approval of audit fees is discussed in
      advance with the principal accountant and the audit committee. If there are
      any
      adjustments, they are approved by the audit committee.




E.
            PURCHASES
                OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                PURCHASERS





Not
      Applicable.




57
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            to Table of Contents**
 **Index
            to Financial
            Statements**





PART
      III.





ITEM
      17. FINANCIAL STATEMENTS




The
      following documents are filed as Attachment A hereto and are included as part
      of
      this Form 20-F.





ASTRIS
      ENERGI INC. CONSOLIDATED FINANCIAL STATEMENTS





Description
      of Document:


Auditors'
      Report for the year ended December 31, 2004.


Auditors’
      Report for the year ended December 31, 2003.


Auditors’
      Report for the year ended December 31, 2002.


Consolidated
      Balance Sheets for the year ended December 31, 2004, 2003 and 2002.


Consolidated
      Statements of Loss and Deficit for the years ended December 31, 2004, 2003
      and
      2002.


Consolidated
      Statements of Cash Flows for the years ended December 31, 2004, 2003 and
      2002.


Notes
      to
      Consolidated Financial Statements for the year ended December 31, 2004, 2003
      and
      2002.





ITEM
      18. FINANCIAL STATEMENTS





Not
      applicable.




58
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            to Table of Contents**
 **Index
            to Financial
            Statements**





ITEM
      19. EXHIBITS





3.1*
            Memorandum
                of Association of Kayty Exploration Ltd., filed March 18,1981 with
                the
                Province of Alberta Office of Consumer and Corporate
                Affairs.





3.2*
            Articles
                of Association of Kayty Exploration Ltd., filed March 18,1981 with
                the
                Province of Alberta Office of Consumer and Corporate
                Affairs.





3.3*
            Certificate
                amending the Memorandum of Association of Kayty Exploration Ltd.,
                filed
                July 9, 1981 with the Province of Alberta Office of Consumer and
                Corporate
                Affairs.





3.4*
            Certificate
                amending the Memorandum of Association of Kayty Exploration Ltd.,
                filed
                November 6, 1981 with the Province of Alberta Office of Consumer
                and
                Corporate Affairs.





3.5*
            Certificate
                amending the Memorandum of Association of Kayty Exploration Ltd.,
                filed
                March 11, 1982 with the Province of Alberta Office of Consumer and
                Corporate Affairs.





3.6*
            Certificate
                amending the Memorandum of Association of Kayty Exploration Ltd.,
                filed
                August 9, 1982 with the Province of Alberta Office of Consumer and
                Corporate Affairs.





3.7*
            Articles
                of Continuance for Kayty Exploration Ltd., filed September 22, 1987
                with
                the Ministry of Consumer and Commercial Relations, Province of Ontario,
                Canada.





3.8*
            Articles
                of Amendment for Kayty Inc., filed December 7, 1994 with the Ministry
                of
                Consumer and Commercial Relations, Province of Ontario,
                Canada.





3.9*
            Articles
                of Amendment for WLD Inc., filed July 4, 1995 with the Ministry of
                Consumer and Commercial Relations, Province of Ontario,
                Canada.





3.10*
            By-Laws
                of Astris Energi Inc., dated April 12,
                1996.





4.*
            Astris
                Energi Inc. Stock Option Plan, dated June
                2000.





10.1*
            License
                Agreement between Astris Energi Inc. and Energy Ventures Inc.(Canada)
                dated October 22, 1998.





10.2*
            Debenture
                by Astris Energi Inc and Astris Inc. to and in favor of Energy Ventures
                Inc. (Canada) dated October 22,
                1998.





10.3*
            Equipment
                Lease between Astris Energi Inc. and Astris Inc. and Energy Ventures
                Inc.
                (Canada) dated October 22, 1998.





10.4*
            License
                Agreement with Macnor Corp. dated October 1,
                1999.





10.5*
            Lease
                for property located at 2175 Dunwin Drive, Unit 6, Mississauga, Ontario,
                between 789542 Ontario Limited and Astris Energi Inc., dated April
                14,
                2000.





10.6*
            License
                Agreement, between Astris Inc. and Astris s.r.o., dated January 30,
                1995.





10.7*
            Grant
                of Options by Astris Energi Inc. to Energy Ventures Inc., dated October
                22, 1998.





10.8*
            Agreement
                between Astris Energi Inc. and Fuelcellstore.com, Inc., dated October
                12,
                2000.





10.9*
            Assignment
                Agreement between Josef Soltys and Astris Inc. for Canadian Patent
                #1,295,679, for QUICKCELL, dated November 15,
                1995.





10.10*
            Debenture
                between Astris Inc. and Donald Alex Blenkarn, in trust, dated September
                30, 1996.





10.11
            Value
                Added Reseller Agreement with Alternate Energy Corp., dated May 14,
                2004.





10.12
            Co-operation
                agreement with El.ma, dated October 15,
                2004.





10.13
            Consulting
                Agreement with Liikfam Holdings, dated December 10,
                2004.





10.14
            Purchase
                and Escrow Agreement between Astris Energi Inc., Macnor Corporation
                and
                2062540 Ontario Inc. dated January 20,
                2005.





10.15
            Teaming
                Arrangement with Plasma Environmental Technologies Inc., dated February
                23, 2005.





10.16
            Agreement
                with First Energy Advisors, dated May 22,
                2003.





10.17
            Assignment
                of technology to Astris Energi Inc. from Macnor Corporation, dated
                July
                25, 2005.





10.18
            Form
                of Convertible Debenture document, dated March 24, 2005.





23.1*
            AUDITORS’
                CONSENTS





31.1
            302
                CERTIFICATION





31.2
            302
                CERTIFICATION





32.1
            SECTION
                906 CERTIFICATION





99
            CODE
                OF ETHICS





99.1
              WHISTLEBLOWER
                  POLICY





*
            Previously
                filed. Otherwise all other exhibits filed
                herewith.






59
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            to Financial
            Statements**




SIGNATURES




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.




**ASTRIS
              ENERGI, INC.**Date: February
              21, 2006
            By:
            /s/ JIRI
              K.
              NORName:  
                Jiri K. Nor
              Title:    
                President and Chief Executive
                Officer






60
 **Back
            to Table of Contents**
 **Index
            to Financial
            Statements**
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Consolidated
          Financial Statements**
 **(Canadian
          Dollars)**
 December
          31, 2004
   **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 
 **INDEX**
 
 **December
          31, 2004**
 
 **PAGE****INDEPENDENT
                    AUDITORS’ REPORT - DECEMBER 31, 2004 AND
                    DECEMBER 31, 2003**
                1**INDEPENDENT
                    AUDITORS’ REPORT - DECEMBER 31,
                    2002**
                2**FINANCIAL
                    STATEMENTS**Consolidated
                    Balance Sheets - Statement I
                3Consolidated
                    Statements of Loss and Deficit - Statement
                    II
                4Consolidated
                    Statements of Cash Flows - Statement
                    III
                5**NOTES
                    TO CONSOLIDATED FINANCIAL STATEMENTS**
                6
                    - 43
  
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 **INDEPENDENT
          AUDITORS’ REPORT**
 
 **To
          the Directors of**
 **ASTRIS
          ENERGI INC.**
 
 We
          have
          audited the consolidated balance sheets of **ASTRIS
          ENERGI INC.** as at
          December 31, 2004 and 2003 and the consolidated statements of loss and
          deficit
          and cash flows for the years then ended. These consolidated financial statements
          are the responsibility of the company’s management. Our responsibility is to
          express an opinion on these financial statements based on our
          audit.
  We
          conducted our audit in accordance with Canadian generally accepted auditing
          standards and the standards of the Public Company Accounting Oversight
          Board
          (United States). Those 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.
  In
          our
          opinion, these consolidated financial statements present fairly, in all
          material
          respects, the financial position of the Company, as at December 31, 2004
          and
          2003, and the results of its operations and cash flows for the years then
          ended,
          in accordance with Canadian generally accepted accounting
          principles.
 
 As
          more
          fully described in note 15, the 2004 and 2003 consolidated financial statements
          have been restated.
 
 /s/
          Danziger & Hochman
 **Toronto,
          Ontario**
 **Chartered
          Accountants**
 **April
          26, 2005**
 **except
          for Note 15, as to which the date is December 15, 2005.**
 
 Comments
          by Auditors for U.S. Readers on Canada - United States Reporting
          Difference
  In
          the
          United States, reporting standards for auditors require the addition of
          an
          explanatory paragraph (following the opinion paragraph) when the financial
          statements are affected by conditions and events that cast substantial
          doubt on
          the Company’s ability to continue as a going concern, such as those described in
          Note 1 to the financial statement and when there is a correction of an
          error in
          the application of accounting principles, such as those described in Note
          3
          relating to prior year’s financial statements. Our report to the directors dated
          April 26, 2005, is expressed in accordance with Canadian reporting standards
          which do not permit a reference to such events and conditions in the auditors’
report when these are adequately disclosed in the financial
          statements.
 
 /s/
          Danziger & Hochman
 **Toronto,
          Ontario**
 **Chartered
          Accountants**
 **April
          26, 2005**
 **except
          for Note 15, as to which the date is December 15, 2005.**
  Page
              1
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 Independent
          Auditors’ Report
 To
          the
          Shareholders of Astris Energi Inc.
 
 We
          have
          audited the consolidated balance sheets of Astris Energi Inc. as at December
          31,
          2002 and 2001 and the consolidated statements of loss and deficit and cash
          flows
          for the years then ended. These consolidated 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 the United States generally accepted auditing standards.
          Those
          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.
 
 In
          our
          opinion, these consolidated financial statements present fairly, in all
          material
          respects, the financial position of the Company as at December 31, 2002
          and 2001
          and the results of its operations and its cash flows for the years then
          ended in
          accordance with Canadian generally accepted accounting principles.
 
 /s/
          Lugowy Associates
 CHARTERED
          ACCOUNTANTS
 Hamilton,
          Ontario
 May
          25,
          2004
 
 Comments
          by Auditors for U.S. Readers on Canada - United States Reporting Difference
 
 In
          the
          United States, reporting standards for auditors require the addition of
          an
          explanatory paragraph (following the opinion paragraph) when the financial
          statements are affected by conditions and events that cast substantial
          doubt on
          a company’s ability to continue as a going concern, such as those described in
          Note 1 to the consolidated financial statements of the Company and when
          there is
          a correction of an error in the application of accounting principles, such
          as
          those described in Note 3.  Our report to the shareholders dated May 25,
          2004, is expressed in accordance with Canadian reporting standards which
          do not
          permit a reference to such events and conditions in the auditors’ report when
          these are adequately disclosed in the financial statements.
 
 /s/
          Lugowy Associates
 CHARTERED
          ACCOUNTANTS
 Hamilton,
          Ontario
 May
          25,
          2004
  Page
              2
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  Statement
          I
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Consolidated
          Balance Sheets**
 As
          at
          December 31, 2004
 (Canadian
          Dollars)
 **2004**
                
                **2003**
                
                **2002**Restated(Note
                    3)**ASSETS****CURRENT**Cash
                
                $
                178,351
                
                $
                347,785
                
                $
                253,938Receivables
                
                
                3,544
                
                
                1,000
                
                
                30,440Prepaid
                    expenses and deposits (note 5)
                
                
                10,118
                
                
                37,206
                
                
                149,777Investment
                    tax credits refundable
                
                
                199,586
                
                
                —
                
                
                216,608Goods
                    and services tax receivable
                
                
                27,387
                
                
                16,120
                
                
                —Other
                    assets
                
                
                53,692
                
                
                —
                
                
                —472,678
                
                
                402,111
                
                
                650,763Property,
                    plant and equipment (note 4)
                
                
                36,446
                
                
                33,124
                
                
                25,737$
                509,124
                
                $
                435,235
                
                $
                676,500**LIABILITIES****CURRENT**Payables
                    and accruals (note 5)
                
                $
                255,830
                
                $
                399,140
                
                $
                420,480Deposit
                    on shares (note 7)
                
                
                —
                
                
                72,070
                
                
                —255,830
                
                
                471,210
                
                
                420,480Advances
                    from related parties (note 5)
                
                
                —
                
                
                100,000
                
                
                120,400255,830
                
                
                571,210
                
                
                540,880**SHAREHOLDERS’
                    EQUITY****SHARE
                    CAPITAL**(note
                    7)
                
                
                6,227,074
                
                
                3,343,853
                
                
                2,525,239**CONTRIBUTED
                    SURPLUS**(note 7)
                
                
                3,016,647
                
                
                2,048,342
                
                
                931,582**DEFICIT**-
                    Statement II
                
                
                (
                    8,990,427
                )
                
                (
                    5,528,170
                )
                
                (
                    3,321,201
                )253,294
                
                
                (
                    135,975
                )
                
                135,620$
                509,124
                
                $
                435,235
                
                $
                676,500Description
                    of Business and Going Concern (note 1)Commitments
                    (note 10)**APPROVED
                    ON BEHALF OF THE BOARD**/s/
                    Jiri Nor, Director/s/
                    Anthony Durkacz, Director
 *{See
          accompanying notes.}*
  Page
              3
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **Statement
          II**
   **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Consolidated
          Statements of Loss and Deficit**
 For
          the
          Year Ended December 31, 2004
 (Canadian
            Dollars)
 **2004**
                
                **2003**
                
                **2002**Restated(Note
                    3)**REVENUE**(note 5)
                
                $
                88,798
                
                $
                67,870
                
                $
                180,168**EXPENSES**Research
                    and development (note 5)
                
                
                1,343,695
                
                
                1,229,184
                
                
                197,488General
                    and administrative
                
                
                1,943,799
                
                
                880,585
                
                
                332,831Professional
                    fees
                
                
                243,076
                
                
                145,100
                
                
                254,487Interest
                    on advance from related parties (note 5)
                
                
                7,000
                
                
                12,000
                
                
                12,000Amortization
                
                
                13,485
                
                
                7,970
                
                
                4,0163,551,055
                
                
                2,274,839
                
                
                800,822**LOSS
                    BEFORE THE FOLLOWING**
                
                
                (
                    3,462,257
                )
                
                (
                    2,206,969
                )
                
                (
                    620,654
                )Deferred
                    costs written off
                
                
                —
                
                
                —
                
                
                (
                    122,818
                )**LOSS
                    FOR THE YEAR**
                
                
                (
                    3,462,257
                )
                
                (
                    2,206,969
                )
                
                (
                    743,472
                )**DEFICIT,
                    BEGINNING OF YEAR AS****PREVIOUSLY
                    REPORTED**
                
                
                (
                    5,528,170
                )
                
                (
                    3,242,557
                )
                
                (
                    2,582,439
                )Prior
                    period adjustments (note 3)
                
                
                —
                
                
                (
                    78,644
                )
                
                4,710**DEFICIT,
                    BEGINNING OF YEAR AS****RESTATED**
                
                
                (
                    5,528,170
                )
                
                (
                    3,321,201
                )
                
                (
                    2,577,729
                )**DEFICIT,
                    END OF YEAR**
                
                
                ($8,990,427
                )
                
                ($5,528,170
                )
                
                ($3,321,201
                )**LOSS
                    PER COMMON SHARE, BASIC****AND
                    DILUTED**(note 7)
                
                
                ($
                    0.16
                )
                
                ($
                    0.12
                )
                
                ($
                    0.05
                )
 *{See
          accompanying notes.}*
  Page
              4
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  Statement
          III
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Consolidated
          Statements of Cash Flows**
 For
          the
          Year Ended December 31, 2004
 (Canadian
          Dollars)
 
 **2004**
                
                **2003**
                
                **2002**Restated(Note
                    3)**OPERATING
                    ACTIVITIES**Loss
                    for the year
                
                
                ($3,462,257
                )
                
                ($2,206,969
                )
                
                ($
                    743,472
                )Items
                    not requiring cash****Amortization
                
                
                13,485
                
                
                7,970
                
                
                4,016Consulting
                    and professional fees andpaid
                    in capital stock to non-related parties
                
                
                890,097
                
                
                136,122
                
                
                166,801Consulting
                    and professional fees andexpenses
                    paid in options to non-employees
                
                
                227,406
                
                
                131,063
                
                
                83,354Consulting
                    fees and expenses paid incapital
                    stock to related parties
                
                
                360,360
                
                
                266,247
                
                
                207,456Stock-based
                    compensation to employees
                
                
                105,962
                
                
                188,377
                
                
                —Warrants
                    issued to directors
                
                
                91,655
                
                
                —
                
                
                —Deferred
                    costs written off
                
                
                —
                
                
                —
                
                
                122,818Net
                    change in non-cash working capitalbalances
                    related to operations (note 8)
                
                
                (
                    329,614
                )
                
                321,159
                
                
                (
                    221,258
                )**CASH
                    (USED) IN OPERATING ACTIVITIES**
                
                
                (
                    2,102,906
                )
                
                (
                    1,156,031
                )
                
                (
                    380,285
                )**INVESTING
                    ACTIVITIES**Purchase
                    of other assets
                
                
                (
                    53,692
                )
                
                —
                
                
                —Purchase
                    of property, plant and equipment
                
                
                (
                    16,807
                )
                
                (
                    15,357
                )
                
                (
                    11,797
                )(
                    70,499
                )
                
                (
                    15,357
                )
                
                (
                    11,797
                )**FINANCING
                    ACTIVITIES**(Decrease)
                    increase in advances from relatedparties
                
                
                —
                
                
                —
                
                
                6,400Deposit
                    on shares
                
                
                (
                    72,070
                )
                
                72,070
                
                
                -****Issuance
                    of common shares
                
                
                1,538,874
                
                
                395,845
                
                
                171,781****Issuance
                    of warrants
                
                
                537,167
                
                
                797,320
                
                
                456,8502,003,971
                
                
                1,265,235
                
                
                635,031**NET
                    INCREASE (DECREASE) IN CASH****DURING
                    THE YEAR**
                
                
                (
                    169,434
                )
                
                93,847
                
                
                242,949**CASH,
                    BEGINNING OF YEAR**
                
                
                347,785
                
                
                253,938
                
                
                10,989**CASH,
                    END OF YEAR**
                
                $
                178,351
                
                $
                347,785
                
                $
                253,938Supplementary
                    disclosure with respect to consolidated statement of cash flows
                    and
                    non-cash items (note 14).
 *{See
          accompanying notes.}*
  Page
              5
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial
          Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 1.
                **DESCRIPTION
                    OF BUSINESS AND GOING CONCERN**
 
 Astris
                    Energi Inc. (the “Company”) designs, develops, manufactures and sells
                    alkaline fuel cells (AFCs) and alkaline fuel cell systems, fuel
                    cell and
                    battery test loads and provides engineering and other services.
 The
                    Company is based in Mississauga, Canada.
 
 Since
          inception, the efforts of the Company have been devoted to the development
          of
          AFCs for industrial, commercial, educational, scientific, transportation
          and
          similar applications.  To date, the Company has not earned significant
          revenues and is considered to be in the development stage. Currently the
          Company
          has two projects under development.
 
 ***POWERSTACK
          MC250 Project***
 
 The
          POWERSTACK MC250 project represents fuel cell stack improvement in several
          aspects of AFC technology.  The POWERSTACK MC250 is at a pre-commercial
          stage.  The Company started a pilot production line of the POWERSTACK MC250
          in 2004.
 
 The
          Company has expensed $1,984,263 to date on this project as at December
          31, 2004
          (2003 - $1,127,862).  No revenue has yet been earned from this project and
          no amounts have been capitalized or deferred to date.
 
 ***E8
          Generator Project***
 
 The
          E8
          generator project uses the POWERSTACK MC250 to produce 2.4 kW of nominal
          rated
          power.  The E8 generator is ready to be installed in demonstration and
          pilot applications.
 
 The
          Company has expensed $963,897 to date on this project as at December 31,
          2004
          (2003 - $298,810). Included in revenue is the Company’s first sale of an E8
          generator in 2004.
 
 ***Going
          Concern***
 
 The
          financial statements of the Company have been prepared on a going concern
          basis
          which contemplates the realization of assets and discharge of obligations
          in the
          normal course of business as they come due.  No adjustments have been made
          to assets or liabilities in these financial statements should the Company
          not be
          able to continue normal business operations.
 
 The
          Company has incurred several years of losses and during 2004, utilized
          $2,102,906 of cash in operations. At December 31, 2004, the Company reported
          a
          deficit of $8,990,427 and continues to expend cash amounts that significantly
          exceed revenues.  These conditions cast substantial doubt as to the ability
          of the Company to continue in business and meet its obligations as they
          come
          due. Management is considering various alternatives, including possible
          private
          placements and an IPO on the Toronto Venture Stock Exchange to raise capital
          in
          fiscal 2005.  Nevertheless, there is no assurance that these initiatives if
          undertaken will be successful.
  Page
              6
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                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **1.**
                **DESCRIPTION
                    OF BUSINESS AND GOING CONCERN******(continued)
 
 The
                    Company’s continuance as a going concern is dependent on the success
                    of
                    the efforts of its directors and principal shareholders in providing
                    financial support in the short term, the success of the Company
                    in raising
                    additional long-term financing either from its own resources
                    or from third
                    parties, the commercialization of one or more of the Company’s research
                    projects and the Company achieving profitable operations.  In the
                    event that such resources are not secured, the assets may not
                    be realized
                    or liabilities discharged at their carrying amounts, and differences
                    from
                    the carrying amounts reported in these financial statements could
                    be
                    material.
  **2.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES**
 
 ***Basis
          of Presentation***
  These
          consolidated financial statements have been prepared in accordance with
          Canadian
          GAAP and reflect the accounts of the Company and its subsidiary, Astris
          Inc.,
          which was acquired on December 31, 1995.  All intercompany transactions and
          balances have been eliminated on consolidation.
  ***Revenue
          recognition***
  Revenues
          from the sale of fuel cell products and related components are recognized
          when
          there is persuasive evidence of an arrangement, goods have been delivered,
          the
          fee is fixed or determinable and collection is reasonably assured.
  Revenues
          relating to engineering and testing services are recognized as the services
          are
          rendered.
  ***Property,
          Plant and Equipment***
  Property,
          plant and equipment are recorded at cost less provision for amortization
          and
          impairment where indicated.  Amortization is provided over the useful lives
          of these assets, calculated as follows:
  Office
                    furniture and equipment
                20% declining balanceLeasehold
                    Improvements
                20%
                  straight line per annum
  In
          the
          event that the future undiscounted net cash flows relating to these long
          lived
          assets exceed their carrying amounts, they are written down to fair value. Such
          impairment loss is reflected in operations in the year of
          impairment.
  Page
              7
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **2.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES**(continued)
 
 ***Development
          costs and scientific research***
 
 All
          costs
          relating to scientific research and product evaluation are expensed as
          incurred.
 Product development costs are expensed as incurred unless the product or
          process is clearly defined, the associated costs can be identified, technical
          feasibility is reached, there is intention to produce or market the product,
          the
          future market is clearly defined, and adequate resources exist or are expected
          to be available to complete the project.  To date, these criteria have not
          been met and, accordingly, no development costs have been deferred.
 
 Investment
                    tax credits and government grants received toward these costs
                    are netted
                    against the related expenses.  Investment tax credits are recognized
                    in the period in which the credits are earned and realization
                    is
                    considered more likely than not.
 
 ***Taxes
          payable***
 
 Income
          taxes are recorded using the liability method.  Future income and deduction
          amounts arise due to temporary differences between the accounting and income
          tax
          bases of the Company’s assets and liabilities.  Future income tax assets
          and liabilities are measured using substantively enacted income tax rates
          in
          effect for the year in which those temporary differences are expected to
          be
          recovered or settled.  The effect on future income tax assets and
          liabilities of a change in income tax rates is recognized in the period
          that
          includes the date of substantive enactment.  Valuation allowances are
          provided to the extent that realization of such benefits is considered
          to be
          more unlikely than not.
 
 ***Use
          of estimates***
 
 The
          preparation of the consolidated financial statements in conformity with
          generally accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and liabilities
          and
          the reported amounts of revenue and expenses during the year.  Actual
          amounts could differ from those estimates.
  Page
              8
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **2.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES******(continued)
 
 ***Financial
          instruments***
 
 The
                    fair value of financial instruments reported in these consolidated
                    financial statements approximates book value unless otherwise
                    indicated.
 
 The
          Company is exposed to risks arising from fluctuations in interest rates
          and the
          degree of volatility of these rates.  The Company does not use derivative
          instruments to reduce its exposure to interest risk.
  The
          Company is exposed to credit risk on the accounts receivable from its customers.
           In order to reduce its credit risk, the Company has adopted credit
          policies which include the analysis of the financial position of its customers
          and the regular review of their credit limit.
 
 ***Stock
          based compensation***
 
 The
          Company accounts for stock-based compensation in accordance with CICA Handbook
          section 3870 “Stock-Based Compensation and Other Stock-Based Payments”. This
          standard was effective January 1, 2002 and requires that stock-based payments
          to
          non-employees and direct awards of stock to employees and non-employees
          are
          accounted for using a fair-value method of accounting. For fiscal years
          beginning before January 1, 2004, this standard allows the estimated fair
          value
          of stock awards granted to employees to be either recognized as a compensation
          expense, or alternatively, disclosed in the notes to the financial statements,
          with accompanying disclosure of pro-forma net earnings and earnings per
          share
          data as if the estimated fair-value of the stock-based compensation had
          been
          recognized in earnings.
 
 Effective
          January 1, 2003, the Company has voluntarily adopted early application
          of the
          portion of the standard related to grants of stock options to employees.
          Under
          the standard, grants of stock options to employees are recognized in earnings
          as
          a compensation expense, based on the estimated fair value at the date of
          the
          grant. This accounting change has been applied prospectively for options
          granted
          to employees on or after January 1, 2003.
 
 ***Investments***
 
 The
          Company accounts for its investments in affiliated companies over which
          it has
          significant influence on the equity basis of accounting, whereby the investments
          are initially recorded at cost, and subsequently adjusted to recognize
          the
          Company’s share of earnings or losses of the investee companies and reduced by
          dividends received.
  Page
              9
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **2.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES******(continued)
 
 ***Foreign
          currency translation***
 
 The
                    reporting currency of the Company is the Canadian dollar.  Monetary
                    assets and liabilities denominated in currencies other than the
                    Canadian
                    dollar are translated at the rates of exchange in effect at the
                    end of the
                    year.  Non-monetary assets and liabilities are translated at historic
                    rates of exchange.  Revenues and expense items denominated in
                    currencies other than the Canadian dollar are translated into
                    Canadian
                    dollars at the average rates of exchange for the year.
 
 ***Loss
          per share***
 
 Basic
          loss per share is calculated on the weighted average number of common shares
          outstanding during the year.  The diluted loss per share is calculated
          based on the weighted average number of common shares that would have been
          outstanding during the year had all potential common shares been issued
          at the
          beginning of the year or when the underlying options or warrants were granted,
          if later.  The treasury stock method is used to determine the incremental
          number of shares that would have been outstanding had the Company used
          proceeds
          from the exercise of options and warrants to acquire common shares.
  **3.**
                **PRIOR
                    PERIOD ADJUSTMENTS**
 
 The
                    financial statements of 2002 and prior years have been restated
                    to reflect
                    the following errors identified therein and change in accounting
                    policy,
                    summarized as follows:
 
 **A**
                
                **B**
                
                **C**
                
                **D**
                
                **E**
                
                **F**
                
                **Total**Increase
                    (decrease)in
                    deficit as atJanuary
                    1, 2002
                
                $
                342,899
                
                $
                —
                
                $
                12,000
                
                
                ($12,776
                )
                
                ($31,546
                )
                
                ($315,287
                )
                $
                4,710Increase
                    (decrease)in
                    loss for the yearended
                    December31,
                    2002
                
                
                83,354
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                83,354Increase
                    (decrease)in
                    deficit as atJanuary
                    1, 2003
                
                $
                426,253
                
                $
                —
                
                $
                12,000
                
                
                ($12,776
                )
                
                ($31,546
                )
                
                ($315,287
                )
                $
                78,644
 
 Page
              10
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **3.**
                **PRIOR
                    PERIOD ADJUSTMENTS******(continued)
 
 A)
                The
                    Company was not previously accounting for the expense associated
                    with the
                    granting of stock options to non-employees as payment for services
                    received.  Under Canadian generally accepted accounting principles,
                    the Company should have been expensing stock options granted
                    to
                    non-employees since its fiscal year beginning January 1, 2002.
 As a
                    result of correcting this accounting error, there was an increase
                    in loss
                    for the year ended December 31, 2002 and an increase in contributed
                    surplus as at December 31, 2002 of $83,354.  In addition, the Company
                    has voluntarily elected to change its accounting policy with
                    respect to
                    stock options granted to non-employees as payment for services
                    received
                    prior to January 1, 2002.  As a result of this change in accounting
                    policy, there was an increase in deficit and an increase in contributed
                    surplus as at January 1, 2002 of
                    $342,899.
 
 B)
                The
                    Company was not previously accounting for warrants attached to
                    shares
                    issued.  Under Canadian generally accepted accounting principles, the
                    Company should have been allocating the cash consideration received
                    from
                    the issuance of shares and attached warrants based on the fair
                    market
                    value of each of those financial instruments with the resulting
                    amounts
                    being recorded as share capital and contributed surplus, respectively.
                     The Company was previously recording all cash received as share
                    capital.  As a result of correcting this accounting error, there was
                    an increase in contributed surplus and a decrease in share capital
                    as at
                    January 1, 2002 of $48,479.  In addition for warrants issued during
                    2002, there was a further increase in contributed surplus and
                    a decrease
                    in share capital for the year ended December 31, 2002 of $456,850.
 
 C)
                The
                    Company had not previously recorded the interest on the debenture
                    due to
                    shareholders for 1999.  As a result of correcting this accounting
                    error, there was an increase in deficit and an increase in advances
                    from
                    related parties as at January 1, 2002 of $12,000.
 
 D)
                The
                    Company had made an error in the amounts used with respect to
                    a property,
                    plant and equipment disposal in 1998.  The correction of this
                    accounting error resulted in an increase in property, plant and
                    equipment
                    and a decrease in deficit as at January 1, 2002 of $12,776.
 
 E)
                The
                    Company had previously accounted for having owned all of the
                    outstanding
                    common shares of its subsidiary Astris Inc.  However, there are
                    404,041 issued and outstanding shares of Astris Inc. that are
                    not owned by
                    the Company.  As a result of correcting this accounting error, there
                    was a decrease in deficit and a decrease in share capital (shares
                    to be
                    issued) as at January 1, 2002 of $31,546.
   Page
              11
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 
 **3.**
                **PRIOR
                    PERIOD ADJUSTMENTS******(continued)
 
 F)
                The
                    Company had recorded a liability in 1995 but at the time of recording
                    the
                    amount it did not have the characteristics of a liability.  As a
                    result of correcting this accounting error, there was a decrease
                    in
                    deficit and a decrease in advances from related parties as at
                    January 1,
                    2002 of $315,287.
  **4.**
                **PROPERTY,
                    PLANT AND EQUIPMENT**
 
 **2004****2004**
                
                **Net****2004**
                
                **Accumulated**
                
                **Book****Cost**
                
                **Amortization**
                
                **Value**Office
                    furniture and equipment
                
                $
                54,226
                
                $
                23,277
                
                $
                30,949Leasehold
                    improvements
                
                
                10,939
                
                
                5,442
                
                
                5,497$
                65,165
                
                $
                28,719
                
                $
                36,446
  **2003****2003**
                
                **Net****2003**
                
                **Accumulated**
                
                **Book****Cost**
                
                **Amortization**
                
                **Value**Furniture,
                    fixtures and equipment
                
                $
                37,419
                
                $
                11,980
                
                $
                25,439Leasehold
                    improvements
                
                
                10,939
                
                
                3,254
                
                
                7,685$
                48,358
                
                $
                15,234
                
                $
                33,124
  **2002****2002**
                
                **Net****2002**
                
                **Accumulated**
                
                **Book****Cost**
                
                **Amortization**
                
                **Value**Furniture,
                    fixtures and equipment
                
                $
                25,800
                
                $
                5,823
                
                $
                19,977Leasehold
                    improvements
                
                
                7,200
                
                
                1,440
                
                
                5,760$
                33,000
                
                $
                7,263
                
                $
                25,737
  
 Page
              12
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 
 **5.**
                **RELATED
                    PARTY TRANSACTIONS AND BALANCES**
 
 The
                    Company, in the course of its regular business activities, has
                    routine
                    transactions with affiliates.  These transactions are recorded at the
                    exchange amount.
 
 Advances
          from related parties at December 31, are summarized as follows:
 
 **2004**
                
                **2003**
                
                **2002**Advances
                    from directors
                
                $
                —
                
                $
                —
                
                $
                20,400Debenture
                    due to shareholders
                
                
                —
                
                
                100,000
                
                
                100,000$
                —
                
                $
                100,000
                
                $
                120,400
 
 ***Debenture
          due to shareholders***
 
 The
                    debenture due to shareholders was secured by a fixed and floating
                    charge
                    on all of the assets and business of Astris Inc. and bore interest
                    at 12%
                    per annum. During the year the debenture and interest accrued
                    was
                    completely paid to the shareholders by the issuance of 260,175
                    common
                    shares. The shareholders released the security on the
                    liability.
 
 Astris
          s.r.o (“s.r.o.”)
 
 The
                    Company has a 30% ownership interest in s.r.o., a Czech company,
                    in which
                    the remaining 70% is owned by a company controlled by a director,
                    officer
                    and shareholder.  The Company’s 30% interest in losses of s.r.o. has
                    been applied to its investment.  As the Company’s share of losses is
                    in excess of the original investment, the investment was written
                    down to
                    nil in 1996.
 
 The
          Company has not recorded any further share of the losses of s.r.o. over
          and
          above the original investment as the Company has not guaranteed the obligations
          of s.r.o.
 
 The
          following summarizes the cumulative unrecognized losses of s.r.o. as a
          result of
          this treatment:
 
 **2004**
                
                **2003**
                
                **2002**Unrecognized
                    income during the year
                
                $
                22,992
                
                $
                6,924
                
                $
                6,331Unrecognized
                    cumulative profits (losses)
                
                
                ($
                    1,648
                )
                
                ($24,640
                )
                
                ($31,564
                )
 
 The
                    Company regularly subcontracts portions of its research and development
                    activities to s.r.o. In addition, the Company sells its products
                    to
                    s.r.o., as required.
 
 Page
              13
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **5.**
                **RELATED
                    PARTY TRANSACTIONS AND BALANCES******(continued)
 
 As
                    at December 31:
                
                **2004**
                
                **2003**
                
                **2002**Balance
                    of funds paid included in prepaidexpenses
                    and deposits
                
                $
                —
                
                $
                30,000
                
                $
                146,074Included
                    in payables and accruals
                
                $
                588
                
                $
                137,480
                
                $
                123,919Year
                    ended December 31:Total
                    funds advanced
                
                $
                700,000
                
                $
                416,000
                
                $
                23,000Sales
                
                $
                —
                
                $
                45,901
                
                $
                140,575Purchases
                    included in research and development
                
                $
                563,108
                
                $
                729,800
                
                $
                89,159
 
 The
                    large amount of funds advanced to sro in 2004 were for operating
                    expenses,
                    the purchase of land and a building as well as equipment for
                    the new
                    electrode production facility.
 
 In
          addition, payables and accruals as at December 31, 2004 include the following
          amounts:
 
 $13,826
                    owing to Macnor Corp., a company controlled by a director, officer
                    and
                    shareholder for consulting fees (2003 - $24,266; 2002-
                    $55,061);
 
 $17,441,
                    $1,043, and $nil owing to Anthony Durkacz, Fortius Research & Trading,
                    Jiri Nor and Peter Nor who are directors, officers and shareholders
                    for
                    consulting fees or bonuses (2003 - $29,735, $26,750 and $8,125;
                    2002 -
                    $45,900, $9,231 and $nil);
 
 $nil
                    accrued interest owing to Jiri Nor, Don Blenkarn and Gerald Crawford
                    being
                    shareholders holding the debenture payable (2003 - $8,400, $8,400,
                    $4,200;
                    2002 - $3,600, $3,600 and $1,800).
 
 During
          2004, the following amounts were expensed as consulting fees to directors
          and
          officers:
 Macnor
                    Corp.
                
                $
                166,279
                
                
                (2003
                    - $143,331;
                
                
                2002
                    - $120,000
                )Gordon
                    Emerson, Gerald Crawford,David
                    Ramm and Arthur Laudenslager
                
                $
                80,875
                
                
                (2003
                    - $115,080;
                
                
                2002
                    - $ 80,299
                )Fortius
                    Research & Trading
                
                $
                100,000
                
                
                (2003
                    - $100,000;
                
                
                2002
                    - $ 28,461
                )Peter
                    Nor
                
                $
                93,455
                
                
                (2003
                    - $ 10,279;
                
                
                2002
                    - $nil
                )
 
 Page
              14
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **5.**
                **RELATED
                    PARTY TRANSACTIONS AND BALANCES******(continued)
 
 During
          2004, the following amounts were expensed as interest to
          shareholders:
 Jiri
                    Nor
                
                $
                2,800
                
                
                (2003
                    - $4,800;
                
                
                2002
                    - $4,800
                )Don
                    Blenkarn
                
                $
                2,800
                
                
                (2003
                    - $4,800;
                
                
                2002
                    - $4,800
                )Gerald
                    Crawford
                
                $
                1,400
                
                
                (2003
                    - $2,400;
                
                
                2002
                    - $2,400
                )
 
 On
          May
          26, 2003 the Board of Directors approved a compensation package for a senior
          executive whereby he will receive commission on funds raised through First
          Energy Advisors. The commission schedule was as follows: 5% paid on the
          first $1
          million, 4% on the second $1 million, 3% on the third $1 million, 2% on
          the
          fourth million and 1% on all money raised afterward. During the year, the
          following amounts were paid to the Senior Executive: $51,140(2003 -
          $29,735).
  This
                    senior executive was not re-appointed as a Director at the Shareholder
                    Meeting held on October 22, 2004. At a Board Meeting subsequent
                    to the
                    year-end, the Board terminated this compensation
                    package.
 
 **6.**
                **INCOME
                    TAXES**
 
 The
                    Company has tax non-capital loss carryforwards of approximately
                    $5,449,000. If unused, the tax losses will expire as
                    follows:
 
 2005
                
                $
                6,0002006
                
                
                61,0002007
                
                
                188,0002008
                
                
                294,0002009
                
                
                323,0002010
                
                
                1,734,0002014
                
                
                2,843,000
 
 In
                    addition, the Company has undeductible scientific research and
                    development
                    expenditures amounting to $1,520,417, which have no
                    expiry.
 
 Investment
                    tax credits recorded during the year as a reduction of expenses
                    aggregated
                    to $203,626 (2003 - $172,959).
 
 Page
              15
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 
 **6.**
                **INCOME
                    TAXES**(continued)
 
 The
                    Company’s computation of income tax recovery is as
                    follows:
 
 **2004**
                
                **2003**
                
                **2002**Loss
                    before income taxes
                
                
                ($3,462,257
                )
                
                ($2,206,969
                )
                
                ($
                    743,472
                )Statutory
                    income tax rate
                
                
                36.12
                %
                
                35.12
                %
                
                38.62
                %Income
                    tax recovery at statutory rate
                
                
                (
                    1,250,567
                )
                
                (
                    775,088
                )
                
                (
                    287,129
                )Non-deductible
                    expenses
                
                
                125,285
                
                
                114,832
                
                
                33,742Effect
                    of income tax rate changes on futureincome
                    taxes
                
                
                —
                
                
                59,360
                
                
                19,547Change
                    in valuation allowance and other items
                
                
                1,125,282
                
                
                600,896
                
                
                233,840Income
                    tax expense
                
                $
                —
                
                $
                —
                
                $
                —
  Components
                    of the Company’s net future income tax assets are:Non
                    capital losses ($5,449,000 X 0.3612)
                
                $
                1,968,179
                
                $
                982,658
                
                $
                354,532Scientific
                    research and development expense($1,520,417
                    X 0.3612)
                
                
                549,175
                
                
                273,234
                
                
                300,464Valuation
                    allowance
                
                
                (2,517,354
                )
                
                (1,255,892
                
                
                (654,996
                )Net
                    future income tax asset
                
                $
                —
                
                $
                —
                
                $
                —
  **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED
                    SURPLUS**
 
 a)
                **Share
                    capital**
 
 Share
          capital consists of the following:
  **Authorized
          (see note below)**
  Unlimited
          common shares
 10,000,000
          preferred shares
  Page
              16
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 **Issued
          and outstanding**
 
 **2004**
                
                **2003**
                
                **2002****Common
                    Shares**
                
                **Common
                    Shares**
                
                **Common
                    Shares**Issued
                    at January 1
                
                
                19,230,425
                
                $
                3,343,853
                
                
                16,106,403
                
                $
                2,525,239
                
                
                12,936,178
                
                $
                1,979,201Issued
                    during year-
                    in exchange forconsulting
                    andprofessional
                    feesand
                    expenses fromnon-related
                    parties
                
                
                1,728,872
                
                
                890,096
                
                
                209,082
                
                
                136,122
                
                
                506,050
                
                
                166,801-
                    in exchange forconsulting
                    fees andexpenses
                    fromrelated
                    parties
                
                
                586,592
                
                
                332,360
                
                
                412,825
                
                
                266,247
                
                
                657,925
                
                
                207,456-
                    In repayment ofadvance
                    fromdirectors
                
                
                293,751
                
                
                128,000
                
                
                45,500
                
                
                20,400
                
                
                -
                
                
                --
                    for cash
                
                
                4,476,911
                
                
                1,532,765
                
                
                2,456,615
                
                
                395,845
                
                
                2,006,250
                
                
                171,7817,086,126
                
                
                2,883,221
                
                
                3,124,022
                
                
                818,614
                
                
                3,170,225
                
                
                546,038Balance
                    as atDecember
                    31
                
                
                26,316,551
                
                $
                6,227,074
                
                
                19,230,425
                
                $
                3,343,853
                
                
                16,106,403
                
                $
                2,525,239
 
 The
                    weighted average number of shares outstanding during 2004 is
                    21,106,312
                    (2003 - 17,818,830; 2002 - 14,076,243). These figures are used
                    for
                    purposes of calculation of the loss per share. No effect has
                    been given to
                    the potential exercise of stock options and warrants in the calculations
                    of diluted loss per share as the effect would be anti-dilutive.
 
 At
                    the Company’s Annual Meeting held on October 22, 2004, an amendment was
                    passed increasing the authorized capital of the corporation to
                    an
                    unlimited number of common shares.
 
 No
          preferred shares have been issued.
  Page
              17
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 **b)**
                **Common
                    stock issued to settle obligations of the Company to directors,
                    officers
                    and former director of the
                    Company.**
 
 In
          2002,
          the Company issued 657,925 shares of common stock to settle obligations
          owing by
          the Company to certain directors and/or officers of the Company.
 
 **Number**
                
                **$
                    Value****Name**
                
                **Date**
                
                **of
                    Shares**
                
                **of
                    Shares**
                
                **Services
                    Performed**Macnor
                    Corp.
                
                March
                    27, 2002
                
                164,125
                
                $52,520.00
                
                Professional
                    services MC250July
                    2, 2002
                
                98,775
                
                30,000.00
                
                Company
                    controlled byOct.
                    18, 2002
                
                37,800
                
                12,000.00
                
                Director
                    and Officer**Total**
                
                **300,700**
                
                **94,520.00**G.
                    Emerson
                
                March
                    27, 2002
                
                43,750
                
                14,000.00
                
                Consulting
                    - AdministrationJuly
                    2, 2002
                
                74,000
                
                2,484.00
                
                DirectorOct.
                    18, 2002
                
                23,625
                
                7,500.00**Total**
                
                **141,375**
                
                **23,984.00**D.
                    Blenkarn
                
                March
                    27, 2002
                
                77,800
                
                24,905.93
                
                Former
                    Director, Expense**Total**
                
                **77,800**
                
                **24,905.93**
                
                RecoveryG.
                    Crawford
                
                March
                    27, 2002
                
                25,750
                
                8,242.62
                
                Director,
                    Expense Recovery**Total**
                
                **25,750**
                
                **8,242.62**J.
                    Nor
                
                March
                    27, 2002
                
                51,800
                
                16,573.77
                
                Director
                    & Officer, Expense**Total**
                
                **51,800**
                
                **16,573.77**
                
                RecoveryFortius
                    Research
                
                Oct.
                    18, 2002
                
                60,500
                
                19,230.00
                
                Financing
                    Consultingand
                    Trading
                
                **Total**
                
                **60,500**
                
                **19,230.00**
                
                Company
                    controlled byDirector
                    and Officer
   Page
              18
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 In
                    2003, the Company issued 412,825 shares of common stock to settle
                    obligations owing by the Company to certain directors and/or
                    officers of
                    the Company.
 
 **Number**
                
                **$
                    Value****Name**
                
                **Date**
                
                **of
                    Shares**
                
                **of
                    Shares**
                
                **Services
                    Performed**Macnor
                    Corp.
                
                Jan.
                    10, 2003
                
                26,775
                
                12,000.00
                
                Professional
                    services MC250May
                    8, 2003
                
                14,640
                
                12,000.00
                
                Company
                    controlled byJuly
                    16, 2003
                
                18,200
                
                13,000.00
                
                Director
                    and OfficerOct.
                    28, 2003
                
                20,200
                
                15,000.00**Total**
                
                **79,815**
                
                **52,000.00**G.
                    Emerson
                
                Jan.
                    10, 2003
                
                76,620
                
                35,245.20
                
                Consulting/AdministrationJan.
                    10, 2003
                
                23,190
                
                10,654.62
                
                DirectorMay
                    8, 2003
                
                49,015
                
                40,190.00May
                    8, 2003
                
                9,145
                
                7,500.00July
                    16, 2003
                
                10,500
                
                7,500.00Aug.
                    11, 2003
                
                2,100
                
                1,489.67Aug.
                    11, 2003
                
                17,650
                
                12,500.00**Total**
                
                **188,220**
                
                **115,079.49**D.
                    Ramm
                
                Oct.
                    28, 2003
                
                3,500
                
                2,604.16
                
                Managing
                    Director**Total**
                
                **3,500**
                
                **2,604.16**Fortius
                    Research
                
                Jan.
                    10, 2003
                
                20,600
                
                9,231.00
                
                Financing
                    Consultingand
                    Trading
                
                May
                    8, 2003
                
                30,490
                
                25,000.00
                
                Company
                    controlled byJuly
                    16, 2003
                
                35,000
                
                25,000.00
                
                Director
                    and OfficerOct.
                    28, 2003
                
                20,200
                
                15,000.00Dec.
                    16, 2003
                
                35,000
                
                22,332.00**Total**
                
                **141,290**
                
                **96,563.00**
 
 Page
              19
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 In
                    2004, the Company issued 880,343 shares of common stock to settle
                    obligations owing by the Company to certain directors and/or
                    officers of
                    the Company.
   **Number**
                
                **$
                    Value****Name**
                
                **Date**
                
                **of
                    Shares**
                
                **of
                    Shares**
                
                **Services
                    Performed**Macnor
                    Corp.
                
                Jan.
                    28, 2004
                
                17,565
                
                15,000.00
                
                Professional
                    services MC250April
                    30, 2004
                
                50,986
                
                36,455.00
                
                Company
                    controlled byJuly
                    23, 2004
                
                92,855
                
                39,000.00
                
                Director
                    and OfficerOct.
                    7, 2004
                
                42,430
                
                27,000.00Dec.
                    6, 2004
                
                62,427
                
                27,000.00**Total**
                
                **266,263**
                
                **144,455.00**G.
                    Emerson
                
                Jan.
                    28, 2004
                
                34,820
                
                29,735.00
                
                Consulting/AdministrationApril
                    30, 2004
                
                35,985
                
                25,729.00
                
                DirectorJuly
                    23, 2004
                
                420
                
                175.00Oct.
                    7, 2004
                
                13,650
                
                8,678.76Dec.
                    6, 2004
                
                33,157
                
                17,125.29**Total**
                
                **118,032**
                
                **81,443.05**D.
                    Ramm
                
                Jan.
                    26, 2004
                
                9,515
                
                8,125.00
                
                Managing
                    DirectorApril
                    30, 2004
                
                11,365
                
                8,125.00July
                    23, 2004
                
                19,345
                
                8,125.00Oct.
                    7, 2004
                
                12,770
                
                8,125.00Dec.
                    6, 2004
                
                4,450
                
                1,922.04**Total**
                
                **57,445**
                
                **34,422.04**Fortius
                    Research
                
                Jan.
                    28, 2004
                
                17,565
                
                15,000.00
                
                Financing
                    Consultingand
                    Trading
                
                July
                    23, 2004
                
                29,765
                
                12,500.00
                
                Company
                    controlled byOct.
                    7, 2004
                
                19,650
                
                12,500.00
                
                Director
                    and OfficerDec.
                    6, 2004
                
                28,900
                
                12,500.00**Total**
                
                **95,880**
                
                **52,500.00**J.
                    Nor
                
                Feb.
                    2, 2004
                
                6,715
                
                4,800.00
                
                Director
                    and OfficerApril
                    30, 2004
                
                6,715
                
                4,800.00
                
                -
                    Expense RecoveryJuly
                    27, 2004
                
                104,070
                
                41,600.00**Total**
                
                **117,500**
                
                **51,200.00**
 
 Page
              20
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 **Number**
                
                **$
                    Value****Name**
                
                **Date**
                
                **of
                    Shares**
                
                **of
                    Shares**
                
                **Services
                    Performed**G.
                    Crawford
                
                Jan.
                    28, 2004
                
                3,358
                
                4,435.00
                
                Director
                    - Expense RecoveryFeb.
                    2, 2004
                
                5,195
                
                2,400.00April
                    30, 2004
                
                3,358
                
                2,400.00July
                    23, 2004
                
                2,145
                
                900.00Oct.
                    7, 2004
                
                22,315
                
                14,900.00July
                    27, 2004
                
                52,035
                
                20,800.00Dec.
                    6, 2004
                
                1,387
                
                600.00**Total**
                
                **89,793**
                
                **46,435.00**D.
                    Blenkarn
                
                Feb.
                    2, 2004
                
                6,715
                
                4,800.00
                
                Former
                    Director - ExpenseApril
                    30, 2004
                
                6,715
                
                4,800.00
                
                RecoveryJuly
                    27, 2004
                
                104,070
                
                41,600.00**Total**
                
                **117,500**
                
                **51,200.00**A.
                    Laudenslager
                
                Oct.
                    27, 2004
                
                17,930
                
                11,404.88
                
                Director
                    - Expense Recovery**Total**
                
                **17,930**
                
                **11,404.88**
 
 
 Page
              21
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 c)
                **Contributed
                    surplus consists of the following**:
  **2004**
                
                **2003**
                
                **2002**Contributed
                    surplus, beginning of year
                
                $
                2,048,342
                
                $
                931,582
                
                $
                391,378Consulting
                    and professional fees paid inoptions
                    to non-employees
                
                
                192,481
                
                
                131,063
                
                
                83,354Stock
                    based compensation to employees
                
                
                140,892
                
                
                188,377
                
                
                —Proceeds
                    on issuance of warrants
                
                
                6,110
                
                
                —
                
                
                —Issuance
                    of warrants
                
                
                628,822
                
                
                797,320
                
                
                456,850Contributed
                    surplus, end of year
                
                $
                3,016,647
                
                $
                2,048,342
                
                $
                931,582
 
 d)
                **Common
                    stock issued for cash**
 
 Pursuant
          to a subscription agreement dated February 8, 2002, with an accredited
          investor
          as defined under the laws of the province of Ontario, the Company issued
          as a
          private placement, 125,000 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $25,000
          (U.S.).
 The common share purchase warrants are exercisable up to February 8, 2005,
          each entitling the holder to purchase one common share at $ 0.50 (U.S.)
          per
          share.
 
 In
                    accordance with the terms of a financing agreement dated November
                    7, 2002,
                    with a Canadian company, the Company had granted to it an option
                    to
                    purchase 500,000 common shares at a price of $0.20 (U.S.) per
                    share,
                    expiring on February 15, 2003. The option was fully exercised
                    on February
                    13, 2003 for proceeds of $100,000
                    (U.S.).
 
 Pursuant
          to a subscription agreement dated April 24, 2002, with an accredited investor
          as
          defined under the laws of the province of Ontario, the Company issued as
          a
          private placement, 112,500 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $22,500
          (U.S.).
 The common share purchase warrants are exercisable up to April 24, 2005,
          each entitling the holder to purchase one common share at $ 0.50 (U.S.)
          per
          share.
 
 Pursuant
          to a subscription agreement dated April 24, 2002, with an accredited investor
          as
          defined under the laws of the province of Ontario, the Company issued as
          a
          private placement, 12,500 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $2,500
          (U.S.).
 The common share purchase warrants are exercisable up to April 24, 2005,
          each entitling the holder to purchase one common share at $ 0.50 (U.S.)
          per
          share.
  Page
              22
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 Pursuant
          to a subscription agreement dated June 14, 2002, with an accredited investor
          as
          defined under the laws of the province of Ontario, the Company issued as
          a
          private placement, 487,500 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $150,000.
           The common share purchase warrants are exercisable up to June 14, 2007,
          each entitling the holder to purchase one common share at $ 0.50 (U.S.)
          per
          share.
 
 Pursuant
          to a subscription agreement dated July 17, 2002, with an accredited investor
          as
          defined under the laws of the province of Ontario, the Company issued as
          a
          private placement, 100,000 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $30,450.
           The common share purchase warrants are exercisable up to July 17, 2005,
          each entitling the holder to purchase one common share at $ 0.50 (U.S.)
          per
          share.
 
 Pursuant
                    to a subscription agreement dated November 1, 2002, with an accredited
                    investor as defined under the laws of the province of Ontario,
                    the Company
                    issued as a private placement, 50,000 units, comprising one common
                    share
                    and one common share purchase warrant each, for an aggregate
                    purchase
                    price of $10,000 (U.S.).  The common share purchase warrants are
                    exercisable up to November 1, 2007, each entitling the holder
                    to purchase
                    one common share at $ 0.50 (U.S.) per share.
 
 Pursuant
          to a subscription agreement dated November 21, 2002, with an accredited
          investor
          as defined under the laws of the province of Ontario, the Company issued
          as a
          private placement, 100,000 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $35,000.
           The common share purchase warrants are exercisable up to November 21,
          2005, each entitling the holder to purchase one common share at $ 0.50
          (U.S.)
          per share.
 
 Pursuant
          to a subscription agreement dated November 30, 2002, with an accredited
          investor
          as defined under the laws of the province of Ontario, the Company issued
          as a
          private placement, 450,000 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $90,000
          (U.S.).
 The common share purchase warrants are exercisable up to November 30,
          2007, each entitling the holder to purchase one common share at $ 0.50
          (U.S.)
          per share.
 
 Pursuant
          to a subscription agreement dated November 30, 2002, with an accredited
          investor
          as defined under the laws of the province of Ontario, the Company issued
          as a
          private placement, 175,000 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $35,000
          (U.S.).
 The common share purchase warrants are exercisable up to November 30,
          2005, each entitling the holder to purchase one common share at $ 0.50
          (U.S.)
          per share.
  Page
              23
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 Pursuant
                    to a subscription agreement dated December 31, 2002, with an
                    accredited
                    investor as defined under the laws of the province of Ontario,
                    the Company
                    issued as a private placement, 325,000 units, comprising one
                    common share
                    and one common share purchase warrant each, for an aggregate
                    purchase
                    price of $65,000 (U.S.).  The common share purchase warrants are
                    exercisable up to December 31, 2005, each entitling the holder
                    to purchase
                    one common share at $ 0.50 (U.S.) per
                    share.
 
 Pursuant
          to a subscription agreement dated February 20, 2003, with an accredited
          investor
          as defined under the laws of the province of Alberta, the Company issued
          as a
          private placement, 625,000 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $250,000.
           The common share purchase warrants are exercisable up to February 20,
          2006, each entitling the holder to purchase one common share at $ 0.50
          (U.S.)
          per share.
 
 Pursuant
          to a subscription agreement dated July 30, 2003, with an accredited investor
          as
          defined under the laws of the province of Ontario, the Company issued as
          a
          private placement, 500,000 units, comprising one common share and two common
          share purchase warrants each, for an aggregate purchase price of $250,000.
           The first tranche of common share purchase warrants is exercisable up to
          July 30, 2004, at $ 0.50 (U.S.) per share.  The second tranche of common
          share purchase warrants is exercisable up to July 30, 2006 at $ 1.00 (U.S.)
          per
          share.  Each warrant entitles the holder to purchase one common share.
 
 Pursuant
          to a subscription agreement dated September 10, 2003, with an accredited
          investor as defined under the laws of the province of Ontario, the Company
          issued as a private placement, 384,615 units, comprising one common share
          and
          one common share purchase warrant each, for an aggregate purchase price
          of
          $250,000.  The common share purchase warrants are exercisable up to
          September 12, 2006, each entitling the holder to purchase one common share
          at $
          0.85 (U.S.) per share.
 
 Pursuant
          to a subscription agreement dated September 19, 2003, with an accredited
          investor as defined under the laws of the province of Ontario, the Company
          issued as a private placement, 169,500 units, comprising one common share
          and
          one common share purchase warrant each, for an aggregate purchase price
          of
          $100,000 (U.S.).  The common share purchase warrants are exercisable up to
          September 25, 2006, each entitling the holder to purchase one common share
          at $
          1.00 (U.S.) per share.
  Page
              24
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 Pursuant
                    to a subscription agreement dated December 30, 2003, with an
                    accredited
                    investor as defined under the laws of the province of Alberta,
                    the Company
                    issued as a private placement, 177,500 units, comprising one
                    common share
                    and two common share purchase warrants each, for an aggregate
                    purchase
                    price of $120,000. The first tranche of common share purchase
                    warrants is
                    exercisable up to December 29, 2004, at $ 0.80 (U.S.) per share.
 The
                    second tranche of common share purchase warrants is exercisable
                    up to
                    December 29, 2006 at $ 1.00 (U.S.) per share.  Each warrant entitles
                    the holder to purchase one common share.
 
 Pursuant
          to a subscription agreement dated December 30, 2003, with an accredited
          investor
          as defined under the laws of the province of Ontario, the Company received
          a
          down payment for a private placement, 111,529 units, comprising one common
          share
          and one common share purchase warrant each, for an aggregate purchase price
          of
          $72,070 ($55,765 U.S.).  The common share purchase warrants are exercisable
          up to January 21, 2007, each entitling the holder to purchase one common
          share
          at $ 1.00 (U.S.) per share.  The payment is shown as a deposit on shares on
          the balance sheet.
 
 Pursuant
          to a subscription agreement dated March 3, 2004, with an accredited investor
          as
          defined under the laws of the province of Alberta, the Company issued as
          a
          private placement 651,450 units, comprising one common share and two common
          share purchase warrants each, for an aggregate purchase price of $390,870
          ($300,669 U.S.).  The first tranche of common share purchase warrants are
          exercisable up to October 1, 2005, at $0.80 (U.S.) per share. The second
          tranche
          of common share purchase warrants is exercisable up to April 1, 2007 at
          $1.00
          (U.S.) per share. Each warrant entitles the holder to purchase one common
          share.
 
 Pursuant
          to a subscription agreement dated March 26, 2004, with an accredited investor
          as
          defined under the laws of the province of Ontario, the Company issued as
          a
          private placement 236,035 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $138,080
          ($106,216 U.S.). The common share purchase warrants are exercisable up
          to March
          27, 2007, each entitling the holder to purchase one common share at $0.50
          (U.S.)
          per share.
 
 Pursuant
          to a subscription agreement dated March 31, 2004, with an accredited investor
          as
          defined under the laws of the province of Alberta, the Company issued as
          a
          private placement 104,500 units, comprising one common share and two common
          share purchase warrants each, for an aggregate purchase price of $61,100
          ($47,000 U.S.).  The first tranche of common share purchase warrants are
          exercisable up to October 1, 2005, at $0.80 (U.S.) per share. The second
          tranche
          of common share purchase warrants is exercisable up to April 1, 2007 at
          $1.00
          (U.S.) per share. Each warrant entitles the holder to purchase one common
          share.
  Page
              25
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                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 Pursuant
          to a subscription agreement dated June 3, 2004, with an accredited investor
          as
          defined under the laws of the province of Alberta, the Company issued as
          a
          private placement 79,630 units, comprises of one common share and one common
          share purchase warrant each, for an aggregate purchase price of $43,000.
           The common share purchase warrants are exercisable up to June 30, 2007
          each entitling the holder to purchase one common share at $0.80 (U.S.)
          per
          share.
 Pursuant
                      to subscription agreements dated July 26 - 28, 2004, with certain
                      accredited investors as defined under the laws of the province
                      of Alberta,
                      Canada and the United States, the Company issued as private
                      placements
                      1,694,167 units comprised of one common share and one common
                      share
                      purchase warrant each, for an aggregate purchase price of $660,725.
                       The common share purchase warrants are exercisable up to December
                      31, 2005, each entitling the holder to purchase one common
                      share at $0.50
                      (U.S.) per share.
 
 Pursuant
                    to a subscription agreement dated October 1, 2004, with a U.S.
                    company,
                    the Company issued as a private placement 88,900 units, comprising
                    one
                    common share and one common share purchase warrant each, for
                    an aggregate
                    purchase price of $52,000.  The common share purchase warrants are
                    exercisable up to September 30, 2007 each entitling the holder
                    to purchase
                    one common share at $0.90 (U.S.) per
                    share.
 
 Pursuant
                    to a subscription agreement dated October 1, 2004, with a U.S.
                    company,
                    the Company issued as a private placement 88,900 units, comprising
                    one
                    common share and one common share purchase warrant each, for
                    an aggregate
                    purchase price of $52,000.  The common share purchase warrants are
                    exercisable up to September 30, 2007 each entitling the holder
                    to purchase
                    one common share at $0.90 (U.S.) per
                    share.
 
 Pursuant
                    to subscription agreement dated October 8, 2004, with an accredited
                    investor as defined under the laws of the province of Ontario,
                    Canada, the
                    Company issued as a private placement 20,000 units comprising
                    one common
                    share and one common share purchase warrant each, for an aggregate
                    purchase price of $11,500.  The common share purchase warrants are
                    exercisable up to October 8, 2007, each entitling the holder
                    to purchase
                    one common share at $0.90 (U.S.) per
                    share.
 
 Pursuant
                    to a subscription agreement dated December 3, 2004, with a U.S.
                    company,
                    the Company issued as a private placement 166,700 units, comprising
                    one
                    common share and one common share purchase warrant each, for
                    an aggregate
                    purchase price of $62,500.  The common share purchase warrants are
                    exercisable up to December 3, 2007 each entitling the holder
                    to purchase
                    one common share at $0.60 (U.S.) per
                    share.
   Page
              26
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 e)
                **Stock
                    option plans**
 
 The
                    Company has stock option plans for its employees and consultants
                    who are
                    regarded as integral to the benefit and progress of the Company
                    and its
                    operations. Options are normally issued as a bonus of employment
                    or are
                    tied into performance related compensation. Performance related
                    compensation includes completion of research and development
                    projects
                    within specific timeframes and budget, achieving financial targets
                    on
                    behalf of the Company or introduction/referral/completion of
                    business
                    agreements or arrangements. In general, the minimum vesting requirement
                    of
                    options issued is one year. The maximum term of options is five
                    years from
                    the grant date. Normally, the exercise price of the option is
                    determined
                    using the five-day closing average of the shares prior to the
                    grant
                    date.
 
 On
                    October 22, 2004, the Board of Directors passed a resolution
                    authorizing
                    an amendment increasing the maximum number of common shares for
                    issuance
                    under the Company’s Stock Option Plan to
                    5,100,000.
 
 For
                    the year ended December 31, 2002, a total of 395,000 stock options
                    were
                    granted to employees in accordance with the terms of the employee
                    share
                    option plan. Had the Company determined compensation cost based
                    on the
                    fair value method, the fair value of the stock options granted
                    during the
                    year and the related expense for the year would have been $116,897
                    or
                    $0.008 per share on a basic and diluted basis. Pro forma loss
                    for the year
                    ended December 31, 2002 would have been $860,369 or $0.061 per
                    share on a
                    basic and diluted basis.
 
 In
                    November 2003, one non-related party exercised 100,000 options
                    at $0.30
                    (U.S.) for total proceeds of $30,000
                    (U.S.).
 
 For
                    the three months ended June 30, 2004, one employee exercised
                    40,000
                    options at $0.20 (U.S.) for total proceeds of $10,400 and one
                    non-related
                    party exercised 200,000 options at $0.30 (U.S.) for total proceeds
                    of
                    $81,732.
 
 For
                    the three months ended September 30, 2004, one non-related party
                    exercised
                    120,000 options at $0.30 (U.S.) for total proceeds of
                    $46,770.
 
 For
                    the three months ended December 31, 2004, one non-related party
                    exercised
                    580,000 options at $0.30 (U.S.) for total proceeds of $219,358.
                    One
                    director exercised 62,500 options for $0.25 for total proceeds
                    of
                    $15,625.
 
 For
                    the three months ended December 31, 2004, stock options were
                    granted as
                    follows under the Company’s Stock Option
                    Plan:
   Page
              27
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 To
                    employees, 149,170 at a price of $0.35 (U.S.) expiring December
                    16,
                    2009.
 To
                    consultants, 154,670 at a price of $0.35 (U.S.) expiring December
                    16,
                    2009.
 To
                    an officer, 100,000 at a price of $0.36 (U.S.) expiring December
                    6,
                    2009.
 To
          a
          director, 500,000 at a price of $0.36 (U.S.) expiring December 11, 2009
          subject
          to certain conditions
 
 Stock
                    options are valued using the Black-Scholes option pricing model
                    with the
                    following assumptions: risk free interest rate of 3.62%, expected
                    life of
                    between 1 year and 5 years, expected volatility of 112%, closing
                    rate of
                    exchange on the issue date and no dividends. The total expense
                    charged
                    against income related to options in 2004 was $333,372 (2003
                    - $319,440;
                    2002 - $83,354). This includes $227,411 (2003 - $131,063; 2002
                    - $83,354)
                    for consulting and professional fees and expenses paid in options
                    to a
                    director or officer and $105,962 (2003 - $188,377; 2002 - $Nil)
                    for
                    stock-based compensation to employees. These amounts are included
                    in the
                    contributed surplus account.
 
 **Weighted****Average****Options
                    For**
                
                **Exercise****Common
                    Shares**
                
                **Price
                    U.S.$**Balance,
                    December 31, 2001
                
                
                2,400,000
                
                
                0.33Options
                    granted in 2002
                
                
                1,725,000
                
                
                0.23Options
                    exercised in 2002
                
                
                —
                
                
                —Options
                    forfeited in 2002
                
                
                (500,000
                )
                
                0.20Balance,
                    December 31, 2002
                
                
                3,625,000
                
                
                0.30Options
                    granted in 2003
                
                
                580,000
                
                
                0.52Options
                    exercised in 2003
                
                
                (
                    600,000
                )
                
                0.22Options
                    terminated in 2003
                
                
                (250,000
                )
                
                0.40Balance,
                    December 31, 2003
                
                
                3,335,000
                
                
                0.34Options
                    granted in 2004
                
                
                903,840
                
                
                0.36Options
                    exercised in 2004
                
                
                (1,002,500
                )
                
                0.29Options
                    forfeited or terminated in 2004
                
                
                (312,500
                )
                
                0.44Balance,
                    December 31, 2004
                
                
                2,943,840
                
                
                0.35
 
 Page
              28
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 **Weighted****Average****Options
                    For**
                
                **Exercise****Common
                    Shares**
                
                **Price
                    U.S.$**Exercisable
                    at December 31, 2002
                
                
                2,400,000
                
                
                0.32Exercisable
                    at December 31, 2003
                
                
                2,775,000
                
                
                0.30Exercisable
                    at December 31, 2004
                
                
                2,343,840
                
                
                0.35
  The
                    following table summarizes information about the Company’s stock options
                    outstanding as at December 31, 2004:
  **Weighted****Number**
                
                **Average**
                
                **Weighted**
                
                **Number**
                
                **Weighted****Exercise**
                
                **Outstanding
                    at**
                
                **Remaining**
                
                **Average**
                
                **Exercisable**
                
                **Average****Price**
                
                **December
                    31,**
                
                **Contractual**
                
                **Share
                    Price**
                
                **December
                    31,**
                
                **Share
                    Price****U.S.$**
                
                **2004**
                
                **Life
                    in Years**
                
                **U.S.$**
                
                **2004**
                
                **U.S.$**0.17
                    - 0.25
                
                
                1,160,000
                
                
                1.99
                
                
                0.22
                
                
                1,160,000
                
                
                0.220.26
                    - 0.50
                
                
                1,453,840
                
                
                3.95
                
                
                0.41
                
                
                853,840
                
                
                0.450.51
                    - 0.63
                
                
                330,000
                
                
                1.92
                
                
                0.54
                
                
                330,000
                
                
                0.542,943,840
                
                
                
                
                
                
                
                
                2,343,840
 
 f)
                **Common
                    share purchase warrants**
 
 At
                    December 31, 2002, the Company had a total of 2,212,500 common
                    share
                    purchase warrants issued. These warrants had expiry dates ranging
                    from
                    September 2004 to November 2007. The weighted average exercise
                    price of
                    the warrants was $0.50 (U.S.).
 
 As
                    at December 31, 2003, the Company has a total of 4,746,615 common
                    share
                    purchase warrants issued. These warrants have expiry dates ranging
                    from
                    September 2004 to November 2007. The weighted average exercise
                    price of
                    the warrants was $0.63 (U.S.).
 
 On
                    December 9, 2004, the Company issued 500,000 warrants to a director
                    to
                    purchase 500,000 common shares at a strike price of $0.37 U.S.,
                    expiring
                    on December 9, 2007, for proceeds of $6,110. This was subject
                    to the
                    director raising an agreed upon amount of
                    financing.
   Page
              29
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 Opening
          balance as at December 31, 2001 - 275,000 warrants
 
 **1,937,500
          warrants were issued in 2002 to third parties as follows:**
 
 **Issue**
                
                **Expiry**
                
                **Number
                    of**
                
                **Exercise****Date**
                
                **Date**
                
                **Warrants**
                
                **Price****Recipient**Schloo
                    Family Trust
                
                
                Feb.
                    8, 2002
                
                
                Feb.
                    8, 2005
                
                
                125,000
                
                
                U.S.$0.50Kevin
                    Thomas Little
                
                
                March
                    24, 2002
                
                
                March
                    24, 2005
                
                
                12,500
                
                
                U.S.$0.50Anthony
                    Durkacz (Director)
                
                
                March
                    24, 2002
                
                
                March
                    24, 2005
                
                
                112,500
                
                
                U.S.$0.50Wintser
                    Investments Ltd.
                
                
                June
                    14, 2002
                
                
                June
                    14, 2007
                
                
                487,500
                
                
                U.S.$0.50Shelley
                    Blechman
                
                
                July
                    17, 2002
                
                
                July
                    17, 2007
                
                
                100,000
                
                
                U.S.$0.50661399
                    Ontario Inc.
                
                
                Nov.
                    1, 2002
                
                
                Nov.
                    1, 2007
                
                
                50,000
                
                
                U.S.$0.50Wintser
                    Investments Ltd.
                
                
                Nov.
                    21, 2002
                
                
                Nov.
                    21, 2005
                
                
                100,000
                
                
                U.S.$0.50661399
                    Ontario Inc.
                
                
                Nov.
                    30, 2002
                
                
                Nov.
                    30, 2007
                
                
                450,000
                
                
                U.S.$0.50661399
                    Ontario Inc.
                
                
                Nov.
                    30, 2002
                
                
                Nov.
                    30, 2005
                
                
                175,000
                
                
                U.S.$0.50661399
                    Ontario Inc.
                
                
                Dec.
                    31, 2002
                
                
                Dec.
                    31, 2005
                
                
                325,000
                
                
                U.S.$0.50
  **2,750,744
                    warrants were issued in 2003 to third parties as
                    follows:****Recipient**The
                    Taylor Made Mgmt Corp.
                
                
                May
                    8, 2003
                
                
                Feb.
                    20, 2006
                
                
                625,000
                
                
                U.S.$0.50PSSI
                    Paralegal Support Services
                
                
                July
                    30, 2003
                
                
                July
                    30, 2004
                
                
                500,000
                
                
                ExpiredPSSI
                    Paralegal Support Services
                
                
                July
                    30, 2003
                
                
                July
                    30, 2006
                
                
                500,000
                
                
                U.S.$1.00Dympna
                    Carroll
                
                
                Sept.
                    12, 2003
                
                
                Sept.
                    12, 2006
                
                
                384,615
                
                
                U.S.$0.85Donal
                    Carrol
                
                
                Sept.
                    25, 2003
                
                
                Sept.
                    25, 2006
                
                
                169,500
                
                
                U.S.$1.00The
                    Taylor Made Mgmt Corp.-A
                
                
                Dec.
                    29, 2003
                
                
                Sept.
                    29, 2004
                
                
                50,000
                
                
                ExpiredThe
                    Taylor Made Mgmt Corp.-B
                
                
                Dec.
                    29, 2003
                
                
                Dec.
                    29, 2006
                
                
                282,100
                
                
                U.S.$1.00PSSI
                    Paralegal Support Services
                
                
                Dec.
                    30, 2003
                
                
                Jan.
                    21, 2007
                
                
                239,529
                
                
                U.S.$1.00**4,386,232
                    warrants were issued in 2004 to third parties as
                    follows:****825,000
                    warrants expired in 2004 (550K issued in 2003 and 275K issued
                    in
                    2001)**
   Page
              30
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
 
 **Issue**
                
                **Expiry**
                
                **Number
                    of**
                
                **Exercise****Date**
                
                **Date**
                
                **Warrants**
                
                **Price****Recipient**The
                    Taylor Made Mgmt Corp.-A
                
                
                March
                    31, 2004
                
                
                Oct.
                    1, 2005
                
                
                651,450
                
                
                U.S.$0.80The
                    Taylor Made Mgmt Corp.-B
                
                
                March
                    31, 2004
                
                
                Oct.
                    1, 2005
                
                
                651,450
                
                
                U.S.$1.00PSSI
                    Paralegal Support Services
                
                
                March
                    26, 2004
                
                
                March
                    26, 2007
                
                
                236,035
                
                
                U.S.$1.00The
                    Taylor Made Mgmt Corp.-A
                
                
                March
                    31, 2004
                
                
                Oct.
                    1, 2005
                
                
                104,500
                
                
                U.S.$0.80The
                    Taylor Made Mgmt Corp.-B
                
                
                March
                    31, 2004
                
                
                March
                    1, 2007
                
                
                104,500
                
                
                U.S.$1.00The
                    Taylor Made Mgmt Corp.-A
                
                
                June
                    30, 2004
                
                
                June
                    30, 2007
                
                
                79,630
                
                
                U.S.$0.80Michael
                    Wright
                
                
                July
                    27, 2004
                
                
                Dec.
                    31, 2005
                
                
                200,000
                
                
                U.S.$0.50Alternate
                    Energy Corp.
                
                
                July
                    27, 2004
                
                
                Dec.
                    31, 2005
                
                
                1,000,000
                
                
                U.S.$0.50Donal
                    Carrol
                
                
                July
                    27, 2004
                
                
                Dec.
                    31, 2005
                
                
                140,000
                
                
                U.S.$0.50Phillip
                    Patterson
                
                
                July
                    27, 2004
                
                
                Dec.
                    31, 2005
                
                
                10,000
                
                
                U.S.$0.50The
                    Taylor Made Mgmt Corp.-A
                
                
                July
                    27, 2004
                
                
                Dec.
                    31, 2005
                
                
                344,167
                
                
                U.S.$0.50Belcor
                    Development Corporation
                
                
                Oct.
                    1, 2004
                
                
                Sept.
                    30, 2007
                
                
                88,900
                
                
                U.S.$0.90Belcor
                    Development Trust
                
                
                Oct.
                    1, 2004
                
                
                Sept.
                    30, 2007
                
                
                88,900
                
                
                U.S.$0.90Phillip
                    Patterson
                
                
                Oct.
                    8, 2004
                
                
                Sept.
                    30, 2007
                
                
                20,000
                
                
                U.S.$0.90Belcor
                    Development Corporation
                
                
                Dec.
                    3, 2004
                
                
                Dec.
                    3, 2007
                
                
                166,700
                
                
                U.S.$0.60Liikfam
                    Holdings Inc.
                
                
                Dec.
                    9, 2004
                
                
                Dec.
                    9, 2007
                
                
                500,000
                
                
                U.S.$0.37**Closing
                    balance as at December 31, 2004 = 8,524,476
                    warrants.**
 
 
 Page
              31
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
  **Total****Common
                    Shares**
                
                **Contributed**
                
                
                
                **Shareholders’****Number**
                
                **Amount**
                
                **Surplus**
                
                **Deficit**
                
                **Equity**g)
                    Balance, December 31,2001,
                    restated
                
                
                12,936,178
                
                $
                1,979,201
                
                $
                391,378
                
                
                ($2,577,729
                )
                
                ($
                    207,150
                )Shares
                    issued for cash
                
                
                2,006,250
                
                
                628,631
                
                
                
                
                
                
                
                
                628,631Consulting
                    and professionalfees
                    paid in options to non-employees
                
                
                
                
                
                
                
                
                83,354
                
                
                
                
                
                83,354Issuance
                    of warrants
                
                
                
                
                
                (
                    456,850
                )
                
                456,850Consulting,
                    professionalfees
                    and expenses fromnon-related
                    parties
                
                
                506,050
                
                
                166,801
                
                
                
                
                
                
                
                
                166,801Consulting
                    fees and expensesfrom
                    related parties
                
                
                657,925
                
                
                207,456
                
                
                
                
                
                
                
                
                207,456Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                (
                    620,654
                )
                
                (
                    620,654
                )Deferred
                    costs written off
                
                
                
                
                
                
                
                
                
                
                
                (122,818
                )
                
                (122,818
                )Balance,
                    December 31, 2002,restated
                
                
                16,106,403
                
                
                2,525,239
                
                
                931,582
                
                
                (3,321,201
                )
                
                135,620Shares
                    issued for cash
                
                
                2,456,615
                
                
                1,193,165
                
                
                
                
                
                
                
                
                1,193,165Consulting
                    and professionalfees
                    paid in options to non-employees
                
                
                
                
                
                
                
                
                131,063
                
                
                
                
                
                131,063Issuance
                    of warrants
                
                
                
                
                
                (
                    797,320
                )
                
                797,320Stock
                    based compensationto
                    employees
                
                
                
                
                
                
                
                
                188,377
                
                
                
                
                
                188,377Consulting,
                    professional feesand
                    expenses from non-related
                    parties
                
                
                209,082
                
                
                136,122
                
                
                
                
                
                
                
                
                136,122Repayment
                    of advancesfrom
                    directors
                
                
                45,500
                
                
                20,400
                
                
                
                
                
                
                
                
                20,400Consulting
                    fees and expensesfrom
                    related parties
                
                
                412,825
                
                
                266,247
                
                
                
                
                
                
                
                
                266,247Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                (2,206,969
                )
                
                (2,206,969
                )Balance,
                    December 31, 2003
                
                
                19,230,425
                
                
                3,343,853
                
                
                2,048,342
                
                
                (5,528,170
                )
                
                (135,975
                )
 
 Page
              32
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED SURPLUS**(continued)
  **Total****Common
                    Shares**
                
                **Contributed**
                
                
                
                **Shareholders’****Number**
                
                **Amount**
                
                **Surplus**
                
                **Deficit**
                
                **Equity**Balance,
                    December 31, 2003,carried
                    over
                
                
                19,230,425
                
                
                3,343,853
                
                
                2,048,342
                
                
                (
                    5,528,170
                )
                
                (
                    135,975
                )Shares
                    issued for cash
                
                
                4,476,911
                
                
                2,161,587
                
                
                
                
                
                
                
                
                2,161,587Consulting
                    and professionalfees
                    paid in options to non-employees
                
                
                
                
                
                
                
                
                192,481
                
                
                
                
                
                192,481Stock
                    based compensationto
                    employees
                
                
                
                
                
                
                
                
                140,892
                
                
                
                
                
                140,892Issuance
                    of warrants
                
                
                
                
                
                (
                    628,822
                )
                
                628,822Proceeds
                    on issuance ofwarrants
                
                
                
                
                
                
                
                
                6,110
                
                
                
                
                
                6,110Consulting,
                    professional feesand
                    expenses from non-related
                    parties
                
                
                1,728,872
                
                
                890,096
                
                
                
                
                
                
                
                
                890,096Repayment
                    of debentureand
                    accrued interest fromdirectors
                
                
                293,751
                
                
                128,000
                
                
                
                
                
                
                
                
                128,000Consulting
                    fees and expensesfrom
                    related parties
                
                
                586,592
                
                
                332,360
                
                
                
                
                
                
                
                
                332,360Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                (3,462,257
                )
                
                (3,462,257
                )Balance,
                    December 31, 2004
                
                
                26,316,551
                
                $
                6,227,074
                
                $
                3,016,647
                
                
                ($8,990,427
                )
                $
                253,294
 
 Page
              33
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **8.**
                **CONSOLIDATED
                    STATEMENTS OF CASH
                    FLOW**
 
 The
                    net change in non-cash operating working capital balances related
                    to
                    operations consists of the following:
   **2004**
                
                **2003**
                
                **2002**Decrease
                    (increase) in receivables
                
                
                ($
                    2,544
                )
                $
                29,440
                
                $
                7,123Decrease
                    (increase in prepaid expenses
                
                
                27,088
                
                
                112,571
                
                
                (
                    148,727
                )Decrease
                    (increase) in investment tax creditsrefundable
                
                
                (
                    199,586
                )
                
                216,608
                
                
                (
                    216,608
                )Increase
                    (decrease) in payables and accruals
                
                
                (
                    143,303
                )
                
                (
                    10,913
                )
                
                149,568Increase
                    (decrease) in goods and servicesTax
                    payable
                
                
                (11,269
                )
                
                (26,547
                )
                
                (12,614
                )($329,614
                )
                $
                321,159
                
                
                ($221,258
                )
 
 **9.**
                **SEGMENTED
                    FINANCIAL INFORMATION**
 
 The
                    Company currently operates in a single reporting segment, being
                    the
                    design, development, manufacturing and sale of alkaline fuel
                    cells (AFCs)
                    and alkaline fuel cell systems, fuel cell and battery test loads
                    and
                    provides engineering and other services.  Substantially all of the
                    Company’s long lived assets are located in Canada.  Revenue is
                    derived primarily from the sale of goods and services to customers
                    located
                    as follows:
 
 **2004**
                
                **2003**
                
                **2002**Canada
                
                $
                7,508
                
                $
                7,008
                
                $
                591Czech
                    Republic
                
                
                4,310
                
                
                45,901
                
                
                140,575Rest
                    of the World
                
                
                76,980
                
                
                14,961
                
                
                39,002$
                88,798
                
                $
                67,870
                
                $
                180,168
  **10.**
                **COMMITMENTS**
 
 The
                    Company has operating leases for office and laboratory space.
 The
                    minimum annual lease payments under the terms of the existing
                    leases are $
                    33,800 to October 31, 2005, plus proportionate share of common
                    costs.
 
 
 Page
              34
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **11.**
                **COMPARATIVE
                    FIGURES**
 
 Certain
                    comparative figures have been reclassified to conform to the
                    current
                    year’s presentation.
 
 **12.**
                **SUBSEQUENT
                    EVENTS**
 
 a)
                Effective
                    January 1, 2005, the Company, Astris Energi Inc., and its wholly-owned
                    subsidiary, Astris Inc. were amalgamated to streamline administrative
                    functions. The amalgamated Company continues with the same name
                    as the
                    parent company.
 
 b)
                On
                    January 2, 2005, the Company acquired the remaining 70% of the
                    outstanding
                    shares in Astris s.r.o., its affiliate company in the Czech
                    Republic.
 
 The
          aggregate purchase price was $2,209,000 compensated by issuing 5,000,000
          common
          shares of the Company for $1,955,000 and 5,000,000 warrants for $254,000.
          2,500,000 common shares will be held in escrow for one year until January
          2,
          2006. Each warrant entitles the holder to one common share of the
          Company.
 The
          value
          of the 30% of Astris s.r.o. already owned by the Company had been written
          down
          to a value of $Nil.
 
 The
                      following table summarizes the fair value of the assets acquired
                      and
                      liabilities assumed at the date of acquisition based on a conversion
                      rate
                      of 18.6637 Czech Korunas for each Canadian
                      $1.00.
 The
          following amounts are based on that valuation in CDN$:
 Current
                    assets
                
                $
                150,041Property,
                    plant and equipment
                
                
                570,564Technology
                
                
                1,520,847Total
                    assets acquired
                
                
                2,241,452Less:
                    Current liabilities assumed
                
                
                (32,452
                )Net
                    assets acquired
                
                $
                2,209,000
 
 Page
              35
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **12.**
                **SUBSEQUENT
                    EVENTS**(continued)
 
 Had
                    the Company and Astris s.r.o. been consolidated for the year
                    ended
                    December 31, 2004, the pro-forma financial statements would have
                    shown the
                    following:
 
 **Canadian
                    GAAP**
 
 **Pro-Forma
                    Consolidated Balance Sheet as at December 31,
                    2004****Assets**Current
                
                $
                569,335Property
                    and equipment
                
                
                607,010Technology
                
                
                1,521,972$
                2,698,317**Liabilities**Current
                
                $
                289,715**Shareholders’
                    Equity**Share
                    capital
                
                
                8,182,074Contributed
                    surplus
                
                
                3,270,647Deficit
                
                
                (9,044,119
                )2,408,602$
                2,698,317
 
 **Pro-Forma
                    Consolidated Statement of Loss for the Year Ended December 31,
                    2004****Revenue**
                
                $
                155,381**Expenses**Research
                    and Development
                
                
                793,582General
                    and administrative
                
                
                2,385,134Interest
                    expense
                
                
                15,033Income
                    tax
                
                
                3,361Professional
                    fees
                
                
                244,416Amortization
                
                
                60,5033,502,029Net
                    loss for the year
                
                
                ($3,346,648
                )
   Page
              36
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **12.**
                **SUBSEQUENT
                    EVENTS**(continued)
 
 **United
          States GAAP**
 
 **Pro-Forma
                    Consolidated Balance Sheet as at December 31,
                    2004****Assets**Current
                
                $
                569,335Property
                    and equipment
                
                
                607,010Technology
                
                
                0$
                1,176,345
 
 **Liabilities**Current
                
                $
                289,715**Shareholders’
                    Equity**Share
                    capital
                
                
                8,182,074Contributed
                    surplus
                
                
                3,270,647Deficit
                
                
                (10,566,091
                )886,630$
                1,176,345
 
 **Pro-Forma
                    Consolidated Statement of Loss for the Year Ended December 31,
                    2004****Revenue**
                
                $
                155,381**Expenses**Research
                    and Development
                
                
                2,315,554General
                    and administrative
                
                
                2,385,134Interest
                    expense
                
                
                15,033Income
                    tax
                
                
                3,361Professional
                    fees
                
                
                244,416Amortization
                
                
                60,5035,024,001Net
                    loss for the year
                
                
                ($4,868,620
                )
   Page
              37
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **13.**
                **DIFFERENCES
                    BETWEEN CANADIAN AND UNITED STATES ACCOUNTING
                    PRINCIPLES**
 
 This
                    reconciliation only covers measurement issues and not disclosure
                    issues
                    pursuant to the rules and regulations of the Securities and Exchange
                    Commission.
 
 The
                    consolidated financial statements of the Company for the years
                    ended
                    December 31, 2004, 2003 and 2002 have been prepared in accordance
                    with
                    generally accepted accounting principles as applied in Canada
                    (“Canadian
                    GAAP”). In the following respects, generally accepted accounting
                    principles as applied in the United States (“US GAAP”) differ from those
                    applied in Canada.
 
 There
          would be no adjustments needed to arrive at net loss for the years ended
          December 31, 2004, 2003 and 2002 if US GAAP were employed.  Similarly,
          there would be no adjustments needed to arrive at shareholders’ equity as at
          December 31, 2004, 2003 and 2002 if US GAAP were employed.
 
 ***Technology
          Asset***
 
 Under
                    U.S. GAAP, the fair value of the technology asset must be obtained
                    by a
                    direct value method. In January 2005, it was not possible to
                    reasonably
                    project the cash flows to be generated from sales of AFC electrodes.
                    Acquired technology must be expensed under U.S. GAAP; therefore,
                    it has
                    been written off as part of the reconciliation. Under Canadian
                    GAAP it
                    will be written off over an estimated useful life of 5 years.
 
 ***Stock-Based
          Compensation Plan***
 
 Note
                    3A to the financial statements includes an element for Canadian
                    GAAP
                    purposes that is a correction of error and an element that is
                    a change in
                    accounting policy.  Under US GAAP, the Company should have been
                    expensing stock options granted to non-employees since January
                    1, 1996. As
                    such the prior period adjustment due to the change in accounting
                    policy,
                    described in Note 3A, is a prior period adjustment due to correction
                    of
                    error for U.S. GAAP purposes.
 
 Page
              38
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **13.**
                **DIFFERENCES
                    BETWEEN CANADIAN AND UNITED STATES ACCOUNTING
                    PRINCIPLES**(continued)
 
 ***Accounting
                    for future (deferred) income
                    taxes***
 
 The
                    significant differences between U.S. GAAP and Canadian GAAP in
                    the
                    accounting for future income taxes relate to the treatment of
                    proposed
                    changes in income tax rates and terminology. Under Canadian GAAP,
                    future
                    income tax assets and liabilities are measured using substantively
                    enacted
                    tax rates and laws expected to apply when the differences between
                    the
                    accounting basis and tax basis of assets and liabilities reverse.
                    Under
                    U.S. GAAP, future income tax assets and liabilities are called
                    deferred
                    income tax assets and liabilities and are measured using only
                    currently
                    enacted tax rates and laws. As at December 31, 2004, 2003 and
                    2002, the
                    difference in rate determination did not result in any adjustment
                    from
                    Canadian to U.S. GAAP since any deferred tax assets were not
                    considered
                    more likely than not to be realized and, accordingly, a full
                    valuation
                    allowance was recorded on such
                    assets.
 
 ***Variable
                    interest entities***
 
 The
                    Company has determined that the provisions of FIN46 (variable
                    interest
                    entities) are not relevant to its interest in its Astris s.r.o.
                    affiliate.
                    (See Subsequent Events Note 12.)
 
 ***Property,
                    plant and equipment***
 
 There
                    is a difference between U.S. GAAP and Canadian GAAP for property,
                    plant
                    and equipment with respect to terminology. Under U.S. GAAP, property,
                    plant and equipment are called “fixed
                    assets”.
 
 ***Contributed
                    surplus***
 
 There
                    is a difference between U.S. GAAP and Canadian GAAP for contributed
                    surplus with respect to terminology. Under U.S. GAAP, contributed
                    surplus
                    is called “additional paid in
                    capital”.
 
 **14.**
                **SUPPLEMENTARY
                    DISCLOSURES WITH RESPECT TO CONSOLIDATED STATEMENT OF CASH FLOW
                    AND
                    NON-CASH ITEMS**
 
 **2004**
                
                **2003**
                
                **2002**Non-cash
                    items(Decrease)
                    increase in advances from related party
                
                $
                100,000
                
                $
                —
                
                $
                —Supplementary
                    disclosuresInterest
                    paid
                
                
                —
                
                
                —
                
                
                15,000Investment
                    tax credits recovered
                
                
                5,820
                
                
                388,499
                
                
                -
   Page
              39
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **15.**
                **RESTATEMENT**
 
 Subsequent
                    to the issue of the financial statements for the year ended December
                    31,
                    2004 that was filed with the U.S. Securities and Exchange Commission
                    on
                    May 5, 2005, the Company made the following adjustments to the
                    financial
                    statement:
 
 a)
                Non-cash
                    items have been excluded from financing activities. A summary
                    of the
                    effect of the restatement is as
                    follows:
 
 **Year
                    Ended December 31, 2004****As
                    Reported**
                
                **Restatement**
                
                **As
                    Restated**(Decrease)
                    increase in advances fromrelated
                    parties
                
                
                ($
                    100,000
                )
                $
                100,000
                
                $
                —Financing
                    activities - total
                
                
                1,903,971
                
                
                100,000
                
                
                2,003,971Consulting
                    fees and expenses paid incapital
                    stock to related parties
                
                
                460,360
                
                
                (
                    100,000
                )
                
                360,360Cash
                    (used) in operating activities
                
                
                (
                    2,002,906
                )
                
                (
                    100,000
                )
                
                (
                    2,102,906
                )
 
 b)
                Supplementary
                    disclosures with respect to consolidated statement of cash flow
                    and
                    non-cash items has been expanded in note 14. A summary of the
                    effect of
                    the restatement is as follows:
 **As
                      Reported**
 
 **2004**
                
                **2003**
                
                **2002**Interest
                    paid
                
                $
                —
                
                $
                —
                
                $
                15,000Investment
                    tax credit received
                
                
                5,820
                
                
                388,499
                
                
                —
 
 Page
              40
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **15.**
                **RESTATEMENT**(continued)
 
 **As
                    Restated**
 
 **2004**
                
                **2003**
                
                **2002**Non-cash
                    items(Decrease)
                    Increase in advances fromrelated
                    party
                
                $
                100,000
                
                $
                —
                
                $
                —Supplementary
                    disclosuresInterest
                    paid
                
                
                —
                
                
                —
                
                
                15,000Investment
                    tax credits recovered
                
                
                5,820
                
                
                388,499
                
                
                —
 
 c)
                In
                    note 5, related party transactions and balances, all generic
                    titles have
                    been changed to the actual individual or corporations to which
                    they were
                    paid.
 
 The
                    changes are as follows:
 
 **Original
                    Title**
                
                **Restated
                    Title****Payable
                    and accruals**:Company
                    controlled by a director, officer
                
                Macnor
                    Corp.and
                    shareholderDirectors,
                    officers and shareholders
                
                Anthony
                    Durkacz, Fortius Research andTrading,
                    Jiri Nor and Peter NorThree
                    shareholders
                
                Jiri
                    Nor, Don Blenkarn and Gerald Crawford**Expensed
                    as consulting to directors and **officers****Company
                    controlled by director, officer and
                
                Macnor
                    Corp.shareholderDirectors
                    and shareholders
                
                Gordon
                    Emerson, Gerald Crawford, DavidRamm
                    and Arthur LaudenslagerOfficer
                    and director
                
                Peter
                    Nor**Interest
                    to shareholders**Directors,
                    officer and shareholder
                
                Jiri
                    NorFormer
                    director and shareholder
                
                Don
                    BlenkarnDirector
                    and shareholder
                
                Gerald
                    Crawford
 
 Page
              41
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
  **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
 **15.**
                **RESTATEMENT**(continued)
 
 d)
                In
                    note 7 (b) - common stock issued to settle obligations of the
                    Company to
                    directors, officers and former directors of the Company. A table
                    for 2002
                    through 2004 showing: names, dates, number of shares, value of
                    shares and
                    what services performed has replaced the original filing which
                    had each
                    share issuance summarized in a paragraph
                    format.
 
 e)
                A
                    detailed table of warrants for the 2002 through 2004 years has
                    been added
                    to note 7(f).
 
 f)
                A
                    detailed statement of equity for the 2002 through 2004 years
                    has been
                    added to note 7(g).
 
 g)
                Pro
                    forma consolidated balance sheet and consolidated statement of
                    loss.
  The
          pro
          forma note to the financial statements has been restated to incorporate
          the
          audited financial statements reported on by a PCAOB registered
          auditor.
  The
          changes are as follows:
  **Canadian
          GAAP**
 **December
                    31, 2004****As
                    Reported**
                
                **Restatement**
                
                **As
                    Restated****Pro
                    forma consolidated balance sheet**Assets
                    - current
                
                $
                569,027
                
                $
                308
                
                $
                569,335Technology
                
                
                1,520,847
                
                
                1,125
                
                
                1,521,972Total
                    assets
                
                
                2,696,884
                
                
                1,433
                
                
                2,698,317Liabilities
                    - current
                
                
                288,282
                
                
                1,433
                
                
                289,715Share
                    capital
                
                
                8,090,419
                
                
                91,655
                
                
                8,182,074Deficit
                
                
                (
                    8,952,464
                )
                
                (
                    91,655
                )
                
                (
                    9,044,119
                )Total
                    liabilities and equity
                
                
                2,696,884
                
                
                1,433
                
                
                2,698,317**Pro
                    forma consolidated statement of loss**Revenue
                
                
                122,974
                
                
                32,407
                
                
                155,381Research
                    and development
                
                
                954,344
                
                
                (
                    160,762
                )
                
                793,582General
                    and administration
                
                
                2,195,430
                
                
                189,704
                
                
                2,385,134Interest
                    expense
                
                
                7,000
                
                
                8,033
                
                
                15,033Professional
                    fees
                
                
                243,077
                
                
                1,339
                
                
                244,416Amortization
                
                
                153,166
                
                
                (
                    92,663
                )
                
                60,503Income
                    taxes
                
                
                —
                
                
                3,361
                
                
                3,361Net
                    loss for the year
                
                
                (
                    3,430,043
                )
                
                83,395
                
                
                (
                    3,346,648
                )
   Page
              42
 **Back
                to Table of Contents**
 **Index
                to Financial
                Statements**
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
          Dollars)
  **United
          States GAAP**
 **December
                    31, 2004****As
                    Reported**
                
                **Restatement**
                
                **As
                    Restated****Pro
                    forma consolidated balance sheet**Assets
                    - current
                
                $
                569,027
                
                $
                308
                
                $
                569,335Technology
                
                
                1,520,847
                
                
                (1,520,847
                )
                
                0Total
                    assets
                
                
                2,696,884
                
                
                (1,520,539
                )
                
                1,176,345Liabilities
                    - current
                
                
                288,282
                
                
                1,433
                
                
                289,715Share
                    capital
                
                
                8,090,419
                
                
                91,655
                
                
                8,182,074Deficit
                
                
                (
                    8,952,464
                )
                
                (1,613,627
                )
                
                (10,566,091
                )Total
                    liabilities and equity
                
                
                2,696,884
                
                
                (1,520,539
                )
                
                1,176,345**Pro
                    forma consolidated statement of loss**Revenue
                
                
                122,974
                
                
                32,407
                
                
                155,381Research
                    and development
                
                
                954,344
                
                
                1,361,210
                
                
                2,315,554General
                    and administration
                
                
                2,195,430
                
                
                189,704
                
                
                2,385,134Interest
                    expense
                
                
                7,000
                
                
                8,033
                
                
                15,033Professional
                    fees
                
                
                243,077
                
                
                1,339
                
                
                244,416Amortization
                
                
                153,166
                
                
                (
                    92,663
                )
                
                60,503Income
                    taxes
                
                
                —
                
                
                3,361
                
                
                3,361Net
                    loss for the year
                
                
                (
                    3,430,043
                )
                
                (
                    1,438,577
                )
                
                (
                    4,868,620
                )
 
 h)
                A
                    technology asset note has been added to note 13 relating to the
                    differences between Canadian and United States generally accepted
                    accounting principles.
   Page
            43