UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 20-F/A

(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, 2004

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

Commission file number 0-31481

                               ASTRIS ENERGI INC.
             (Exact name of Registrant as specified in its charter)

                                 Not Applicable
                 (Translation of Registrant's Name into English)

                                     ONTARIO
                 (Jurisdiction of incorporation or organization)

                            2175 DUNWIN DRIVE, UNIT 6
                       MISSISSAUGA, ONTARIO L5L 1X2 CANADA
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.
                                      NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act.
                                  COMMON SHARES
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
                                      NONE

                                (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
                            26,316,551 COMMON SHARES

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

                                 Yes |X| No |_|

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 |_|

                                       1
<PAGE>


                                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

                                       2
<PAGE>

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".

                                       3
<PAGE>

<TABLE>
<CAPTION>

                                 As at            As at          As at           As at          As at
                              December 31,     December 31,    December 31,     December 31,  December 31,
                                  2004            2003           2002             2001          2000
                                                               (RESTATED)       (RESTATED)    (RESTATED)

<S>                        <C>             <C>             <C>             <C>             <C>
Revenue                    $     88,798    $     67,870    $    180,168    $     35,104    $     22,824

Net Loss from Operations     (3,462,257)     (2,206,969)       (620,654)       (743,644)       (412,228)

Net Loss                     (3,462,257)     (2,206,969)       (743,472)       (705,555)        (35,580)

Basic and Diluted Loss            (0.16)          (0.12)          (0.05)          (0.06)          (0.00)
per Share

Total Assets                    509,124         435,235         676,500         190,376         281,705

Net Assets                      253,294        (135,975)        135,620        (207,150)       (249,870)

Long Term Obligations                --         100,000         120,400         114,000         114,000

Share Capital                 6,227,074       3,343,853       2,525,239       1,979,201       1,397,923

Number of Shares             26,316,551      19,230,425      16,106,403      12,936,178      11,733,743

Cash Dividends                       --              --              --              --              --

</TABLE>

EXCHANGE RATES

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


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

</TABLE>

                                       4
<PAGE>

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

          Month                                     High             Low

<S>               <C>                               <C>              <C>
          January 2005                              .83              .80
          February 2005                             .82              .79
          March 2005                                .83              .80

</TABLE>

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

B.    CAPITALIZATION AND INDEBTEDNESS.
      Not Applicable.

C.    REASON FOR THE OFFER AND USE OF PROCEEDS.
      Not Applicable.

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

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

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

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

                                       5
<PAGE>

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

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

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

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

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

                                       6
<PAGE>

      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(TM) MC250 has performed at up to 60% over the original design
specification and the E8 Portable AFC power generator has operated at an
electrical efficiency in excess of 50%. These results do not guarantee similar
or greater performance in future independent field tests.

                                       7
<PAGE>

      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(TM) MC250 in volume leading to commercialization.

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

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

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

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

                                       8
<PAGE>

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

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

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

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

                                       9
<PAGE>

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

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

FORWARD LOOKING INFORMATION

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

ITEM 4. INFORMATION ON THE COMPANY.

A. HISTORY AND DEVELOPMENT OF THE COMPANY.

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

                                       10
<PAGE>

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

B. BUSINESS OVERVIEW.

THE COMPANY'S PURPOSE

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

DESCRIPTION OF THE COMPANY'S BUSINESS ACTIVITIES

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

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

                                       11
<PAGE>

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

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

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

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

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

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

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

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

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

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

                                       12
<PAGE>

DESCRIPTION OF FUEL CELLS

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

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

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

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

1.    Fuel Cell Modules such as the LABCELL(TM) LC50, LABCELL(TM) LC200 and
      POWERSTACK(TM) MC250

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

3.    Test Equipment such as TL5 Test Load, TESTMASTER(TM) Data Acquisition and
      Control Software Suite and the QUICKCELL(TM) QC200

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

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<PAGE>

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

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

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

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

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

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

                                       14
<PAGE>

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

AFCs vs. PEMFCs

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

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

ASTRIS FUEL CELL SYSTEM

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

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

                                       15
<PAGE>

ALKALINE FUEL CELLS

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

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

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

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

1.    P. Gouerec, L. Poletto, J. Denizot, E. Sanchez-Cortezon, J.H. Miners,
      The evolution of the performance of alkaline fuel cells with circulating
      electrolyte
      Journal of Power Sources: Volume 129, 2004, pp 193-204, Elsevier
      Publishers

2.    Erich Gulzow,
      Alkaline fuel cells: a critical view
      Journal of Power Sources: Volume 61, 1996, pp 99-104, Elsevier Publishers

3.    Eddy De Geeter, Michael Mangan, Staf Spaepen, William Stinissen, Georges
      Vennekens,
      Alkaline fuel cells for road traction
      Journal of Power Sources: Volume 80, 1999, pp 207-212, Elsevier Publishers

4.    K. Kordesch, M. Cifrain,
      Handbook of Fuel Cells - Fundamentals, Technology and Applications
      Pp 789-793, 2003, John Wiley & Sons, Ltd, Chichester

5.    G.F. McLean, T. Niet, S. Prince-Richard, N. Djilali,
      An assessment of alkaline fuel cell technology
      International Journal of Hydrogen Energy: Volume 27, 2002, pp 507-526,
      Pergamon Press

6.    K. Kordesch in Comprehensive Treatise of Electrochemistry,
      Vol. 3, editor J. O'M. Bockris, Plenum Press, New York - London, 1985.

7.    T.G.Benjamin, E.H.Camara,
      The Fuel Cell: Key to Practically Unlimited Energy
      Foote Prints Vol. 48, No. 2, Foote Mineral Co., Exton, PA 19341.

8.    Fuel Cells: A Handbook
      U.S. Department of Energy, Morgantown Energy Technology Center,
      Morgantown, West Virginia.

                                       16
<PAGE>
      The current E8 Generator has an electrical efficiency of ~55-60% based on
      the LHV (depending on power output being considered). This number is
      slightly better than the 51% (LHV) value that was recently published by
      Eident Energy in reference #1. References #7 and #8 give the efficiency
      range of gasoline electric generators (1 - 100 kW) as 7 - 22 %; for 1 - 10
      kW generators as 7 - 18 %. Comparing these numbers it is clear that the
      statement of "...at least two times..." is in fact conservative. The real
      value when comparing the low-end range of the Astris system with the high
      range of an internal combustion generator is in the range of 55% / 15% =
      3.7 times.

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

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

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

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

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

                                       17
<PAGE>

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

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

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

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

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

                                       18
<PAGE>

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

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

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

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

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

Glossary of terms

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

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

KOH - potassium hydroxide

CO - carbon monoxide

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

THE COMPANY'S PRODUCTS

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

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

                                       19
<PAGE>

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

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

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

MODEL E8 PORTABLE AFC GENERATOR

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

ASTRIS II GOLF CAR

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

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

                                       20
<PAGE>

SMALL FUEL CELLS AND RELATED PRODUCTS

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

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

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

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

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

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

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

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

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

RESEARCH AND DEVELOPMENT

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

                                       21
<PAGE>

      Astris s.r.o. has been engaged in fuel cell research and development since
1992. Its current research and development efforts are primarily focused on
electrode technology to improve the electrochemical efficiency, durability and
economy of alkaline fuel cells. These research and development efforts have also
been focused on reduction of production costs, improving product quality and
consistency, and on identifying new features and innovations for future product
development. Funds advanced from the Company for expenditures on manufacturing
and research and development at Astris s.r.o. were approximately CDN$700,000 for
2004. For the years ended December 31, 2004, 2003 and 2002, the Company expended
a total of approximately CDN$1,354,695, CDN$1,229,184, CDN$197,488 on research
and development. The research and development budget for 2005 is contingent upon
the Company's ability to raise capital.

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

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

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

INTELLECTUAL PROPERTY

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

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

                                       22
<PAGE>

      The Company has unregistered trademarks on some of its products, including
LABCELL(TM) LC50, LABCELL(TM) LC200, QUICKCELL(TM) QC200, POWERSTACK(TM) MC250
and TESTMASTER(TM).

      The Company has copyright protection on its TL5 Testload and
TESTMASTER(TM) software.

MARKETING

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

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

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

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

RAW MATERIALS AND SUPPLIES

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

                                       23
<PAGE>

COMPETITION

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

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

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

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.

                                       24
<PAGE>

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

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

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

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

GOVERNMENTAL REGULATION

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

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

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

                                       25
<PAGE>

ENVIRONMENTAL COMPLIANCE

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

C.    ORGANIZATIONAL STRUCTURE.

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

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

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

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

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

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

      The following is a discussion of the results of operations and financial
condition of the Company for the fiscal years ended December 31, 2004, 2003 and
2002. The financial statements are prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") and are presented in Canadian
dollars. Differences between Canadian GAAP and United States GAAP can be found
in Note 15 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.

                                       26
<PAGE>

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

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

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

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

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

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

A.    OPERATING RESULTS.

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

                                       27
<PAGE>

REVENUE

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

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

EXPENSES

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

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

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

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

                                       28
<PAGE>

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

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

NET LOSS FOR THE YEAR ENDED DECEMBER 31, 2004

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

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

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

                           2005                      $       6,000
                           2006                      $      61,000
                           2007                      $     188,000
                           2008                      $     294,000
                           2009                      $     323,000
                           2010                      $   1,734,000
                           2014                      $   2,843,000

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

B.    LIQUIDITY AND CAPITAL RESOURCES.

      The Company had an operating cash flow deficit of $2,002,906 in 2004,
compared with an operating cash flow deficit of $1,156,031 in 2003, and compared
with a restated operating cash flow deficit of $380,285 in 2002. The company
invested $16,807 in plant and equipment in Mississauga, advanced $700,000 to
Astris s.r.o. to build the pilot production facility and incurred $48,190 in
pre-acquisition costs in 2004. Expenses were offset by financings through
private placements totaling $2,076,041 for a net decrease in cash at year end of
$169,434, resulting in cash at year end of $178,351, providing the Company with
2 months operating capital at current burn rates.

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

                                       29
<PAGE>

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

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

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

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

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

      The Company will continue to seek to enter into private placements,
strategic partnerships and joint ventures in order to further finance the
on-going development and commercialization of its fuel cell technology. There is
no assurance that the Company will be able to find or enter into any private
placements, strategic partnerships or finalize the proposed joint venture, on
terms acceptable to the Company or not highly dilutive to shareholders.

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

                                       30
<PAGE>

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

C.    PROSPECTS


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

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

      In May 2004, a value-added reseller agreement was signed between the two
companies. AEC will act as a value-added reseller for Astris generators. All
products that include any part of Astris technology will be appropriately
identified with Astris logos or trademarks. Astris will provide necessary
publicity material and training to AEC representatives as required. In the event
any intellectual property is created as a result of this agreement, the property
created with respect to Astris generator will be owned by Astris and property
created with respect to AEC hydrogen generator will be owned by AEC. Any other
intellectual property will be the owned by the creator. In December 2004, the
Company sold the first E8 generator to AEC under the terms of the reseller
agreement.

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

      On October 19, 2004, the company announced that it signed a Cooperation
Agreement with Italy's Electronic Machining s.r.l. (El.Ma.). El.Ma. is a
privately held company with offices and technical development facilities in
Rovereto, Trento, Italy. El.Ma. has particular interest in the development of
alkaline fuel cells for stationary and distributed generation of electrical
power. Their fuel cell and hydrogen usage R&D is funded by the Provincia
Autonoma di Trento, which is committed to the development of these technologies
with an eye to early market opportunities in Europe. As well, El.Ma. specializes
in research and advancement of manufacturing processes, an expertise applicable
to Astris' current AFC production line initiative. Under the terms of the
agreement, Astris will licence the use of its AFC technology and market its
products and consulting services to El.Ma. All goods and services provided by
Astris will be purchased by El.Ma. El.Ma will apply its research and
manufacturing expertise to the development of Astris technology in the areas of
production. Any intellectual property resulting from the execution of the
agreement will be owned exclusively by Astris.

      Subsequent to year end the Company announced that it has signed a Teaming
Agreement with Plasma Environmental Technologies Inc. (PET) (TSXV: PE) of
Burlington, Ontario for the development of a real-world installation utilizing
PET's hydrogen-producing waste processing system and Astris' AFC technology.

                                       31
<PAGE>

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

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

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

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

      See "Research and Development" in Section 4.

E.    TREND INFORMATION.

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

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

      Capital available to fund further development of technology

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

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

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

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

      Deregulation of power markets and introduction of competition

      Environmental/political concerns

      Developing regions without power grids

      Geographic considerations/remote power

      Distributed power generation; and

      Increasing price of oil

                                       32
<PAGE>

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

CONTRACTUAL OBLIGATIONS

      There are no contractual obligations to be disclosed.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

      A. DIRECTORS AND SENIOR MANAGEMENT.

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

--------------------------------------------------------------------------------------------------------
Name                                 Age    Office Held                                   Director Since
----                                 ---    -----------                                   --------------
<S>                                  <C>                                                  <C>
Jiri K. Nor                          65     President, Chief Executive Officer and        1996
                                            Director

Arthur Laudenslager (1)              78     Director                                      2003

Anthony Durkacz                      29     Vice President Finance                        2003

H. David Ramm                        53     Managing Director                             2004

Brian Clewes (1) (2)                 46     Director                                      2004

Michael Liik (2)                     45     Director                                      2004

Peter Nor                            34     Vice President Marketing                      Not a Director

Notes:
</TABLE>

      (1) Members of the Company's Audit Committee.
      (2) Members of the Company's Compensation 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 was the founder of Sonotek, an electronics
company, inventor of the Minitcharger fast battery charging technology and
founder of the Norvik group of companies. For more than five years until August
1997, he was Vice President of Research for Norvik Technologies and Norvik
Traction, companies in the business of developing fast battery chargers.

                                       33
<PAGE>

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

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

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

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

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

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

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

                                       34
<PAGE>

B. COMPENSATION

(1)   Paid in Cash

                                        2004      2003      2002
                                     ---------------------------

Macnor Corp (Note 1)                 123,996   103,998    36,000

Fortius Research & Trading(Note 2)    62,500    10,000        --
                                     -------   -------   -------
Total                                186,496   113,998    36,000
                                     -------   -------   -------

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

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

(2)   Paid in Shares

      2002, we issued to related parties 657,925 common shares for a value of
      $207,456 for consulting services and expense reimbursements rendered to
      the following entities or individuals:

         Individual or Entity                        # of Shares       $ Value
         ---------------------------------------------------------------------
         Macnor Corp (Note 1)                        300,700            94,520
         Director - Gordon Emerson                   141,375            43,984
         Fortius Research & Trading (Note 2)          60,500            19,230
         Director - D. Blenkarn                       77,800            24,906
         Director - G. Crawford                       25,750             8,242
         Director - J. Nor                            51,800            16,574
                                                     -------           -------
         Total                                       657,925           207,456
                                                     -------           -------

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

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

      In 2004, we issued to related parties 586,592 common shares for a value of
      $332,360 for consulting services rendered and 293,751 shares for $128,000
      to pay down debt and accrued interest on that debt for a total of 880,343
      shares for a total of $460,360. These shares and amounts were issued to
      the following entities or individuals:

                                       35
<PAGE>

         Individual or Entity                        # of Shares       $ Value
         -----------------------------------------------------------------------
         Jiri Nor as an individual                   117,500            51,200
         Macnor Corp. (Note 1)                       266,263           132,455
         Fortius Research & Trading (Note 2)          95,880            52,500
         Director - David Ramm                        57,445            34,423
         Director - Gordon Emerson                   118,032            81,441
         Director - Gerald Crawford                   89,793            45,736
         Director - Donald Blenkarn                  117,500            51,200
         Director - Arthur Laudenslager               17,930            11,405
                                                     -------           -------
         Total                                       880,343           460,360
                                                     -------           -------

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

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

(3)   Directors

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

(4)   Governance

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

(5)   Stock Option Plan

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

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

                                       36
<PAGE>

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

The following table outlines the options and warrants that are outstanding as of
April 1, 2005 of the directors and senior management of the Company:
<TABLE>
<CAPTION>

Name                                       Number of Shares           Exercise Price           Expiry
----                                       ----------------           --------------           ------
<S>                                             <C>                      <C>                 <C>
Jiri Nor                                        50,000                 US$0.505              08/15/05

Jiri Nor                                       300,000                  US$0.24              11/12/06

Michael Liik (1)                               500,000                  US$0.36              12/11/09

Liikfam Holdings Inc. (2)                      500,000                  US$0.37              12/09/07

Peter Nor                                      100,000                  US$0.36              12/06/09

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
</TABLE>

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

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

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

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

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

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

C.    BOARD PRACTICES.

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

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

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

                                       37
<PAGE>

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

D.    EMPLOYEES.

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

E.    SHARE OWNERSHIP.

      The following table lists, as of April 1, 2005, the beneficial share
holdings in the Common Shares, which are the only outstanding voting securities
of the Company, of (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:
<TABLE>
<CAPTION>

                                        Options Vested           Directly Owned    Total Owned included       Percent
Name                                                                                     Vested Options      of Class
----------------------------------------------------------------------------------------------------------------------

<S>         <C>                                 <C>                   <C>                     <C>              <C>
Jiri K. Nor (1)                                 50,000                7,596,884               7,646,884        23.96%
Brian Clewes                                         -                  100,390                 100,390         0.31%
Arthur Laudenslager (2)                              -                  102,430                 102,430         0.32%
Michael Liik                                         -                        0                       0         0.00%
Anthony Durkacz (3)                            362,500                  279,670                 642,170         2.03%
H. David Ramm                                  250,000                   60,945                 310,945         0.98%
Peter Nor                                      100,000                        0                 100,000         0.32%

                                       -----------------------------------------------------------------
All Executive Officers and Directors
  as a group (4)
                                               762,500                8,140,319               8,902,819        27.92%
                                       -----------------------------------------------------------------
</TABLE>

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

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

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

                                       38
<PAGE>

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

A.    MAJOR SHAREHOLDERS.

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

  Name                              Amount and Nature      Percent
                                   of Beneficial Owner     of Class
  ----------------------------------------------------------------------
  Jiri K. Nor (1)                       7,596,884           23.96%
  ----------------------------------------------------------------------

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

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

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

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

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

B.    RELATED PARTY TRANSACTIONS.

      (1)   See Item 6B for related party consulting services compensation and
            expense reimbursements.

      (2)   Liabilities to related persons

                                       39
<PAGE>

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

              $13,826 to Macnor Corp
              $17,441 to three directors: Anthony Durkacz $69, Fortius Research
                  & Trading $14,250, Jiri Nor $3,121
              $1,043 to an officer: Peter Nor

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

      The Company has a 30% ownership interest in s.r.o., a Czech company, in
which the remaining 70% is owned by 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:

                                               2004        2003        2002
                                           --------    --------    --------

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

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

As at December 31:                              2004       2003       2002
                                            --------   --------   --------

Balance of funds paid included in prepaid
    expenses and deposits                   $     --   $ 30,000   $146,074
Included in payables and accruals                588    137,480    123,919

Year ended December 31:

Total funds advanced                         700,000    416,000     23,000
Sales                                             --     45,901    140,575
Purchases included in subcontract           $563,108   $151,001   $ 89,159

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

      (4)   Agreements with Macnor Corp

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

                                       40
<PAGE>

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

      (5)   Individual Contract with Gordon Emerson

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

      On May 26, 2003 the Board of Directors approved a compensation package
whereby he would receive commission on funds raised through First Energy
Advisors. The commission schedule was as follows: 5% paid on the first $1
million, 4% on the second $1 million, 3% on the third $1 million, 2% on the
fourth million and 1% on all money raised afterward. During the year, the
following amounts were paid to Mr. Emerson: $51,140(2003 - $29,735). At a Board
Meeting subsequent to the year-end, the Board terminated this compensation
package.

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

                                       41
<PAGE>

      (6)   Agreement with Fortius Research and Trading

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

      (7)   Debenture Transaction with Directors

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

      (8)   Transactions subsequent to December 31, 2004

            Amalgamation of Astris Inc with Astris Energi Inc.

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

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

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

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

                                       42
<PAGE>

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

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

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

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

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

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

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

                                       43
<PAGE>

C.    NON-RELATED PARTY COMMON STOCK TRANSACTIONS.

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

      Non-related parties                         79,000 shares

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

      Non-related parties                     131,000 shares

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

      Non-related parties                     135,100 shares

      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:

                                       44
<PAGE>

      Non-related parties                         48,470 shares

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

      Non-related parties                         43,960 shares

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

      Non-related parties                         11,000 shares

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

                                             First           Second          Third          Fourth
                                            Quarter         Quarter         Quarter         Quarter         Annual

<S>                                         <C>             <C>             <C>            <C>           <C>
Total Non-Related Parties                   306,040         136,092         565,535        721,205       1,728,872
</TABLE>

D.    INTERESTS OF EXPERTS AND COUNSEL.

      Not Applicable.

ITEM 8. FINANCIAL INFORMATION.

A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.

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

A.6. EXPORT SALE DISCLOSURE

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

B.    SIGNIFICANT CHANGES.

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

DIVIDEND POLICY.

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

                                       45
<PAGE>

ITEM 9. THE OFFER AND LISTING.

MARKETS AND PRICE HISTORY OF THE COMPANY'S STOCK.

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

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


               ---------------------------------------------------------
               2003                         High                    Low
               ---------------------------------------------------------

               ---------------------------------------------------------
               First                        $.90                   $.42
               ---------------------------------------------------------
               Second                        .65                    .42
               ---------------------------------------------------------
               Third                        1.11                    .35
               ---------------------------------------------------------
               Fourth                        .87                    .40
               ---------------------------------------------------------

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

               ---------------------------------------------------------
               2004                         High                    Low
               ---------------------------------------------------------

               ---------------------------------------------------------
               First                        $.61                   $.49
               ---------------------------------------------------------
               Second                        .53                    .39
               ---------------------------------------------------------
               Third                         .57                    .32
               ---------------------------------------------------------
               Fourth                        .51                    .37
               ---------------------------------------------------------

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

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

                                       46
<PAGE>

ITEM 10. ADDITIONAL INFORMATION.

A.    SHARE CAPITAL.

      Not Applicable.

ITEM 10 B. MEMORANDUM AND ARTICLES OF ASSOCIATION.

1.    ORGANIZATION.

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

2.    DIRECTORS POWERS.

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

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

CORPORATE GOVERNANCE.

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

MEETINGS OF THE BOARD OF DIRECTORS.

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

BORROWING POWER.

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

                                       47
<PAGE>

      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.

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

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

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

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

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

                                       48
<PAGE>

DIVIDENDS

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

4.    CHANGING RIGHTS OF SHAREHOLDERS

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

5.    ANNUAL GENERAL MEETINGS AND SPECIAL MEETINGS

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

6.    LIMITATIONS TO OWN SECURITIES

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

7.    ISSUES RELATED TO MERGERS, ACQUISITIONS OR CORPORATE RESTRUCTURING

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

                                       49
<PAGE>

8.    OWNERSHIP THRESHOLD

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

9 & 10. LAW

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

C.    MATERIAL CONTRACTS

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

D.    EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

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

      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.

                                       50
<PAGE>

      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.

                                       51
<PAGE>

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. Non-Canadian Residents would be
required to file a special Canadian Income Tax Return for dispositions of shares
in Astris stock and would be taxable in Canada on any Net Capital Gains earned
on such dispositions.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

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

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

                                       52
<PAGE>

      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.

      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.

                                       53
<PAGE>

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.

                                       54
<PAGE>

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 or Euro. The Company has not
previously engaged in, and does not now intend to enter into, any currency
hedging or other similar currency hedging transactions. The Company may enter
into such transactions on a non-speculative basis to the extent that it might in
the future have substantial foreign currency exposure.

                                       55
<PAGE>

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

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

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

                                       56
<PAGE>

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

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

ITEM 16.

A.
      AUDIT COMMITTEE FINANCIAL EXPERT

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

C.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

                                       57
<PAGE>

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, 2004.
      Auditors' Report for the year ended December 31, 2003.
      Auditors' Report for the year ended December 31, 2002.
      Consolidated Balance Sheets for the year ended December 31, 2004, 2003 and
2002.
      Consolidated Statements of Loss and Deficit for the years ended December
31, 2004, 2003 and 2002.
      Consolidated Statements of Cash Flows for the years ended December 31,
2004, 2003 and 2002.
      Notes to Consolidated Financial Statements for the year ended December 31,
2004, 2003 and 2002.

ITEM 18. FINANCIAL STATEMENTS

         Not applicable.

ITEM  19. EXHIBITS

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

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

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

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

                                       58
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       59
<PAGE>

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

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

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

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

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

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

23.1*  AUDITORS' CONSENTS

31.1   and 31.2 302 CERTIFICATION

32.1   SECTION 906 CERTIFICATION

99*    CODE OF ETHICS

99.1*  WHISTLEBLOWER POLICY

* Previously filed. Otherwise all other exhibits filed herewith.

                                   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: September 28, 2005

<PAGE>

                               ASTRIS ENERGI INC.
                          (A Development Stage Company)
                        Consolidated Financial Statements
                               (Canadian Dollars)
                                December 31, 2004

<PAGE>



                               ASTRIS ENERGI INC.

                                      INDEX

                                December 31, 2004

                                                                          PAGE


AUDITORS' REPORT - DECEMBER 31, 2004 AND DECEMBER 31, 2003                  1



AUDITOR'S REPORT - DECEMBER 31, 2002                                        2



FINANCIAL STATEMENTS

         Consolidated Balance Sheets - Statement I                          3

         Consolidated Statements of Loss and Deficit - Statement II         4

         Consolidated Statements of Cash Flows - Statement III              5


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                6 - 37


<PAGE>

                                AUDITORS' REPORT

To the Directors of
ASTRIS ENERGI INC.

We have  audited the  consolidated  balance  sheets of ASTRIS  ENERGI INC. as at
December 31, 2004 and 2003 and the  consolidated  statements of loss and deficit
and cash flows for the years then ended. These consolidated financial statements
are the  responsibility of the company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the financial  position of the Company,  as at December 31,
2004 and 2003,  and the results of its  operations  and cash flows for the years
then  ended,  in  accordance  with  Canadian   generally   accepted   accounting
principles.


                                                         /s/ Danziger & Hochman

Toronto, Ontario                             Chartered Accountants
April 26, 2005

Comments  by  Auditors  for U.S.  Readers  on Canada - United  States  Reporting
Difference

In the United States,  reporting  standards for auditors require the addition of
an explanatory  paragraph  (following the opinion  paragraph) when the financial
statements are affected by conditions and events that cast substantial  doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the financial  statement and when there is a correction of an error in
the  application  of accounting  principles,  such as those  described in Note 3
relating to prior year's financial statements. Our report to the directors dated
April 26, 2005, is expressed in accordance  with  Canadian  reporting  standards
which do not permit a reference to such events and  conditions  in the auditors'
report when these are adequately disclosed in the financial statements.


                                                         /s/ Danziger & Hochman

Toronto, Ontario                             Chartered Accountants
April 26, 2005



                                                                          Page 1
<PAGE>

Auditors' Report
To the Shareholders of Astris Energi Inc.

We have  audited the  consolidated  balance  sheets of Astris  Energi Inc. as at
December 31, 2002 and 2001 and the  consolidated  statements of loss and deficit
and cash flows for the years then ended. These consolidated financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.

/s/ Lugowy Associates
CHARTERED ACCOUNTANTS
Hamilton, Ontario
May 25, 2004

Comments  by  Auditors  for U.S.  Readers  on Canada - United  States  Reporting
Difference

In the United States,  reporting  standards for auditors require the addition of
an explanatory  paragraph  (following the opinion  paragraph) when the financial
statements are affected by conditions and events that cast substantial  doubt on
a company's  ability to continue as a going concern,  such as those described in
Note 1 to the consolidated financial statements of the Company and when there is
a correction of an error in the  application of accounting  principles,  such as
those described in Note 3. Our report to the shareholders dated May 25, 2004, is
expressed in accordance with Canadian reporting  standards which do not permit a
reference to such events and  conditions in the auditors'  report when these are
adequately disclosed in the financial statements.

/s/ Lugowy Associates
CHARTERED ACCOUNTANTS
Hamilton, Ontario
May 25, 2004

                                                                          Page 2
<PAGE>


ASTRIS ENERGI INC.                                                   Statement I
(A Development Stage Company)
Consolidated Balance Sheets
As at December 31, 2004
(Canadian Dollars)
<TABLE>
<CAPTION>
=============================================================================================
                                                          2004           2003         2002
                                                                                    Restated
                                                                                    (Note 3)
=============================================================================================
<S>                                                   <C>           <C>           <C>
ASSETS
    CURRENT
        Cash                                          $   178,351   $   347,785   $   253,938
        Receivables                                         3,544         1,000        30,440
        Prepaid expenses and deposits (note 5)             10,118        37,206       149,777
        Investment tax credits refundable                 199,586            --       216,608
        Goods and services tax receivable                  27,387        16,120            --
        Other assets                                       53,692            --            --
---------------------------------------------------------------------------------------------

                                                          472,678       402,111       650,763
        Property, plant and equipment (note 4)             36,446        33,124        25,737
---------------------------------------------------------------------------------------------

                                                      $   509,124   $   435,235   $   676,500
=============================================================================================

LIABILITIES
    CURRENT
        Payables and accruals (note 5)                $   255,830   $   399,140   $   420,480
        Deposit on shares (note 7)                             --        72,070            --
---------------------------------------------------------------------------------------------

                                                          255,830       471,210       420,480
        Advances from related parties (note 5)                 --       100,000       120,400
---------------------------------------------------------------------------------------------
                                                          255,830       571,210       540,880
---------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
    SHARE CAPITAL (note 7)                              6,227,074     3,343,853     2,525,239
    CONTRIBUTED SURPLUS (note 7)                        3,016,647     2,048,342       931,582
    DEFICIT - Statement II                             (8,990,427)   (5,528,170)   (3,321,201)
---------------------------------------------------------------------------------------------
                                                          253,294      (135,975)      135,620
---------------------------------------------------------------------------------------------

                                                      $   509,124   $   435,235   $   676,500
=============================================================================================
</TABLE>

Description of Business and Going Concern (note 1)
Commitments  (note 10)
APPROVED ON BEHALF OF THE BOARD


/s/ Jiri Nor,  Director


/s/ Anthony Durkacz, Director



{See accompanying notes.}                                                 Page 3
<PAGE>



ASTRIS ENERGI INC.                                                  Statement II
(A Development Stage Company)
Consolidated Statements of Loss and Deficit
For the Year Ended December 31, 2004
(Canadian Dollars)
<TABLE>
<CAPTION>
==============================================================================================
                                                          2004           2003          2002
                                                                                     Restated
                                                                                     (Note 3)
----------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>           <C>
REVENUE (note 5)                                       $   88,798    $    67,870   $   180,168
----------------------------------------------------------------------------------------------


EXPENSES
    Research and development (note 5)                    1,343,695     1,229,184       197,488
    General and administrative                           1,943,799       880,585       332,831
    Professional fees                                      243,076       145,100       254,487
    Interest on advance from related parties (note 5)        7,000        12,000        12,000
    Amortization                                            13,485         7,970         4,016
----------------------------------------------------------------------------------------------

                                                         3,551,055     2,274,839       800,822
----------------------------------------------------------------------------------------------

LOSS BEFORE THE FOLLOWING                               (3,462,257)   (2,206,969)     (620,654)
----------------------------------------------------------------------------------------------

Deferred costs written off                                      --            --      (122,818)
----------------------------------------------------------------------------------------------

LOSS FOR THE YEAR                                       (3,462,257)   (2,206,969)     (743,472)
----------------------------------------------------------------------------------------------

DEFICIT, BEGINNING OF YEAR AS
    PREVIOUSLY REPORTED                                 (5,528,170)   (3,242,557)   (2,582,439)

Prior period adjustments (note 3)                               --       (78,644)        4,710
----------------------------------------------------------------------------------------------

DEFICIT, BEGINNING OF YEAR AS
    RESTATED                                            (5,528,170)   (3,321,201)   (2,577,729)
----------------------------------------------------------------------------------------------


DEFICIT, END OF YEAR                                   ($8,990,427)  ($5,528,170)  ($3,321,201)
==============================================================================================


LOSS PER COMMON SHARE, BASIC
    AND DILUTED (note 7)                               ($     0.16)  ($     0.12)  ($     0.05)
==============================================================================================
</TABLE>


{See accompanying notes.}                                                 Page 4
<PAGE>



ASTRIS ENERGI INC.                                                 Statement III
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2004
(Canadian Dollars)
<TABLE>
<CAPTION>
==================================================================================================
                                                              2004          2003          2002
                                                                                        Restated
                                                                                        (Note 3)
--------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>           <C>
OPERATING ACTIVITIES
    Loss for the year                                     ($3,462,257)  ($2,206,969)  ($  743,472)
    Items not requiring cash
        Amortization                                           13,485         7,970         4,016
        Consulting and professional fees and
            paid in capital stock to non-related parties      890,097       136,122       166,801
        Consulting and professional fees and
            expenses paid in options to non-employees         227,406       131,063        83,354
        Consulting fees and expenses paid in
            capital stock to related parties                  460,360       266,247       207,456
        Stock-based compensation to employees                 105,962       188,377            --
        Warrants issued to directors                           91,655            --            --
        Deferred costs written off                                 --            --       122,818
    Net change in non-cash working capital
        balances related to operations (note 8)              (329,614)      321,159      (221,258)
--------------------------------------------------------------------------------------------------
CASH (USED) IN OPERATING ACTIVITIES                        (2,002,906)   (1,156,031)     (380,285)
--------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
    Purchase of other assets                                  (53,692)           --            --
    Purchase of property, plant and equipment                 (16,807)      (15,357)      (11,797)
--------------------------------------------------------------------------------------------------
                                                              (70,499)      (15,357)      (11,797)
--------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
    Increase in advances from related
        parties                                                    --            --         6,400
    Deposit on shares                                         (72,070)       72,070            --
    Issuance of common shares                               1,438,874       395,845       171,781
    Issuance of warrants                                      537,167       797,320       456,850
--------------------------------------------------------------------------------------------------
                                                            1,903,971     1,265,235       635,031
--------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
    DURING THE YEAR                                          (169,434)       93,847       242,949

CASH, BEGINNING OF YEAR                                       347,785       253,938        10,989
--------------------------------------------------------------------------------------------------

CASH, END OF YEAR                                         $   178,351   $   347,785   $   253,938
==================================================================================================
</TABLE>

Supplementary disclosure with respect to
    consolidated Statements of Cash Flows
    (note 14)


{See accompanying notes.}                                                 Page 5
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

1.    DESCRIPTION OF BUSINESS AND GOING CONCERN

      Astris Energi Inc. (the "Company")  designs,  develops,  manufactures  and
      sells alkaline fuel cells (AFCs) and alkaline fuel cell systems, fuel cell
      and battery test loads and provides  engineering and other  services.  The
      Company is based in Mississauga, Canada.

      Since  inception,  the  efforts of the  Company  have been  devoted to the
      development of AFCs for industrial, commercial,  educational,  scientific,
      transportation  and  similar  applications.  To date,  the Company has not
      earned  significant  revenues and is considered  to be in the  development
      stage. Currently the Company has two projects under development.

      POWERSTACK MC250 Project

      The POWERSTACK  MC250 project  represents  fuel cell stack  improvement in
      several  aspects  of  AFC  technology.   The  POWERSTACK  MC250  is  at  a
      pre-commercial  stage.  The Company started a pilot production line of the
      POWERSTACK MC250 in 2004.

      The Company has expensed $1,984,263 to date on this project as at December
      31,  2004 (2003 -  $1,127,862).  No revenue  has yet been earned from this
      project and no amounts have been capitalized or deferred to date.

      E8 Generator Project

      The E8 generator  project uses the  POWERSTACK  MC250 to produce 2.4 kW of
      nominal  rated  power.  The E8  generator  is  ready  to be  installed  in
      demonstration and pilot applications.

      The Company has  expensed  $963,897 to date on this project as at December
      31, 2004 (2003 -  $298,810).  Included in revenue is the  Company's  first
      sale of an E8 generator in 2004.

      Going Concern

      The  financial  statements  of the Company  have been  prepared on a going
      concern basis which  contemplates  the realization of assets and discharge
      of  obligations  in the normal  course of  business  as they come due.  No
      adjustments  have been made to assets or  liabilities  in these  financial
      statements  should the  Company not be able to  continue  normal  business
      operations.

      The Company has incurred several years of losses and during 2004, utilized
      $2,002,906  of cash in  operations.  At  December  31,  2004,  the Company
      reported a deficit of $8,990,427 and continues to expend cash amounts that
      significantly exceed revenues.  These conditions cast substantial doubt as
      to the  ability  of the  Company  to  continue  in  business  and meet its
      obligations  as  they  come  due.   Management  is   considering   various
      alternatives,  including  possible  private  placements  and an IPO on the
      Toronto   Venture  Stock   Exchange  to  raise  capital  in  fiscal  2005.
      Nevertheless,  there is no assurance that these  initiatives if undertaken
      will be successful.


                                                                          Page 6
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

1.    DESCRIPTION OF BUSINESS AND GOING CONCERN (continued)

      The Company's  continuance  as a going concern is dependent on the success
      of the efforts of its directors and  principal  shareholders  in providing
      financial support in the short term, the success of the Company in raising
      additional long-term financing either from its own resources or from third
      parties,  the  commercialization  of one or more of the Company's research
      projects and the Company  achieving  profitable  operations.  In the event
      that such  resources  are not  secured,  the assets may not be realized or
      liabilities discharged at their carrying amounts, and differences from the
      carrying amounts reported in these financial statements could be material.


2.    SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

      These consolidated  financial  statements have been prepared in accordance
      with  Canadian  GAAP and  reflect  the  accounts  of the  Company  and its
      subsidiary,  Astris Inc.,  which was  acquired on December  31, 1995.  All
      intercompany   transactions   and  balances   have  been   eliminated   on
      consolidation.

      Revenue recognition

      Revenues  from the sale of fuel cell products and related  components  are
      recognized when there is persuasive evidence of an arrangement, goods have
      been  delivered,  the fee is  fixed  or  determinable  and  collection  is
      reasonably assured.

      Revenues  relating to engineering  and testing  services are recognized as
      the services are rendered.

      Property, Plant and Equipment

      Property,  plant and  equipment  are recorded at cost less  provision  for
      amortization and impairment where indicated. Amortization is provided over
      the useful lives of these assets, calculated as follows:

      Office furniture and equipment        20% declining 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.


                                                                          Page 7
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

      Development costs and scientific research

      All costs  relating to  scientific  research  and product  evaluation  are
      expensed as incurred.  Product  development costs are expensed as incurred
      unless the product or process is clearly defined, the associated costs can
      be identified,  technical  feasibility  is reached,  there is intention to
      produce or market the product,  the future market is clearly defined,  and
      adequate  resources  exist or are expected to be available to complete the
      project.  To date, these criteria have not been met and,  accordingly,  no
      development costs have been deferred.

      Investment tax credits and government  grants  received toward these costs
      are netted  against  the  related  expenses.  Investment  tax  credits are
      recognized  in the period in which the credits are earned and  realization
      is considered more likely than not.

      Taxes payable

      Income taxes are recorded  using the liability  method.  Future income and
      deduction  amounts  arise  due  to  temporary   differences   between  the
      accounting and income tax bases of the Company's  assets and  liabilities.
      Future income tax assets and liabilities are measured using  substantively
      enacted  income tax rates in effect for the year in which those  temporary
      differences are expected to be recovered or settled.  The effect on future
      income  tax  assets  and  liabilities  of a change in income  tax rates is
      recognized in the period that includes the date of substantive  enactment.
      Valuation  allowances are provided to the extent that  realization of such
      benefits is considered to be more unlikely than not.

      Use of estimates

      The  preparation of the  consolidated  financial  statements in conformity
      with generally accepted accounting  principles requires management to make
      estimates and assumptions  that affect the reported  amounts of assets and
      liabilities  and the reported  amounts of revenue and expenses  during the
      year. Actual amounts could differ from those estimates.



                                                                          Page 8
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

      Financial instruments

      The fair value of  financial  instruments  reported in these  consolidated
      financial statements approximates book value unless otherwise indicated.

      The  Company is exposed to risks  arising  from  fluctuations  in interest
      rates and the degree of  volatility  of these rates.  The Company does not
      use derivative instruments to reduce its exposure to interest risk.

      The Company is exposed to credit risk on the accounts  receivable from its
      customers.  In order to reduce its credit  risk,  the  Company has adopted
      credit  policies  which include the analysis of the financial  position of
      its customers and the regular review of their credit limit.

      Stock based compensation

      The Company accounts for stock-based  compensation in accordance with CICA
      Handbook  section 3870  "Stock-Based  Compensation  and Other  Stock-Based
      Payments".  This standard was effective  January 1, 2002 and requires that
      stock-based  payments  to  non-employees  and  direct  awards  of stock to
      employees and non-employees are accounted for using a fair-value method of
      accounting.  For fiscal  years  beginning  before  January  1, 2004,  this
      standard  allows  the  estimated  fair  value of stock  awards  granted to
      employees  to  be  either  recognized  as  a  compensation   expense,   or
      alternatively,  disclosed in the notes to the financial  statements,  with
      accompanying  disclosure  of pro-forma net earnings and earnings per share
      data as if the estimated  fair-value of the stock-based  compensation  had
      been recognized in earnings.

      Effective  January 1, 2003,  the Company  has  voluntarily  adopted  early
      application  of the  portion  of the  standard  related to grants of stock
      options  to  employees.  Under the  standard,  grants of stock  options to
      employees are recognized in earnings as a compensation  expense,  based on
      the estimated fair value at the date of the grant.  This accounting change
      has been  applied  prospectively  for options  granted to  employees on or
      after January 1, 2003.

      Investments

      The Company  accounts for its  investments  in affiliated  companies  over
      which it has  significant  influence  on the equity  basis of  accounting,
      whereby the investments are initially  recorded at cost, and  subsequently
      adjusted to  recognize  the  Company's  share of earnings or losses of the
      investee companies and reduced by dividends received.



                                                                          Page 9
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

2.    SIGNIFICANT ACCOUNTING POLICIES (continued)

      Foreign currency translation

      The  reporting  currency of the Company is the Canadian  dollar.  Monetary
      assets and liabilities  denominated in currencies  other than the Canadian
      dollar are translated at the rates of exchange in effect at the end of the
      year. Non-monetary assets and liabilities are translated at historic rates
      of exchange.  Revenues and expense items  denominated in currencies  other
      than the  Canadian  dollar are  translated  into  Canadian  dollars at the
      average rates of exchange for the year.

      Loss per share

      Basic  loss per share is  calculated  on the  weighted  average  number of
      common shares  outstanding  during the year. The diluted loss per share is
      calculated  based on the  weighted  average  number of common  shares that
      would  have been  outstanding  during  the year had all  potential  common
      shares been  issued at the  beginning  of the year or when the  underlying
      options or warrants were granted,  if later.  The treasury stock method is
      used to determine  the  incremental  number of shares that would have been
      outstanding had the Company used proceeds from the exercise of options and
      warrants to acquire common shares.


      3. PRIOR PERIOD ADJUSTMENTS

      The  financial  statements  of 2002 and prior years have been  restated to
      reflect the following errors  identified  therein and change in accounting
      policy, summarized as follows:

<TABLE>
<CAPTION>
                                            A          B          C          D           E           F            Total
<S>                                        <C>        <C>        <C>        <C>         <C>         <C>         <C>
      Increase (decrease)
      in deficit as at
      January 1, 2002                      $ 342,899  $      --  $  12,000  ($ 12,776)  ($ 31,546)  ($315,287)  $   4,710

      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
      ===================================================================================================================
</TABLE>


                                                                         Page 10
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

3.    PRIOR PERIOD ADJUSTMENTS (continued)

      A)    The Company was not previously accounting for the expense associated
            with the granting of stock options to  non-employees  as payment for
            services  received.  Under Canadian  generally  accepted  accounting
            principles,  the Company  should have been  expensing  stock options
            granted to non-employees  since its fiscal year beginning January 1,
            2002. As a result of correcting this accounting error,  there was an
            increase  in loss  for the  year  ended  December  31,  2002  and an
            increase in contributed  surplus as at December 31, 2002 of $83,354.
            In  addition,  the  Company  has  voluntarily  elected to change its
            accounting   policy  with  respect  to  stock  options   granted  to
            non-employees  as payment for services  received prior to January 1,
            2002. As a result of this change in accounting policy,  there was an
            increase in deficit and an  increase  in  contributed  surplus as at
            January 1, 2002 of $342,899.

      B)    The Company was not previously  accounting for warrants  attached to
            shares  issued.   Under  Canadian  generally   accepted   accounting
            principles,  the  Company  should  have  been  allocating  the  cash
            consideration  received  from the  issuance  of shares and  attached
            warrants  based on the fair market value of each of those  financial
            instruments  with the  resulting  amounts  being  recorded  as share
            capital  and  contributed  surplus,  respectively.  The  Company was
            previously recording all cash received as share capital. As a result
            of  correcting  this  accounting  error,  there was an  increase  in
            contributed surplus and a decrease in share capital as at January 1,
            2002 of $48,479.  In addition for warrants issued during 2002, there
            was a further  increase  in  contributed  surplus  and a decrease in
            share capital for the year ended December 31, 2002 of $456,850.

      C)    The  Company  had  not  previously  recorded  the  interest  on  the
            debenture  due to  shareholders  for 1999. As a result of correcting
            this  accounting  error,  there was an  increase  in deficit  and an
            increase in advances  from related  parties as at January 1, 2002 of
            $12,000.

      D)    The Company had made an error in the amounts  used with respect to a
            property,  plant and equipment  disposal in 1998.  The correction of
            this accounting error resulted in an increase in property, plant and
            equipment  and a  decrease  in  deficit  as at  January  1,  2002 of
            $12,776.

      E)    The Company had  previously  accounted  for having  owned all of the
            outstanding  common shares of its  subsidiary  Astris Inc.  However,
            there are 404,041 issued and outstanding  shares of Astris Inc. that
            are not  owned  by the  Company.  As a  result  of  correcting  this
            accounting error,  there was a decrease in deficit and a decrease in
            share  capital  (shares  to be  issued)  as at  January  1,  2002 of
            $31,546.


                                                                         Page 11
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

3.    PRIOR PERIOD ADJUSTMENTS (continued)

      F)    The  Company  had  recorded a  liability  in 1995 but at the time of
            recording  the  amount  it did not  have  the  characteristics  of a
            liability.  As a result of correcting this accounting  error,  there
            was a decrease in deficit and a decrease  in advances  from  related
            parties as at January 1, 2002 of $315,287.


4.    PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                   2004
                                                                     2004           Net
                                                       2004       Accumulated      Book
                                                       Cost      Amortization      Value

<S>                                                <C>           <C>           <C>
      Office furniture and equipment               $     54,226  $     23,277  $     30,949
      Leasehold improvements                             10,939         5,442         5,497
                                                   ------------  ------------  ------------

                                                   $     65,165  $     28,719  $     36,446
                                                   ============  ============  ============

<CAPTION>
                                                                                   2003
                                                                     2003           Net
                                                       2003       Accumulated      Book
                                                       Cost      Amortization      Value
<S>                                                <C>           <C>           <C>
      Furniture, fixtures and equipment            $     37,419  $     11,980  $     25,439
      Leasehold improvements                             10,939         3,254         7,685
                                                   ------------  ------------  ------------

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

<CAPTION>
                                                                                   2002
                                                                     2002           Net
                                                       2002       Accumulated      Book
                                                       Cost      Amortization      Value
<S>                                                <C>           <C>           <C>
      Furniture, fixtures and equipment            $     25,800  $      5,823  $     19,977
      Leasehold improvements                              7,200         1,440         5,760
                                                   ------------  ------------  ------------

                                                   $     33,000  $      7,263  $     25,737
                                                   ============  ============  ============
</TABLE>


                                                                         Page 12
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

5.    RELATED PARTY TRANSACTIONS AND BALANCES

      The Company, in the course of its regular business activities, has routine
      transactions  with  affiliates.  These  transactions  are  recorded at the
      exchange amount.

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

                                              2004      2003      2002
                                            --------  --------  --------

      Advances from directors               $     --  $     --  $ 20,400
      Debenture due to shareholders               --   100,000   100,000
                                            --------  --------  --------

                                            $     --  $100,000  $120,400
                                            ========  ========  ========

      Debenture due to shareholders

      The  debenture  due to  shareholders  was secured by a fixed and  floating
      charge on all of the assets and business of Astris Inc. and bore  interest
      at 12% per annum.  During the year the debenture and interest  accrued was
      completely  paid to the  shareholders  by the  issuance of 260,175  common
      shares. The shareholders released the security on the liability.

      Astris s.r.o ("s.r.o.")

      The Company has a 30% ownership  interest in s.r.o.,  a Czech company,  in
      which the  remaining  70% is owned by a company  controlled by a director,
      officer and  shareholder.  The  Company's 30% interest in losses of s.r.o.
      has been applied to its investment. As the Company's share of losses is in
      excess of the original investment,  the investment was written down to nil
      in 1996.

      The Company  has not  recorded  any further  share of the losses of s.r.o.
      over and above the original  investment as the Company has not  guaranteed
      the obligations of s.r.o.

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

                                                     2004       2003       2002
                                                 --------   --------   --------

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

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


                                                                         Page 13
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

5     RELATED PARTY TRANSACTIONS AND BALANCES (continued)

<TABLE>
<CAPTION>
      As at December 31:                                    2004      2003      2002
                                                          --------  --------  --------
<S>                                                       <C>       <C>       <C>
      Balance of funds paid included in prepaid
          expenses and deposits                           $     --  $ 30,000  $146,074
      Included in payables and accruals                   $    588  $137,480  $123,919

      Year ended December 31:

      Total funds advanced                                $700,000  $416,000  $ 23,000
      Sales                                               $     --  $ 45,901  $140,575
      Purchases included in research and development      $563,108  $729,800  $ 89,159
</TABLE>

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

      In  addition,  payables  and  accruals as at December 31, 2004 include the
      following amounts:

      $13,826  owing  to  a  company  controlled  by  a  director,  officer  and
      shareholder for consulting fees (2003 - $24,266; 2002- $55,061);

      $17,441,  $1,043,  and  $nil  owing  to  three  directors,   officers  and
      shareholders  for consulting fees or bonuses (2003 - $29,735,  $26,750 and
      $8,125; 2002 - $45,900, $9,231 and $nil);

      $nil accrued interest owing to each of the three shareholders  holding the
      debenture payable (2003 - $8,400,  $8,400,  $4,200; 2002 - $3,600,  $3,600
      and $1,800).

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

<TABLE>
<CAPTION>
<S>                                            <C>            <C>                  <C>
      Company controlled by a director,
          officer and shareholder              $166,279       (2003 - $143,331;     2002 - $120,000)
      Director and shareholders                $ 80,875       (2003 - $115,080;     2002 - $ 80,299)
      Company controlled by a director,
          officer and shareholder              $100,000       (2003 - $100,000;     2002 - $ 28,461)
      Officer and shareholder                  $ 93,455       (2003 - $ 10,279;     2002 - $nil)
</TABLE>

                                                                         Page 14
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

5. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

      During  2004,   the  following   amounts  were  expensed  as  interest  to
      shareholders:

<TABLE>
<CAPTION>
<S>                                            <C>            <C>                  <C>
      Director, officer and shareholder        $2,800         (2003 - $4,800;       2002 - $4,800)
      Former director and shareholder          $2,800         (2003 - $4,800;       2002 - $4,800)
      Director and shareholder                 $1,400         (2003 - $2,400;       2002 - $2,400)
</TABLE>

      On May 26, 2003 the Board of Directors approved a compensation package for
      a senior  executive  whereby he will  receive  commission  on funds raised
      through First Energy Advisors.  The commission schedule was as follows: 5%
      paid on the first $1 million, 4% on the second $1 million, 3% on the third
      $1 million, 2% on the fourth million and 1% on all money raised afterward.
      During the year, the following  amounts were paid to the Senior Executive:
      $51,140(2003 - $29,735).



      This  senior   executive  was  not  re-appointed  as  a  Director  at  the
      Shareholder  Meeting  held  on  October  22,  2004.  At  a  Board  Meeting
      subsequent  to  the  year-end,  the  Board  terminated  this  compensation
      package.

6.    INCOME TAXES

      The  Company  has tax  non-capital  loss  carryforwards  of  approximately
      $5,449,000. If unused, the tax losses will expire as follows:

                         2005                $       6,000
                         2006                       61,000
                         2007                      188,000
                         2008                      294,000
                         2009                      323,000
                         2010                    1,734,000
                         2014                    2,843,000

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

      Investment tax credits recorded during the year as a reduction of expenses
      aggregated to $203,626 (2003 - $172,959).



                                                                         Page 15
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

6.    INCOME TAXES (continued)

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

<TABLE>
<CAPTION>
                                                                         2004           2003           2002
                                                                     -----------    -----------    -----------
<S>                                                                  <C>            <C>            <C>
      Loss before income taxes                                       ($3,462,257)   ($2,206,969)   ($  743,472)
      Statutory income tax rate                                            36.12%         35.12%         33.62%
                                                                     -----------    -----------    -----------
      Income tax recovery at statutory rate                           (1,250,567)      (775,088)      (287,129)
      Non-deductible expenses                                            125,285        114,832         33,742
      Effect of income tax rate changes on future
          income taxes                                                        --         59,360         19,547
      Change in valuation allowance and other items                    1,125,282        600,896        233,840
                                                                     -----------    -----------    -----------

      Income tax expense                                             $        --    $        --    $        --
                                                                     -----------    -----------    -----------

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

      Non capital losses ($5,449,000 X 0.3612)                       $ 1,968,179    $   982,658    $   354,532
      Scientific research and development expense
          ($1,520,417 X 0.3612)                                          549,175        273,234        300,464
      Valuation allowance                                             (2,517,354)    (1,255,892)      (654,996)
                                                                     -----------    -----------    -----------

      Net future income tax asset                                    $        --    $        --    $        --
                                                                     -----------    -----------    -----------
</TABLE>


7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS

      a)    Share capital

            Share capital consists of the following:

            Authorized (see note below)
               Unlimited common shares
               10,000,000 preferred shares


                                                                         Page 16
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

6.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

            Issued and outstanding

<TABLE>
<CAPTION>
                                         2004                       2003                  2002
                                    Common Shares               Common Shares          Common Shares
<S>                                <C>         <C>         <C>         <C>         <C>         <C>
      Issued at January 1          19,230,425  $3,343,853  16,106,403  $2,525,239  12,936,178  $1,979,201
      ---------------------------------------------------------------------------------------------------

      Issued during year
      -in exchange for
       consulting and
       professional fees
       and expenses from
       non-related parties          1,728,872     890,096     209,082     136,122     506,050     166,801

      -in exchange for
       consulting fees and
       expenses from
       related parties                586,592     332,360     412,825     266,247     657,925     207,456

      -In repayment of
       advance from
       directors                      293,751     128,000      45,500      20,400          --          --

      -for cash                     4,476,911   1,532,765   2,456,615     395,845   2,006,250     171,781
      ---------------------------------------------------------------------------------------------------

                                    7,086,126   2,883,221   3,124,022     818,614   3,170,225     546,038
      ---------------------------------------------------------------------------------------------------
       Balance as at
        December 31                26,316,551  $6,227,074  19,230,425  $3,343,853  16,106,403  $2,525,239
      ===================================================================================================
</TABLE>


                                                                         Page 17
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

      The  weighted  average  number  of  shares   outstanding  during  2004  is
      21,106,312 (2003 - 17,818,830; 2002 - 14,076,243).  These figures are used
      for  purposes  of  calculation  of the loss per share.  No effect has been
      given to the  potential  exercise  of stock  options  and  warrants in the
      calculations   of  diluted   loss  per  share  as  the  effect   would  be
      anti-dilutive.

      At the Company's Annual Meeting held on October 22, 2004, an amendment was
      passed  increasing  the  authorized  capital  of  the  corporation  to  an
      unlimited number of common shares.

      No preferred shares have been issued.

      b)    Common  stock  issued  to  settle  obligations  of  the  Company  to
            Directors, Officers and Former Director of the Company

      In 2002,  the  Company  issued  657,925  shares of common  stock to settle
      obligations  owing by the Company to certain  directors and/or officers of
      the Company.

<TABLE>
<CAPTION>
                                                 $ Value of
     Name                Date    # of Shares       Shares                Services Performed
<S>            <C>    <C>           <C>          <C>            <C>
Macnor Corp           27-Mar-02     164,125      52,520.00      Professional Services  MC250
                                                                Company controlled by Director & Officer
                      02-Jul-02      98,775      30,000.00
                      18-Oct-02      37,800      12,000.00
               Total                300,700      94,520.00
G. Emerson            27-Mar-02      42,750      14,000.00      Consulting - Administration
                      02-Jul-02      74,000       2,484.00       Director
                      18-Oct-02      23,625       7,500.00
               Total                140,375      43,984.00
D Blenkarn            27-Mar-02      77,800      24,905.93      Former Director, Expense Recovery
               Total                 77,800      24,905.93
G. Crawford           27-Mar-02      25,750       8,242.62      Director, Expense Recovery
               Total                 25,750       8,242.62
J. Nor                27-Mar-02      51,800      16,573.77      Director & Officer, Expense Recovery
               Total                 51,800      16,573.77
Fortius               18-Oct-02      60,500      19,230.00      Financing Consulting
               Total                 60,500      19,230.00      Company controlled by Director & Officer

</TABLE>

                                                                         Page 18
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

      In 2003,  the  Company  issued  412,825  shares of common  stock to settle
      obligations  owing by the Company to certain  directors and/or officers of
      the Company.

<TABLE>
<CAPTION>
                                                 $ Value of
      Name              Date     # of Shares       Shares              Services Performed
<S>            <C>    <C>           <C>          <C>            <C>
Macnor Corp           10-Jan-03     26,775       12,000.00      Professional Services  MC250
                      08-May-03     14,640       12,000.00      Company controlled by Director & Officer
                      16-Jul-03     18,200       13,000.00
                      28-Oct-03     20,200       15,000.00
               Total                79,815       52,000.00
G. Emerson            10-Jan-03     76,620       35,245.20      Consulting/Administration
                      10-Jan-03     23,190       10,654.62      Director
                      08-May-03     49,015       40,190.00
                      08-May-03      9,145        7,500.00
                      16-Jul-03     10,500        7,500.00
                      11-Aug-03      2,100        1,489.67
                      11-Aug-03     17,650       12,500.00
               Total               188,220      115,079.49
D. Ramm               28-Oct-03      3,500        2,604.16      Managing Director
               Total                3,500
Fortius               10-Jan-03     20,600        9,231.00      Financing Consulting
                      08-May-03     30,490       25,000.00      Company controlled by Director & Officer
                      16-Jul-03     35,000       25,000.00
                      28-Oct-03     20,20        15,000.00
                      16-Dec-03     35,000       22,332.00
               Total               141,290       96,563.00

</TABLE>


                                                                         Page 19
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

      In 2004,  the  Company  issued  880,343  shares of common  stock to settle
      obligations  owing by the Company to certain  directors and/or officers of
      the Company.

<TABLE>
<CAPTION>
                                               $ Value of
      Name              Date      # of Shares    Shares          Services Performed
<S>                        <C>       <C>       <C>         <C>
Macnor Corp               Q4-03      17,565    15,000.00   Professional Services MC250
                          Q1         50,986    36,455.00   Company controlled by Director & Officer
                          Q2         92,855    39,000.00
                          Oct. 6     42,430    27,000.00
                          Dec. 10    62,427    27,000.00
                    Total           266,263   144,455.00
G. Emerson                Q4-03      34,820    29,735.00   Consulting - Administration
                          Q1         35,985    25,729.00   Director
                          Q2            420       175.00
                          Oct. 6     13,650     8,678.76
                          Dec. 10    33,157    17,125.29
                    Total           118,032    81,443.05
D. Ramm                   Q4-03       9,515     8,125.00   Managing Director
                          Q1         11,365     8,125.00
                          Q2         19,345     8,125.00
                          Oct. 6     12,770     8,125.00
                          Dec.10      4,450     1,922.04
                    Total            57,445    34,422.04
Fortius                   Q4-03      17,565    15,000.00   Financing Consulting
                          Q1              0           --   Company controlled by Director & Officer
                          Q2         29,765    12,500.00
                          Oct. 6     19,650    12,500.00
                          Dec.10     28,900    12,500.00
                    Total            95,880    52,500.00
J. Nor                                                     Director & Officer - Expense Recovery
                                      6,715     4,800.00
                                      6,715     4,800.00
                                    104,070    41,600.00
                    Total           117,500   $51,200.00
G. Crawford               Q4-03       3,358     4,435.00   Director - Expense Recovery
                                      5,195     2,400.00
                                      3,358     2,400.00
                          Q2          2,145       900.00
                          Oct. 6     22,315    14,900.00
                                     52,035    20,800.00
                          Dec. 10     1,387       600.00
                    Total            89,793    45,735.00
D. Blenkarn                           6,715     4,800.00   Former Director - Expense Recovery
                                      6,715     4,800.00
                                    104,070    41,600.00
                    Total           117,500    51,200.00
A. Laudenslager                      17,930    11,404.88   Director - Expense Recovery
                    Total            17,930    11,404.88
</TABLE>


                                                                         Page 20
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

      c)    Contributed surplus consists of the following:

<TABLE>
<CAPTION>
                                                      2004         2003        2002
                                                   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>
        Contributed surplus, beginning of year     $2,048,342   $  931,582   $  391,378
        Consulting and professional fees paid in
            options to non-employees                  192,481      131,063       83,354
        Stock based compensation to employees         140,892      188,377           --
        Proceeds on issuance of warrants                6,110           --           --
        Issuance of warrants                          628,822      797,320      456,850
                                                   ----------   ----------   ----------

        Contributed surplus, end of year           $3,016,647   $2,048,342   $  931,582
                                                   ==========   ==========   ==========
</TABLE>

      d)    Common stock issued for cash

      Pursuant to a  subscription  agreement  dated  February  8, 2002,  with an
      accredited  investor as defined under the laws of the province of Ontario,
      the Company issued as a private placement,  125,000 units,  comprising one
      common share and one common share purchase  warrant each, for an aggregate
      purchase price of $25,000 (U.S.).  The common share purchase  warrants are
      exercisable up to February 8, 2005,  each entitling the holder to purchase
      one common share at $ 0.50 (U.S.) per share.

      In accordance  with the terms of a financing  agreement  dated November 7,
      2002, with a Canadian company,  the Company had granted to it an option to
      purchase  500,000  common  shares at a price of $0.20  (U.S.)  per  share,
      expiring on February 15, 2003. The option was fully  exercised on February
      13, 2003 for proceeds of $100,000 (U.S.).


      7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

      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.



                                                                         Page 21
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================


      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.



                                                                         Page 22
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

      Pursuant to a  subscription  agreement  dated  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.



                                                                         Page 23
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

      Pursuant to a  subscription  agreement  dated  December 30, 2003,  with an
      accredited  investor as defined under the laws of the province of Alberta,
      the Company issued as a private placement,  177,500 units,  comprising one
      common share and two common share purchase warrants each, for an aggregate
      purchase  price of $120,000.  The first  tranche of common share  purchase
      warrants is  exercisable  up to December  29,  2004,  at $ 0.80 (U.S.) per
      share. The second tranche of common share purchase warrants is exercisable
      up to December 29, 2006 at $ 1.00 (U.S.) per share.  Each warrant entitles
      the holder to purchase one common share.

      Pursuant to a  subscription  agreement  dated  December 30, 2003,  with an
      accredited  investor as defined under the laws of the province of Ontario,
      the  Company  received a down  payment  for a private  placement,  111,529
      units,  comprising one common share and one common share purchase  warrant
      each,  for an aggregate  purchase  price of $72,070  ($55,765  U.S.).  The
      common share  purchase  warrants are  exercisable  up to January 21, 2007,
      each  entitling  the holder to purchase  one common share at $ 1.00 (U.S.)
      per share.  The  payment  is shown as a deposit  on shares on the  balance
      sheet.

      Pursuant  to a  subscription  agreement  dated  March  3,  2004,  with  an
      accredited  investor as defined under the laws of the province of Alberta,
      the Company issued as a private  placement  651,450 units,  comprising one
      common share and two common share purchase warrants each, for an aggregate
      purchase price of $390,870  ($300,669  U.S.).  The first tranche of common
      share  purchase  warrants are  exercisable up to October 1, 2005, at $0.80
      (U.S.) per share. The second tranche of common share purchase  warrants is
      exercisable  up to April 1, 2007 at $1.00  (U.S.) per share.  Each warrant
      entitles the holder to purchase one common share.

      Pursuant  to a  subscription  agreement  dated  March  26,  2004,  with an
      accredited  investor as defined under the laws of the province of Ontario,
      the Company issued as a private  placement  236,035 units,  comprising one
      common share and one common share purchase  warrant each, for an aggregate
      purchase  price of $138,080  ($106,216  U.S.).  The common share  purchase
      warrants are  exercisable up to March 27, 2007,  each entitling the holder
      to purchase one common share at $0.50 (U.S.) per share.

      Pursuant  to a  subscription  agreement  dated  March  31,  2004,  with an
      accredited  investor as defined under the laws of the province of Alberta,
      the Company issued as a private  placement  104,500 units,  comprising one
      common share and two common share purchase warrants each, for an aggregate
      purchase  price of $61,100  ($47,000  U.S.).  The first  tranche of common
      share  purchase  warrants are  exercisable up to October 1, 2005, at $0.80
      (U.S.) per share. The second tranche of common share purchase  warrants is
      exercisable  up to April 1, 2007 at $1.00  (U.S.) per share.  Each warrant
      entitles the holder to purchase one common share.


                                                                         Page 24
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

      Pursuant  to  a  subscription  agreement  dated  June  3,  2004,  with  an
      accredited  investor as defined under the laws of the province of Alberta,
      the Company issued as a private  placement 79,630 units,  comprises of one
      common share and one common share purchase  warrant each, for an aggregate
      purchase  price  of  $43,000.  The  common  share  purchase  warrants  are
      exercisable  up to June 30, 2007 each entitling the holder to purchase one
      common share at $0.80 (U.S.) per share.

      Pursuant to subscription agreements dated July 26 - 28, 2004, with certain
      accredited investors as defined under the laws of the province of Alberta,
      Canada and the United  States,  the Company  issued as private  placements
      1,694,167  units  comprised  of one  common  share  and one  common  share
      purchase  warrant each, for an aggregate  purchase price of $660,725.  The
      common share  purchase  warrants are  exercisable up to December 31, 2005,
      each entitling the holder to purchase one common share at $0.50 (U.S.) per
      share.

      Pursuant to a subscription  agreement  dated October 1, 2004,  with a U.S.
      company,   the  Company  issued  as  a  private  placement  88,900  units,
      comprising  one common share and one common share  purchase  warrant each,
      for an aggregate  purchase  price of $52,000.  The common  share  purchase
      warrants are  exercisable  up to  September  30, 2007 each  entitling  the
      holder to purchase one common share at $0.90 (U.S.) per share.

      Pursuant to a subscription  agreement  dated October 1, 2004,  with a U.S.
      company,   the  Company  issued  as  a  private  placement  88,900  units,
      comprising  one common share and one common share  purchase  warrant each,
      for an aggregate  purchase  price of $52,000.  The common  share  purchase
      warrants are  exercisable  up to  September  30, 2007 each  entitling  the
      holder to purchase one common share at $0.90 (U.S.) per share.

      Pursuant  to  subscription  agreement  dated  October  8,  2004,  with  an
      accredited  investor as defined under the laws of the province of Ontario,
      Canada,  the Company issued as a private placement 20,000 units comprising
      one common  share and one  common  share  purchase  warrant  each,  for an
      aggregate  purchase price of $11,500.  The common share purchase  warrants
      are  exercisable  up to  October  8, 2007,  each  entitling  the holder to
      purchase one common share at $0.90 (U.S.) per share.

      Pursuant to a subscription  agreement  dated December 3, 2004, with a U.S.
      company,  the  Company  issued  as  a  private  placement  166,700  units,
      comprising  one common share and one common share  purchase  warrant each,
      for an aggregate  purchase  price of $62,500.  The common  share  purchase
      warrants are  exercisable up to December 3, 2007 each entitling the holder
      to purchase one common share at $0.60 (U.S.) per share.



                                                                         Page 25
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

      e)    Stock option plans

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

            On October 22,  2004,  the Board of  Directors  passed a  resolution
            authorizing  an amendment  increasing  the maximum  number of common
            shares  for  issuance  under  the  Company's  Stock  Option  Plan to
            5,100,000.

            For the year ended  December  31,  2002,  a total of  395,000  stock
            options were granted to  employees in  accordance  with the terms of
            the  employee  share  option  plan.   Had  the  Company   determined
            compensation cost based on the fair value method,  the fair value of
            the stock options  granted  during the year and the related  expense
            for the year would have been $116,897 or $0.008 per share on a basic
            and diluted  basis.  Proforma  loss for the year ended  December 31,
            2002  would  have been  $860,369  or $0.061 per share on a basic and
            diluted basis.

            In November 2003, one non-related party exercised 100,000 options at
            $0.30 (U.S.) for total proceeds of $30,000 (U.S.).

            For the three  months ended June 30,  2004,  one employee  exercised
            40,000 options at $0.20 (U.S.) for total proceeds of $10,400 and one
            non-related  party  exercised  200,000  options at $0.30  (U.S.) for
            total proceeds of $81,732.

            For the three months ended September 30, 2004, one non-related party
            exercised  120,000  options at $0.30  (U.S.) for total  proceeds  of
            $46,770.

            For the three months ended December 31, 2004, one non-related  party
            exercised  580,000  options at $0.30  (U.S.) for total  proceeds  of
            $219,358.  One director exercised 62,500 options for $0.25 for total
            proceeds of $15,625.

            For the three months ended  December  31, 2004,  stock  options were
            granted as follows under the Company's Stock Option Plan:



                                                                         Page 26
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

            To employees,  149,170 at a price of $0.35 (U.S.) expiring  December
            16,  2009.
            To consultants, 154,670 at a price of $0.35 (U.S.) expiring December
            16, 2009.
            To an officer, 100,000 at a price of $0.36 (U.S.) expiring December
            6, 2009.
            To a director, 500,000 at a price of $0.36 (U.S.) expiring December
            11, 2009 subject to certain conditions

            Stock  options are valued  using the  Black-Scholes  option  pricing
            model with the  following  assumptions:  risk free  interest rate of
            3.62%,  expected  life  of  between  1 year  and 5  years,  expected
            volatility  of 112%,  closing rate of exchange on the issue date and
            no dividends.  The total expense  charged  against income related to
            options in 2004 was $333,372 (2003 - $319,440; 2002 - $83,354). This
            includes  $227,411 (2003 - $131,063;  2002 - $83,354) for consulting
            and professional  fees and expenses paid in options to a director or
            officer and $105,962 (2003 - $188,377;  2002 - $Nil) for stock-based
            compensation  to  employees.  These  amounts  are  included  in  the
            contributed surplus account.

                                                                     Weighted
                                                                     Average
                                                  Options For        Exercise
                                                 Common Shares      Price U.S.$

      Balance, December 31, 2001                     2,400,000          0.33

      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                     3,335,000          0.34

      Options granted in 2004                          903,840          0.36
      Options exercised in 2004                     (1,002,500)         0.29
      Options forfeited or terminated in 2004         (312,500)         0.44
                                                --------------    ----------

      Balance, December 31, 2004                     2,943,840          0.35
                                                ==============    ==========



                                                                         Page 27
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

7.    SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

                                                             Weighted
                                                             Average
                                          Options For        Exercise
                                         Common Shares     Price U.S.$
                                         --------------   ------------

      Exercisable at December 31, 2002        2,400,000           0.32
      Exercisable at December 31, 2003        2,775,000           0.30
      Exercisable at December 31, 2004        2,343,840           0.35


       The following  table  summarizes  information  about the Company's  stock
       options outstanding as at December 31, 2004:

<TABLE>
<CAPTION>
                        Weighted
                          Number           Average       Weighted        Number         Weighted
       Exercise       Outstanding at      Remaining       Average     Exercisable        Average
        Price          December 31,      Contractual    Share Price   December 31,     Share Price
        U.S.$             2004          Life in Years      U.S.$          2004             U.S.$
<S>   <C>              <C>                 <C>             <C>          <C>                 <C>
      0.17 - 0.25      1,160,000           1.99            0.22         1,160,000           0.22
      0.26 - 0.50      1,453,840           3.95            0.41           853,840           0.45
      0.51 - 0.63        330,000           1.92            0.54           330,000           0.54
                       ---------                                        ---------           ----
                       2,943,840                                        2,343,840
                       =========                                        =========
</TABLE>

      f)    Common share purchase warrants

            At December  31, 2002,  the Company had a total of 2,212,500  common
            share  purchase  warrants  issued.  These  warrants had expiry dates
            ranging from September  2004 to November 2007. The weighted  average
            exercise price of the warrants was $0.50 (U.S.).

            As at December 31, 2003, the Company has a total of 4,746,615 common
            share  purchase  warrants  issued.  These warrants have expiry dates
            ranging from September  2004 to November 2007. The weighted  average
            exercise price of the warrants was $0.63 (U.S.).

            On  December  9, 2004,  the  Company  issued  500,000  warrants to a
            director  to purchase  500,000  common  shares at a strike  price of
            $0.37 U.S.,  expiring on December 9, 2007,  for  proceeds of $6,110.
            This was  subject to the  director  raising an agreed upon amount of
            financing.



                                                                         Page 28
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

Opening Balance as at December 31, 2001 - 275,000 Warrants

     1,937,500 warrants were issued in 2002 to third parties as follows:

<TABLE>
<CAPTION>
Recipient                        Issue Date   Expiry Dt.     # Warrants    Exercise Price
<S>                              <C>          <C>            <C>           <C>
Schloo Family Trust              08/02/2002   08/02/2005        125,000       US$ 0.50
Kevin Thomas Little              24/04/2002   24/04/2005         12,500       US$ 0.50
Anthony Durkacz (Director)       24/04/2002   24/04/2005        112,500       US$ 0.50
Wintser Investments Ltd.         14/06/2002   14/06/2007        487,500       US$ 0.50
Shelley Blechman                 17/07/2002   17/07/2007        100,000       US$ 0.50
661399 Ontario Inc.              01/11/2002   01/11/2007         50,000       US$ 0.50
Wintser Investments Ltd.         21/11/2002   21/11/2005        100,000       US$ 0.50
661399 Ontario Inc.              30/11/2002   30/11/2007        450,000       US$ 0.50
661399 Ontario Inc.              30/11/2002   30/11/2005        175,000       US$ 0.50
661399 Ontario Inc.              31/12/2002   31/12/2005        325,000       US$ 0.50

<CAPTION>
     2,750,744 warrants were issued in 2003 to third parties as follows:

Recipient                        Issue Date   Expiry Dt.     # Warrants   Exercise Price
<S>                              <C>          <C>            <C>           <C>
The Taylor Made Mgmt Corp        08/05/2003   20/02/2006        625,000       US$ 0.50
PSSI Paralegal Support Svcs      30/07/2003   30/07/2004        500,000        Expired
PSSI Paralegal Support Svcs      30/07/2003   30/07/2006        500,000       US$ 1.00
Dympna Carroll                   12/09/2003   12/09/2006        384,615       US$ 0.85
Donal Carrol                     25/09/2003   25/09/2006        169,500       US$ 1.00
The Taylor Made Mgmt Corp-A      29/12/2003   29/12/2004         50,000        Expired
The Taylor Made Mgmt Corp-B      29/12/2003   29/12/2006        282,100       US$ 1.00
PSSI Paralegal Support Svcs      30/12/2003   21/01/2007        239,529       US$ 1.00
</TABLE>

     4,386,232 warrants were issued in 2004 to third parties as follows:
     825,000 warrants expired in 2004 (550K issued in 2003 & 275K issued
     in 2001)

                                                                         Page 29
<PAGE>



ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

<TABLE>
<CAPTION>
Recipient                        Issue Date   Expiry Dt.     # Warrants   Exercise Price
<S>                              <C>          <C>            <C>           <C>
The Taylor Made Mgmt Corp-A      31/03/2004   01/10/2005        651,450       US$ 0.80
The Taylor Made Mgmt Corp-B      31/03/2004   01/10/2005        651,450       US$ 1.00
PSSI Paralegal Support Svcs      26/03/2004   26/03/2007        236,035       US$ 1.00
The Taylor Made Mgmt Corp-A      31/03/2004   01/10/2005        104,500       US$ 0.80
The Taylor Made Mgmt Corp-B      31/03/2004   01/04/2007        104,500       US$ 1.00
The Taylor Made Mgmt Corp-A      30/06/2004   30/06/2007         79,630       US$ 0.80
Michael Wright                   27/07/2004   31/12/2005        200,000       US$ 0.50
Alternate Energy Corp.           27/07/2004   31/12/2005      1,000,000       US$ 0.50
Donal Carrol                     27/07/2004   31/12/2005        140,000       US$ 0.50
Phillip Patterson                27/07/2004   31/12/2005         10,000       US$ 0.50
The Taylor Made Mgmt Corp-A      27/07/2004   31/12/2005        344,167       US$ 0.50
Belcor Development Corpn         01/10/2004   30/09/2007         88,900       US$ 0.90
Belcor Development Trust         01/10/2004   30/09/2007         88,900       US$ 0.90

Phillip Patterson                08/10/2004   30/09/2007         20,000       US$ 0.90
Belcor Development Corpn         03/12/2004   03/12/2007        166,700       US$ 0.60
Liikfam Holdings Inc.            09/12/2004   09/12/2007        500,000       US$ 0.37
</TABLE>

     Closing Balance as at December 31, 2004 = 8,524,476 Warrants


                                                                         Page 30
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

      g)    Changes  in  Shareholders'  Equity  for the  fiscal  years  ended 31
            December 2002, 2003 and 2004

<TABLE>
<CAPTION>
                                                                                                Total
                                         Common Shares           Contributed      Deficit    Shareholders'
                                     Number        Amount          Surplus                      Equity
<S>                               <C>           <C>             <C>           <C>            <C>
   Balance at December 31,
          2001, restated          12,936,178    $  1,979,201    $   391,378   $(2,577,729)   $   (207,150)
    Shares issued for Cash         2,006,250    $    628,631                                 $    628,631
Consulting & professional
  fees paid in options to
  non-employees                                                 $    83,354                  $     83,354
Issuance of Warrants            $   (456,850)   $    456,850                  $        --
Consulting, professional
  fees and expenses
  from non-related parties           506,050    $    166,801                                 $    166,801
Consulting fees and
  expenses  from related
  parties                            657,925    $    207,456                                 $    207,456
Net Loss                                                                      $  (620,654)   $   (620,654)
Deferred Costs written off                                                    $  (122,818)   $   (122,818)
Balance at December 31,
  2002, restated                  16,106,403    $  2,525,239    $   931,582   $(3,321,201)   $    135,620
Shares issued for Cash             2,456,615    $  1,193,165                                 $  1,193,165
Consulting & professional
  fees paid in options to
  non-employees                                                 $   131,063                  $    131,063

Issuance of Warrants                            $   (797,320)   $   797,320                  $         --
Stock based compensation
  to employees                                                  $   188,377                  $    188,377
Consulting, professional
  fees and expenses
  from non-related parties           209,082    $    136,122                                 $    136,122
Repayment of advances from
  directors                           45,500    $     20,400                                 $     20,400
Consulting fees and
  expenses  from
  related parties                    412,825    $    266,247                                 $    266,247
Net Loss                                                                      $(2,206,969)   $ (2,206,969)
Balance at December 31,
 2003                             19,230,425    $  3,343,853    $ 2,048,342   $(5,528,170)   $   (135,975)
Shares issued for Cash             4,476,911    $  2,161,587                                 $  2,161,587
Consulting & professional
  fees paid in options to
  non-employees                                                 $   192,481                  $    192,481
Stock based compensation
  to employees                                                  $   140,892                  $    140,892
Issuance of Warrants                            $  (628,822)    $   628,822                  $         --
Proceeds on issuance of
  warrants                                                      $     6,110                  $      6,110
Consulting, professional
  fees and expenses
  from non-related parties         1,728,872    $    890,096                                 $    890,096
Repayment of debenture &
  accrued interest from
  directors                          293,751    $    128,000                                 $    128,000
Consulting fees and
  expenses  from
  related parties                    586,592    $    332,360                                 $    332,360
Net Loss                                                                      $(3,462,257)   $ (3,462,257)
Balance at December 31,
 2004                             26,316,551       6,227,074      3,016,647    (8,990,427)        253,294
</TABLE>


                                                                         Page 31
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

7. SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued)

           As at December 31, 2004, the Company had a total of 8,524,476  common
           share  purchase  warrants  issued  (2003  -  4,746,615  common  share
           purchase  warrants).  These  warrants  have expiry dates ranging from
           April  2005 to  December  2007.  The  weighted  average  price of the
           warrants was $0.68 (U.S.).

           Warrants are valued using the Black-Scholes option pricing model with
           the following  assumptions:  risk free interest rate of 2.34 - 3.74%,
           expected life of between 1 year and 3 years;  expected  volatility of
           between 55% and 183%,  closing rate of exchange on the issue date and
           no dividends.

                                                                         Page 32
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

8.    CONSOLIDATED STATEMENTS OF CASH FLOWS

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

<TABLE>
<CAPTION>
                                                         2004         2003         2002
                                                         ----         ----         ----

<S>                                                   <C>          <C>          <C>
      Decrease (increase) in receivables              ($  2,544)   $  29,440    $   7,123
      Decrease (increase in prepaid expenses             27,088      112,571     (148,727)
      Decrease (increase) in investment tax credits
          refundable                                   (199,586)     216,608     (216,608)
      Increase (decrease) in payables and accruals     (143,303)     (10,913)     149,568
      Increase (decrease) in goods and services
          Tax payable                                   (11,269)     (26,547)     (12,614)
                                                      ---------    ---------    ---------

                                                      ($329,614)   $ 321,159    ($221,258)
                                                      =========    =========    =========
</TABLE>


9.    SEGMENTED FINANCIAL INFORMATION

      The Company currently  operates in a single reporting  segment,  being the
      design, development,  manufacturing and sale of alkaline fuel cells (AFCs)
      and  alkaline  fuel cell  systems,  fuel cell and  battery  test loads and
      provides  engineering  and  other  services.   Substantially  all  of  the
      Company's  long  lived  assets are  located in Canada.  Revenue is derived
      primarily  from the sale of goods and  services  to  customers  located as
      follows:

                                         2004      2003         2002
                                         ----      ----         ----

      Canada                           $ 7,508   $  7,008   $    591
      Czech Republic                     4,310     45,901    140,575
      Rest of the World                 76,980     14,961     39,002
                                       -------   --------   --------

                                       $88,798   $ 67,870   $180,168
                                       =======   ========   ========

                                                                         Page 33
<PAGE>


ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

10.   COMMITMENTS

      The Company has  operating  leases for office and  laboratory  space.  The
      minimum annual lease  payments  under the terms of the existing leases are
      $33,800 to October 31, 2005, plus proportionate share of common costs.


11.   COMPARATIVE FIGURES

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


12.   SUBSEQUENT EVENTS

      a)    Effective January 1, 2005, the Company,  Astris Energi Inc., and its
            wholly-owned subsidiary,  Astris Inc. were amalgamated to streamline
            administrative functions. The amalgamated Company continues with the
            same name as the parent company.

      b)    On January 2, 2005,  the Company  acquired the  remaining 70% of the
            outstanding  shares in Astris s.r.o.,  its affiliate  company in the
            Czech Republic.


      The  aggregate  purchase  price  was  $2,209,000  compensated  by  issuing
      5,000,000  common  shares of the  Company  for  $1,955,000  and  5,000,000
      warrants for $254,000.  2,500,000 common shares will be held in escrow for
      one year until  January 2, 2006.  Each warrant  entitles the holder to one
      common share of the Company.

      The value of the 30% of Astris  s.r.o.  already  owned by the  Company had
      been written down to a value of $Nil.

      The following  table  summarizes the fair value of the assets acquired and
      liabilities  assumed at the date of acquisition based on a conversion rate
      of 18.6637 Czech Korunas for each Canadian  $1.00.  The following  amounts
      are based on that valuation in CDN$:


                                                                         Page 34
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

      Current assets                             $   150,041
      Property, plant and equipment                  570,564
      Technology                                   1,520,847
                                                 -----------

      Total assets acquired                        2,241,452
      Less:  Current liabilities assumed             (32,452)
                                                 -----------

      Net assets acquired                        $ 2,209,000
                                                 ===========

       Had the Company and Astris s.r.o.  been  consolidated  for the year ended
       December 31, 2004, the pro-forma  financial  statements  would have shown
       the following:

           Pro-Forma Consolidated Balance Sheet as at December 31, 2004

      Assets
          Current                                $   569,028
          Property and equipment                     607,010
          Technology                               1,500,000
           Goodwill                                   20,847
                                                 -----------

                                                 $ 2,696,885
                                                 ===========


      Liabilities
          Current                                $   288,283
                                                 -----------

      Shareholders' Equity
          Share capital                            8,182,074
          Contributed surplus                      3,270,647
          Deficit                                 (9,044,119)
                                                 -----------

                                                   2,408,602
                                                 -----------
                                                 $ 2,696,885
                                                 -----------


                                                                         Page 35
<PAGE>



ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

      Pro-Forma  Consolidated  Statement of Loss for the Year Ended December 31,
      2004

      Revenue                                    $   122,974
                                                 -----------

      Expenses
          Research and Development                   716,801
          General and administrative               2,432,973
          Interest expense                             7,000
          Professional fees                          243,076
          Amortization                               153,166

                                                   3,553,016
                                                 -----------
      Net loss for the year                      ($3,430,042)
                                                 ===========


13.   DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES

      This  reconciliation  only covers  measurement  issues and not  disclosure
      issues  pursuant  to the  rules  and  regulations  of the  Securities  and
      Exchange Commission.

      The consolidated  financial  statements of the Company for the years ended
      December 31, 2004,  2003 and 2002 have been  prepared in  accordance  with
      generally accepted  accounting  principles as applied in Canada ("Canadian
      GAAP").  In  the  following   respects,   generally  accepted   accounting
      principles  as applied in the United  States ("US GAAP") differ from those
      applied in Canada.

      There would be no  adjustments  needed to arrive at net loss for the years
      ended  December  31,  2004,  2003  and  2002  if US  GAAP  were  employed.
      Similarly, there would be no adjustments needed to arrive at shareholders'
      equity as at December 31, 2004, 2003 and 2002 if US GAAP were employed.

      Stock-Based Compensation Plan

      Note 3A to the financial  statements includes an element for Canadian GAAP
      purposes  that is a correction of error and an element that is a change in
      accounting  policy.  Under US GAAP, the Company should have been expensing
      stock options granted to non-employees  since January 1, 1996. As such the
      prior period adjustment due to the change in accounting policy,  described
      in Note 3A, is a prior period  adjustment  due to  correction of error for
      U.S. GAAP purposes.

      Accounting for future (deferred) income taxes



                                                                         Page 36
<PAGE>

ASTRIS ENERGI INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2004
(Canadian Dollars)
================================================================================

      The  significant  differences  between U.S.  GAAP and Canadian GAAP in the
      accounting  for future  income taxes  relate to the  treatment of proposed
      changes in income tax rates and terminology.  Under Canadian GAAP,  future
      income tax assets and liabilities are measured using substantively enacted
      tax rates and laws  expected  to apply when the  differences  between  the
      accounting  basis and tax basis of assets and liabilities  reverse.  Under
      U.S. GAAP,  future income tax assets and  liabilities  are called deferred
      income tax assets and  liabilities  and are measured  using only currently
      enacted tax rates and laws.  As at December 31, 2004,  2003 and 2002,  the
      difference in rate  determination  did not result in any  adjustment  from
      Canadian to U.S.  GAAP since any deferred  tax assets were not  considered
      more likely than not to be realized  and,  accordingly,  a full  valuation
      allowance was recorded on such assets.

      Variable interest entities

      The Company has determined that the provisions of FIN46 (variable interest
      entities) are not relevant to its interest in its Astris s.r.o. affiliate.
      (See Subsequent Events Note 12.)

      Property, plant and equipment

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

      Contributed surplus

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

      Research and Development Expenses

      Canadian  G.A.A.P.  allows the  capitalization of research and development
      expenses if certain  criteria are met whereas U.S.  G.A.A.P.  requires the
      expensing  of all research and  development  expenses.  Since the required
      criteria for capitalization did not occur during the last three years, all
      research and  development  expenses  have been  expensed and  therefore no
      reconciliation between the two is required.

14.   SUPPLEMENTARY  DISCLOSURE WITH RESPECT TO CONSOLIDATED  STATEMENTS OF CASH
      FLOWS

      Interest paid in 2002 was $15,000.
      Investment  Tax  Credits  recovered  were  $388,499 in 2003 and $5,820 in
      2004.
      In 2004,  the  principal  owing of  $100,000  on the  Debenture  from the
      Directors was repaid  through the issuance of shares and therefore is not
      considered a cash financing activity. See Note 5.


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