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UNITED STATES



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F



(Mark One)

[_] 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, 2003



[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________



Commission file number 0-31481

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.

19,230,425 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 [_]

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

Item 17 [X]         Item 18 [_]

(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 [_]             No [_]





TABLE OF CONTENTS



Part I



Item 1. Identity of Directors, Senior Management and Advisers



Item 2. Offer Statistics and Expected Timetable



Item 3. Key Information



Item 4. Information on the Company



Item 5. Operating and Financial Review and Prospects



Item 6. Directors, Senior Management and Employees



Item 7. Major Shareholders, Related Party Transactions and Non-Related Party Common Stock Transactions



Item 8. Financial Information



Item 9. The Offer and Listing



Item 10. Additional Information



Item 11. Quantitative and Qualitative Disclosures About Market Risk



Item 12. Description of Securities Other than Equity Securities



Part II



Item 13. Defaults, Dividend Arrearages and Delinquencies



Item 14. Material Modifications to the Rights of Security Holders

and Use of Proceeds



Item 15. Controls and Procedures



Item 16.



Part III



Item 17. Financial Statements



Item 18. Financial Statements



Item 19. Exhibits

















I





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 at

December 31, December 31, December 31, December 31, December 31,

2003         2002         2001         2000         1999

(RESTATED)    (RESTATED)

(RESTATED)

-----------------------------------------------------------------------------



Revenue        $ 67,870

$180,168      $35,104      $22,824      $21,919

-----------------------------------------------------------------------------

Net Loss from

Operations   (2,206,969)

(620,654)    (743,644)    (412,228)     (40,666)

-----------------------------------------------------------------------------

Net Loss     (2,206,969)

(743,472)    (705,555)     (35,580)     (40,666)

-----------------------------------------------------------------------------

Basic and

Diluted Loss

per Share         (.124)

(.053)

(.058)       (.003)       (.004)

-----------------------------------------------------------------------------

Total Assets     435,235

676,500      190,376

281,705     147,662

-----------------------------------------------------------------------------

Net Assets     (135,975)

135,620     (207,150)

(249,870)    (562,912)



-----------------------------------------------------------------------------

Long Term

Obligations     100,000

120,400

114,000      114,000

149,204

-----------------------------------------------------------------------------

Share

Capital       3,343,853     2,525,239

1,979,201

1,397,923

1,049,301

-----------------------------------------------------------------------------

Number of

Shares       19,230,425    16,106,403   12,936,178   11,733,743   10,239,515

-----------------------------------------------------------------------------

Cash                 -             -            -            -             -

Dividends

-----------------------------------------------------------------------------



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 on the last day of each month in such periods), and the range of high and low exchange rates for such periods.



Year ended December 31,

----------------------------------------------------------------------



2003           2002

2001

----------------------------------------------------------------------

End of Period

.77

.63

.63

----------------------------------------------------------------------

Average for Period

.71

.63

.65

----------------------------------------------------------------------

High for Period

.78

.65

.67

----------------------------------------------------------------------

Low for Period

.64

.63

.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 2003 and 2004.  The exchange rates used are the closing rates as provided by the Bank of Canada.



-------------------------------------------------

Month              High         Low

-------------------------------------------------

December 2003               .78          .75

-------------------------------------------------

January 2004                .79          .74

-------------------------------------------------

February 2004               .76          .74

-------------------------------------------------

March 2004                  .77          .74

-------------------------------------------------

April 2004                  .77          .72

-------------------------------------------------

May 2004                    .73          .72

-------------------------------------------------

June (through June 15)      .75          .73

-------------------------------------------------



The exchange rate on December 31, 2003 for the conversion of United States dollars into Canadian dollars was $1.2965 (CDN$1.00 = US$.77). As of June 15, 2004 the close rate of exchange for the conversion of United States dollars into Canadian dollars was $1.3688 (CDN$1.00 = US$.73).  The exchange rates used are the noon buying rates in New York City for cable transfers in foreign currencies, as certified for customs purposes by the Federal Reserve Bank of New York.



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$5,528,170 as of December 31, 2003. It expects to continue to incur net losses at least through fiscal year 2004, 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.



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 manufacturing facility for the production of the various models of fuel cells 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 prototypes 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 not produced any prototypes on an automated basis and has not designed an 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, 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 June 2004, the Company had fewer than 12 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.



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 POWERSTACK 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%. In May 2004, Astris successfully defended the technology of its 2.4 kW model E8 portable power generator before an expert panel sponsored by the Czech government. The Czech Republic shared the cost of developing the E8 generator.



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 POWERSTACK 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 started 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 currently maintain key person life insurance policies on any of its employees.



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 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. All of its Directors and Officers are residents of Canada and all 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 O.T.C. On June 20, 2001.  The Common Shares traded in 2003 from a high of US$1.11 to a low of US$0.35 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.



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$5.00 per share.  This is subject to certain exemptions based upon minimum assets or revenues. As of June 15, 2004, the closing bid and asked prices for the Common Shares were US$.40 and US$.45 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.



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.



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 develop and manufacture affordable fuel cells, fuel cell power generators, and related small products for industrial, commercial, educational, scientific, transportation and similar applications. The Company intends to penetrate existing portable and other small generator markets with quiet, odorless, non-polluting and highly efficient fuel cell generators, which can compete both technically and economically with traditional energy sources.



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 cell electric generators and now has a series of such power systems fully 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 a number of alkaline fuel cell ("AFC") systems which could be used to provide backup or off-grid power, power golf cars and similar small vehicles. In March 2001, the Company completed an operating golf car powered by an AFC fuel cell system and in December 2003 unveiled the Model E8 Portable Power Generator that provides 2.4 kW for backup or off-grid power requirements.



Working closely together with the company's development and manufacturing affiliate in the Czech Republicthe 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 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 is now demonstrating the world's first alkaline fuel cell-powered golf car.  To realize the full potential of these markets, Astris intends to partner with or license major manufacturers in each field and initial negotiations have already begun.



In addition, assuming success with the one to four kilowatt 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 telecommunications, hospital emergency rooms and computers.



The past three years have yielded exceptional progress for Astris and worldwide leadership in alkaline fuel cell technology. With prospects currently in view, Astris has a series of separate field-tested systems ready to "go commercial".



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 generator or gasoline powered 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. Qxygen for Astris fuel cells is drawn from the air.



Astris fuels 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.



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. As demand for fuel cells increases and research and development continues, the cost of manufacturing should be reduced to make alkaline fuel cells 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.



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. As fuel cells become better known to the public and more cost competitive with other energy sources, this demand will increase.



AFCs vs. PEMFCs



Astris engineers have been engaged in development of alkaline fuel cells since 1983, deciding early that this technology had both technical and economic advantages over the PEMFC technology that was being pursued by most U.S. 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.  The advantage of instant start, wide temperature range, even sub-freezing has been discussed above.  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. AFCs allow for easier heat and water management as well.



ASTRIS FUEL CELL SYSTEM



Fuelcells 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 pure 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.



ONE-KILOWATT SYSTEM



The company first demonstrated the one-kilowatt commercial version in May 2001 - the fuel cell system replaces either the multiple batteries in an electric car, eliminating the long and expensive recharging or potentially the gasoline engine, eliminating noise and fumes, or. Furthermore, fuel cell power increases the utility of electric vehicles (EVs) considerably as the benefits of EVs are preserved (quiet, non-polluting) but the fuel cell system brings increased range and quick refill. The fuel cell needs only air and a bottle of compressed hydrogen gas, which can be refilled in less than a minute. Pure hydrogen is a common industrial gas and is widely available - just fill several bottles at a time to keep the fleet running without interruption.



The same advantages apply for use of fuel cells to power a wide variety of small vehicles. All feature compact size, no polluting effluents and no noise - just smooth, steady power. The company is currently developing the next evolution of this system that doubles the power delivered in the same size unit.



FOUR-KILOWATT SYSTEMS



Earlier Astris' Czech affiliate, Astris s.r.o., completed and delivered its first four kilowatt fuel cell generator to a government agency in the Czech Republic for extensive testing. It is designed to supply electricity, heat and hot water for individual homes or similar structures. Discussions have been held with several gas utility companies interested in pursuing a program for installation of such systems in homes with the cost included in the resident's monthly gas bill.



A similar version of this unit appears to be ideal to replace generators in RV vehicles since it would be quiet, emit no fumes and eliminate the gallon of gas per hour present generators consume. There are 3.5 million motor homes in the U.S. alone and a joint venture is planned to address the potential of this significant niche market.



Yachts and boats comprise another huge prospective market where the fuel cell's benefits would be especially valuable, providing the same potential benefits as for the RV market.



PORTABLE FUEL CELL SYSTEM



Also completed and delivered previously was the Company's first portable fuel cell generator. This portable, fully functional fuel cell power source was originally developed for the Czech Ministry of National Defense. It has many possible applications wherever a small amount of power is needed from a utility grid.



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 alkaline fuel cells (AFC) have over the competing polymer electrolyte membrane (PEM) fuel cells being developed by others.



MODEL E8 PORTABLE AFC GENERATOR



A milestone for 2003 the E8 generator is powered by Astris' new POWERSTACK MC250 fuel cell, which has been designed, built and extensively tested over the past two years. MC250 fuel cells performed 30%-60% above the original design specification in these tests.



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 COMPANY'S PRODUCTS



The Company presently offers commercial products ranging from demonstration and educational fuel cells and accessories, to scientific products such as electrochemical test cells, to 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.



The Company's principal fuel cell product is a prototype system supplied in sizes up to four kilowatts of electrical output. These prototypes are pre-commercial products provided on a one-off basis to individual customers and assembled by hand to the specification of the customer. Prototypes 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 developed a one kilowatt AFC system to power a golf car. The Company believes that this project is the first stage toward the commercialization of its AFC technology for larger systems, capable of powering forklifts, yachts and motor homes.



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.



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 five years.



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.



In addition to the Company's fuel cell systems, the Company has several small fuel cells and products for sale through its website.



RESEARCH AND DEVELOPMENT



AEI has been involved in fuel cell research since its formation in 1995.  More than CDN$5 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, the research and development activities in Canada were curtailed. Because labor costs are significantly lower in the Czech Republic than 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 has primarily been carried out in the Czech Republic, through the Company's 30%-owned affiliate, Astris s.r.o.  In January 1995, pursuant to a license agreement, AI granted a non-exclusive license to Astris s.r.o. for the production and sale of products embodying or utilizing AI's fuel cell technology. The royalty fee is two percent (2%) of the net sale price of licensed products sold by Astris s.r.o. to third parties. Astris s.r.o. is obligated to grant the Company a free worldwide irrevocable license on improvements of, and additions to, the technology made by Astris s.r.o., and also to assign any patent rights thereto to the Company.  There have been no royalty payments made nor does the Company currently hold any patents.



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 research and development at Astris s.r.o. were approximately CDN$416,000 for 2003. For the years ended December 31, 2003, 2002 and 2001, the Company expended a total of approximately CDN$1,229,184, CDN$197,488 and CDN$564,040 on research and development. The research and development budget for 2004 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 2003, the Company received or received notification of investment tax credit refunds of $388,499.



The Company's projected initial manufacturing research and development budget for 2004 is US$2 million subject to financing. Such amount will be used to continue development and begin production of the POWERSTACK MC250 fuel cell power module. If less than US$1 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.  When appropriate the Company will seek patent protection for other aspects of its fuel cell technology. However, the Company's policy is to maintain the confidentiality of its products, and any disclosure in patent applications could threaten the security of such information.



The Company has unregistered trademarks on some of its products, including LABCELL 50, LABCELL 200, QUICKELL QC200, POWERSTACK and TESTMASTER.



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. These products were initially developed by Mr. Nor for use in the development of the Astris fuel cell technology. They are described briefly, as follows:



LABCELL50 is a 50 square centimeter, small alkaline fuel cell for laboratory demonstration and experimentation which produces 1.5 to 6 volts.



LABCELL200 is a 200 square centimeter, medium size alkaline fuel cell for laboratory experimentation and small power applications which produces .75 to 12 volts.



QUICKCELLQC200 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 TL4 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 20 volts.



TESTMASTER 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.



POWERSTACK MC250. In December 2003, the Company unveiled the first MC250 fuel cell module for commercial power generators in portable, stationary and vehicular applications. The MC250 was developed using the alkaline technology, which is more efficient, starts instantly, operates over a wide temperature range and is less expensive than the Proton Exchange Membrane technology. 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 its predecessor the LABCELL.  This is the first Astris model that will enter, when in pilot production, the varied global commercial fuel cell markets.



Model E8 Portable Power Generator. Another advanced fuel cell system, the E8 fuel cell generator, is being partially developed by the Company's Czech Republic affiliate in a joint project partially funded by the Czech Ministry of Industry and Trade.



Astris s.r.o. produces and ships the small products 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 the small products.



The Company currently derives minor amounts of revenues from the sale of the 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.



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 golf car, NEV and/or recreational vehicle industries are believed to be a primary market.  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.



The Company's small products have been sold by mail order over an  Internet website created for the Company by Macnor Corp. Macnor Corp. pays the Company a fee of five percent (5%) of the sales price. See Item 7 "Major Shareholders and Related Party Transactions" of this Report. This agreement has been terminated as of May 31, 2003 and the Company maintains its own website and consummates the sales directly.



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.



In September 2003 the Company signed a letter of intent with AEC for a proposed joint venture which would combine these fuel cell and hydrogen technologies to produce and sell complete stationary electric power systems for the household and business markets.





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 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 other more 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 PEM 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.



The Company has always believed that its main competitor is Ballard Power Systems ("Ballard"), located in Vancouver, Canada, which concentrates on PEMFCs. Ballard enjoys the most high-profile status of any fuel cell developer in the world today.  Because of its market status, any developer of AFC or PEMFC technology must compete directly or indirectly with Ballard.  There are no barriers to Ballard, or any other known or unknown competitor of the Company, entering the market covering stationary power, portable power and lightweight vehicles that the Company is focusing on.



Astris has essentially no competition in any application area using alkaline fuel cells where its under-10 kilowatt power systems are targeted. In addition to mobile applications, the Company is also focusing on the potential market in stationary applications of small-capacity fuel cells, as are other fuel cell companies. There are several competitors in this market.



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.



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 Company has chosen not to oppose this request as Canadian civil procedure allows permissive amendments to pleadings up until judgment. The pretrial hearing was held on July 12, 2002, before an independent judge in the Ontario Court.



The trial date was scheduled for 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.  Subsequent to the 2003 year end, the Ontario Court of Appeal unanimously dismissed the appeal on June 15, 2004.  The Company was awarded costs in the amount of CDN$20,000.



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.



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 highly 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 has a subsidiary, Astris Inc. ("AI") and an affiliate Astris s.r.o.  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. The Company also owns a 30% minority interest in Astris s.r.o., which was organized under the laws of the Czech Republic. The remaining 70% interest in Astris s.r.o. is 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 and Astris s.r.o.





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



AEI has leased an 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$39,360 to October 31, 2004 and CDN$40,560 to October 31, 2005, plus proportionate share of common costs.



Astris s.r.o. has leased premises in Benesov, Czech Republic. These facilities include about 325 sq. ft. of office space and about 1,100 sq. ft. of laboratory space with a chemistry lab, electrode lab, test lab, mechanical shop and assembly room. The lease is open-ended, requiring a notice of three months to terminate, and an annual review for cost adjustment.



In May 2003, Astris s.r.o. purchased an industrial building in the town of Vlasim (near Benesov) 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 Company believes that the present premises are suitable for its present requirements.



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, 2003, 2002 and 2001.  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 14 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 2002 and 2001 Canadian financial statements. The net effect of the adjustments was an $83,354 increase in the net loss in 2002, to $743,472 and $111,571 in the net loss in 2001, to $705,555, 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.



A.  OPERATING RESULTS.



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



In 2003, revenue from the sale of fuel cells and related products and contract work was $67,870 compared with $180,168 in 2002 and $35,104 in 2001. In 2003, contract work and the sale of products to unrelated third parties was higher than in 2002, but much of the contract work with its equity investee Astris s.r.o. did not result in the recognition of revenue in 2003. Another reason for the decline was the company’s focus on developing its POWERSTACK MC250 power module and E8 power generator. Contract work for the Company to s.r.o. amounted to $45,901 in 2003, $140,575 in 2002 and $ nil in 2001. 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; in 2001, sales amounted to $11,518 in Canada, and $23,586 internationally.



No one customer accounted for a majority of the sales of the small fuel cells and related products. Throughout its history, the Company's expenses have varied based upon the amount of funds available to the Company.



Expenses totaled $2,274,839 in 2003, compared with a restated amount of $800,822 in 2002 and restated amount of $778,748 in 2001. 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 POWERSTACK 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 $866,224 compared with a restated $299,537 in 2002 and $65,548 in 2001.  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 and $119,910 in 2001, reflecting the Company’s increase in legal costs associated with the Birkett trial.  Cost of sales decreased by $31,141 between 2003 and 2002, due primarily to the decrease in sales.  The foreign exchange gain was lower at $1,538 compared with $13,746 restated in 2002 and $7,751 restated in 2001, reflecting the significant fluctuation in the US dollar and increase in US funds in the bank.



The Company reported a net loss of $2,206,969 (a loss of $0.124 per share basic and diluted) in 2003, compared with a restated loss of $743,472 ($0.053 per share basic and diluted) in 2002 and a restated loss of $705,555 ($0.058 per share basic and diluted) in 2001.  The increase in the loss primarily reflects the combination of reduced revenue and increased expenses.



B.  LIQUIDITY AND CAPITAL RESOURCES.



The Company had an operating cash flow deficit of $1,156,031 in 2003, compared with a restated operating cash flow deficit of $380,285 in 2002 and $409,474 in 2001.  The company invested $15,357 in plant and equipment in 2003. Expenses were offset by financings through private placements totaling $1,265,235 for a net increase in cash at year end of $93,847, resulting in cash at year end of $347,785, providing the Company with 4 months operating capital at current burn rates.



At year end, the Company had $435,235 of assets, and a shareholders’ deficiency of $135,975 compared to a shareholders’ equity of $135,620 in 2002 and shareholders’ deficiency of $207,150 in 2001.



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 recovered in 2003 amounted to $388,499 in the form of refundable investment tax credits.  This figure included credits for years ending in 2002 and 2001.



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.  The Company will be reviewing the provisions of FIN46 (variable interest entities) to determine if those provisions will require further accounting in the future.



A financing agreement dated May 22, 2003 with First Energy Advisors Inc. (First Energy) states that First Energy will put forth its best efforts to raise up to US$10,000,000 in stages.



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.



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.

·

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

o

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; and

·

Distributed power generation



The Company hired H. David Rammas Executive Vice President, heading up business development. Mr. Ramm is a widely experienced corporate executive in the field of alternate energy systems and formerly Chairman and CEO of International Fuel Cells (now UTC Fuel Cells, a division of United Technologies Corporation). Under Mr. Ramm’s leadership, UTC developed the first-ever commercialized fuel cell.



The Company engaged First Energy Advisors in mid-2003, with the objective of raising US$10 million in stages over two years to support its growth strategy. During 2003, the Company raised $1,265,235 through private placements of shares and warrants, compared with $635,031 in 2002.



The Company hired Peter Nor as Vice President Marketing in January 2004. 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 of Canada.



The Company contracted Claude L. Rivoire, an internationally recognized fuel cell specialist, to lead the development of the Company’s semi-automatic 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.



In December 2003, the Company cleared its POWERSTACK 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.



In May 2004, the Company approved the blueprint for its manufacturing facility to produce the POWERSTACK MC250 and E8 generator on a pilot production basis, and is now assembling its pilot production manufacturing facility in the Czech Republic for start up in late summer 2004.



In May 2004, the Company signed an agreement with  Alternate Energy Corporation (AEC, OTCBB: ARGY),wherebyAEC becomes a value added reseller (VAR) for the Company’s AFC power generator products. The VAR relationship permits the Company access to AEC’s substantial customer prospects and distribution arrangements, and enables AEC to use the Company’s AFC for demonstration and sales purposes.  This VAR arrangement enables AEC to demonstrate and make available a combined fuel cell power pack for sale to major corporate customers, utility customers, as well as demonstration with U.S. Federal energy authorities.  The Company sees AEC’s fast product deployment program now underway as a good channel to the market.  This agreement is consistent with the Company’s business strategy to partner with OEMs to advance pilot-scale production of our AFC to full-scale production.



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.



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 June 15, 2004 and the period during which such person has served as a Director, Executive Officer and/or senior management.



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Name                    Age    Office Held                 Director Since

----                    ---    -----------                 --------------

Jiri K. Nor              64    President, Chief Executive  1996

Officer and Director



Gerald A. Crawford (1)   70    Director                    1996



Arthur Laudenslager      77    Director                    2003



Gordon T. Emerson(1)     66    Director

1999





Anthony Durkacz(1)       28    Vice President Finance      2003

Treasurer and Director



H. David Ramm

52    Executive Vice President    Special Advisor to Board



Peter Nor

33

Vice President Marketing    Not a Director



Notes:



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



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 is 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.



Gerald A. Crawford, PhD has been a Director of the Company since March 1996, and has been associated with Astris Inc. since 1987 in marketing and public relations areas. He is a trained metallurgical engineer, and was associated with various companies from 1960 to 1987.  Since 1989, he has been a self-employed consultant primarily in the area of metallurgical engineering environmental matters to the nickel industry, providing services to corporate clients, including Astris, for the past 12 years.  His career embraces process research, patents, metal marketing and alternate energy technologies.



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.



Gordon T. Emerson has been a Director of the Company since 1999 and was its Treasurer and Chief Financial Officer until July 2003. During his career, Mr. Emerson has raised capital for a number of Canadian companies, including Spar Aerospace, Corona Mining and Morgan Hydrocarbons. For more than the past five years, he has been a consultant to public companies in Canada with respect to capital structure and financing transactions.



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.



Peter K. Nor, P.Eng, MBA, 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 is a direct family relationship between Jiri Nor and Peter Nor.  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.



B.  COMPENSATION



For the 2003 fiscal year, the Company paid compensation for salary of CDN$113,998 in cash.  Macnor Corp. received CDN$103,998, Mr. Emerson received CDN$nil and Fortius received CDN$10,000.  In addition, the Company issued Common Shares at market value in lieu of cash to its Executive Officers for services rendered to the Company. (See below).



For the 2002 fiscal year, the Company paid compensation for salary of CDN$36,000 in cash. Macnor Corp. received CDN$36,000 and Mr. Emerson received CDN$nil. In addition, the Company issued Common Shares at market value in lieu of cash to its Executive Officers for services rendered to the Company. (See below).



For the 2001 fiscal year, the Company paid compensation for salary of CDN$46,000 in cash.  Macnor Corp. received CDN$36,000 in cash and Mr. Emerson received CDN$10,000.  In addition, the Company issued Common Shares at market value in lieu of cash to its Executive Officers for services rendered to the Company. (See below.)



There does not currently exist any compensation arrangement for any of the Directors, nor does the Company have any pension, retirement or similar plan for its Executive Officers or Directors.



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 30, 2002, the Board of Directors passed a resolution authorizing an amendment to a stock option plan dated September 25, 2001, increasing the number of shares available in the plan by 1,400,000 shares, to a total of 2,600,000 shares.  The amendment was adopted by the Company’s shareholders at its annual and special meeting of shareholders held in November 2002.  All features of the plan remain unchanged.  This brought the total number of shares available in all plans to 3,600,000 shares.



On November 12, 2001, the Directors approved the allocation of options to Jiri Nor, President, as eligible under the 2001 Stock Option Plan.  The option for 300,000 shares is vested to Mr. Nor at an exercise price of US$0.24.  The option must be exercised on or before the established deadline of November 12, 2006.



On November 12, 2001, the Directors approved the allocation of options to Gordon Emerson, as eligible under the 2001 Stock Option Plan.  The option for 300,000 shares is vested to Mr. Emerson at an exercise price of US$0.24.  The option must be exercised on or before the established deadline of November 12, 2006.



On July 22, 2002, the Directors approved the allocation of options to Anthony Durkacz, Vice President of Finance, as eligible under the 2001 Stock Option Plan. The option for 250,000 shares is vested to Mr. Durkacz at an exercise price of US$0.20. The option must be exercised on or before the established deadline of July 22, 2007.



On September 9, 2003, the Directors approved the allocation of options to H. David Ramm, Executive Vice President, as eligible under the 2001 Stock Option Plan. The option for 250,000 shares is vested to Mr. Ramm at an exercise price of US$0.50. The option must be exercised on or before the established deadline of September 9, 2008.



The following table outlines the options and warrants that are outstanding as of June 15, 2004 of the directors and senior management of the Company:



Name                 Number of Shares     Exercise Price      Expiry

-------------------------------------------------------------------

Jiri Nor                 50,000           US$0.505

08/15/05

Jiri Nor

300,000

US$0.24

11/12/06

Gordon Emerson          250,000          CDN$0.25

03/08/05

Gordon Emerson           50,000           US$0.505

08/15/05

Gordon Emerson

300,000

US$0.24

11/12/06

Anthony Durkacz

112,500

US$0.50

04/24/05

Anthony Durkacz

250,000

US$0.20

07/22/07



H. David Ramm

250,000

US$0.50

09/09/08



C.  BOARD PRACTICES.



The Board of Directors may consist of from three to ten members, and currently consists of five 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 will take place on September 1, 2004.



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.



Gerald A. Crawford, Gordon T. Emerson and Anthony Durkacz are members of the Company's Audit Committee. There are no additional committees of the Board.



D.  EMPLOYEES.



AEI and AI presently have four Officers and seven other employees, including a full-time lab technician and bookkeeper, and two part-time technical experts. The President is also the General Manager of the current project on a full-time basis. Job descriptions for employees in such small, entrepreneurial companies 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 project to ensure it is completed satisfactorily, on budget and on time. The executive assistant is responsible for reception, bookkeeping, and other details of general office administration, including assisting the General Manager.  The present employees are not represented by a labor union. The Company considers its relationship with its employees to be satisfactory.



E.  SHARE OWNERSHIP.



The following table lists, as of June 15, 2004, the beneficial share holdings 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:



Amount and Nature        Percent

Name                               of Beneficial Owner       of Class

----                               -------------------       --------

Jiri K. Nor (1)                                2,265,102           10.55%

Gerald A. Crawford (2)                           860,073

4.01%

Arthur Laudenslager(3)                            84,500            0.39%

Gordon Emerson (4)                               619,000            2.88%

Anthony Durkacz (5)                              197,355            0.92%

H. David Ramm

24,380

0.11%

Peter Nor (6)

30,000

0.14%



All executive Officers and Directors as        4,080,410            19.00%

a group

---------------------------------------------------------------------------



(1)  Includes (i) 1,550,129 Common Shares held by Jiri K. Nor and (ii) 506,304

Common Shares held by Macnor Corp. and (ii) 208,669 Common Shares held by

his wife, Jana Nor.



(2)  Includes (i) 580,987 Common Shares held by Gerald A. Crawford and (ii)

279,086 Common Shares held by his wife, Gail Crawford.



(3)  Includes (i) 77,500 Common Shares held by Arthur Laudenslager and (ii) 7,000

Common Shares held by First Energy Advisors.



(4)  Includes (i) 25,000 Common Shares by Gordon T. Emerson, (ii) 341,465

Common Shares by his wife, Barbara Emerson, (iii) 207,535 Common

Shares by Mr. Emerson's children, and (iv) 45,000 Common Shares by relatives.



(5)  Includes (i) 94,100 Common Shares by Anthony Durkacz and (ii) 103,255 Common

Shares by Fortius Corp.



(6)  Includes 30,000 Common Shares held by Macnor Corp.



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



A. MAJOR SHAREHOLDERS.



The following table lists, as of June 15, 2004, 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:



Name                              Amount and Nature      Percent

of Beneficial Owner     of Class

----------------------------------------------------------------------

Jiri K. Nor (1)                       2,265,102           10.55%

----------------------------------------------------------------------



(1)  Includes (i) 1,550,129 Common Shares held by Jiri K. Nor and (ii) 506,304 Common Shares held by Macnor Corp. and (ii) 208,669 Common Shares held by his wife, Jana Nor.



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 and the issuance of Common Shares to reduce debt.



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.



In the past, certain Directors of the Company funded the Company’s operating expenses by loaning funds to cover its ongoing requirements. The Directors have agreed to support the Company until a suitable joint venture or private placement is completed.



On March 8, 2000, Jiri K. Nor was granted an option to purchase 250,000 common shares exercisable for five years at an exercise price of CDN$0.25 per share. The option to Mr. Nor was conditional upon his completing the golf car project by March 31, 2001. Since the golf car project was complete by March 31, 2001, the Directors acknowledged that Mr. Nor had earned his option. Mr. Nor had previously loaned the Company CDN$22,500 in March 2001. Mr. Nor exercised his option for 250,000 common shares for CDN$0.25 per share by paying CDN$40,000 in cash, and by agreeing to retire the entire outstanding loan of CDN$22,500 to the Company.



In March 2001, three Directors of the Company loaned an aggregate of CDN$67,500 to the Company. Subsequently, the Company and the Directors retired these loans by issuing options to purchase shares of the Company’s common stock. On May 25, 2001 the Directors exercised their options and retired the entire loans.



On June 11, 2001, the Company issued 68,935 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of US$0.52 per share:



Director

13,397 shares

Company controlled by a director

and officer

55,538 shares



On August 10, 2001, the Company issued 195,300 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of US$0.35 per share:



Director

43,500 shares

Director

43,500 shares

Company controlled by a director

and officer

85,200 shares

Director and Officer



23,100 shares



On September 25, 2001, the Company issued 92,000 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of US$0.24 per share:



Director

13,250 shares

Director

13,250 shares

Company controlled by a director

and officer

39,750 shares

Director and Officer



25,750 shares



On December 31, 2001, the Company issued 42,500 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of US$0.30 per share:



Company controlled by a director

and officer

42,500 shares





On March 27, 2002, the Company issued 363,225 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company.  The Company approved the issuance of the following shares at a price of US$0.20 per share:



Director and officer

51,800 shares

Company controlled by a director

and officer

164,125 shares



Director

25,750 shares

Former director                     77,800 shares

Director and officer

43,750 shares



On July 2, 2002, the Company issued 172,775 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of US$0.20 per share:



Director and officer

74,000 shares

Company controlled by a director

and officer



98,775 shares



On October 18, 2002, the Company issued 121,925 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of US$0.20 per share:



Director and officer

23,625 shares

Company controlled by a director

and officer

37,800 shares

Director and officer

60,500 shares



On January 10, 2003, the Company issued 192,685 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants that provided services or benefits between October and December 2002 to the Company. The following issuance of shares was approved at a price of US$0.29 per share:





Company controlled by a director



and officer

26,775 shares



Director and officer

99,810 shares



Company controlled by a director



and officer

20,600 shares



Director

45,500 shares



On May 8, 2003, the Company issued 103,290 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company through the issuance of common shares of stock in the Company.  The following were provided compensation for services as noted at a price of US$0.56 per share:



Company controlled by a director



and officer

14,640 shares



Director and officer

58,160 shares



Company controlled by a director



and officer

30,490 shares



On July 16, 2003, the Company issued 63,700 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company through the issuance of common shares of stock in the Company.  The following were provided compensation for services as noted at a price of US$0.53 per share:

Company controlled by a director



and officer

18,200 shares

Director and officer

10,500 shares



Company controlled by a director



and officer

35,000 shares



On August 11, 2003 the Company issued 19,750 shares of common stock as a severance package at a price of US$0.51 per share to a senior executive.



On October 28, 2003, the Company issued 43,900 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company through the issuance of common shares of stock in the Company.  The following were provided compensation for services as noted at a price of US$0.55 per share:



Company controlled by a director

and officer

20,200 shares

Officer

3,500 shares

Company controlled by director

and officer

20,200 shares



On December 16, 2003, the Company issued 35,000 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company through the issuance of common shares of stock in the Company.  The following were provided compensation for services as noted at a price of US$0.43 per share:

Company controlled by a director

and officer

35,000 shares



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 calls 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 is to pay an annual royalty equal to five percent (5%) from all sales of such goods, based upon gross revenues. No royalty was paid for fiscal 2000. In the year 2001 the Company recognized revenues of CDN$1,201 related to this arrangement, CDN$2,476 in the year 2002 and CDN$837 in the year 2003. This agreement has been terminated as of May 31, 2003.



Macnor Corp. also owns 70% of Astris s.r.o., which presently conducts a substantial portion of the research and development of the Company. The Company owns the remaining 30% of Astris s.r.o.



Anthony Durkacz is president and CEO of Fortius Research & Trading. Fortius is 100% owned by Anthony Durkacz.



Arthur Laudenslager is Vice President of First Energy Advisors.  First Energy Adivsor is 33.33% owned by Arthur Laudenslager.



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 is secured and bears interest at twelve percent (12%) per annum. Mr. Blenkarn, Mr. Crawford and Mr. Nor have agreed that they will not demand repayment of the principal and interest until after January 1, 2005. The amount owed is collateralized by a lien on all of the assets and business of Astris Inc.



The management of the Company believes that each of the aforementioned transactions was on terms as fair to the Company as any which could have been made with unaffiliated parties.



C. NON-RELATED PARTY COMMON STOCK TRANSACTIONS.



On June 11, 2001, the Company agreed to settle obligations owing to certain individuals and companies.  The following shares were issued at a price of US$0.52 per share:



Non-related parties

76,000 shares



On August 10, 2001, the Company agreed to settle obligations owing to certain individuals and companies.  The following shares were issued at a price of US$0.35 per share:



Non-related parties

29,300 shares



On September 25, 2001, the Company agreed to settle obligations owing to certain individuals and companies.  The following shares were issued at a price of US$0.24 per share:



Non-related parties

40,400 shares



On December 31, 2001, the Company agreed to settle obligations owing to certain individuals and companies.  The following shares were issued at a price of US$0.30 per share:



Non-related parties

83,000 shares





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



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



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 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.  In 2001, the Company had export sales in the amount of $23,586.



B.  SIGNIFICANT CHANGES.



There have been no significant changes, which have occurred since the date of the annual financial statements included in this Report.



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 June 15, 2004, the Company had approximately 283 stockholders of record for its Common Shares and 21,465,243 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 June 15, 2004, the shareholder list showed 281 registered shareholders holding a total of 3,790,608 Common Shares, 4,835,192 Common Shares in the name of Cede & Co and 12,839,443 Common shares in the name of CDS & Co (the depository in Canada).



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. The Company does not presently meet the following requirements to qualify to list on the TSX: 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:



2002                   High             Low



-------------------------------------------------

First                  .31              .16

-------------------------------------------------

Second                 .29              .13

-------------------------------------------------

Third                  .32              .13

-------------------------------------------------

Fourth                 .93              .18

-------------------------------------------------



2003                   High

Low

-------------------------------------------------

First                  .90              .42

-------------------------------------------------

Second                 .65              .42

-------------------------------------------------

Third                 1.11              .35

-------------------------------------------------

Fourth                 .87              .40

-------------------------------------------------





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



-------------------------------------------------

Month           High, US$/share   Low, US$/share

-------------------------------------------------

2004

-------------------------------------------------

January               $.67             $.49

-------------------------------------------------

February               .63              .43

-------------------------------------------------

March                  .52              .41

-------------------------------------------------

April                  .56              .40

-------------------------------------------------

May                    .51              .37

-------------------------------------------------

June (through

June 15)         .51              .40

-------------------------------------------------



ITEM 10. ADDITIONAL INFORMATION.



A.  SHARE CAPITAL.



Not Applicable.



B.  MEMORANDUM AND ARTICLES OF ASSOCIATION.



ORGANIZATION.



The Company was incorporated in the Province of Ontario, Canada.



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.



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.



C. MATERIAL CONTRACTS



The Company entered into a value added reseller agreement with Alternate Energy Inc., 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.



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 with

assets of CDN$5 million or more;



(b)  all indirect acquisitions of control of Canadian businesses with

assets of CDN$50 million or more if such assets represent less

than 50% of the value of the assets of the entities, the control

of which is being acquired; and



(c)  all indirect acquisitions of control of Canadian businesses with

assets of CDN$5 million or more if such assets represent more

than 50% of the value of the assets of the entities, the control

of 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.



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 which

investment is not subject to review under the Act, must notify

Investment Canada, within prescribed time limits, of such

investments.



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.



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.



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.



There may be tax consequences if the Company is considered a passive foreign investment company.



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.



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.



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. 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 OF

PROCEEDS



None.



ITEM 15. CONTROLS AND PROCEDURES



EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES



The Company's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of December 31, 2003 (the "Evaluation Date"). Based on that evaluation, these officers have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure that material information relating to the Company and the Company's consolidated subsidiaries would be made known to them by others within those entities.



It should be noted that while the Company's Chief Executive Officer and Chief Financial Officer believe that the Company's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Company's disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.



While we believe our controls provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements, we have not yet completed or undergone a Section 404 audit. We are presently reviewing and testing our material internal control systems, processes and procedures in compliance with the requirements of Section 404. There can be no assurances that such a review will not result in the identification of significant control deficiencies or that our auditors will be able to attest to the adequacy of our internal controls.



CHANGES IN INTERNAL CONTROLS



There were no significant changes in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect the Company's internal controls subsequent to the Evaluation Date.  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.  In evaluating our corrections, our external auditor indicated that the underlying control issues should be considered a material weakness under standards established by the Public Company Accounting Oversight Board.  In conjunction with making the required corrections, we have begun to implement measures within management to ensure that these errors do not happen again.



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 2003 and 2002, the audit fees were CDN$32,500 and CDN$6,000.  For the year ended 2003 and 2002, the audit-related fees for the principal accountants were CDN$nil and CDN$nil.  For the year ended 2003 and 2002, the tax related fees for the principal accountants were CDN$nil and CDN$nil.  The Company’s audit committee’s pre-approval 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.





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, 2003.

Auditors’ Report for the years ended December 2002 and 2001.

Consolidated Balance Sheets for the year ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Loss and Deficit for the years ended December 31,

2003, 2002 and 2001.

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

and 2001.

Notes to Consolidated Financial Statements for the year ended December

31, 2003, 2002 and 2001.



ITEM 18. FINANCIAL STATEMENTS



Not applicable.



ITEM 19. EXHIBITS



EXHIBIT 23.1 AUDITORS’ CONSENTS



EXHIBIT 31.1 and 31.2 302 CERTIFICATION



EXHIBIT 32.1 SECTION 906 CERTIFICATION



EXHIBIT 99 CODE OF ETHICS





Attachment A





























Astris Energi Inc.

(A Development Stage Company)

Consolidated Financial Statements

(Canadian Dollars)

December 31, 2003, 2002 and 2001

Contents













Page



2003 Auditors’ Report

3



2002 and 2001 Auditors’ Report

4



Consolidated Balance Sheets

5



Consolidated Statements of Loss and Deficit

6



Consolidated Statements of Cash Flows

7



Notes to the Consolidated Financial Statements

8-30





May 25, 2004





To the Directors of

Astris Energi Inc.:



We have audited the consolidated balance sheet of Astris Energi Inc. as at December 31, 2003 and the consolidated statements of loss and deficit and cash flows for the year 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, 2003 and the results of its operations and its cash flows for the year then ended, in accordance with Canadian generally accepted accounting principles.



/s/ PricewaterhouseCoopers LLP



Chartered Accountants

Toronto, Ontario





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 statements 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 years’ financial statements audited by other auditors.  Our report to the directors 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 auditor’s report when these are adequately disclosed in the financial statements.



/s/ PricewaterhouseCoopers LLP



Chartered Accountants

Toronto, Ontario







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. 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 Associate

CHARTERED ACCOUNTANTS



Hamilton, Ontario



May 25, 2004

Astris Energi Inc.

(A Development Stage Company)

Consolidated Balance Sheets

Canadian Dollars                                         2002     2001

|December 31, | 2003 | Restated
(Note 3) | Restated
(Note 3)
|------------ | ---- | ----------------- | -----------------



|Assets  |  |             |             |           
|------- |  | ----------- | ----------- | ----------
|Current |  |             |             |           
|Cash    |  | $   347,785 | $   253,938 | $   10,989

|Receivables                            | 1,000  | 30,440  | 37,563 
|-------------------------------------- | ------ | ------- | -------
|Prepaid expenses and deposits
(Note 5) | 37,206 | 149,777 | 1,050  
|Investment tax credit refundable       | -      | 216,608 | -      
|Goods and Services Tax receivable      | 16,120 | -       | -      
|Deferred costs (Note 12)               | -      | -       | 122,818

| |  |  | 402,111 | 650,763 | 172,420
| |  |  | ------- | ------- | -------
| |  |  |         |         |        

|Property, plant and equipment
(Note 4) | 33,124 | 25,737 | 17,956
|-------------------------------------- | ------ | ------ | ------

|            |  |  |             |            |          
|----------- |  |  | ----------- | ---------- | ---------
|            |  |  | $   435,235 | $  676,500 | $ 190,376
|            |  |  |             |            |          
|            |  |  |             |            |          
|Liabilities |  |  |             |            |          
|Current     |  |  |             |            |          

|Payables and accruals (Note 5) | $   399,140 | $   410,053 | $ 260,485
|------------------------------ | ----------- | ----------- | ---------
|Goods and Services Tax payable | -           | 10,427      | 23,041   
|Deposit on shares (Note 7)     | 72,070      | -           | -        

| |  |  | 471,210 | 420,480 | 283,526
| |  |  | ------- | ------- | -------
| |  |  |         |         |        

|Advances from related parties (Note 5) | 100,000 | 120,400 | 114,000
|-------------------------------------- | ------- | ------- | -------

| |  |  | 571,210 | 540,880 | 397,526
| |  |  | ------- | ------- | -------
| |  |  |         |         |        

|Shareholders' deficiency |  |  |  | 
|------------------------ |  |  |  | 

|Share capital (Note 7)       | 3,343,853 | 2,525,239 | 1,979,201
|---------------------------- | --------- | --------- | ---------
|Contributed surplus (Note 7) | 2,048,342 | 931,582   | 391,378  

|Deficit |  |  | (5,528,170) | (3,321,201) | (2,577,729)
|------- |  |  | ----------- | ----------- | -----------
|        |  |  | (135,975)   | 135,620     | (207,150)  
|        |  |  |             |             |            
|        |  |  | $   435,235 | $   676,500 | $ 190,376  
|        |  |  |             |             |            



Description of Business and Going Concern (Note 1)

Contingency (Note 10) and Commitments (Note 11)



Approved on behalf of the Board:



/s/ Jiri K. Nor                         /s/ Anthony Durkacz

Director

Director



See accompanying notes to the consolidated financial statements.

Astris Energi Inc.

(A Development Stage Company)

Consolidated Statements of Loss and Deficit

Canadian Dollars                                           2002        2001

|Years ended December 31, | 2003 | Restated
(Note 3) | Restated
(Note 3)
|------------------------ | ---- | ----------------- | -----------------



|Revenue (Note 5) |  | $    67,870 | $   180,168 | $    35,104
|---------------- |  | ----------- | ----------- | -----------

|         |  |  |  | 
|-------- |  |  |  | 
|Expenses |  |  |  | 

|Cost of sales                                      |  | 15,899    | 47,040   | 16,068 
|-------------------------------------------------- |  | --------- | -------- | -------
|Subcontract (Note 5)                               |  | 1,229,184 | 197,488  | 564,040
|General and administrative                         |  | 866,224   | 299,537  | 65,548 
|Professional fees                                  |  | 145,100   | 254,487  | 119,910
|Interest on advances from related
parties (Note 5) |  | 12,000    | 12,000   | 19,267 
|Amortization                                       |  | 7,970     | 4,016    | 1,666  
|Foreign exchange gain                              |  | (1,538)   | (13,746) | (7,751)

| |  |  | 2,274,839 | 800,822 | 778,748
| |  |  | --------- | ------- | -------

| |  |  |  | 
| |  |  |  | 

|Loss before the following |  | (2,206,969) | (620,654) | (743,644)
|------------------------- |  | ----------- | --------- | ---------

| |  |  |  | 
| |  |  |  | 

|Deferred costs written off          | - | (122,818) | -     
|----------------------------------- | - | --------- | ------
|Gain on sale of marketable security | - | -         | 38,089

| |  |  |  | 
| |  |  |  | 

|Loss for the year |  | (2,206,969) | (743,472) | (705,555)
|----------------- |  | ----------- | --------- | ---------

| |  |  |  | 
| |  |  |  | 

|Deficit, beginning of year
as previously reported | (3,242,557) | (2,582,439) | (1,988,455)
|------------------------------------------------- | ----------- | ----------- | -----------

| |  |  |  | 
| |  |  |  | 

|Prior period adjustments (Note 3) | (78,644) | 4,710 | 116,281
|--------------------------------- | -------- | ----- | -------

| |  |  |  | 
| |  |  |  | 

|Deficit, beginning of year as restated | (3,321,201) | (2,577,729) | (1,872,174)
|-------------------------------------- | ----------- | ----------- | -----------

| |  |  |  | 
| |  |  |  | 

|Deficit, end of year |  | $(5,528,170) | $(3,321,201) | $(2,577,729)
|-------------------- |  | ------------ | ------------ | ------------

| |  |  |  | 
| |  |  |  | 
| |  |  |  | 
| |  |  |  | 

|Loss per common share, basic and diluted
(Note 7) | $   (0.124) | $    (0.053) | $   (0.058)
|------------------------------------------------- | ----------- | ------------ | -----------
|                                                  |             |              |            





See accompanying notes to the consolidated financial statements.

Astris Energi Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

Canadian Dollars                                                2002    2001

|Years ended December 31, | 2003 | Restated
(Note 3) | Restated
(Note 3)
|------------------------ | ---- | ----------------- | -----------------



|Operating |  | 
|--------- |  | 

|Loss for the year |  | $(2,206,969) | $(743,472) | $(705,555)
|----------------- |  | ------------ | ---------- | ----------

|Items not requiring cash |  |  | 
|------------------------ |  |  | 

|- amortization |  | 7,970 | 4,016 | 1,666
|-------------- |  | ----- | ----- | -----

|- consulting and professional fees and expenses |         |           |         
|----------------------------------------------- | ------- | --------- | --------
|paid in capital stock to non-related parties    | 136,122 | 166,801   | 135,552 
|- consulting and professional fees and expenses |         |           |         
|paid in options to non-employees                | 131,063 | 83,354    | 111,571 
|- consulting fees and expenses paid in          |         |           |         
|capital stock to related parties                | 266,247 | 207,4     | 172,170 
|- stock-based compensation to employees         | 188,377 | -         | -       
|- deferred costs written off                    | -       | 122,818   | -       
|- gain on sale of marketable security           | -       | -         | (38,089)
|Net change in non-cash working capital          |         |           |         
|balances related to operations (Note 8)         | 321,159 | (221,258) | (86,789)

| |  |  | (1,156,031) | (380,285) | (409,474)
| |  |  | ----------- | --------- | ---------

|          |  |  |  | 
|--------- |  |  |  | 
|Investing |  |  |  | 

|Proceeds on sale of marketable security   | -        | -        | 89,539 
|----------------------------------------- | -------- | -------- | -------
|Purchase of property, plant and equipment | (15,357) | (11,797) | (1,544)

| |  |  | (15,357) | (11,797) | 87,995
| |  |  | -------- | -------- | ------

|          |  |  |  | 
|--------- |  |  |  | 
|Financing |  |  |  | 

|Increase in advances from related parties | - | 6,400 | -
|----------------------------------------- | - | ----- | -

|Deposit on shares |  | 72,070 | - | -
|----------------- |  | ------ | - | -

|Issuance of common shares | 395,845 | 171,781 | 267,727
|------------------------- | ------- | ------- | -------

|Issuance of warrants |  | 797,320 | 456,850 | 48,479
|-------------------- |  | ------- | ------- | ------

| |  |  | 1,265,235 | 635,031 | 316,206
| |  |  | --------- | ------- | -------

| |  |  |  | 
| |  |  |  | 

|Net increase (decrease) in cash during |  |  | 
|-------------------------------------- |  |  | 

|the period |  |  | 93,847 | 242,949 | (5,273)
|---------- |  |  | ------ | ------- | -------

| |  |  |  | 
| |  |  |  | 

|Cash, beginning of period |  | 253,938 | 10,989 | 16,262
|------------------------- |  | ------- | ------ | ------

| |  |  |  | 
| |  |  |  | 

|Cash, end of period |  | $   347,785 | $ 253,938 | $  10,989
|------------------- |  | ----------- | --------- | ---------

| |  |  |  |  | 
| |  |  |  |  | 

| |  |  |  | 
| |  |  |  | 

|Supplemental disclosure |  |   |        |  
|----------------------- |  | - | ------ | -
|Interest paid           |  | - | 15,000 | -

|Investment tax credits recovered | 388,499 | - | -
|-------------------------------- | ------- | - | -













See accompanying notes to the consolidated financial statements.



Astris Energi Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Canadian dollars)

December 31, 2003, 2002 and 2001



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 intends to go into pilot production of the POWERSTACK MC250 in 2004.



The Company has expensed $1,127,862 to date on this project as at December 31, 2003 (2002 - $9,621; 2001 - $ nil).  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 $298,810 to date on this project as at December 31, 2003 (2002 - $187,867; 2001 - $ nil).  No revenue has yet been earned from this project and no amounts have been capitalized or deferred to date.



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 2003, utilized $1,156,031 of cash in operations. At December 31, 2003, the Company reported a deficit of $5,528,170 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 to raise capital in fiscal 2004.  Nevertheless, there is no assurance that these initiatives will be successful.



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 balance

Leasehold 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.



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.



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 compensationin 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.



For the years ended December 31, 2002 and 2001, the Company elected to disclose the pro-forma net earnings and earnings per share in the notes to the financial statements as if the fair value of the stock-based compensation had been recognized in earnings (Note 7).



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.



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 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 at



January 1, 2001   $231,328  --  $12,000  $(12,776)  $(31,546)  $(315,287)  $(116,281)



Increase (decrease)

in net loss for

the year ended

December 31, 2001  111,571  --   --        --         --          --          111,571



Increase (decrease)

in loss for the

year ended

December 31, 2002   83,354  --   --       --          --          --           83,354



Increase (decrease)

in deficit as at

January 1, 2003   $426,253  --  $12,000  $(12,776)  $(31,546)  $(315,287)     $78,644







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, 2001 of $231,328 and an increase in loss for the year ended December 31, 2001 and an increase in contributed surplus of $111,571.



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 for the year ended December 31, 2001 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, 2001 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, 2001 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, 2001 of $31,546. F 
The Company had recorded a liability in 1995 but at the time of recording the amount it did not have, nor does it yet 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, 2001 of $315,287.









4.Property, Plant and Equipment

2003      2003

2003        ccumulated   Net Book

Cost      Amortization    Value



Office furniture and equipment     $37,419       $11,980     $25,439

Leasehold improvements             10,939        3,254          7,685



$48,358        $15,234        $33,124





2002              2002

2002    Accumulated      Net Book

Cost    Amortization         Value



Office furniture and equipment    $25,800      $5,823         $19,977

Leasehold improvements              7,200       1,400           5,760



$33,000       $7,263         $25,737





2001             2001

2001   Accumulated        Net Book

Cost    Amortization         Value



Office furniture and equipment     $21,203      $3,247         $17,956





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:



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

|                                                                                   |         |         |        
|---------------------------------------------------------------------------------- | ------- | ------- | -------
|Due to Timagami Financial Services, a company controlled by a director and officer | $  -    | $   -   | $2,000 
|Temporary advances from directors                                                  | -       | 20,400  | 12,000 
|Debenture due to shareholders                                                      | 100,000 | 100,000 | 100,000

| |  |  | $100,000 | $120,400 | $114,000
| |  |  | -------- | -------- | --------



Debenture due to shareholders



The debenture due to shareholders is secured by a fixed and floating charge on all of the assets and business of Astris Inc. and bears interest at 12% per annum.  Unpaid interest has been accrued to December 31, 2003, totalling $21,000 and is included in payables and accruals.  There are no specific terms of repayment and the debenture holders have indicated that they will not demand repayment before January 1, 2005.  Accordingly, the amount payable under the debenture has been classified as a long-term 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., 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:



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

|Unrecognized income during
the year |  |  |  | $6,924 | $6,331 | $5,566
|----------------------------------- |  |  |  | ------ | ------ | ------

|Unrecognized cumulative losses to the end 
  of the year | $(24,640) | $(31,564) | $(37,895)
|-------------------------------------------------------- | --------- | --------- | ---------







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.  Included in prepaid expenses and deposits is an amount of $30,000 paid to s.r.o. for future research and development activities.  When this amount (or any part of it) has been utilized by s.r.o. for the purpose for which the funds were paid, it will be expensed as a research and development expense.



|As at December 31:                                              | 2003       | 2002       | 2001    
|--------------------------------------------------------------- | ---------- | ---------- | --------
|                                                                |            |            |         
|Balance of funds paid included in prepaid expenses and deposits | $   30,000 | $  146,074 | $      -
|Included in payables and accruals                               | 137,480    | 123,919    | 7,485   
|                                                                |            |            |         
|Year ended December 31:                                         |            |            |         

|Total funds advanced |  | 416,000 | 230,000 | 117,000
|-------------------- |  | ------- | ------- | -------

|Sales |  |  | 45,901 | 140,575 | -
|----- |  |  | ------ | ------- | -

|Purchases included in subcontract | $   151,001 | $   89,159 | $160,089
|--------------------------------- | ----------- | ---------- | --------





Other



In addition, payables and accruals as at December 31, 2003 include the following amounts:



$24,266 owing to a company controlled by a director, officer and shareholder for consulting

fees (2002 - $55,061; 2001 - $20,420);

$29,735, $26,750 and $8,125 owing to three directors, officers and shareholders for consulting fees or bonuses (2002 - $45,900, $9,231 and $ nil; 2001 - $ nil, $2,500 and $ nil);

$8,400, $8,400 and $4,200 accrued interest owing to each of the three shareholders holding the debenture payable (2002 - $3,600, $3,600 and $1,800; 2001 - $10,574,$18,905 and $5,243).



During 2003, the following amounts were expensed as consulting fees to directors and officers:



Company controlled by a director,

officer and shareholder

$143,331 (2002 - $120,000; 2001 - $120,000)

Director and shareholder

$115,080 (2002 - $ 80,299; 2001 - $ 35,000)

Company controlled by a director,

officer and shareholder

$100,000 (2002 - $  28,461; 2001 - $ nil)

Officer and shareholder

$ 10,729 (2002 - $nil;    2001 - $ nil)



During 2003, the following amounts were expensed as interest to shareholders:



Director, officer and shareholder   $  4,800(2002 - $4,800; 2001 - $  5,460)

Former director and shareholder     $  4,800(2002 - $4,800; 2001 - $ 11,107)

Director and shareholder            $  2,400(2002 - $2,400; 2001 - $  2,700)



During a prior year, the Company signed an agreement with a company controlled by a director, officer and shareholder whereby that company would establish a website and market some of the Company’s products.  The Company would receive 5% of any sales made by that company.  In the year ended December 31, 2003, the Company earned an amount of $837 (2002 - $2,476; 2001 - $1,201) which, accordingly, has been included as revenue in the Company’s accounts.  On May 31, 2003 this agreement was terminated and the Company maintains its website and consummates all sales directly.



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 and its affiliates. The commission schedule is 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.



6.

Income Taxes



The Company has tax non-capital loss carryforwards of approximately $2,798,000.  If unused, the tax losses will expire as follows:



2004

$

34,000

2005

$

6,000

2006

$

73,000

2007

$  188,000

2008

$  294,000

2009

$  323,000

2010

$1,880,000



In addition, the company has undeducted scientific research and development expenditures amounting to $778,000, which have no expiry.



Investment tax credits recorded during the year as a reduction of expenses aggregated to $172,959 (2002 - $246,613; 2001 - $ nil).



The Company’s computation of income tax recovery is as follows:



|                                                         | 2003         |  | 2002       |  | 2001      
|-------------------------------------------------------- | ------------ |  | ---------- |  | ----------
|                                                         |              |  |            |  |           
|Loss before income taxes                                 | $(2,206,969) |  | $(743,472) |  | $(705,555)
|Statutory income tax rate                                | 35.12%       |  | 38.62%     |  | 40.62%    
|Income tax recovery at statutory rate                    | (775,088)    |  | (287,129)  |  | (286,596) 
|Non-deductible expenses                                  | 114,832      |  | 33,742     |  | 45,320    
|Effect of income tax rate changes on future income taxes | 59,360       |  | 19,547     |  | --        
|Change in valuation allowance                            | 600,896      |  | 233,840    |  | 241,276   
|Income tax expense                                       | $     --     |  | $    --    |  | $    --   



Components of the Company’s net future income tax assets are:



|Non capital losses                          | $  982,658  |  | $354,532  |  | $265,845 
|------------------------------------------- | ----------- |  | --------- |  | ---------
|Scientific research and development expense | 273,234     |  | 300,464   |  | 155,311  
|Valuation allowance                         | (1,255,892) |  | (654,996) |  | (421,156)
|Net future income tax asset                 | $     --    |  | $    --   |  | $    --  





7.

Share Capital and Contributed Surplus



Share capital consists of the following:



Authorized:

60,000,000 common shares

10,000,000 preferred shares





Issued and outstanding:



| | 2003
Common Shares | 2002
Common Shares | 2001
Common Shares
| | ------------------ | ------------------ | ------------------



| |  | # | $ | # | $ | # | $
| |  | - | - | - | - | - | -
| |  |   |   |   |   |   |  

|Issued as at January 1                                                                          | 16,106,403 | 2,525,239 | 12,936,178 | 1,979,201 | 11,733,743 | 1,403,752
|----------------------------------------------------------------------------------------------- | ---------- | --------- | ---------- | --------- | ---------- | ---------
|Issued during year                                                                              |            |           |            |           |            |          
|-in exchange for
  consulting and
  professional fees
  and expenses from
  non-related parties | 209,082    | 136,122   | 506,050    | 166,801   | 228,700    | 135,552  
|-in exchange for
  consulting fees
  and expenses from
  related parties                        | 412,825    | 266,247   | 657,925    | 207,456   | 295,485    | 172,170  
|-in repayment of
  temporary advances
  from directors                                          | 45,500     | 20,400    | -          | -         | 103,250    | 45,000   

|-for cash |  | 2,456,615 | 395,845 | 2,006,250 | 171,781 | 575,000   | 222,727
|--------- |  | --------- | ------- | --------- | ------- | --------- | -------
|          |  | 3,124,022 | 818,614 | 3,170,225 | 546,038 | 1,202,435 | 575,449
|          |  |           |         |           |         |           |        

|Balance as at December 31 | 19,230,425 | 3,343,853 | 16,106,403 | 2,525,239 | 12,936,178 | 1,979,201
|------------------------- | ---------- | --------- | ---------- | --------- | ---------- | ---------



The weighted average number of shares outstanding during 2003 is 17,818,830 (2002 - 14,076,243; 2001 - 12,234,119).  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.



No preferred shares have been issued.



On June 11, 2001, the Company issued 144,935 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of $0.52 (U.S.) per share:



Director



13,397 shares

Company controlled by a director

and officer

55,538 shares

Non-related parties



76,000 shares



On August 10, 2001, the Company issued 224,600 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of $0.35 (U.S.) per share:



Director

43,500 shares

Director

43,500 shares

Company controlled by a director

and officer

85,200 shares

Director and Officer

23,100 shares

Non-related parties

29,300 shares



On September 25, 2001, the Company issued 224,600 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of $0.24 (U.S.) per share:



Director

13,250 shares

Director

13,250 shares

Company controlled by a director

and officer

39,750 shares

Director and Officer

25,750 shares

Non-related parties

40,400 shares



On December 31, 2001, the Company issued 125,500 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of $0.30 (U.S.) per share:



Company controlled by a director

and officer

42,500 shares

Non-related parties

83,000 shares



On March 27, 2002, the Company issued 442,225 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company.  The following shares were issued April 2, 2002 pursuant to the Directors' Resolution dated March 27, 2002, at a price of $0.20 (U.S.) per share:



Director and officer

51,800 shares

Company controlled by a director



and officer

164,125 shares

Director



25,750 shares

Former director

77,800 shares

Director and officer



43,750 shares

Non-related parties





79,000 shares



On July 2, 2002, the Company issued 303,775 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and



consultants of the Company. The Company approved the issuance of the following shares at a price of $0.20 (U.S.) per share:



Director and officer

74,000 shares

Company controlled by a director

and officer

98,775 shares

Non-related parties

131,000 shares



On October 18, 2002, the Company issued 121,925 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company. The Company approved the issuance of the following shares at a price of $0.20 (U.S.) per share:



Director and officer

23,625 shares

Company controlled by a director

and officer

37,800 shares

Director and officer

60,500 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 $0.20 (U.S.) and $0.25 (U.S.) per share:



Non-related parties

135,100 shares



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 $0.23 (U.S.) and $0.29 (U.S.) per share:



Non-related parties

160,950 shares



On January 10, 2003, the Company issued 267,685 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants that provided services or benefits between October and December 2002 to the Company. The following issuance of shares was approved at a price of $0.29 (U.S.) per share:





Company controlled by a director



and officer

26,775 shares



Director and officer

99,810 shares



Company controlled by a director



and officer

20,600 shares



Director

45,500 shares



Non-related parties

75,000 shares



On May 8, 2003, the Company issued 133,942 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company through the issuance of common shares of stock in the Company.  The following were provided compensation for services as noted at a price of $0.56 (U.S.) per share:





Company controlled by a director



and officer

14,640 shares



Director and officer

58,160 shares



Company controlled by a director



and officer

30,490 shares



Non-related parties

30,652 shares



On July 16, 2003, the Company issued 112,170 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company through the issuance of common shares of stock in the Company.  The following were provided compensation for services as noted at a price of $0.53 (U.S.) per share:



Company controlled by a director



and officer

18,200 shares



Director and officer

10,500 shares



Company controlled by a director



and officer

35,000 shares



Non-related parties

48,470 shares



On August 11, 2003 the Company issued 19,750 shares of common stock as a severance package at a price of $0.51 (U.S.) per share to a senior executive.



On October 28, 2003, the Company issued 87,860 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company through the issuance of common shares of stock in the Company.  The following were provided compensation for services as noted at a price of $0.55 (U.S.) per share:



Company controlled by a director

and officer

20,200 shares

Officer

3,500 shares

Company controlled by director

and officer

20,200 shares

Non-related parties

43,960 shares



On December 16, 2003, the Company issued 46,000 shares of common stock to settle obligations owing by the Company to certain directors and/or officers and consultants of the Company through the issuance of common shares of stock in the Company.  The following were provided compensation for services as noted at a price of $0.43 (U.S.) per share:



Company controlled by a director

and officer

35,000 shares

Non-related parties

11,000 shares



Contributed surplus consists of the following:

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

|Contributed surplus, beginning of year | $ 931,582 | $391,378 | 231,328
|-------------------------------------- | --------- | -------- | -------

|Consulting and professional fees paid in |  | 
|---------------------------------------- |  | 

|options to non-employees              | 131,063 | 83,354 | 111,571
|------------------------------------- | ------- | ------ | -------
|Stock based compensation to employees | 188,377 | -      | -      

|Issuance of warrants |  | 797,320 | 456,850 | 48,479
|-------------------- |  | ------- | ------- | ------

|Contributed surplus, end of year | $2,048,342 | $931,582 | $391,378
|-------------------------------- | ---------- | -------- | --------



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 September 21, 2001, with an accredited investor as defined under the laws of the province of Ontario, the Company issued as a private placement, 250,000 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 20, 2004, each entitling the holder to purchase one common share at $ 0.50 (U.S.) per share.



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.



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.



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.



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.



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.



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 30, 2002, the Board of Directors passed a resolution authorizing an amendment to a stock option plan dated September 25, 2001, increasing the number of shares available in the plan by 1,400,000 shares, to a total of 2,600,000 shares.  The amendment was adopted by the Company’s shareholders at its annual and special meeting of shareholders held in November 2002.  All features of the plan remain unchanged.  This brought the total number of shares available in all plans to 3,600,000 shares.



Stock options are valued using the Black-Scholes option pricing model with the following assumptions:  risk free interest rate of 2.18% to 4.66%, expected life of between 1 year and 5 years, expected volatility of between 113% and 338%, closing rate of exchange on the issue date and no dividends.  The total expense charged against income related to options in 2003 was $319,440 (2002 - $83,354; 2001 - $111,571).  This includes $131,063 (2002 - $83,354; 2001 - $111,571) for consulting and professional fees and expenses paid in options to non-employees and $188,377 (2002 – $ nil; 2001 - $ nil) for stock-based compensation to employees.  These amounts are included in the contributed surplus account.



|                                        | Options for
common shares | Weighted average
Exercise
Price US$
|--------------------------------------- | ------------------------- | -----------------------------------
|                                        |                           |                                    
|Balance – December 31, 2000             | 1,675,000                 | 0.28                               
|Options granted in 2001                 | 1,050,000                 | 0.35                               
|Options exercised in 2001               | (325,000)                 | 0.17                               
|Options forfeited or terminated in 2001 | –                         | –                                  
|                                        |                           |                                    
|Balance – December 31, 2001             | 2,400,000                 | 0.33                               
|Options granted in 2002                 | 1,725,000                 | 0.23                               
|Options exercised in 2002               | –                         | –                                  
|Options forfeited in 2002               | (500,000)                 | 0.20                               
|                                        |                           |                                    
|Balance December 31, 2002               | 3,625,000                 | 0.30                               
|Options granted in 2003                 | 580,000                   | 0.52                               
|Options exercised in 2003               | (600,000)                 | 0.22                               
|Options terminated in 2003              | (250,000)                 | 0.40                               
|Balance December 31, 2003               | 3,355,000                 | 0.34                               
|                                        |                           |                                    
|                                        | Options for
common shares | Weighted average
exercise price US$
|                                        |                           |                                    
|Exercisable at December 31, 2001        | 1,425,000                 | 0.30                               
|Exercisable at December 31, 2002        | 2,400,000                 | 0.32                               
|Exercisable at December 31, 2003        | 2,775,000                 | 0.30                               
|                                        |                           |                                    



The following table summarizes information about the Company’s stock options outstanding as at December 31, 2003:



|Exercise Price
US$ |  | Number
Outstanding at
December 31, 2003 | Weighted
average
remaining
contractual
life in years | Weighted
average
share price
US$ |  | Number
exercisable
December 31, 2003 | Weighted
average
share price US$
|------------------ |  | --------------------------------------- | ---------------------------------------------------- | -------------------------------- |  | ------------------------------------ | --------------------------------
|                   |  |                                         |                                                      |                                  |  |                                      |                                 
|0.17 – 0.24        |  | 1,325,000                               | 2.88                                                 | 0.23                             |  | 1,325,000                            | 0.23                            
|0.25 – 0.51        |  | 1,900,000                               | 2.38                                                 | 0.41                             |  | 1,450,000                            | 0.38                            
|0.52 – 0.63        |  | 130,000                                 | 4.98                                                 | 0.58                             |  | –                                    | –                               
|                   |  | 3,355,000                               |                                                      |                                  |  | 2,775,000                            |                                 





For the year ended December 31, 2002, a total of 395,000 (2001 – 925,000) 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 (2001 - $526,740) or $0.008 (2001 - $0.043) per share on a basic and diluted basis.  Proforma loss for the year ended December 31, 2002, would have been $860,369 (2001 - $1,232,295) or $0.061 (2001 - $0.101) per share on a basic and diluted basis.



At December 31, 2001, the Company had a total of 275,000 common share purchase warrants issued.  These warrants had an expiry date of September 20, 2004.  The weighted average exercise price of the warrants was $ 0.50 (U.S.).



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 had 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.).



Warrants are valued using the Black-Scholes option pricing model with the following assumptions:  risk free interest rate of 2.87% to 4.72%, expected life of between 1 year and 3 years, expected volatility of between 113% and 338%, closing rate of exchange on the issue date and no dividends.





8.

Consolidated Statements of Cash Flows



The net change in non-cash operating working capital balances related to operations consists of the following:





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

|Decrease (increase) in receivables                          | $  29,440 | $  7,123  | $ 11,129 
|----------------------------------------------------------- | --------- | --------- | ---------
|Decrease (increase) in prepaid expenses                     | 112,571   | (148,727) | 33,646   
|Decrease (increase) in investment tax 
  credits refundable | 216,608   | (216,608) | 61,000   
|Decrease (increase) in deferred costs                       | -         | -         | (58,515) 
|Increase (decrease) in payables and accruals                | (10,913)  | 149,568   | (132,617)
|Increase (decrease) in Goods and Services 
  Tax payable    | (26,547)  | (12,614)  | (1,432)  

| |  |  | $  321,159 | $(221,258) | $(86,789)
| |  |  | ---------- | ---------- | ---------





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:



|       |  |  | 2003    |  |  | 2002     |  |  | 2001   
|------ |  |  | ------- |  |  | -------- |  |  | -------
|       |  |  |         |  |  |          |  |  |        
|Canada |  |  | $ 7,008 |  |  | $    591 |  |  | $11,518

|Czech Republic    |  | 45,901 |  |  | 140,575 |  |  | 3,405 
|----------------- |  | ------ |  |  | ------- |  |  | ------
|Rest of the World |  | 14,961 |  |  | 39,002  |  |  | 20,181

| |  |  |         |  |  |          |  |  |        
| |  |  | ------- |  |  | -------- |  |  | -------
| |  |  | $67,870 |  |  | $180,168 |  |  | $35,104







10. Contingency



In 1999, a shareholder initiated a legal claim against the Company for repayment of advances in the amount of $315,287.  Management was of the opinion that this advance was repayable only if a certain level of external financing had been raised.  Since this level of financing was not achieved, there was no requirement to repay the advance.



In February 2001, the shareholder gave notice to the Company of his intention to increase his claim by $1,627,301 to cover additional expenses he allegedly incurred on behalf of the Company.



The case was tried in the Ontario Superior Court of Justice with the result that the entire claim was dismissed in November 2002.



An Appeal of the November 2002 judgment was heard by the Ontario Court of Appeal on January 29, 2004. The decision of that court remains under reserve. The outcome of that appeal is indeterminate. However, during the appeal, the shareholder reduced his claim to $709,287.  In December 2002, the Company was awarded net costs in the amount of $81,000 from the original case but the amount is not collectible unless a favorable decision for the Company is made by the Ontario Court of Appeal.  The effect of loss, if any, which may be sustained upon the ultimate resolution of this matter, will be reflected prospectively in the period of resolution.



11.

Commitments



The Company has operating leases for office and laboratory space.  The minimum annual lease payments under the terms of the existing leases are $ 39,360 to October 31, 2004 and $ 40,560 to October 31, 2005, plus proportionate share of common costs.





12.

Deferred Costs



In September, 2000, the Company filed a registration statement with the United States Securities and Exchange Commission in order to become eligible for trading its shares on the OTC Bulletin Board exchange.  Approval was received on April 17, 2001.



Costs incurred in the filing and subsequent receipt of the approval were deferred with a view to applying these costs against funds generated from sales of the Company’s capital stock.



Such costs accumulated to December 31, 2001 were $ 122,818.



Coincident with the cessation of offering activities, these deferred costs were written off in 2002.





13.    Comparative Figures



Certain comparative figures have been reclassified to conform to the current year’s presentation.





14.    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, 2003, 2002 and 2001 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, 2003, 2002 and 2001 if US GAAP were employed.  Similarily, there would be no adjustments needed to arrive at shareholders’ equity as at December 31, 2003, 2002 and 2001 if US GAAP were employed.



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 US GAAP purposes.



Accounting for future (deferred) income taxes



The significant differences between US 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 US 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, 2003, 2002 and 2001, the difference in rate determination did not result in any adjustment from Canadian to US 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 will be reviewing the provisions of FIN46 (variable interest entities) to determine if those provisions will require further accounting in the future.



Property, Plant and Equipment



There is a difference between US GAAP and Canadian GAAP for property, plant and equipment with respect to terminology.  Under US GAAP, property, plant and equipment is called fixed assets.



Contributed Surplus



There is a difference between US GAAP and Canadian GAAP for contributed surplus with respect to terminology.  Under US GAAP, contributed surplus is called additional paid in capital.











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.





By: /s/ Jiri K. Nor

---------------

President and Chief Executive Officer

Date: June 28, 2004