UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549
  FORM
        20-F/A
 
 (Mark
        One)
 o
              REGISTRATION
                  STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE
                  ACT
                  OF 1934
 
 x
              ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
                  2004
 
 o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934 FOR THE TRANSITION PERIOD FROM __________ TO
                  __________
 
 Commission
        file number 0-31481
 ASTRIS
        ENERGI INC.
 (Exact
        name of Registrant as specified in its charter)
  Not
        Applicable
 (Translation
        of Registrant's Name into English)
  ONTARIO
 (Jurisdiction
        of incorporation or organization)
  2175
        DUNWIN DRIVE, UNIT 6
 MISSISSAUGA,
        ONTARIO L5L 1X2 CANADA
 (Address
        of principal executive offices)
 
 Securities
        registered or to be registered pursuant to Section 12(b) of the
        Act.
  NONE
  Securities
        registered or to be registered pursuant to Section 12(g) of the
        Act.
  COMMON
        SHARES
 (Title
        of
        Class)
  Securities
        for which there is a reporting obligation pursuant to Section 15(d) of the
        Act.
  NONE
 (Title
        of
        Class)
  Indicate
        the number of outstanding shares of each of the issuer's classes of capital
        or
        common stock as of the close of the period covered by the annual
        report.
  26,316,551
        COMMON SHARES
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such reporting requirements
        for the past 90 days.
  Yes
x             No
        o
  Indicate
        by check mark which financial statement item the registrant has elected to
        follow.
  Item
        17
x         Item
        18
o
  (Applicable
        only to Issuers involved in Bankruptcy proceedings during the past five years)
        Indicate by check mark whether the registrant has filed all documents and
        reports required to be filed by Sections 12, 13 or 15(d) of the Securities
        Exchange Act of 1934 subsequent to the distribution of securities under a
        plan
        confirmed by a court.
  Yes
o             No
        o
  
 TABLE
        OF
        CONTENTS
 
 Part
                  IItem
                  1. Identity of Directors, Senior Management and Advisers
              3Item
                  2. Offer Statistics and Expected Timetable
              3Item
                  3. Key Information
              3Item
                  4. Information on the Company
              9Item
                  5. Operating and Financial Review and Prospects
              25Item
                  6. Directors, Senior Management and Employees
              32Item
                  7. Major Shareholders, Related Party Transactions and Non-Related
                  Party
                  Common Stock Transactions
              37Item
                  8. Financial Information
              42Item
                  9. The Offer and Listing
              43Item
                  10. Additional Information
              44Item
                  11. Quantitative and Qualitative Disclosures About Market
                  Risk
              53Item
                  12. Description of Securities Other than Equity Securities
              53Part
                  IIItem
                  13. Defaults, Dividend Arrearages and Delinquencies
              53Item
                  14. Material Modifications to the Rights of Security Holders and
                  Use of
                  Proceeds
              53Item
                  15. Controls and Procedures
              53Item
                  16.
              54Part
                  IIIItem
                  17. Financial Statements
              55Item
                  18. Financial Statements
              55Item
                  19. Exhibits
              55
   -2-
 I
  FORWARD
        LOOKING STATEMENTS Certain statements in this annual report are based upon
        the
        beliefs of management of Astris Energi Inc., as well as assumptions made
        by and
        information currently available to management, and such statements may
        constitute "forward-looking statements" within the meaning of the U. S. Private
        Securities Litigation Reform Act of 1995. Investors should note that many
        factors, some of which are discussed elsewhere in this Report, could affect
        the
        future operations and the future financial results of the Company and could
        cause future operations and future financial results to differ materially
        from
        those expressed in such forward-looking statements.
 
 PART
        I.
 
 ITEM
        1.
         IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
  Not
        Applicable.
 
 ITEM
        2.
         OFFER STATISTICS AND EXPECTED TIMETABLE.
  Not
        Applicable.
 
 ITEM
        3.
         KEY INFORMATION.
 
 A.
              SELECTED
                  FINANCIAL DATA.
  The
        following table sets forth, in Canadian dollars, selected historical information
        concerning the Company presented in accordance with Canadian GAAP and is
        qualified by reference to the consolidated financial statements and notes
        thereto. See "Item 17. Financial Statements".
 As
                    at
                
                As
                    at
                
                As
                    at
                
                As
                    at
                
                As
                    atDecember
                    31,
                
                December
                    31,
                
                December
                    31,
                
                December
                    31,
                
                December
                    31,2004
                
                2003
                
                2002
                
                2001
                
                2000(RESTATED)
                
                (RESTATED)
                
                (RESTATED)Revenue
                
                $
                88,798
                
                $
                67,870
                
                $
                180,168
                
                $
                35,104
                
                $
                22,824Net
                    Loss from Operations
                
                
                (3,462,257
                )
                
                (2,206,969
                )
                
                (620,654
                )
                
                (743,644
                )
                
                (412,228
                )Net
                    Loss
                
                
                (3,462,257
                )
                
                (2,206,969
                )
                
                (743,472
                )
                
                (705,555
                )
                
                (35,580
                )Basic
                    and Diluted Loss per
                    Share
                
                
                (0.16
                )
                
                (0.12
                )
                
                (0.05
                )
                
                (0.06
                )
                
                (0.00
                )Total
                    Assets
                
                
                509,124
                
                
                435,235
                
                
                676,500
                
                
                190,376
                
                
                281,705Net
                    Assets
                
                
                253,294
                
                
                (135,975
                )
                
                135,620
                
                
                (207,150
                )
                
                (249,870
                )Long
                    Term Obligations
                
                
                --
                
                
                100,000
                
                
                120,400
                
                
                114,000
                
                
                114,000Share
                    Capital
                
                
                6,227,074
                
                
                3,343,853
                
                
                2,525,239
                
                
                1,979,201
                
                
                1,397,923Number
                    of Shares
                
                
                26,316,551
                
                
                19,230,425
                
                
                16,106,403
                
                
                12,936,178
                
                
                11,733,743Cash
                    Dividends
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
   -3-
 EXCHANGE
        RATES
  The
        following table sets out the exchange rates for the conversion of Canadian
        dollars into United States dollars.  The exchange rates used are the
        closing rates provided by The Bank of Canada.  The table lists the
        rate in
        effect at the end of the following periods, the average exchange rates (based
        on
        the average of the exchange rates for the closing rate of each month in such
        periods), and the range of high and low exchange rates for such
        periods.
 
 Year
                  ended December 31,
              
              2004
              
              2003
              
              2002End
                  of Period
              
              
              .83
              
              
              .77
              
              
              .63Average
                  for Period
              
              
              .77
              
              
              .71
              
              
              .63High
                  for Period
              
              
              .85
              
              
              .78
              
              
              .65Low
                  for Period
              
              
              .71
              
              
              .64
              
              
              .63
 
 The
        following table sets out the range of high and low exchange rates, for the
        conversion of Canadian dollars into United States dollars for each of the
        corresponding months during 2005.  The exchange rates used are the
        closing
        rates as provided by the Bank of Canada.
 
 Month
              
              High
              
              LowJanuary
                  2005
              
              
              .83
              
              
              .80February
                  2005
              
              
              .82
              
              
              .79March
                  2005
              
              
              .83
              
              
              .80
 The
        exchange rate on December 31, 2004 for the conversion of United States dollars
        into Canadian dollars was $1.2020 (CDN$1.00 = US$.83). As of April 1, 2005
        the
        close rate of exchange for the conversion of United States dollars into Canadian
        dollars was 1.2151 (CDN$1.00 = US$.82).  The exchange rates used are
        the
        closing rates as provided by the Bank of Canada.
 
 B.
                CAPITALIZATION
                    AND INDEBTEDNESS.
 
 Not
                  Applicable.
 
 C.
                REASON
                    FOR THE OFFER AND USE OF PROCEEDS.
 
 Not
                  Applicable.
 
 D. RISK
        FACTORS.
        An investment in the securities of the Company involves a high degree of
        risk.
        The following risk factors should be considered carefully in evaluating the
        Company and its business. If any of the risks described below occurs, the
        business, results of operations and financial condition of the Company could
        be
        adversely affected.
  HISTORY
        OF LOSSES SINCE INCEPTION, EXPECTATION OF LOSSES IN THE IMMEDIATE FUTURE,
        AND
        POSSIBILITY THAT THE COMPANY MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY.
        The
        Company has incurred net losses each year since inception. The accumulated
        deficit of the Company was CDN$8,990,427 as of December 31, 2004. It expects
        to
        continue to incur net losses at least through fiscal year 2005, and these
        losses
        may be substantial. To implement the current business strategy, the Company
        will
        have to incur a high level of fixed operating expenses and will continue
        to
        incur considerable research and development expenses and capital expenditures.
        Accordingly, if additional capital, revenues and positive cash flows cannot
        be
        generated, to which no assurance can be given, the Company will not achieve
        profitability. Even if profitability is achieved, it may not be sustained
        or
        increased on a quarterly or annual basis.
  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.
   -4-
 
  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.
   -5-
 
  ABILITY
          TO COMPETE SUCCESSFULLY IN A HIGHLY COMPETITIVE MARKET. The development
          and
          marketing of fuel cells and fuel cell systems is extremely competitive.
          A number
          of firms throughout the world have established fuel cell development programs.
          The Company competes directly with alternative energy and entrenched
          power-generation and power-storage technologies. Competitors range from
          development stage companies to major domestic and international companies.
          Other
          companies may succeed in developing and bringing to market products or
          technologies that are more cost-effective than those being developed by
          the
          Company, or that would render its products and technology obsolete or
          non-competitive in the marketplace. The Company's competitors have greater
          name
          recognition, larger customer bases and significantly greater financial,
          technical, marketing, public relations, sales, distribution and other resources
          than the Company. There can be no assurance that the Company will be able
          to
          compete effectively with such companies. In addition, the Company expects
          that
          additional competition will develop, from both existing businesses in the
          energy
          industry and from new entrants.
  DEPENDENCE
          ON THIRD-PARTY MANUFACTURERS. Until the Company has adequate capital resources
          and sufficient demand for its products, the Company will depend on third
          parties
          for the manufacture of its products and for parts necessary to manufacture
          its
          products. If manufacturers or suppliers are unable or unwilling to manufacture
          or provide the materials and components to manufacture the Company's products
          on
          commercially reasonable terms, or at all, delays in identifying and contracting
          for alternative manufacturing and supply sources could adversely affect
          the
          ability to market the products.
  POSSIBLE
          LIABILITY FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS AND
          DIFFICULTIES IN PROTECTING THE COMPANY'S INTELLECTUAL PROPERTY.  Despite
          the Company's efforts to protect its proprietary rights, unauthorized parties
          may attempt to copy aspects of the Company's products and product designs,
          or to
          obtain and use information that the Company regards as proprietary. If
          required,
          policing unauthorized use of the Company's proprietary technology may be
          difficult, time-consuming and costly. In addition, the laws of certain
          countries
          in which the Company's products may be sold or licensed do not protect
          its
          products and related intellectual property rights to the same extent as
          the laws
          of Canada or the United States. The Company does not believe that any of
          its
          products infringe the proprietary rights of any third parties.  From
          time
          to time, however, third parties may contest the Company's rights to use
          its
          intellectual property. Any such claims, with or without merit, could be
          time-consuming, result in costly litigation, cause product shipment delays
          or
          require the Company to enter into royalty or licensing agreements. Such
          royalty
          or licensing agreements, if required, may not be available on terms acceptable
          to the Company.
  ASTRIS’
          PRODUCTS MAY NOT MEET PERFORMANCE EXPECTATIONS IN FIELD TESTS, WHICH COULD
          NEGATIVELY AFFECT ITS CUSTOMER RELATIONSHIPS AND INCREASE ITS MANUFACTURING
          COSTS.  The components of its fuel cell products may contain defects
          or
          errors that could negatively affect its customer relationships and increase
          its
          manufacturing and warranty costs. In internal bench tests, the POWERSTACKTM MC250
          has performed at up to 60% over the original design specification and the
          E8
          Portable AFC power generator has operated at an electrical efficiency in
          excess
          of 50%. These results do not guarantee similar or greater performance in
          future
          independent field tests.
   -6-
 ASTRIS
          MAY NOT BE ABLE TO MANAGE SUCCESSFULLY THE EXPANSION OF ITS OPERATIONS.
           Astris will need to recruit, train and retain key management and
          other
          qualified personnel to successfully expand its business **.** Astris
          has been gradually expanding its management and technical team to meet
          customer
          demand and pilot production requirements. Transition to pilot production
          is a
          critical one to meet demand for its products, and validate its ability
          to
          produce the POWERSTACKTM MC250 in volume leading to
          commercialization.
  NEED
          FOR
          COMPATIBILITY WITH THE PRODUCTS OF THIRD-PARTY MANUFACTURERS OR POTENTIAL
          CUSTOMERS. The Company's success will depend in large part upon its ability
          to
          make its products compatible with the products of third-party manufacturers.
          The
          Company's products will be successful only if manufacturers redesign or
          modify
          their existing products to fully incorporate the Company's products and
          technologies. The Company's failure to make its products and technologies
          compatible with the products of third-party manufacturers, or the failure
          of
          potential customers to redesign or make necessary modifications to their
          existing products to accommodate the Company's products would significantly
          impair or preclude its ability to sell its products.
  ACCIDENTS
          INVOLVING THE FLAMMABLE FUELS USED WITH THE PRODUCTS COULD IMPAIR THEIR
          MARKET
          ACCEPTANCE. The fuel cell products use hydrogen, which typically is generated
          from gaseous and liquid fuels such as propane, natural gas or methanol,
          in a
          process known as reforming. While the Company's fuel cell products do not
          use
          these fuels in a combustion process, natural gas, propane and hydrogen
          are
          flammable fuels that could leak into a residence or commercial location
          and
          combust, if ignited by another source. Since the Company's products have
          not yet
          gained widespread market acceptance, any accidents involving the Company's
          systems, or other fuel cell-based products, could materially impede demand
          for
          the products. At
          present, the Company does not carry insurance to cover such
          accidents.
  THE
          COMPANY'S PRODUCTS MAY FROM TIME TO TIME CONTAIN DESIGN DEFECTS THAT ARE
          DIFFICULT TO DETECT AND CORRECT. Although the Company does not know of
          any
          existing design defects, there can be no assurance that defects or flaws
          will
          not be found in new products after commencement of commercial shipments
          or, if
          discovered, that the Company will be able to successfully correct such
          defects
          or flaws in a timely manner or at all. The occurrence of defects or flaws
          in the
          Company's products could result in loss of, or delay in, market acceptance
          of
          the Company's products.  Correcting such defects or flaws could
          require
          significant expenditures by the Company.
  DEPENDENCE
          ON ATTRACTING AND RETAINING KEY PERSONNEL. The success of the Company is
          largely
          dependent on the performance of its key employees, particularly Jiri K.
          Nor. Mr.
          Nor founded Astris in 1983 and is the principal developer of Astris' alkaline
          fuel cell technology. Additionally, the Company is dependent on a small
          number
          of employees who have been with Astris for numerous years and who actually
          construct Astris' technological components and are familiar with its proprietary
          designs. Loss of the services of Mr. Nor or the failure to attract and
          retain
          additional key employees with necessary skills could have a material adverse
          impact upon the Company's growth and profitability. Competition for highly
          skilled management, technical, research and development and other employees
          is
          intense and the Company may not be able to obtain key person life insurance
          policies on any of its employees.
   -7-
 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.
   -8-
 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.
   -9-
 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.
   -10-
 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.
  The
        following comments are supported by information from the following published
        books and papers, although it appears in numerous other sources:
 
 1.
              P.
                  Gouérec, L. Poletto, J. Denizot, E. Sanchez-Cortezon, J.H.
                  Miners,
 The
        evolution of the performance of alkaline fuel cells with circulating
        electrolyte
 Journal
        of Power Sources: Volume 129, 2004, pp 193-204, Elsevier Publishers
 
 2.
              Erich
                  Gülzow,
 Alkaline
        fuel cells: a critical view
 Journal
        of Power Sources: Volume 61, 1996, pp 99-104, Elsevier Publishers
 
 3.
              Eddy
                  De Geeter, Michael Mangan, Staf Spaepen, William Stinissen, Georges
                  Vennekens,
 Alkaline
        fuel cells for road traction
 Journal
        of Power Sources: Volume 80, 1999, pp 207-212, Elsevier Publishers
  -11-
  4.
              K.
                  Kordesch, M. Cifrain,
 Handbook
        of Fuel Cells - Fundamentals, Technology and Applications
 Pp
        789-793, 2003, John Wiley & Sons, Ltd, Chichester
 
 5.
              G.F.
                  McLean, T. Niet, S. Prince-Richard, N.
                  Djilali,
 An
        assessment of alkaline fuel cell technology
 International
        Journal of Hydrogen Energy: Volume 27, 2002, pp 507-526, Pergamon
        Press
 
 6.
              K.
                  Kordesch inComprehensive
                  Treatise of Electrochemistry,
 Vol.
        3,
        editor J. O’M. Bockris, Plenum Press, New York - London, 1985.
 
 7.
              T.G.Benjamin,
                  E.H.Camara,
 The
        Fuel Cell: Key to Practically Unlimited Energy
 Foote
        Prints Vol. 48, No. 2, Foote Mineral Co., Exton, PA 19341.
 
 8.
              Fuel
                  Cells: A Handbook
 U.S.
        Department of Energy, Morgantown Energy Technology Center, Morgantown, West
        Virginia.
 
 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
 
   -12-
  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.
 
 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.”
 
 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
  
 -13-
 In
        addition to the advantages that have been described thus far including; higher
        electrochemical efficiency, lower cost to manufacture and lower cost to operate
        which are critical to the widespread acceptance the AFC has a number of distinct
        advantages over the PEMFC:
 
 ·
              Quick
                  start-up and shutdown even in subfreezing temperatures (due to
                  the fact
                  that the electrolyte (KOH) freezes at below -40oC at concentrations used
                  in the Astris system versus the need for water (freezes at 0oC) for
                  membrane hydration in the PEMFC
 
 ·
              Better
                  reaction dynamics and therefore better performance and easier start
                  at low
                  temperatures and pressures, noticeable already at room temperature
                  and
                  even more pronounced at still lower
                  temperatures
 
 ·
              Wide
                  range of humidity tolerance which again is related to the membrane
                  hydration requirement of the PEMFC.
 
 “Furthermore,
        the circulating electrolyte used in an AFC results in a simple and rapid
        start-up and shutdown procedures [4] and has the additional advantage of
        simplifying the water and the heat management [8].” Reference # 1, pp
        195
 
 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.
 
 -14-
 All
        Astris fuel cells and related products have been offered for sale and have
        been
        selling for years on a demonstration basis only, from cells to complete
        generators and golf cars. They have not been sold commercially because they
        have
        not been certified for commercial sales as of yet and improvements are still
        being made to the products so that they can be sold on a commercial basis.
        The
        products have been tested over a number of years.
 
 Currently,
        Astris Energi products fall into three categories. These categories
        are:
 
 1.
              Fuel
                  Cell Modules such as the LABCELLTM LC50, LABCELLTM LC200 and POWERSTACKTM
                  MC250
 
 2.
              Fuel
                  Cell Systems such as models E1, E2, E3, E4B, E5, E6, E7 and
                  E8
 
 3.
              Test
                  Equipment such as TL5 Test Load, TESTMASTERTM Data Acquisition and Control
                  Software Suite and the QUICKCELLTM
                  QC200
 
 The
        state
        of commercialization is slightly different between the three  different
        groups although products in all three categories have been  sold
        to a
        variety of customers on a demonstration basis. Specifically  sales
        from the three categories are summarized as follows:
 
 1.
              Fuel
                  Cell Modules are available through a number of sales channels that
                  include
                  our direct channel (through our website atunder
                  “ONLINE SALES”) and through a select number of resellers including the
                  Fuel Cell Store. Current sales volumes of fuel cells are small
                  but
                  increasing.
 
 2.
              Fuel
                  Cell Systems prior to the E7 and E8 are based on our earlier fuel
                  cell
                  stacks and were delivered to a small number of end-users including
                  academic institutions and the military. The feedback provided through
                  these interactions allowed Astris to better understand the requirements
                  of
                  a commercial system and lead to the development of the POWERSTACKTM MC250
                  and generators based on this stack technology including the E7
                  and E8. The
                  current systems (E7 and E8) are available on a demonstration basis
                  to a
                  variety of selected organizations that are seen as potential partners
                  in
                  bringing our technology to commercial success. As described elsewhere
                  the
                  strategy of Astris is to partner with organizations that have specific
                  knowledge of manufacturing, certification and customer requirements
                  in a
                  variety of end-user applications. Complete fuel cell systems are
                  made
                  available to these potential partners in order to allow them to
                  evaluate
                  and validate the technology.
 
 3.
              Test
                  Equipment is available through the same sales channels as our Fuel
                  Cell
                  Modules. Sales are immaterial but with a ready product we are currently
                  planning a targeted advertising campaign for
                  September.
   -15-
 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.
  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.
 
 -16-
 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.
  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.
  
 -17-
 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.
  The
        Company's principal fuel cell products are the POWERSTACKTM MC250, E8 generator
        and Astris II golf car. These demonstrator units are pre-commercial products
        provided on a limited basis to individual customers and assembled by hand.
        These
        demonstration units are in contrast to "pilot production" systems, which
        are
        systems manufactured in a pilot production facility not on a full commercial
        basis, and to commercial systems, which are manufactured by volume production
        methods. The Company has begun test runs of its pilot production line to
        produce
        the POWERSTACKTM MC250.
 
 The
        Company contracted Claude L. Rivoire, an internationally recognized fuel
        cell
        specialist, to lead the development of the Company’s pilot production facility.
        Mr. Rivoire has an outstanding track record in industrial automation, production
        technology and plant management, spanning the transportation industry (buses
        and
        industrial vehicles), the food and high-tech rubber industries and, since
        1997,
        the fuel cell industry.
  POWERSTACKTM
        MC250 is a 250 square centimeter, medium size alkaline fuel cell. In early
        test
        results the POWERSTACK MC250 performed 60% over the original design
        specification.  The POWERSTACK MC250 makes a large step in increasing
        power
        density and overall performance when compared to its predecessor the LABCELL.
  MODEL
        E8
        PORTABLE AFC GENERATOR
  MODEL
        E8
        Portable Power Generator is an advanced touch start fuel cell system that
        offers
        up to 2.4kW of power primarily targeted for back up power requirements. The
        E8
        fuel cell generator was partially developed by the Company's Czech Republic
        subsidiary in a joint project partially funded by the Czech Ministry of Industry
        and Trade. Astris sold its first E8 generator in December 2004 under a value
        added reseller agreement with Alternate Energy Corp.
  
 -18-
 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.
 
 SMALL
        FUEL CELLS AND RELATED PRODUCTS
  In
        addition to developing fuel cells, the Company presently sells by mail order
        small fuel cells, test cells and electronic test equipment. They are described
        briefly, as follows:
  LABCELLTM
        LC50 is a 50 square centimeter, small alkaline fuel cell for laboratory
        demonstration and experimentation which produces 1.5 to 6 volts.
  LABCELLTM
        LC200 is a 200 square centimeter, medium size alkaline fuel cell for laboratory
        experimentation and small power applications which produces .75 to 12
        volts.
  QUICKELLTM
        QC200 is an electrochemical test cell designed for the testing of gas diffusion
        or solid electrodes in a controlled laboratory environment for fuel cell
        and
        battery research, development and quality control.
  MODEL
        TL5
        TEST LOAD is a monitor for fuel cells and batteries with a built-in
        microprocessor. It functions to briefly interrupt the current and take
        resistance-free cell readings up to 40 volts.
  TESTMASTERTM
        is a powerful, integrated software package designed for testing fuel cells
        and
        batteries. TESTMASTER performs all the tasks required for short-term or
        long-term testing of fuel cells or batteries, monitoring, control, data
        collection and storage, and graphical data representation.
  Astris
        s.r.o. produces and ships electrodes on behalf of the Company. The Company
        does
        not presently have any insurance on these products. Insurance is obtained
        at the
        customer's request and expense. Astris s.r.o. does not maintain a substantial
        inventory of electrodes or fuel cells.
  The
        Company currently derives minor amounts of revenues from the sale of small
        products. It remains unknown whether the Company will be able to further
        develop
        a market for these products. The Company is not aware of any other entity,
        which
        markets products similar to its small products.
  The
        Company is primarily targeting markets in North America and Europe for the
        sale
        of small stationary, portable and select mobile applications including light
        vehicles and emergency power supplies.
   -19-
 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.
  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.
   -20-
 INTELLECTUAL
        PROPERTY
  In
        1986,
        Josef V. Soltys of Mississauga, Canada (a shareholder and former director
        of the
        Company), assigned to AI a Canadian patent application for QUICKCELL, a test
        cell structure for fuel cell technology. The patent, Canadian Patent #1,295,679,
        issued February 11, 1992, expires February 11, 2009. The Company also holds
        a
        United States patent, #5,0008,162, which was issued on April 16, 1991, and
        expires on April 16, 2008, for the same product. A former employee of AI,
        who
        was a co-inventor of such technology, did not assign any right in such patents
        to the Company prior to his departure.  Management does not believe
        that
        these patents are material to the development of the intended business goal
        and
        the Company ceased maintaining the patent.
 
 In
        December 2004, AEI filed two US patent applications in preparation for the
        sale
        of its POWERSTACKTM MC250 and E7 and E8 generators. Application serial
        #11/004,988 is on its electrode structure for stacked alkaline cells.
        Application serial #10/905,148 is on the alkaline fuel cell systems. However,
        the Company's policy is still to maintain the confidentiality of its products
        through trade secrecy.
  The
        Company has unregistered trademarks on some of its products, including LABCELLTM
        LC50, LABCELLTM LC200, QUICKELLTM QC200, POWERSTACKTM MC250 and TESTMASTERTM.
 
 The
        Company has copyright protection on its TL5 Testload and TESTMASTERTM
        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.
   -21-
 RAW
        MATERIALS AND SUPPLIES
  The
        principal raw materials that the Company uses are common and widely available
        from numerous suppliers. The Company's principal materials are largely various
        types of plastics, carbons, metals and their compounds and conventional
        components, which are all relatively inexpensive to obtain and which currently
        do not present supply problems.
 
 COMPETITION
  Fuel
        cells are a competitive business. Competition arises from other fuel cell
        companies and from entities engaged in offering existing conventional energy
        services. The Company competes with companies that are developing all types
        of
        fuel cells. While there are currently five basic types of fuel cell technologies
        (see "Description of Fuel Cells" above), the Company believes that AFCs and
        PEMFCs are the only fuel cells that are presently of competitive relevance
        for
        the relatively small power, stationary and portable applications that the
        Company intends to focus upon. This is because AFCs and PEMFCs operate at
        ambient temperatures (above 0 degrees Celsius to 100 degrees Celsius) and
        deliver kilowatts, which are more suited to meet the needs of small, off-grid
        applications. The Company constructs only AFCs. While both AFC and PEMFC
        fuel
        cells have potential environmental and efficiency advantages over traditional
        power sources, the Company believes that AFCs can be manufactured less
        expensively, more efficiently and more practically than PEMFCs in small-scale
        applications.
  Astris
        has essentially no competition in any application area using alkaline fuel
        cells
        where its 1 kilowatt to 10 kilowatt power systems are targeted. Other AFC
        companies in the early R&D stages include Apollo Energy Systems and Ovonic
        Fuel Cell Company .
        The
        Company is focusing on the potential market in back up and UPS applications
        of
        small-capacity fuel cells, as are other PEMFC fuel cell companies. There
        are
        several competitors in this market including Ballard, Hydrogenics, Plug Power
        and ReliOn. There are no barriers to Ballard, or any other known or unknown
        competitor of the Company, entering the market covering the industries that
        the
        Company is focusing on.
  Apart
        from specific market competition, the Company believes that AFCs have inherent
        advantages over PEMFCs, regardless of specific applications. AFCs use potassium
        hydroxide electrolyte, a chemically basic substance, while PEMFCs are chemically
        acidic, requiring platinum as a catalyst. They also use an expensive membrane
        as
        an electrolyte. In addition, AFCs have been scientifically proven to be 10%
        more
        energy-efficient than PEMFCs and offer a higher electricity yield from a
        given
        quantity of fuel. That is to say, while PEMFCs might be 40-50% efficient,
        AFCs
        are 50-60% efficient. This provides a significant advantage in terms of raw
        energy consumption and cost savings. In addition, AFCs are able to start
        instantly, without warm-up, and operate at low temperatures, even below
        freezing, to minus 30-40 degrees Celsius. PEMFCs can only operate above freezing
        from 0 degrees Celsius to 80 degrees Celsius unless a heating mechanism is
        added, causing significant loss of efficiency and extra cost.
   -22-
 LEGAL
        PROCEEDINGS
  On
        November 10, 1999, E. Roy Birkett, a former director and officer of the Company,
        instituted an action against the Company in the Superior Court of Justice
        (Ontario) (File No. 99-CV-179868) seeking recovery of CDN $315,000 he had
        advanced on behalf of the Company. Mr. Birkett was President of the Company
        in
        1995 when it acquired Astris Inc. Included in a March 1995 Letter of Intent
        for
        the acquisition of Astris Inc. was the binding obligation of Mr. Birkett
        and the
        other then principals of the Company to advance funds to keep AEI operating
        until such time as they had raised or arranged a financing for the Company
        of a
        minimum of US$10,000,000. Such financing was never obtained. Mr. Birkett
        originally sought actual damages in excess of CDN $315,000, plus costs.
  In
        February 2001, Mr. Birkett's counsel requested the Company to consent to
        an
        expansion of Mr. Birkett's initial claim to CDN $1,942,301 in order to cover
        additional expenses he allegedly incurred on behalf of the Company in 1995
        with
        regards to the proposed financing.
  The
        trial
        occurred on October 7, 2002. Subsequent to quarter ended September 30, 2002,
        the
        lawsuit was dismissed by the Superior Court of Justice of Ontario. The Company
        was successful in its defense and the entire claim was dismissed.
 
 On
        December 18, 2002, the court ordered Mr. Birkett to pay CDN$81,000 to the
        Company as partial indemnity for the legal costs it incurred in its successful
        defence.  Mr. Birkett appealed to the Ontario Court of Appeal from
        the
        judgment dismissing his claim.  The Ontario Court of Appeal unanimously
        dismissed the appeal on June 15, 2004.  The Company was awarded additional
        costs in the amount of CDN$20,000.
 
 On  June
        30,
        2004 the Quebec Superior Court ruled in Astris’ favour and supported its
        application to immediately wind up and liquidate Astris Transportation Systems
        Inc. (“ATSI”), a corporation that was formed jointly with Care Automotive
        Inc.(“Care”). Astris served notice in November 2003 that its agreements with
        Care were terminated, as Care did not meet its funding commitment for the
        proposed joint venture which was to manufacture and market Astris fuel cell
        systems for vehicular use. Astris
        is still waiting for the Court to issue a Certificate of
        Dissolution.
 
 -23-
 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.
 
 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 less depreciation is
        CDN$313,195 and the property is CDN$25,080.
  The
        Company believes that the present premises are suitable for its present
        requirements.
   -24-
 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.
 
 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.
   -25-
 The
        Company’s significant accounting policies are included in Note 2 to the
        Financial Statements. However, critical accounting policies of the Company
        relate to (a) revenue recognition, (b) Stock Based Compensation and (c)
        Calculation of Loss per share (d) Use of Estimates.
 
 (a)
              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.
 
 (b)
              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.
 
 (c)
              Basic
                  loss per share is calculated on the weighted average number of
                  common
                  shares outstanding during the year.  The diluted loss per
                  share is
                  not calculated since it would be
                  anti-dilutive.
 
 (d)
              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.
 
 
 -26-
  A.
              OPERATING
                  RESULTS.
 
 The
        financial statements included in this report are stated in Canadian
        dollars.
  REVENUE
  For
        the
        year ended December 31, 2004, revenue from the sale of fuel cells and related
        products and contract work was $88,798 compared with $67,870 for the same
        period
        in 2003. During the fourth quarter, the company sold 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 decrease in
        contract work and the sale of products to its affiliate Astris s.r.o. which
        contributed to the decline in sales. Another reason for the decline in sales
        was
        the Company’s devotion to developing its POWERSTACKTM MC250 power module and E8
        power generator and not on sales of existing products. Paid contract work
        for
        Astris s.r.o. amounted to $45,901 in 2003 and $140,575 in 2002. Sales of
        fuel
        cells and related products to unrelated parties in 2003 amounted to $7,008
        in
        Canada and $14,961 internationally; in 2002, sales amounted to $591 in Canada
        and $39,002 internationally.
  EXPENSES
  For
        the
        year ended December 31, 2004, expenses totaled $3,551,055, compared with
        $2,274,839 for the same period in 2003. The main increases were in General
        and
        Administrative expenses to $1,943,799 in 2004 compared with $880,585 in 2003;
        and in Research and Development, to $1,343,695 in 2004 compared with $1,229,184
        in 2003. The small increase in Research and Development reflects primarily
        an
        increase in work on the Company’s POWERSTACKTM MC250 power module, the 1.8kW
        model E7 power generator Astris II project, the 2.4 kW model E8 portable
        power
        generator project, and the equipment purchase, assembly and tests for pilot
        production.
  The
        significant increase in G&A expenses reflect stock option expensing,
        additions to management, higher consulting expenses to raise additional funding
        and the hiring of additional technical and administrative staff to support
        the
        fast growth of the Company. .
  Professional
        fees were $243,076 compared with $145,100 in 2003, reflecting the Company’s
        increased corporate activity, legal activity, accounting and compliance
        activity.
  Expenses
        totaled $2,274,839 in 2003, compared with a restated amount of $800,822 in
        2002.
        The main increase was in subcontract work, to $1,229,184 in 2003 from a restated
        amount of $197,488 in 2002. The increase reflects primarily an increase in
        research and development work on the Company’s POWERSTACKTM MC250 power module
        and 2.4 kW model E8 portable power generator project, readying them for pilot
        production in 2004.
   -27-
 General
        and administrative expenses were also significantly higher, at $880,585 compared
        with a restated $332,831 in 2002. This reflects mainly additions to management,
        and the expensing of employee stock-based compensation commenced in 2003.
  Professional
        fees were $145,100 compared with restated $254,487 in 2002, reflecting the
        Company’s increasing internal resources.
  NET
        LOSS
        FOR THE YEAR ENDED DECEMBER 31, 2004
  The
        Company reported a net loss of $3,462,257 (a loss of $0.16 per share basic
        and
        diluted) for the year ended December 31, 2004, compared with a loss of
        $2,206,969 ($0.12 per share basic and diluted) in 2003. The increase in the
        loss
        primarily reflects the increased expenses due to ramping up support for
        production.
  The
        Company reported a net loss of $2,206,969 (a loss of $0.12 per share basic
        and
        diluted) in 2003, compared with a restated loss of $743,472 ($0.05 per share
        basic and diluted) in 2002. The increase in the loss primarily reflects the
        combination of reduced revenue and increased expenses.
  As
        at
        December 31, 2004, the Company has non-capital loss carry forwards of
        approximately $5,449,000. If unused, the tax losses will expire as
        follows:
  2005
                
                $
                6,0002006
                
                $
                61,0002007
                
                $
                188,0002008
                
                $
                294,0002009
                
                $
                323,0002010
                
                $
                1,734,0002014
                
                $
                2,843,000
 
 In
        addition, the company has undeductible scientific research and development
        expenditures amounting to $1,520,417, which have no expiry date.
 
 B.
              LIQUIDITY
                  AND CAPITAL RESOURCES.
 
 The
        Company had 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.
   -28-
 At
        year
        end, the Company had $509,124 of assets, and a shareholders’ equity of $253,294
        compared to a shareholders’ deficiency of $135,975 in 2003 and compared to a
        shareholders’ equity of $135,620 in 2002.
 
 The
        company plans to finance operations including pilot production through the
        continuing sale of fuel cells, related products and contract work, new business
        partnerships with early adopters of the fuel cell, and additional long-term
        financing through private placements.  The company additionally will
        capitalize on available government incentives for alternative energy
        development. Government incentives recoverable in 2004 amounted to $199,586
        compared to nil in 2003 and 216,608 in 2002.
 
 The
        Company’s cash position and working capital requirements mean that the company
        will require continuing external financing until it becomes cash flow positive
        through commercialization of one or more of its products.
 
 The
        Company does not have any off-balance sheet arrangements.
 
 During
        2004, the Company raised $2,076,041 through private placements of shares
        and
        warrants. During 2003, the Company raised $1,193,165 through private placements
        of shares and warrants. During 2002, the Company raised $628,631 through
        private
        placements of shares and warrants.
 
 Subsequent
        to the year end, the Company engaged the services of investment banker Fraser
        Mackenzie to raise capital. These services are provided on an exclusive basis. On
        March
        28, 2005, the Company announced that it had closed a convertible debenture
        financing for gross proceeds of CDN$420,000. The debenture was available
        for
        subscription to “Canadian accredited investors” only and included a coupon for
        6%, payable in common shares upon conversion or maturity. Each debenture
        is
        convertible into Common Shares at a conversion rate that in no case shall
        be
        less than USD$0.20 or more than USD$0.70. Warrants may be issued to the
        debenture holders depending on the terms of a second larger equity financing.
        The debentures mature on December 10, 2005, 270 days from the date of issuance.
        Total net proceeds were CDN$378,000. Fraser Mackenzie Limited, for facilitating
        the funding, also received 156,000 broker warrants at CDN$0.27 exercisable
        until
        March 24, 2007.
 
 The
        Company will continue to seek to enter into private placements, strategic
        partnerships and joint ventures in order to further finance the on-going
        development and commercialization of its fuel cell technology. There is no
        assurance that the Company will be able to find or enter into any private placements,
        strategic partnerships or finalize the proposed joint venture, on terms
        acceptable to the Company or not highly dilutive to shareholders.
 
 As
        with
        most technology companies, Astris needs to conserve as much cash as practical
        while maintaining its operations for the core R&D work. It does have a need
        for other functions such as raising financing, office expenses, rent, legal
        and
        audit fees, investor relations etc. As noted in our Statement of Cash Flow,
        we
        use equity to pay non related parties who bring financial expertise, consulting
        and certain professional fees. 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.
   -29-
  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 POWERSTACKTM MC250 and E8 generator on a pilot production basis. The
        production line was completed in October 2004 in the Czech Republic and trial
        runs have been ongoing to perfect the product.
 
 On
        October 19, 2004, the company announced that it signed a Cooperation Agreement
        with Italy’s Electronic Machining s.r.l. (El.Ma.). El.Ma. is a privately held
        company with offices and technical development facilities in Rovereto, Trento,
        Italy. El.Ma. has particular interest in the development of alkaline fuel
        cells
        for stationary and distributed generation of electrical power. Their fuel
        cell
        and hydrogen usage R&D is funded by the Provincia Autonoma di Trento, which
        is committed to the development of these technologies with an eye to early
        market opportunities. As well, El.Ma. specializes in research and advancement
        of
        manufacturing processes, an expertise applicable to Astris’ current AFC
        production line initiative.
 
 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.
 
 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.
   -30-
 
 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
  In
        December 2003, the Company cleared its POWERSTACKTM MC250 power module for pilot
        production commencing in 2004, and unveiled its 2.4 kW model E8 portable
        power
        generator which was co-financed by the Czech Republic.
 
  -31-
 CONTRACTUAL
        OBLIGATIONS
 
 There
        are
        no contractual obligations to be disclosed.
 
 ITEM
        6.
        DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
 
 A.
              DIRECTORS
                  AND SENIOR MANAGEMENT.
  The
        following table sets forth the name, age and office held with the Company
        as of
        April 1, 2005 and the period during which such person has served as a Director,
        Executive Officer and/or senior management.
  Name
              
              Age
              
              Office
                  Held
              
              Director
                  SinceJiri
                  K. Nor
              
              65
              
              President,
                  Chief Executive Officer and Director
              
              1996Arthur
                  Laudenslager (1)
              
              78
              
              Director
              
              2003Anthony
                  Durkacz
              
              29
              
              Vice
                  President Finance
              
              2003H.
                  David Ramm
              
              53
              
              Managing
                  Director
              
              2004Brian
                  Clewes (1) (2)
              
              46
              
              Director
              
              2004Michael
                  Liik (2)
              
              45
              
              Director
              
              2004Peter
                  Nor
              
              34
              
              Vice
                  President Marketing
              
              Not
                  a Director
 
 Notes:
 
 (1)
              Members
                  of the Company's Audit Committee.
 (2)
              Members
                  of the Company’s Compensation
                  Committee.
  Jiri
        K.
        Nor has been a Director and the President of the Company since March 1996.
        He is
        a trained engineer, with particular expertise in mechanics, aeronautics,
        electronics and electrochemistry. He is the principal inventor/developer
        of the
        Company's AFC fuel cell technology. Mr. Nor is also an entrepreneur with
        extensive business experience and the President and sole stockholder of Macnor
        Corp. He was the founder of Sonotek, an electronics company, inventor of
        the
        Minitcharger  ̈ fast battery charging technology and founder of the Norvik group
        of companies. For more than five years until August 1997, he was Vice President
        of Research for Norvik Technologies and Norvik Traction, companies in the
        business of developing fast battery chargers.
 
 Arthur
        E.
        Laudenslager was formerly a senior officer and director of several public
        and
        private corporations, is currently Vice President, First Energy Advisors
        Inc.,
        and a business consultant who brings to the Astris Energi Board a great deal
        of
        experience and knowledge in corporate structure and financing.
  Anthony
        Durkacz, Vice President Finance, is a graduate of Brock University in Business
        Administration, and joined the Astris team in summer 2002. He served previously
        as Manager of Foreign Exchange on the capital market trading floor with TD
        Securities in Toronto, and as President of Fortius Research and Trading
        (“Fortius”), an investment company servicing high net worth clients.
   -32-
 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.
 
 B.
              COMPENSATION
  For
        the
        2004 fiscal year, the Company paid compensation of CDN$186,496 in cash.
         Macnor Corp., controlled by our CEO and President, received CDN$123,996
        for the services of Mr. Jiri Nor, the CEO and President, and Mr. Peter Nor,
        his
        son, the Vice President of Marketing and Business Development, and Fortius
        Research and Trading Corporation, a company owned by our Vice President of
        Finance, received CDN$62,500.  In addition, the Company issued Common
        Shares at market value in lieu of cash to its Executive Officers for services
        rendered to the Company and not paid in cash. (See below).
   -33-
 For
        the
        2003 fiscal year, the Company paid compensation of CDN$113,998 in cash.
         Macnor Corp., as noted above, received CDN$103,998, and Fortius,
        as noted
        above, received CDN$10,000.  In addition, the Company issued Common
        Shares
        at market value in lieu of cash to its Executive Officers for services rendered
        to the Company and not paid in cash. (See below).
  For
        the
        2002 fiscal year, the Company paid compensation for salary of CDN$36,000
        in
        cash. Macnor Corp. received CDN$36,000. In addition, the Company issued Common
        Shares at market value in lieu of cash to its Executive Officers for services
        rendered to the Company and not paid in cash. (See below).
  In
        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
                
                $
                    ValueMacnor****Corp
                
                
                300,700
                
                
                94,520Director
                    - Gordon Emerson
                
                
                141,375
                
                
                43,984Fortius
                    Research & Trading
                
                
                60,500
                
                
                19,230Director
                    - D. Blenkarn
                
                
                77,800
                
                
                24,906Director
                    - G. Crawford
                
                
                25,750
                
                
                8,242Director
                    - J. Nor
                
                
                51,800
                
                
                16,574Total
                
                
                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
                
                $
                    ValueMacnor
                    Corp
                
                
                79,815
                
                
                52,000Director
                    - Gordon Emerson
                
                
                188,220
                
                
                115,079Director
                    - David Ramm
                
                
                3,500
                
                
                2,604Fortius
                    Research & Trading
                
                
                141,290
                
                
                96,563Total
                
                
                412,825
                
                
                266,247
 In
        2004,
        we issued to related parties 586,592 common shares for a value of $332,360
        for
        consulting services rendered and 293,751 shares for $128,000 to pay down
        debt
        and accrued interest on that debt for a total of 880,343 shares for a total
        of
        $460,360. These shares and amounts were issued to the following entities
        or
        individuals:
 Individual
                    or Entity
                
                #
                    of Shares
                
                $
                    ValueJiri
                    Nor as an individual
                
                
                117,500
                
                
                51,200Macnor
                    Corp. (Note 1)
                
                
                266,263
                
                
                132,455Fortius
                    Research & Trading (Note 2)
                
                
                95,880
                
                
                52,500Director
                    - David Ramm
                
                
                57,445
                
                
                34,423Director
                    - Gordon Emerson
                
                
                118,032
                
                
                81,441Director
                    - Gerald Crawford
                
                
                89,793
                
                
                45,736Director
                    - Donald Blenkarn
                
                
                117,500
                
                
                51,200Director
                    - Arthur Laudenslager
                
                
                17,930
                
                
                11,405Total
                
                
                880,343
                
                
                460,360
 
 Note
        1 -
        MacNor Corp is a legal entity controlled by Jiri Nor. The corporation provides
        research and development services by Jiri Nor and marketing services by his
        son
        Peter Nor, both of whom are officers of the Company.
 
 Note
        2 -
        Fortius Research & Trading Corporation is a legal entity controlled by our
        Vice President of Finance, Anthony Durkacz.
   -34-
 
  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. for financial
          consulting services.
  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.
 
 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.
  The
        following table outlines the options and warrants that are outstanding as
        of
        April 1, 2004 of the directors and senior management of the
        Company:
 
 Name
              
              Number
                  of Shares
              
              Exercise
                  Price
              
              ExpiryJiri
                  Nor
              
              50,000
              
              US$0.505
              
              08/15/05Jiri
                  Nor
              
              300,000
              
              US$0.24
              
              11/12/06Michael
                  Liik (1)
              
              500,000
              
              US$0.36
              
              12/11/09Liikfam
                  Holdings Inc. (2)
              
              500,000
              
              US$0.37
              
              12/09/07Peter
                  Nor
              
              100,000
              
              US$0.36
              
              12/06/09Anthony
                  Durkacz
              
              112,500
              
              US$0.50
              
              04/24/05Anthony
                  Durkacz
              
              250,000
              
              US$0.20
              
              07/22/07H.
                  David Ramm
              
              250,000
              
              US$0.50
              
              09/09/08
   -35-
 Options
        to M. Liik of 500,000 at $U.S. 0.36 will become vested as follows:
  1.
                (i)
                    200,000 upon raising a minimum of $U.S. 1 million in
                    equity
 
 (ii)
                  300,000 upon raising additional minimum of $US 5 million inequity
 2.
                Warrants
                    to M. Liik of 500,000 at $U.S. 0.37 will become vestedas
                    follows:
 
 (i)
                  200,000 upon raising a minimum of $U.S. 1 million in
                  equity
 
 (ii) 300,000 upon raising additional
                  minimum
                  of $US 5 million 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.
  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.
   -36-
  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:
 
 Name
              
              Amount
                  and Nature
                of
                  Beneficial Owner
              
              Percent
                of
                  ClassJiri
                  K. Nor (1)
              
              
              7,596,884
              
              
              23.96
              %Brian
                  Clewes
              
              
              100,390
              
              
              0.31
              %Arthur
                  Laudenslager (2)
              
              
              102,430
              
              
              0.32
              %Michael
                  Liik
              
              
              0
              
              
              0.00
              %Anthony
                  Durkacz (3)
              
              
              279,670
              
              
              0.88
              %H.
                  David Ramm
              
              
              60,945
              
              
              0.19
              %Peter
                  Nor
              
              
              0
              
              
              0.00
              %All
                  Executive Officers and Directors as a group (4)
              
              
              8,140,319
              
              
              25.68
              %
 
 
 (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.
 (4)
              Since
                  all options are out-of-the-money and probably will not be exercised,
                  no
                  shares are issued nor are expected to be issued, and we only consider
                  share ownership to exist on issued
                  shares.
  ITEM
        7. MAJOR
        SHAREHOLDERS AND RELATED AND NON-RELATED PARTY TRANSACTIONS.
 
 A.
              MAJOR
                  SHAREHOLDERS.
  The
        following table lists, as of April 1, 2005, the beneficial share holdings
        in the
        Common Shares, which are the only outstanding voting securities of the Company,
        of all persons who are known to the Company to beneficially own, directly
        or
        indirectly, five percent or more of the issued and outstanding Common
        Shares:
  Amount
                    and Nature
                
                PercentName
                
                of
                    Beneficial Owner
                
                of
                    ClassJiri
                    K. Nor (1)
                
                
                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.
 
 
 -37-
  B.
              RELATED
                  PARTY TRANSACTIONS.
 
 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.
 
 In
        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
                
                $
                    ValueMacnor****Corp
                
                
                300,700
                
                
                94,520Director
                    - Gordon Emerson
                
                
                141,375
                
                
                43,984Fortius
                    Research & Trading
                
                
                60,500
                
                
                19,230Director
                    - D. Blenkarn
                
                
                77,800
                
                
                24,906Director
                    - G. Crawford
                
                
                25,750
                
                
                8,242Director
                    - J. Nor
                
                
                51,800
                
                
                16,574Total
                
                
                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
                
                $
                    ValueMacnor
                    Corp
                
                
                79,815
                
                
                52,000Director
                    - Gordon Emerson
                
                
                188,220
                
                
                115,079Director
                    - David Ramm
                
                
                3,500
                
                
                2,604Fortius
                    Research & Trading
                
                
                141,290
                
                
                96,563Total
                
                
                412,825
                
                
                266,247
 In
        2004,
        we issued to related parties 586,592 common shares for a value of $332,360
        for
        consulting services rendered and 293,751 shares for $128,000 to pay down
        debt
        and accrued interest on that debt for a total of 880,343 shares for a total
        of
        $460,360. These shares and amounts were issued to the following entities
        or
        individuals:
 Individual
                    or Entity
                
                #
                    of Shares
                
                $
                    ValueJiri
                    Nor as an individual
                
                
                117,500
                
                
                51,200Macnor
                    Corp. (Note 1)
                
                
                266,263
                
                
                132,455Fortius
                    Research & Trading (Note 2)
                
                
                95,880
                
                
                52,500Director
                    - David Ramm
                
                
                57,445
                
                
                34,423Director
                    - Gordon Emerson
                
                
                118,032
                
                
                81,441Director
                    - Gerald Crawford
                
                
                89,793
                
                
                45,736Director
                    - Donald Blenkarn
                
                
                117,500
                
                
                51,200Director
                    - Arthur Laudenslager
                
                
                17,930
                
                
                11,405Total
                
                
                880,343
                
                
                460,360
 Note
        1 -
        MacNor Corp is a legal entity controlled by Jiri Nor. The corporation provides
        research and development services by Jiri Nor and marketing services by his
        son
        Peter Nor, both of whom are officers of the Company.
 
 Note
        2 -
        Fortius Research & Trading Corporation is a legal entity controlled by our
        Vice President of Finance, Anthony Durkacz.
 
 -38-
 
  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 to pay 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 has been terminated as of May
          31,
          2003.
  Peter
          K.
          Nor is a director and secretary of Macnor Corp.
 
 Anthony
        Durkacz is President and CEO of Fortius Research & Trading. Fortius is 100%
        owned by Anthony Durkacz.
 
 Arthur
        Laudenslager is Vice President of First Energy Advisors.  First Energy
        Adivsor is 33.33% owned by Arthur Laudenslager.
 
 Michael
        Liik is President of Liikfam Holdings Inc. Liikfam Holdings is 100% owned
        by
        Michael Liik.
  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.
  The
        management of the Company believes that each of the aforementioned transactions
        was on terms as fair to the Company as any which could have been made with
        unaffiliated parties.
  It
        should
        be noted that the disclosures in this section cannot be reconciled to the
        disclosures in Note 5 to our Financial Statements. However, they can be
        reconciled to Note 7(b). All the figures in this section agree to the figures
        in
        Note 7(b) except for  the
        numbers to non-related parties which are removed.
 
 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.
   -39-
 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.
 
 All
        material transactions between Astris Energi Inc. and Astris sro since the
        beginning of 2004 are as follows from Note 5 of our Notes to the Financial
        Statements:
 
 AEI
        advanced $700,000 to sro to help it purchase equipment for the new electrode
        production facility. AEI had net purchases of $563,108 in products and services
        from sro included in Research and Development expenses.
 
 -40-
 We
        make
        reference to lost certificates in note 3 of our financial statements. The
        404,041 shares were lost certificates of a predecessor company whose owners
        have
        not been found over the last 15 years. No one has ever claimed the lost
        certificates. The transfer agent who issued the certificates is no longer
        in
        existence and there is no way to trace back to whom they were
        issued.
 
 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 are no minority
        shareholders.
 
 In
        Note 5
        of our financial statements we make reference to a commission arrangement.
        The
        officer with whom we entered into a commission arrangement on Funds raised
        through First Energy Advisors was Gordon Emerson. There was no severance
        package
        on the termination of this agreement.
 
 We
        also
        refer to amounts included in payables and accruals. 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
 
 We
        have
        no formal agreements with related parties unless previously announced or
        as
        exhibits. Most agreements are verbal.
 
 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
 -41-
 For
        services provided between October and December 2002, the Company issued 160,950
        shares of common stock to settle obligations owing to certain individuals
        and
        companies.  The following shares were issued at a price between US$0.23
        and
        US$0.29 per share:
  Non-related
                  parties
                160,950
                  shares
 On
        January 10, 2003, the Company agreed to settle obligations owing to certain
        individuals and companies.  The following shares were issued at a
        price at
        US$0.29 per share:
 Non-related
                  parties
                75,000
                  shares
 On
        May 8,
        2003, the Company agreed to settle obligations owing to certain individuals
        and
        companies.  The following shares were issued at a price at US$0.56
        per
        share:
 Non-related
                  parties
                30,652 shares
 On
        July
        16, 2003, the Company agreed to settle obligations owing to certain individuals
        and companies.  The following shares were issued at a price at US$0.53
        per
        share:
 Non-related
                  parties
                48,470
                    shares
 On
        October 28, 2003, the Corporation agreed to settle obligations owing to certain
        individuals and companies.  The following shares were issued at a
        price at
        US$0.55 per share:
 Non-related
                  parties
                43,960
                    shares
 On
        December 16, 2003, the Corporation agreed to settle obligations owing to
        certain
        individuals and companies.  The following shares were issued at a
        price at
        US$0.43 per share:
 Non-related
                  parties
                11,000
                    shares
 During
        the four quarters of 2004, the company issued shares of common stock to settle
        obligations owing by the Company to certain directors and/or officers of
        the
        Company as follows:
 
 First
                Quarter
              
              Second
                Quarter
              
              Third
                Quarter
              
              Fourth
                Quarter
              
              AnnualTotal
                  Non-Related Parties
              
              
              306,040
              
              
              136,092
              
              
              565,535
              
              
              721,205
              
              
              1,728,872
  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.
   -42-
  A.6.
              EXPORT
                  SALE DISCLOSURE
 
 In
        2004,
        the Company had export sales in the amount of $81,290.  In 2003, the
        Company had export sales in the amount of $60,862.  In 2002, the Company
        had export sales in the amount of $179,577.
 
 B.
              SIGNIFICANT
                  CHANGES.
  There
        have been no significant changes, which have occurred since the date of the
        annual financial statements included in this Report except as reported in
        Item
        7B “Acquisition of Astris s.r.o.”
 
 DIVIDEND
        POLICY.
  The
        Company has not paid dividends within the last five fiscal years. For a
        description of the ability of the Board of Directors to distribute dividends,
        please see Item 10B below.
 
 ITEM
        9.
        THE OFFER AND LISTING.
 
 MARKETS
        AND PRICE HISTORY OF THE COMPANY'S STOCK.
  As
        of
        April 1, 2005, the Company had approximately 277 stockholders of record for
        its
        Common Shares and 31,702,901 Common Shares were issued and outstanding. The
        Company believes that there are a considerable number of beneficial holders
        of
        the Common Shares, as a substantial number of Common Shares are held of record
        by principal depositories in Canada and the United States. As at April 1,
        2005,
        the shareholder list showed 275 registered shareholders holding a total of
        10,482,227 Common Shares, 5,583,797 Common Shares in the name of Cede & Co
        and 15,636,877 Common shares in the name of CDS & Co (the depository in
        Canada).
  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
                
                LowFirst
                
                $
                .90
                
                $
                .42Second
                
                
                .65
                
                
                .42Third
                
                
                1.11
                
                
                .35Fourth
                
                
                .87
                
                
                .40
   -43-
  2004
                
                
                High
                
                
                LowFirst
                
                $
                .61
                
                $
                .49Second
                
                
                .53
                
                
                .39Third
                
                
                .57
                
                
                .32Fourth
                
                
                .51
                
                
                .37
 
 The
        following table sets forth the high and low market prices for each of the
        past 3
        months:
 
 Month
                  2005
              
              High,
                US$
                  /share
              
              Low,
                US$
                  /shareJanuary
              
              $
              .38
              
              $
              .31February
              
              
              .40
              
              
              .26March
              
              
              .32
              
              
              .23
 
 ITEM
        10.
        ADDITIONAL INFORMATION.
 
 A.
                SHARE
                    CAPITAL.
 
 Not
                  Applicable.
  ITEM
        10
        B.  MEMORANDUM AND ARTICLES OF ASSOCIATION.
 
 1.
              ORGANIZATION.
  The
        Company was incorporated in the Province of Ontario, Canada as required under
        the Business Corporations Act (Ontario). The registrant’s memorandum and
        articles do not provide for any specific objects or purposes.
 
 2.
              DIRECTORS
                  POWERS.
 
 A
        director who is a party to, or who is a director or officer of or has a material
        interest in a proposal, arrangement or contract cannot vote on any resolution
        to
        approve the potential conflict of interest. A director may not vote, in the
        absence of an independent quorum, on compensation to themselves or any members
        of their body.
 
 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.
   -44-
 CORPORATE
        GOVERNANCE.
  The
        Company's by-laws provide that, subject to any unanimous shareholder agreement,
        the Board of Directors shall manage or supervise the management of the business
        and affairs of the Corporation. The powers of the board may be exercised
        at a
        meeting at which a quorum is present or by resolution in writing signed by
        all
        the Directors entitled to vote on that resolution at a meeting of the Board.
        Where there is a vacancy in the board, the remaining Directors may exercise
        all
        the powers of the Board, so long as a quorum remains in office.
 
 MEETINGS
        OF THE BOARD OF DIRECTORS.
  The
        Company's by-laws provide that meetings of the Board of Directors may be
        held at
        any place within or outside Ontario and in any financial year of the Corporation
        a majority of the meetings need not be held in Canada. Meetings of the board
        shall be held from time to time at such time and at such place as the Board
        of
        Directors, the Chair of the Board, the Managing Director, the President or
        any
        two Directors may determine.
 
 BORROWING
        POWER.
  The
        Company's by-laws provide that without limiting the borrowing powers of the
        Corporation, as set forth in the Business Corporation Act (Ontario) (the
        "Act"),
        but subject to the articles and any unanimous shareholder agreement, the
        Board
        of Directors may from time to time on behalf of the Corporation, without
        authorization of the shareholders:
  borrow
        money upon the credit of the Corporation;
  issue,
        reissue, sell or pledge bonds, debentures, notes or other evidences of
        indebtedness or guarantee of the Corporation, whether secured or unsecured;
  to
        the
        extent permitted by the Act, give directly or indirectly financial assistance
        to
        any person by means of a loan, a guarantee or otherwise on behalf of the
        Corporation to secure performance of any present or future indebtedness,
        liability or obligation of any person;
  and
  mortgage,
        hypothecate, pledge or otherwise create a security interest in all or any
        currently owned or subsequently acquired real or personal, movable or immovable,
        property of the Corporation including book debts, rights, powers, franchises
        and
        undertakings, to secure any such bonds, debentures, notes or other evidences
        of
        indebtedness or guarantee or any other present or future indebtedness, liability
        or obligation of the Corporation.
 
 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.
  -45-
  3.
              RIGHTS,
                  PREFERENCES AND RESTRICTIONS OF PREFERRED AND COMMON
                  SHARES
  The
        holders of the common shares are entitled to receive notice of and to attend
        and
        vote at all meetings of shareholders of the company and to one vote in respect
        of each common share held at all such meetings, except meetings at which
        only
        holders of a specified class of shares (other than the common shares) are
        entitled to vote. Holders of common shares are entitled to receive, subject
        to
        the rights of holders of other classes of shares, dividends as and when declared
        by the company. Holders of common shares are entitled to receive, subject
        to the
        rights of holders of other classes of shares, the remaining property of the
        company on the liquidation, dissolution or winding up of the company, whether
        voluntary or involuntary, or any other distribution of the assets of the
        company
        among its shareholders for the purpose of winding up its affairs.
  The
        holders of the preferred shares shall have preferred rights as to dividends
        as
        determined by the directors of the company. The preferred shares may be issued
        in one or more series, each series to consist of such number of shares as
        may
        before the issue thereof be determined by the directors who may by resolution
        fix before the issue thereof the designation, preference, rights, privileges,
        restrictions, conditions and limitations attached to the preferred shares
        of
        each series including the rate and nature of preferential dividends, the
        date of
        payment thereof, the redemption price and conditions of redemption, if any,
        conversion rights and conditions of conversion, if any, and voting rights,
        if
        any.
 
 DIVIDENDS
  The
        Company's by-laws provide that, subject to the Act, the articles and any
        unanimous shareholder agreement, the Board of Directors may from time to
        time
        declare dividends payable to the shareholders according to their respective
        rights and interests in the Corporation. Dividends may be paid in money or
        property or by issuing fully paid shares of the Corporation or options or
        rights
        to acquire fully paid shares of the Corporation. Any dividend unclaimed after
        a
        period of six years from the date on which the same has been declared to
        be
        payable shall be forfeited and shall revert to the Corporation.
 
 4.
              CHANGING
                  RIGHTS OF SHAREHOLDERS
 
 The
        rights of shareholders may not be modified other than by a majority vote
        of the
        common shares voting on such modification at a special meeting. The rights
        of
        shareholders may also be modified by a unanimous shareholder agreement.
 
 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.
   -46-
  6.
              LIMITATIONS
                  TO OWN SECURITIES
 
 There
        are
        no limitations on the rights to own securities, to hold securities or exercise
        voting rights on securities imposed by foreign law.
 
 7.
              ISSUES
                  RELATED TO MERGERS, ACQUISITIONS OR CORPORATE
                  RESTRUCTURING
 
 Currently
        there are no provisions in the company’s articles or by-laws that would have an
        effect of delaying, deferring or preventing any of item 7 above.
 
 8.
              OWNERSHIP
                  THRESHOLD
 
 There
        are
        no bylaw provisions governing the ownership threshold above which shareholder
        ownership must be disclosed. However, in the United States, 5% ownership
        or more
        must be publicly disclosed. In Canada, 10% ownership or more must be publicly
        disclosed.
 
 9
                & 10.
              LAW
 
 The
        laws
        of Ontario, Canada, relating to Items 2-8 are not significantly different
        from
        the laws of the United States. The conditions imposed by the memorandum and
        articles of association governing changes in capital are not more stringent
        than
        is required by law.
 
 C.
              MATERIAL
                  CONTRACTS
  The
        Company entered into a value added reseller agreement with Alternate Energy
        Inc.
        and a co-operation agreement with El.Ma, as previously mentioned under Item
        5C
“Prospects”.
 
 D.
              EXCHANGE
                  CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
                  HOLDERS
  There
        are
        no governmental laws, decrees or regulations in Canada relating to restrictions
        on the import/export of capital affecting the remittance of interest, dividends
        or other payments to non-residential holders of the Company's Common Shares.
        Any
        such remittances to United States residents, however, are subject to a 15%
        withholding tax pursuant to Article X of the reciprocal tax treaty between
        Canada and the United States. See Part E below.
   -47-
 Except
        as
        provided in the Investment Canada Act (the "Act"), there are no limitations
        under the laws of Canada, the Province of Ontario or in the charter or any
        other
        constituent documents of the Company on the right of foreigners to hold and/or
        vote the Common Shares of the Company.
  The
        Act
        requires a non-Canadian making an investment to acquire control of a Canadian
        business, the gross assets of which exceed certain defined threshold levels,
        to
        file an application for review with Investment Canada, the federal agency
        created by the Act.
  As
        a
        result of the Canada-U.S. Free Trade Agreement, the Act was amended in January
        1989 to provide distinct threshold levels for Americans who acquire control
        of a
        Canadian business.
  A
        Canadian business is defined in the Act as a business carried on in Canada
        that
        has a place of business in Canada, an individual or individuals in Canada
        who
        are employed or self-employed in connection with the business, and assets
        in
        Canada used in carrying on the business.
  An
        American, as defined in the Act, includes: an individual who is an American
        national or a lawful permanent resident of the United States; a government
        or
        government agency of the United States; an American-controlled entity,
        corporation or limited partnership or trust which is not controlled in fact
        through ownership of its voting interests of which two-thirds of its Board
        of
        Directors, general partners or trustees, as the case may be, are any combination
        of Canadians or Americans.
  The
        following investments by a non-Canadian are subject to review by Investment
        Canada:
 
 (a)
              all
                  direct acquisitions of control of Canadian businesses withassets
                  of CDN$5 million or more;
  (b)
              all
                  indirect acquisitions of control of Canadian businesses withassets
                  of CDN$50 million or more if such assets represent lessthan
                  50% of the value of the assets of the entities, the controlof
                  which is being acquired; and
  (c)
              all
                  indirect acquisitions of control of Canadian businesses withassets
                  of CDN$5 million or more if such assets represent morethan
                  50% of the value of the assets of the entities, the controlof
                  which is being acquired.
  Review
        by
        Investment Canada is required when investments by Americans exceed CDN$150
        million for direct acquisitions of control. For the purposes of the Act,
        direct
        acquisition of control means: a purchase of the voting interest on a
        corporation, partnership, joint venture or trust carrying on a Canadian
        business, or any purchase of all or substantially all of the assets used
        in
        carrying on a Canadian business; and indirect acquisition of control means
        a
        purchase of the voting interest of a corporation, partnership, joint venture
        or
        trust, whether a Canadian or foreign entity, which controls a corporation,
        partnership, joint venture or trust carrying on a Canadian business in
        Canada.
   -48-
 The
        acquisition of certain Canadian businesses is excluded from the higher
        thresholds set out for Americans. These excluded businesses include oil,
        gas,
        uranium, financial services (except insurance); transportation services and
        cultural services (i.e. the publication, distribution or sale of books,
        magazines, periodicals (other than printing or typesetting businesses), music
        in
        print or machine readable form, radio, television, cable and satellite services;
        the publication, distribution, sale or exhibitions of film or video recordings
        or audio or video music recordings).
  Direct
        or
        indirect acquisitions of control of these excluded businesses are reviewable
        at
        the CDN$5 and CDN$50 million thresholds.
  A
        non-Canadian shall not implement an investment reviewable under the Act unless
        the investment has been reviewed and the Minister responsible for Investment
        Canada is satisfied or is deemed to be satisfied that the investment is likely
        to be of net benefit to Canada. If the Minister is not satisfied that the
        investment is likely to be a net benefit to Canada, the non-Canadian shall
        not
        implement the investment or, if the investment has been implemented, shall
        divest himself of control of the business that is the subject of the
        investment.
  A
        non-Canadian or American making the following investments
  (i)
              an
                  investment to establish a new Canadian business;
                  and
 
 (ii)
              an
                  investment to acquire control of a Canadian business whichinvestment
                  is not subject to review under the Act, must notifyInvestment
                  Canada, within prescribed time limits, of suchinvestments.
 
 E.
              TAXATION.
 
 CANADIAN
        INCOME TAX CONSEQUENCES
  Management
        of the Company considers that the following discussion respecting taxation
        fairly describes the principal and material Canadian federal income tax
        consequences applicable to shareholders of the Company who are residents
        of the
        United States and are not residents of Canada and do not hold, and are deemed
        not to hold, Common Shares of the Company in connection with carrying on
        a
        business in Canada (a "non-resident").
  Generally,
        dividends paid by Canadian corporations to non-resident shareholders are
        subject
        to a withholding tax of 25% of the gross amount of such dividends. However,
        Article X of the reciprocal tax treaty between Canada and the United States
        reduced to 15% the withholdings tax on the gross amount of dividends paid
        to
        residents of the United States. A further 10% reduction in 1997 in the
        withholding tax rates on the gross amount of dividends is applicable when
        a U.S.
        corporation owns at least 10% of the voting stock of the Canadian corporation
        paying the dividends.
  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.
   -49-
 UNITED
        STATES FEDERAL INCOME TAX CONSEQUENCES
  The
        following discussion describes the United States federal income tax consequences
        of the ownership and disposition of Common Shares of the Company. The discussion
        contained in this summary is based on the Internal Revenue Code of 1986,
        as
        amended (the "Code"), existing and proposed Treasury Regulations, judicial
        decisions and administrative pronouncements, all of which are subject to
        change.
        Any such changes may be applied retroactively in a manner that could result
        in
        federal income tax consequences different from those discussed
        below.
  This
        summary discusses only Common Shares of the Company held by a U.S. Holder
        (defined below) as a capital asset within the meaning of Section 1221 of
        the
        Code, and does not deal with special situations, such as those of banks,
        thrift
        institutions, real estate investment trusts, regulated investment companies,
        insurance companies, dealers in securities or commodities, tax-exempt investors,
        holders whose functional currency is not the U.S. dollar, persons who hold
        Common Shares of the Company as a position in a straddle, as part of a synthetic
        security or hedge, as part of a conversion transaction or other integrated
        investment, or persons who are not U.S. Holders (as defined below). Further,
        the
        summary does not include any description of any alternative minimum tax
        consequences or any state, local or foreign tax consequences that may be
        applicable. This summary assumes that no U.S. Holder will own, directly or
        indirectly, Common Shares of the Company representing 10% or more of the
        voting
        power of the Company.
  HOLDERS
        OF COMMON SHARES OF THE COMPANY ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
        RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION
        OF SUCH
        SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE TAX
        CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AND THE POSSIBLE
        EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
  As
        used
        herein, a "U.S. Holder" means a beneficial owner of Common Shares of the
        Company
        who is (I) a citizen or resident of the United States, (ii) a corporation,
        partnership or other entity created or organized in or under the laws of
        the
        United States or any State thereof or the District of Columbia,(iii) an estate
        the income of which is subject to United States federal income taxation
        regardless of its source, or (iv) a trust the administration of which is
        subject
        to the primary supervision of a court within the United States and for which
        one
        or more U.S. persons have the authority to control all substantial
        decisions.
  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.
 
 
 -50-
 Dividends
  Distributions
        with respect to the Common Shares (other than liquidating distributions and
        certain distributions in redemption of the Common Shares) which are paid
        out of
        current or accumulated earnings and profits, as calculated for United States
        federal income tax purposes, generally will constitute dividends taxable
        as
        ordinary income. To the extent the amount of any such distribution paid with
        respect to the Common Shares exceeds current and accumulated earnings and
        profits, as calculated for United States federal income tax purposes, such
        excess distribution will not constitute a dividend for United States federal
        income tax purposes, but will be treated first as a tax-free return of capital
        to the extent of the holder's adjusted tax basis in his Common Shares (with
        a
        corresponding reduction in such basis) and, to the extent the distribution
        exceeds such basis, as a capital gain.
 
 Foreign
        Tax Credit
  A
        U.S.
        Holder who pays (or has had withheld from distributions) Canadian income
        tax
        with respect to the ownership of Common Shares of the Company may be entitled,
        at the option of the U.S. Holder, to either a deduction or a tax credit for
        such
        foreign tax paid or withheld. This election is made on a year-by-year basis
        and
        applies to all foreign taxes paid by (or withheld from) the U.S. Holder during
        that year. There are significant and complex limitations that apply to the
        credit, among which is the general limitation that the credit cannot exceed
        the
        proportionate share of the U.S. Holder’s United States Federal income tax
        liability that the U.S. Holder’s foreign source income bears to his worldwide
        taxable income. The availability of the foreign tax credit and the application
        of the limitations on the credit are fact specific and holders and prospective
        holders of Common Shares should consult their own tax advisors regarding
        their
        individual circumstances.
 
 Dispositions,
        Including Redemptions
  Any
        sale,
        exchange, redemption (except as discussed below) or other disposition of
        the
        Common Shares generally will result in taxable gain or loss equal to the
        difference between the amount received upon the sale, exchange, redemption
        or
        other disposition and the holder's adjusted tax basis in the Common Shares.
        Such
        gain or loss generally will be capital gain or loss and will be long-term
        capital gain or loss if the holding period for the Shares of the Company
        exceeds
        one year.
  In
        certain cases, a redemption of Common Shares may be treated as a dividend,
        rather than as a payment in exchange for the Shares of the Company. In such
        events, the redemption payment will be treated as ordinary dividend income
        to
        the extent that such payment is made out of current or accumulated earnings
        and
        profits, as calculated for United States federal income tax purposes. The
        determination of whether the redemption will be treated as a dividend rather
        than as payment in exchange for the Common Shares of the Company will depend
        upon whether and to what extent the redemption reduces the holder's percentage
        stock ownership interest in the Company. A redemption will be treated as
        an
        exchange of stock that produces a capital gain if the redemption either (1)
        completely terminates the holder's interest in the Company under Section
        302(b)(3) of the Code, (2) is "substantially disproportionate" with respect
        to
        the holder under Section 302(b)(2) of the Code, or (3) is "not essentially
        equivalent to a dividend" under Section 302(b)(1) of the Code.
   -51-
 A
        redemption will completely terminate the holder's interest in the Company
        if, as
        a result of the redemption, the holder no longer has any stock interest in
        the
        Company, directly or constructively after application of the attribution
        rules
        of Section 302(c) of the Code. A redemption will be "substantially
        disproportionate" with respect to the holder if (1) the ratio of the voting
        stock owned by the holder (including stock attributed to the holder under
        Section 302(c) of the Code) immediately after the redemption to all the voting
        stock of the Company is less than 80% of the same ratio for the voting stock
        owned by the holder immediately before the redemption, (2) there is a similar
        percentage reduction in the ownership by the holder of Common Shares of the
        Company, and (3) the holder owns less than 50% of the voting stock of the
        Company. Whether a redemption is "not essentially equivalent to a dividend"
        with
        respect to a holder will depend upon the holder's particular circumstances.
        The
        IRS has ruled that a minority shareholder in a publicly held corporation
        whose
        relative stock interest is minimal and who exercises no control with respect
        to
        corporate affairs is considered to have a "meaningful reduction" if such
        shareholder has a reduction in his percentage stock ownership. In determining
        whether any of the foregoing tests have been satisfied, the holder is deemed,
        under the constructive ownership rules of Section 302(c) of the Code, to
        own any
        Common Shares in the Company owned by certain related persons and entities
        and
        any Common Shares which the holder or certain related persons and entities
        have
        an option to acquire. However, because of the ambiguities in applying the
        foregoing rules, holders should consult their tax advisors to determine whether
        a redemption of Common Shares will be treated as a dividend or as a payment
        in
        exchange for the Common Shares of the Company.
 
 F.
                DIVIDENDS
                    AND PAYING AGENTS
 
 Not
                  Applicable.
  G.
                STATEMENT
                    BY EXPERTS
 
 Not
                  Applicable.
  H.
              DOCUMENTS
                  ON DISPLAY
  The
        Company is subject to the informational requirements for foreign private
        issuers
        under the Securities Exchange Act of 1934, as amended. In accordance with
        these
        requirements, the Company files reports on Form 20-F and 6-K with the United
        States Securities and Exchange Commission. These materials, including this
        annual report and the exhibits thereto, may be inspected and copied at the
        Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
        DC
        20549. Copies of the materials may be obtained from the Public Reference
        Room at
        prescribed rates. The public may obtain information on the operations of
        the
        Commission's Public Reference Room by calling the Commission in the United
        States at 1-800-SEC-0330. The Commission also maintains a web site at
        http://sec.gov that contains reports, proxy statements and other information
        regarding registrants that file electronically with the Commission.
 
 I.
                SUBSIDIARY
                    INFORMATION
 
 Not
                  Applicable.
  
 -52-
 
 ITEM
          11.
          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 INTEREST
        RATE RISK.
  The
        Company does not have any significant exposure to changes in interest
        rates.
 
 IMPACT
        OF
        CURRENCY FLUCTUATIONS
  The
        Company's operating expenses are primarily paid in Canadian dollars.
         Fluctuations in the exchange rate between the Canadian dollar and
        such
        other currencies may have a material effect on the Company's results of
        operations. In particular, the Company may be adversely affected by a
        significant strengthening of the Canadian dollar against the U.S. dollar
        or
        Euro. The Company has not previously engaged in, and does not now intend
        to
        enter into, any currency hedging or other similar currency hedging transactions.
        The Company may enter into such transactions on a non-speculative basis to
        the
        extent that it might in the future have substantial foreign currency
        exposure.
 
 ITEM
        12.
        DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  Not
        Applicable.
  PART
        II.
  ITEM
        13.
        DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  None.
 
 ITEM
        14.
        MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE 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) to ensure that information
        required to be disclosed by the Company in the reports it files or submits
        under
 the
        Exchange Act is recorded, processed, summarized and reported within the time
        periods specified in the Securities and Exchange Commission's rules and
        forms.
   -53-
 From
        time
        to time, the Company and its management have conducted and will continue
        to conduct further reviews and, from time to time put in place additional
        documentation, of the Company's disclosure controls and procedures, as well
        as
        its internal control over financial reporting. The Company may from time
        to time
        make changes aimed at enhancing their effectiveness, as well as changes aimed
        at
        ensuring that the Company's systems evolve with, and meet the needs of, the
        Company's business. These changes may include changes necessary or desirable
        to
        address recommendations of the Company's management, its counsel and/or its
        independent auditors, including any recommendations of its independent auditors
        arising out of their audits and reviews of the Company's financial statements.
        These changes may include changes to the Company's own systems, as well as
        to
        the systems of businesses that the Company has acquired or that the Company
        may
        acquire in the future and will, if made, be intended to enhance the
        effectiveness of the Company's controls and procedures. The Company is also
        continually striving to improve its management and operational efficiency
        and
        the Company expects that its efforts in that regard will from time to time
        directly or indirectly affect the Company's disclosure controls and procedures,
        as well as the Company's internal control over financial reporting.
  CHANGES
        IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
 
 There
        were no changes in the Company's internal controls over financial reporting
        that
        has materially affected or, to the Company's knowledge, other factors that
        are
        reasonably likely to materially affect the Company's internal controls over
        financial reporting during the period covered by this Annual Report.  As
        more fully described in Note 3 to the audited consolidated financial statements
        included in Item 17 of this Annual Report, during our preparation and analysis
        of our 2003 consolidated financial statements, certain errors to our previously
        reported financial information were identified and corrected. These items
        related to new accounting standards not being adopted on a timely basis and
        misinterpretation of certain circumstances related to contingent liabilities
        and
        consolidation accounting.  These corrections required restatement
        of
        previously issued consolidated financial statements for 2002 and 2001.
 
 ITEM
        16.
 
 A.
 AUDIT
        COMMITTEE FINANCIAL EXPERT
 
 Members
        of the Audit Committee have broad financial experience which has been gained
        in
        a variety of disciplines including investment banking, supervision of finance
        functions and general management, and the Board is satisfied that collectively
        they have the requisite financial skills and expertise to enable them fully
        to
        carry out their responsibilities. However, the Board considers that no
        individual member of the committee qualifies as a “financial expert” within the
        terms of the definition set out in the Sarbanes-Oxley Act of 2002.
 
 C.
 PRINCIPAL
        ACCOUNTANT FEES AND SERVICES
 
 For
        the
        year ended 2004 and 2003, the audit fees were CDN$22,000 and CDN$50,000.
         For the year ended 2004 and 2003, the audit-related fees for the
        principal
        accountants were CDN$nil and CDN$nil.  For the year ended 2004 and
        2003,
        the tax related fees for the principal accountants were CDN$nil and CDN$nil.
         The Company’s audit committee’s pre-approval of audit fees is discussed in
        advance with the principal accountant and the audit committee. If there are
        any
        adjustments, they are approved by the audit committee.
  E.
 PURCHASES
        OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
 Not
        Applicable.
 
 -54-
 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.
 
 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.
   -55-
 4.*
                Astris
                    Energi Inc. Stock Option Plan, dated June
                    2000.
 
 10.1*
              License
                  Agreement between Astris Energi Inc. and Energy Ventures Inc.(Canada)
                  dated October 22, 1998.
 
 10.2*
              Debenture
                  by Astris Energi Inc and Astris Inc. to and in favor of Energy
                  Ventures
                  Inc. (Canada) dated October 22,
                  1998.
 
 10.3*
              Equipment
                  Lease between Astris Energi Inc. and Astris Inc. and Energy Ventures
                  Inc.
                  (Canada) dated October 22, 1998.
 
 10.4*
              License
                  Agreement with Macnor Corp. dated October 1,
                  1999.
 
 10.5*
              Lease
                  for property located at 2175 Dunwin Drive, Unit 6, Mississauga,
                  Ontario,
                  between 789542 Ontario Limited and Astris Energi Inc., dated April
                  14,
                  2000.
 
 10.6*
              License
                  Agreement, between Astris Inc. and Astris s.r.o., dated January
                  30,
                  1995.
 
 10.7*
              Grant
                  of Options by Astris Energi Inc. to Energy Ventures Inc., dated
                  October
                  22, 1998.
 
 10.8*
              Agreement
                  between Astris Energi Inc. and Fuelcellstore.com, Inc., dated October
                  12,
                  2000.
 
 10.9*
              Assignment
                  Agreement between Josef Soltys and Astris Inc. for Canadian Patent
                  #1,295,679, for QUICKCELL, dated November 15,
                  1995.
 
 10.10*
              Debenture
                  between Astris Inc. and Donald Alex Blenkarn, in trust, dated September
                  30, 1996.
 
 10.11
              Value
                  Added Reseller Agreement with Alternate Energy Corp., dated May
                  14,
                  2004.
 
 10.12
              Co-operation
                  agreement with El.ma, dated October 15,
                  2004.
 
 10.13
              Consulting
                  Agreement with Liikfam Holdings, dated December 10,
                  2004.
 
 10.14
              Purchase
                  and Escrow Agreement between Astris Energi Inc., Macnor Corporation
                  and
                  2062540 Ontario Inc. dated January 20,
                  2005.
 
 10.15
              Teaming
                  Arrangement with Plasma Environmental Technologies Inc., dated
                  February
                  23, 2005.
  23.1*
              AUDITORS’
                  CONSENTS
 
 31.1and
                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.
  
 -56-
 SIGNATURES
  The
        registrant hereby certifies that it meets all of the requirements for filing
        on
        Form 20-F and that it has duly caused and authorized the undersigned to sign
        this annual report on its behalf.
  **ASTRIS
                ENERGI, INC.**Date: August
                22, 2005
              By:
              /s/ Jiri
                K. NorPresident
                and Chief Executive Officer
 
 
  -57-
 
   **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Consolidated
          Financial Statements**
 **(Canadian
          Dollars)**
 December
          31, 2004
      
 **ASTRIS
          ENERGI INC.**
 
 **INDEX**
 
 **December
          31, 2004**
  **PAGE****AUDITORS’
                      REPORT - DECEMBER 31, 2004 AND DECEMBER 31, 2003**
                  F-1**AUDITOR’S
                      REPORT - DECEMBER 31, 2002**
                  F-2**FINANCIAL
                      STATEMENTS**Consolidated
                      Balance Sheets - Statement I
                  F-3Consolidated
                      Statements of Loss and Deficit - Statement II
                  F-4Consolidated
                      Statements of Cash Flows - Statement III
                  F-5**NOTES
                      TO CONSOLIDATED FINANCIAL STATEMENTS**
                  F-6
                      - F-35
 
 **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
  ****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
  **Chartered
          Accountants**
  **Toronto,
          Ontario**
 **April
          26, 2005**
 
 
 F-1
 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
 
 
 F-2
 **ASTRIS ENERGI INC.**
                  **Statement
                      I**
 **** **(A
          Development Stage Company)**
 **Consolidated
          Balance Sheets**
 As
          at
          December 31, 2004
 (Canadian
                        Dollars)**2004**
                      
                      **2003**
                      
                      **2002**Restated(Note
                          3)**ASSETS****CURRENT**Cash
                      
                      $
                      178,351
                      
                      $
                      347,785
                      
                      $
                      253,938Receivables
                      
                      
                      3,544
                      
                      
                      1,000
                      
                      
                      30,440Prepaid
                          expenses and deposits (note 5)
                      
                      
                      10,118
                      
                      
                      37,206
                      
                      
                      149,777Investment
                          tax credits refundable
                      
                      
                      199,586
                      
                      
                      --
                      
                      
                      216,608Goods
                          and services tax receivable
                      
                      
                      27,387
                      
                      
                      16,120
                      
                      
                      --Other
                          assets
                      
                      
                      53,692
                      
                      
                      --
                      
                      
                      --472,678
                      
                      
                      402,111
                      
                      
                      650,763Property,
                          plant and equipment (note 4)
                      
                      
                      36,446
                      
                      
                      33,124
                      
                      
                      25,737$
                      509,124
                      
                      $
                      435,235
                      
                      $
                      676,500**LIABILITIES****CURRENT**Payables
                          and accruals (note 5)
                      
                      $
                      255,830
                      
                      $
                      399,140
                      
                      $
                      420,480Deposit
                          on shares (note 7)
                      
                      
                      --
                      
                      
                      72,070
                      
                      
                      --255,830
                      
                      
                      471,210
                      
                      
                      420,480Advances
                          from related parties (note 5)
                      
                      
                      --
                      
                      
                      100,000
                      
                      
                      120,400255,830
                      
                      
                      571,210
                      
                      
                      540,880**SHAREHOLDERS’
                          EQUITY****SHARE
                          CAPITAL**(note
                          7)
                      
                      
                      6,227,074
                      
                      
                      3,343,853
                      
                      
                      2,525,239**CONTRIBUTED
                          SURPLUS**(note 7)
                      
                      
                      3,016,647
                      
                      
                      2,048,342
                      
                      
                      931,582**DEFICIT**-
                          Statement II
                      
                      
                      (
                          8,990,427
                      )
                      
                      (
                          5,528,170
                      )
                      
                      (
                          3,321,201
                      )253,294
                      
                      
                      (
                          135,975
                      )
                      
                      135,620$
                      509,124
                      
                      $
                      435,235
                      
                      $
                      676,500
  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.}*
 
 F-3
  **ASTRIS ENERGI INC.**
                  **Statement
                      II**
 **(A
          Development Stage Company)**
 **Consolidated
          Statements of Loss and Deficit**
 For
          the
          Year Ended December 31, 2004
 (Canadian
                  Dollars)**2004**
                
                **2003**
                
                **2002**Restated(Note
                    3)**REVENUE**(note 5)
                
                $
                88,798
                
                $
                67,870
                
                $
                180,168**EXPENSES**Research
                    and development (note 5)
                
                
                1,343,695
                
                
                1,229,184
                
                
                197,488General
                    and administrative
                
                
                1,943,799
                
                
                880,585
                
                
                332,831Professional
                    fees
                
                
                243,076
                
                
                145,100
                
                
                254,487Interest
                    on advance from related parties (note 5)
                
                
                7,000
                
                
                12,000
                
                
                12,000Amortization
                
                
                13,485
                
                
                7,970
                
                
                4,0163,551,055
                
                
                2,274,839
                
                
                800,822**LOSS
                    BEFORE THE FOLLOWING**
                
                
                (
                    3,462,257
                )
                
                (
                    2,206,969
                )
                
                (
                    620,654
                )Deferred
                    costs written off
                
                
                --
                
                
                --
                
                
                (
                    122,818
                )**LOSS
                    FOR THE YEAR**
                
                
                (
                    3,462,257
                )
                
                (
                    2,206,969
                )
                
                (
                    743,472
                )**DEFICIT,
                      BEGINNING OF YEAR AS**PREVIOUSLY REPORTED
                
                
                (
                    5,528,170
                )
                
                (
                    3,242,557
                )
                
                (
                    2,582,439
                )Prior
                    period adjustments (note 3)
                
                
                --
                
                
                (
                    78,644
                )
                
                4,710**DEFICIT,
                      BEGINNING OF YEAR AS**RESTATED
                
                
                (
                    5,528,170
                )
                
                (
                    3,321,201
                )
                
                (
                    2,577,729
                )**DEFICIT,
                    END OF YEAR**
                
                
                ($8,990,427
                )
                
                ($5,528,170
                )
                
                ($3,321,201
                )**LOSS
                      PER COMMON SHARE, BASIC**AND DILUTED(note 7)
                
                
                ($
                    0.16
                )
                
                ($
                    0.12
                )
                
                ($
                    0.05
                )
 *{See
            accompanying notes.}*
 
 
 F-4
  **ASTRIS ENERGI INC.**
                **Statement
                    III**
 **(A
          Development Stage Company)**
 **Consolidated
          Statements of Cash Flows**
 For
          the
          Year Ended December 31, 2004
 (Canadian
                  Dollars)**2004**
                
                **2003**
                
                **2002**Restated(Note
                    3)**OPERATING
                    ACTIVITIES******Loss
                    for the year
                
                
                ($3,462,257
                )
                
                ($2,206,969
                )
                
                ($
                    743,472
                )Items
                    not requiring cashAmortization
                
                
                13,485
                
                
                7,970
                
                
                4,016Consulting
                      and professional fees andpaid in capital stock to non-related
                      parties
                
                
                890,097
                
                
                136,122
                
                
                166,801Consulting
                      and professional fees andexpenses paid in options to
                      non-employees
                
                
                227,406
                
                
                131,063
                
                
                83,354Consulting
                      fees and expenses paid incapital stock to related
                      parties
                
                
                460,360
                
                
                266,247
                
                
                207,456Stock-based
                    compensation to employees
                
                
                105,962
                
                
                188,377
                
                
                --Warrants
                    issued to directors
                
                
                91,655
                
                
                --
                
                
                --Deferred
                    costs written off
                
                
                --
                
                
                --
                
                
                122,818Net
                    change in non-cash working capitalbalances
                    related to operations (note 8)
                
                
                (
                    329,614
                )
                
                321,159
                
                
                (
                    221,258
                )**CASH
                    (USED) IN OPERATING ACTIVITIES**
                
                
                (
                    2,002,906
                )
                
                (
                    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**(Decrease)
                      increase in advances from relatedparties
                
                
                (
                    100,000
                )
                
                --
                
                
                6,400Deposit
                    on shares
                
                
                (
                    72,070
                )
                
                72,070
                
                
                --Issuance
                    of common shares
                
                
                1,538,874
                
                
                395,845
                
                
                171,781Issuance
                    of warrants
                
                
                537,167
                
                
                797,320
                
                
                456,8501,903,971
                
                
                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
                
                $
                253,938Supplemental
                    disclosureInterest
                    paid
                
                $
                --
                
                $
                --
                
                $
                15,000Investment
                    tax credits recovered
                
                
                5,820
                
                
                388,499
                
                
                --
 *{See
            accompanying notes.}*
  F-5
 **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.
 
 
 F-6
 **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.
 
 
 F-7
 **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.
 
 F-8
 **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.
 
 
 F-9
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004 (Canadian
                    Dollars)
 **2.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES******(continued)
 
 ***Foreign
          currency translation***
 
 The
                    reporting currency of the Company is the Canadian dollar.  Monetary
                    assets and liabilities denominated in currencies other than the
                    Canadian
                    dollar are translated at the rates of exchange in effect at the
                    end of the
                    year.  Non-monetary assets and liabilities are translated
                    at historic
                    rates of exchange.  Revenues and expense items denominated
                    in
                    currencies other than the Canadian dollar are translated into
                    Canadian
                    dollars at the average rates of exchange for the year.
 
 ***Loss
          per share***
 
 Basic
          loss per share is calculated on the weighted average number of common shares
          outstanding during the year.  The diluted loss per share is calculated
          based on the weighted average number of common shares that would have been
          outstanding during the year had all potential common shares been issued
          at the
          beginning of the year or when the underlying options or warrants were granted,
          if later.  The treasury stock method is used to determine the incremental
          number of shares that would have been outstanding had the Company used
          proceeds
          from the exercise of options and warrants to acquire common shares.
  **3.**
                **PRIOR
                    PERIOD ADJUSTMENTS**
 
 The
                    financial statements of 2002 and prior years have been restated
                    to reflect
                    the following errors identified therein and change in accounting
                    policy,
                    summarized as follows:
 **A**
                  
                  **B**
                  
                  **C**
                  
                  **D**
                  
                  **E**
                  
                  **F**
                  
                  **Total**Increase
                        (decrease)in deficit as at January 1, 2002
                  
                  $
                  342,899
                  
                  $
                  --
                  
                  $
                  12,000
                  
                  
                  ($12,776
                  )
                  
                  ($31,546
                  )
                  
                  ($315,287
                  )
                  $
                  4,710Increase
                        (decrease)in loss for the year ended December 31,
                        2002
                  
                  
                  83,354
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  
                  83,354Increase
                        (decrease)in deficit as at January 1, 2003
                  
                  $
                  426,253
                  
                  $
                  --
                  
                  $
                  12,000
                  
                  
                  ($12,776
                  )
                  
                  ($31,546
                  )
                  
                  ($315,287
                  )
                  $
                  78,644
 
 
 F-10
 **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.
 
 
 F-11
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004
 (Canadian
                    Dollars)
 
 **3.**
                **PRIOR
                    PERIOD ADJUSTMENTS******(continued)
 
 F)
                The
                    Company had recorded a liability in 1995 but at the time of recording
                    the
                    amount it did not have the characteristics of a liability.  As
                    a
                    result of correcting this accounting error, there was a decrease
                    in
                    deficit and a decrease in advances from related parties as at
                    January 1,
                    2002 of $315,287.
  **4.**
                **PROPERTY,
                    PLANT AND EQUIPMENT**
 
 **2004****2004**
                
                **Net****2004**
                
                **Accumulated**
                
                **Book****Cost**
                
                **Amortization**
                
                **Value**Office
                    furniture and equipment
                
                $
                54,226
                
                $
                23,277
                
                $
                30,949Leasehold
                    improvements
                
                
                10,939
                
                
                5,442
                
                
                5,497$
                65,165
                
                $
                28,719
                
                $
                36,446
  **2003****2003**
                
                **Net****2003**
                
                **Accumulated**
                
                **Book****Cost**
                
                **Amortization**
                
                **Value**Furniture,
                    fixtures and equipment
                
                $
                37,419
                
                $
                11,980
                
                $
                25,439Leasehold
                    improvements
                
                
                10,939
                
                
                3,254
                
                
                7,685$
                48,358
                
                $
                15,234
                
                $
                33,124
 
 **2002****2002**
                
                **Net****2002**
                
                **Accumulated**
                
                **Book****Cost**
                
                **Amortization**
                
                **Value**Furniture,
                    fixtures and equipment
                
                $
                25,800
                
                $
                5,823
                
                $
                19,977Leasehold
                    improvements
                
                
                7,200
                
                
                1,440
                
                
                5,760$
                33,000
                
                $
                7,263
                
                $
                25,737
 
 
 F-12
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004 (Canadian
                      Dollars)
 
 **5.**
                **RELATED
                    PARTY TRANSACTIONS AND BALANCES**
 
 The
                    Company, in the course of its regular business activities, has
                    routine
                    transactions with affiliates.  These transactions are
                    recorded at the
                    exchange amount.
 
 Advances
          from related parties at December 31, are summarized as follows:
 
 **2004**
                
                **2003**
                
                **2002**Advances
                    from directors
                
                $
                --
                
                $
                --
                
                $
                20,400Debenture
                    due to shareholders
                
                
                --
                
                
                100,000
                
                
                100,000$
                --
                
                $
                100,000
                
                $
                120,400
 
 ***Debenture
          due to shareholders***
 
 The
                    debenture due to shareholders was secured by a fixed and floating
                    charge
                    on all of the assets and business of Astris Inc. and bore interest
                    at 12%
                    per annum. During the year the debenture and interest accrued
                    was
                    completely paid to the shareholders by the issuance of 260,175
                    common
                    shares. The shareholders released the security on the
                    liability.
 
 Astris
          s.r.o (“s.r.o.”)
 
 The
                    Company has a 30% ownership interest in s.r.o., a Czech company,
                    in which
                    the remaining 70% is owned by a company controlled by a director,
                    officer
                    and shareholder.  The Company’s 30% interest in losses of s.r.o. has
                    been applied to its investment.  As the Company’s share of losses is
                    in excess of the original investment, the investment was written
                    down to
                    nil in 1996.
 
 The
          Company has not recorded any further share of the losses of s.r.o. over
          and
          above the original investment as the Company has not guaranteed the obligations
          of s.r.o.
 
 The
          following summarizes the cumulative unrecognized losses of s.r.o. as a
          result of
          this treatment:
 
 **2004**
                
                **2003**
                
                **2002**Unrecognized
                    income during the year
                
                $
                22,992
                
                $
                6,924
                
                $
                6,331Unrecognized
                    cumulative profits (losses)
                
                
                ($
                    1,648
                )
                
                ($24,640
                )
                
                ($31,564
                )
 
 The
                    Company regularly subcontracts portions of its research and development
                    activities to s.r.o. In addition, the Company sells its products
                    to
                    s.r.o., as required.
 
 
 F-13
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004 (Canadian
                      Dollars)
 
 **5**
                **RELATED
                    PARTY TRANSACTIONS AND BALANCES******(continued)
 
 As
                    at December 31:
                
                **2004**
                
                **2003**
                
                **2002**Balance
                      of funds paid included in prepaidexpenses and
                      deposits
                
                $
                --
                
                $
                30,000
                
                $
                146,074Included
                    in payables and accruals
                
                $
                588
                
                $
                137,480
                
                $
                123,919Year
                    ended December 31:Total
                    funds advanced
                
                $
                700,000
                
                $
                416,000
                
                $
                23,000Sales
                
                $
                --
                
                $
                45,901
                
                $
                140,575Purchases
                    included in research and development
                
                $
                563,108
                
                $
                729,800
                
                $
                89,159
 
 The
                    large amount of funds advanced to sro in 2004 were for operating
                    expenses,
                    the purchase of land and a building as well as equipment for
                    the new
                    electrode production facility.
 
 In
          addition, payables and accruals as at December 31, 2004 include the following
          amounts:
 
 $13,826
          owing to 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:
 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
                )
 
 
 F-14
 **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:
 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
                )
 
 On
          May
          26, 2003 the Board of Directors approved a compensation package for a senior
          executive whereby he will receive commission on funds raised through First
          Energy Advisors. The commission schedule was as follows: 5% paid on the
          first $1
          million, 4% on the second $1 million, 3% on the third $1 million, 2% on
          the
          fourth million and 1% on all money raised afterward. During the year, the
          following amounts were paid to the Senior Executive: $51,140(2003 -
          $29,735).
  This
                    senior executive was not re-appointed as a Director at the Shareholder
                    Meeting held on October 22, 2004. At a Board Meeting subsequent
                    to the
                    year-end, the Board terminated this compensation
                    package.
 
 **6.**
                **INCOME
                    TAXES**
 
 The
                    Company has tax non-capital loss carryforwards of approximately
                    $5,449,000. If unused, the tax losses will expire as
                    follows:
 
 2005
                
                $
                6,0002006
                
                
                61,0002007
                
                
                188,0002008
                
                
                294,0002009
                
                
                323,0002010
                
                
                1,734,0002014
                
                
                2,843,000
 
 In
                    addition, the Company has undeductible scientific research and
                    development
                    expenditures amounting to $1,520,417, which have no
                    expiry.
 
 Investment
                    tax credits recorded during the year as a reduction of expenses
                    aggregated
                    to $203,626 (2003 - $172,959).
 
 
 F-15
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004 (Canadian
                      Dollars)
 
 **6.**
                    **INCOME
                        TAXES**(continued)
 
 The
                    Company’s computation of income tax recovery is as
                    follows:
 
 **2004**
                  
                  **2003**
                  
                  **2002**Loss
                      before income taxes
                  
                  
                  ($3,462,257
                  )
                  
                  ($2,206,969
                  )
                  
                  ($
                      743,472
                  )Statutory
                      income tax rate
                  
                  
                  36.12
                  %
                  
                  35.12
                  %
                  
                  33.62
                  %Income
                      tax recovery at statutory rate
                  
                  
                  (
                      1,250,567
                  )
                  
                  (
                      775,088
                  )
                  
                  (
                      287,129
                  )Non-deductible
                      expenses
                  
                  
                  125,285
                  
                  
                  114,832
                  
                  
                  33,742Effect
                        of income tax rate changes on futureincome taxes
                  
                  
                  --
                  
                  
                  59,360
                  
                  
                  19,547Change
                      in valuation allowance and other items
                  
                  
                  1,125,282
                  
                  
                  600,896
                  
                  
                  233,840Income
                      tax expense
                  
                  $
                  --
                  
                  $
                  --
                  
                  $
                  --
  Components
                        of the Company’s net future income tax assets
                        are:
  Non
                        capital losses ($5,449,000 X 0.3612)
                    
                    $
                    1,968,179
                    
                    $
                    982,658
                    
                    $
                    354,532Scientific
                        research and development expense($1,520,417
                        X 0.3612)
                    
                    
                    549,175
                    
                    
                    273,234
                    
                    
                    300,464Valuation
                        allowance
                    
                    
                    (
                        2,517,354
                    )
                    
                    (
                        1,255,892
                    )
                    
                    (
                        654,996
                    )Net
                        future income tax asset
                    
                    $
                    --
                    
                    $
                    --
                    
                    $
                    --
 
 
 **7.**
                **SHARE
                    CAPITAL AND CONTRIBUTED
                    SURPLUS**
 
 a)
                  **Share
                      capital**
 
 Share
                    capital consists of the following:
 
 **Authorized
                    (see note below)**
 Unlimited
                    common shares
 10,000,000
                    preferred shares
 
 
 F-16
 **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**
 
 **2004**
                
                **2003**
                
                **2002****Common
                    Shares**
                
                **Common
                    Shares**
                
                **Common
                    Shares**Issued
                    at January 1
                
                
                19,230,425
                
                $
                3,343,853
                
                
                16,106,403
                
                $
                2,525,239
                
                
                12,936,178
                
                $
                1,979,201Issued
                  during year-
                      in exchange 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 forconsulting fees and expenses from related
                      parties
                
                
                586,592
                
                
                332,360
                
                
                412,825
                
                
                266,247
                
                
                657,925
                
                
                207,456-
                      In repayment ofadvance 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
                
                
                171,7817,086,126
                
                
                2,883,221
                
                
                3,124,022
                
                
                818,614
                
                
                3,170,225
                
                
                546,038Balance
                      as atDecember 31
                
                
                26,316,551
                
                $
                6,227,074
                
                
                19,230,425
                
                $
                3,343,853
                
                
                16,106,403
                
                $
                2,525,239
 
 
 F-17
 **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.
 
 Name
                
                Date
                
                #
                    of Shares
                
                $
                    Value of
                  Shares
                
                Services
                    Performed**Macnor
                    Corp**
                
                27-Mar-02
                
                164,125
                
                52,520.00
                
                Professional
                    Services MC25002-Jul-02
                
                98,775
                
                30,000.00
                
                Company
                    controlled by Director & Officer18-Oct-02
                
                37,800
                
                12,000.00**Total**
                
                
                
                **300,700**
                
                **94,520.00****G.
                    Emerson**
                
                27-Mar-02
                
                42,750
                
                14,000.00
                
                Consulting
                    - Administration02-Jul-02
                
                74,000
                
                2,484.00
                
                Director18-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
 
 
 F-18
 **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.
 
 Name
                
                Date
                
                #
                    of Shares
                
                $
                    Value of Shares
                
                Services
                    Performed**Macnor
                    Corp**
                
                10-Jan-03
                
                26,775
                
                12,000.00
                
                Professional
                    Services MC25008-May-03
                
                14,640
                
                12,000.00
                
                Company
                    controlled by Director & Officer16-Jul-03
                
                18,200
                
                13,000.0028-Oct-03
                
                20,200
                
                15,000.00**Total**
                
                
                
                **79,815**
                
                **52,000.00****G.
                    Emerson**
                
                10-Jan-03
                
                76,620
                
                35,245.20
                
                Consulting/Administration10-Jan-03
                
                23,190
                
                10,654.62
                
                Director08-May-03
                
                49,015
                
                40,190.0008-May-03
                
                9,145
                
                7,500.0016-Jul-03
                
                10,500
                
                7,500.0011-Aug-03
                
                2,100
                
                1,489.6711-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
                    Consulting08-May-03
                
                30,490
                
                25,000.00
                
                Company
                    controlled by Director & Officer16-Jul-03
                
                35,000
                
                25,000.0028-Oct-03
                
                20,200
                
                15,000.0016-Dec-03
                
                35,000
                
                22,332.00**Total**
                
                
                
                **141,290**
                
                **96,563.00**
 
 
 F-19
 **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.
 
 Name
                
                Date
                
                #
                    of Shares Issued
                
                Value
                    of Shares
                
                Services
                    Performed**Macnor
                    Corp**
                
                Q4-03
                
                17,565
                
                15,000.00
                
                Professional
                    Services MC250Q1
                
                50,986
                
                36,455.00
                
                Company
                    controlled by Director & OfficerQ2
                
                92,855
                
                39,000.00Oct.
                    6
                
                42,430
                
                27,000.00Dec.
                    10
                
                62,427
                
                27,000.00**Total**
                
                
                
                **266,263**
                
                **144,455.00****G.
                    Emerson**
                
                Q4-03
                
                34,820
                
                29,735.00
                
                Consulting
                    - AdministrationQ1
                
                35,985
                
                25,729.00
                
                DirectorQ2
                
                420
                
                175.00Oct.
                    6
                
                13,650
                
                8,678.76Dec.
                    10
                
                33,157
                
                17,125.29**Total**
                
                
                
                **118,032**
                
                **81,443.05****D.
                    Ramm**
                
                Q4-03
                
                9,515
                
                8,125.00
                
                Managing
                    DirectorQ1
                
                11,365
                
                8,125.00Q2
                
                19,345
                
                8,125.00Oct.
                    6
                
                12,770
                
                8,125.00Dec.10
                
                4,450
                
                1,922.04**Total**
                
                
                
                **57,445**
                
                **34,422.04****Fortius**
                
                Q4-03
                
                17,565
                
                15,000.00
                
                Financing
                    ConsultingQ1
                
                0
                
                --
                
                Company
                    controlled by Director & OfficerQ2
                
                29,765
                
                12,500.00Oct.
                    6
                
                19,650
                
                12,500.00Dec.10
                
                28,900
                
                12,500.00**Total**
                
                
                
                **95,880**
                
                **52,500.00****J.
                    Nor**
                
                
                
                6,715
                
                4,800.00
                
                Director
                    & Officer - Expense Recovery6,715
                
                4,800.00104,070
                
                41,600.00**Total**
                
                
                
                **117,500**
                
                **$
                    51,200.00****G.
                    Crawford**
                
                Q4-03
                
                3,358
                
                4,435.00
                
                Director
                    - Expense Recovery5,195
                
                2,400.003,358
                
                2,400.00Q2
                
                2,145
                
                900.00Oct.
                    6
                
                22,315
                
                14,900.0052,035
                
                20,800.00Dec.
                    10
                
                1,387
                
                600.00**Total**
                
                
                
                **89,793**
                
                **45,735.00****D.
                    Blenkarn**
                
                
                
                6,715
                
                4,800.00
                
                Former
                    Director - Expense Recovery6,715
                
                4,800.00104,070
                
                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**
   F-20
 **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**:
  **2004**
                
                **2003**
                
                **2002**Contributed
                    surplus, beginning of year
                
                $
                2,048,342
                
                $
                931,582
                
                $
                391,378Consulting
                      and professional fees paid inoptions to
                      non-employees
                
                
                192,481
                
                
                131,063
                
                
                83,354Stock
                    based compensation to employees
                
                
                140,892
                
                
                188,377
                
                
                --Proceeds
                    on issuance of warrants
                
                
                6,110
                
                
                --
                
                
                --Issuance
                    of warrants
                
                
                628,822
                
                
                797,320
                
                
                456,850Contributed
                    surplus, end of year
                
                $
                3,016,647
                
                $
                2,048,342
                
                $
                931,582
 
 d)
                **Common
                    stock issued for cash**
 
 Pursuant
          to a subscription agreement dated February 8, 2002, with an accredited
          investor
          as defined under the laws of the province of Ontario, the Company issued
          as a
          private placement, 125,000 units, comprising one common share and one common
          share purchase warrant each, for an aggregate purchase price of $25,000
          (U.S.).
           The common share purchase warrants are exercisable up to February
          8, 2005,
          each entitling the holder to purchase one common share at $ 0.50 (U.S.)
          per
          share.
 
 In
                    accordance with the terms of a financing agreement dated November
                    7, 2002,
                    with a Canadian company, the Company had granted to it an option
                    to
                    purchase 500,000 common shares at a price of $0.20 (U.S.) per
                    share,
                    expiring on February 15, 2003. The option was fully exercised
                    on February
                    13, 2003 for proceeds of $100,000
                    (U.S.).
 
 
 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.
 
 F-21
 **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.
 
  F-22
 **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.
 
 
 F-23
 **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.
 
 
 F-24
 **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.
 
 
 F-25
 **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:
 
 
 F-26
 **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****Options
                    For**
                
                **Average****Common**
                
                **Exercise****Shares**
                
                **Price
                    U.S.$**Balance,
                    December 31, 2001
                
                
                2,400,000
                
                
                0.33Options
                    granted in 2002
                
                
                1,725,000
                
                
                0.23Options
                    exercised in 2002
                
                
                --
                
                
                --Options
                    forfeited in 2002
                
                
                (500,000
                )
                
                0.20Balance,
                    December 31, 2002
                
                
                3,625,000
                
                
                0.30Options
                    granted in 2003
                
                
                580,000
                
                
                0.52Options
                    exercised in 2003
                
                
                (
                    600,000
                )
                
                0.22Options
                    terminated in 2003
                
                
                (250,000
                )
                
                0.40Balance,
                    December 31, 2003
                
                
                3,335,000
                
                
                0.34Options
                    granted in 2004
                
                
                903,840
                
                
                0.36Options
                    exercised in 2004
                
                
                (1,002,500
                )
                
                0.29Options
                    forfeited or terminated in 2004
                
                
                (312,500
                )
                
                0.44Balance,
                    December 31, 2004
                
                
                2,943,840
                
                
                0.35
 
 
 F-27
 **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****Options
                    For**
                
                **Average****Common**
                
                **Exercise****Shares**
                
                **Price
                    U.S.$**Exercisable
                    at December 31, 2002
                
                
                2,400,000
                
                
                0.32Exercisable
                    at December 31, 2003
                
                
                2,775,000
                
                
                0.30Exercisable
                    at December 31, 2004
                
                
                2,343,840
                
                
                0.35
  The
                    following table summarizes information about the Company’s stock options
                    outstanding as at December 31, 2004:
 
 **Weighted****Number**
                
                **Average**
                
                **Weighted**
                
                **Number**
                
                **Weighted****Exercise**
                
                **Outstanding
                    at**
                
                **Remaining**
                
                **Average**
                
                **Exercisable**
                
                **Average****Price**
                
                **December
                    31,**
                
                **Contractual**
                
                **Share
                    Price**
                
                **December
                    31,**
                
                **Share
                    Price****U.S.$**
                
                **2004**
                
                **Life
                    in Years**
                
                **U.S.$**
                
                **2004**
                
                **U.S.$**0.17
                    - 0.25
                
                
                1,160,000
                
                
                1.99
                
                
                0.22
                
                
                1,160,000
                
                
                0.220.26
                    - 0.50
                
                
                1,453,840
                
                
                3.95
                
                
                0.41
                
                
                853,840
                
                
                0.450.51
                    - 0.63
                
                
                330,000
                
                
                1.92
                
                
                0.54
                
                
                330,000
                
                
                0.542,943,840
                
                
                
                
                
                
                
                
                2,343,840
 
 f)
                **Common
                    share purchase warrants**
 
 At
                    December 31, 2002, the Company had a total of 2,212,500 common
                    share
                    purchase warrants issued. These warrants had expiry dates ranging
                    from
                    September 2004 to November 2007. The weighted average exercise
                    price of
                    the warrants was $0.50 (U.S.).
 
 As
                    at December 31, 2003, the Company has a total of 4,746,615 common
                    share
                    purchase warrants issued. These warrants have expiry dates ranging
                    from
                    September 2004 to November 2007. The weighted average exercise
                    price of
                    the warrants was $0.63 (U.S.).
 
 On
                    December 9, 2004, the Company issued 500,000 warrants to a director
                    to
                    purchase 500,000 common shares at a strike price of $0.37 U.S.,
                    expiring
                    on December 9, 2007, for proceeds of $6,110. This was subject
                    to the
                    director raising an agreed upon amount of
                    financing.
   F-28
 **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:**
 
 **Recipient**
                
                **Issue
                    Date**
                
                **Expiry
                    Dt.**
                
                **#
                    Warrants**
                
                **Exercise
                    Price**Schloo
                    Family Trust
                
                
                08/02/2002
                
                
                08/02/2005
                
                
                125,000
                
                $
                US
                    0.50Kevin
                    Thomas Little
                
                
                24/04/2002
                
                
                24/04/2005
                
                
                12,500
                
                $
                US
                    0.50Anthony
                    Durkacz (Director)
                
                
                24/04/2002
                
                
                24/04/2005
                
                
                112,500
                
                $
                US
                    0.50Wintser
                    Investments Ltd.
                
                
                14/06/2002
                
                
                14/06/2007
                
                
                487,500
                
                $
                US
                    0.50Shelley
                    Blechman
                
                
                17/07/2002
                
                
                17/07/2007
                
                
                100,000
                
                $
                US
                    0.50661399
                    Ontario Inc.
                
                
                01/11/2002
                
                
                01/11/2007
                
                
                50,000
                
                $
                US
                    0.50Wintser
                    Investments Ltd.
                
                
                21/11/2002
                
                
                21/11/2005
                
                
                100,000
                
                $
                US
                    0.50661399
                    Ontario Inc.
                
                
                30/11/2002
                
                
                30/11/2007
                
                
                450,000
                
                $
                US
                    0.50661399
                    Ontario Inc.
                
                
                30/11/2002
                
                
                30/11/2005
                
                
                175,000
                
                $
                US
                    0.50661399
                    Ontario Inc.
                
                
                31/12/2002
                
                
                31/12/2005
                
                
                325,000
                
                $
                US
                    0.50
 
 **2,750,744
          warrants were issued in 2003 to third parties as follows:**
 
 **Recipient**
                
                **Issue
                    Date**
                
                **Expiry
                    Dt.**
                
                **#
                    Warrants**
                
                **Exercise
                    Price**The
                    Taylor Made Mgmt Corp
                
                
                08/05/2003
                
                
                20/02/2006
                
                
                625,000
                
                $
                US
                    0.50PSSI
                    Paralegal Support Svcs
                
                
                30/07/2003
                
                
                30/07/2004
                
                
                500,000
                
                
                ExpiredPSSI
                    Paralegal Support Svcs
                
                
                30/07/2003
                
                
                30/07/2006
                
                
                500,000
                
                $
                US
                    1.00Dympna
                    Carroll
                
                
                12/09/2003
                
                
                12/09/2006
                
                
                384,615
                
                $
                US
                    0.85Donal
                    Carrol
                
                
                25/09/2003
                
                
                25/09/2006
                
                
                169,500
                
                $
                US
                    1.00The
                    Taylor Made Mgmt Corp-A
                
                
                29/12/2003
                
                
                29/12/2004
                
                
                50,000
                
                
                ExpiredThe
                    Taylor Made Mgmt Corp-B
                
                
                29/12/2003
                
                
                29/12/2006
                
                
                282,100
                
                $
                US
                    1.00PSSI
                    Paralegal Support Svcs
                
                
                30/12/2003
                
                
                21/01/2007
                
                
                239,529
                
                $
                US
                    1.00
 
 **4,386,232
          warrants were issued in 2004 to third parties as follows:**
  **825,000
          warrants expired in 2004 (550K issued in 2003 & 275K issued** **in
          2001)**
 
 
 F-29
 **ASTRIS
          ENERGI INC.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 December
          31, 2004 (Canadian
                      Dollars)
 
 **Recipient**
                
                **Issue
                    Date**
                
                **Expiry
                    Dt.**
                
                **#
                    Warrants**
                
                **Exercise
                    Price**The
                    Taylor Made Mgmt Corp-A
                
                
                31/03/2004
                
                
                01/10/2005
                
                
                651,450
                
                $
                US
                    0.80The
                    Taylor Made Mgmt Corp-B
                
                
                31/03/2004
                
                
                01/10/2005
                
                
                651,450
                
                $
                US
                    1.00PSSI
                    Paralegal Support Svcs
                
                
                26/03/2004
                
                
                26/03/2007
                
                
                236,035
                
                $
                US
                    1.00The
                    Taylor Made Mgmt Corp-A
                
                
                31/03/2004
                
                
                01/10/2005
                
                
                104,500
                
                $
                US
                    0.80The
                    Taylor Made Mgmt Corp-B
                
                
                31/03/2004
                
                
                01/04/2007
                
                
                104,500
                
                $
                US
                    1.00The
                    Taylor Made Mgmt Corp-A
                
                
                30/06/2004
                
                
                30/06/2007
                
                
                79,630
                
                $
                US
                    0.80Michael
                    Wright
                
                
                27/07/2004
                
                
                31/12/2005
                
                
                200,000
                
                $
                US
                    0.50Alternate
                    Energy Corp.
                
                
                27/07/2004
                
                
                31/12/2005
                
                
                1,000,000
                
                $
                US
                    0.50Donal
                    Carrol
                
                
                27/07/2004
                
                
                31/12/2005
                
                
                140,000
                
                $
                US
                    0.50Phillip
                    Patterson
                
                
                27/07/2004
                
                
                31/12/2005
                
                
                10,000
                
                $
                US
                    0.50The
                    Taylor Made Mgmt Corp-A
                
                
                27/07/2004
                
                
                31/12/2005
                
                
                344,167
                
                $
                US
                    0.50Belcor
                    Development Corpn.
                
                
                01/10/2004
                
                
                30/09/2007
                
                
                88,900
                
                $
                US
                    0.90Belcor
                    Development Trust
                
                
                01/10/2004
                
                
                30/09/2007
                
                
                88,900
                
                $
                US
                    0.90Phillip
                    Patterson
                
                
                08/10/2004
                
                
                30/09/2007
                
                
                20,000
                
                $
                US
                    0.90Belcor
                    Development Corpn.
                
                
                03/12/2004
                
                
                03/12/2007
                
                
                166,700
                
                $
                US
                    0.60Liikfam
                    Holdings Inc.
                
                
                09/12/2004
                
                
                09/12/2007
                
                
                500,000
                
                $
                US
                    0.37
 
 **Closing
          Balance as at December 31, 2004 = 8,524,476 Warrants**
 
 F-30
 **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**
 
 TotalCommon
                    Shares
                
                Contributed
                
                
                
                Shareholders’Number
                
                Amount
                
                Surplus
                
                Deficit
                
                Equity**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
                
                
                
                
                
                
                
                $
                628,631Consulting
                    & professionalfees
                    paid in options tonon-employees
                
                
                
                
                
                
                
                $
                83,354
                
                
                
                
                $
                83,354Issuance
                    of Warrants
                
                $
                (456,850
                )
                $
                456,850
                
                
                
                
                $
                --Consulting,
                    professionalfees
                    and expensesfrom
                    non-related parties
                
                
                506,050
                
                $
                166,801
                
                
                
                
                
                
                
                $
                166,801Consulting
                    fees andexpenses
                    from relatedparties
                
                
                657,925
                
                $
                207,456
                
                
                
                
                
                
                
                $
                207,456Net
                    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
                )
                $
                135,620Shares
                    issued for Cash
                
                
                2,456,615
                
                $
                1,193,165
                
                
                
                
                
                
                
                $
                1,193,165Consulting
                    & professionalfees
                    paid in options tonon-employees
                
                
                
                
                
                
                
                $
                131,063
                
                
                
                
                $
                131,063Issuance
                    of Warrants
                
                
                
                
                $
                (797,320
                )
                $
                797,320
                
                
                
                
                $
                --Stock
                    based compensationto
                    employees
                
                
                
                
                
                
                
                $
                188,377
                
                
                
                
                $
                188,377Consulting,
                    professionalfees
                    and expensesfrom
                    non-related parties
                
                
                209,082
                
                $
                136,122
                
                
                
                
                
                
                
                $
                136,122Repayment
                    of advances fromdirectors
                
                
                45,500
                
                $
                20,400
                
                
                
                
                
                
                
                $
                20,400Consulting
                    fees andexpenses
                    fromrelated
                    parties
                
                
                412,825
                
                $
                266,247
                
                
                
                
                
                
                
                $
                266,247Net
                    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
                
                
                
                
                
                
                
                $
                2,161,587Consulting
                    & professionalfees
                    paid in options tonon-employees
                
                
                
                
                
                
                
                $
                192,481
                
                
                
                
                $
                192,481Stock
                    based compensationto
                    employees
                
                
                
                
                
                
                
                $
                140,892
                
                
                
                
                $
                140,892Issuance
                    of Warrants
                
                
                
                
                $
                (628,822
                )
                $
                628,822
                
                
                
                
                $
                --Proceeds
                    on issuance ofwarrants
                
                
                
                
                
                
                
                $
                6,110
                
                
                
                
                $
                6,110Consulting,
                    professionalfees
                    and expensesfrom
                    non-related parties
                
                
                1,728,872
                
                $
                890,096
                
                
                
                
                
                
                
                $
                890,096Repayment
                    of debenture &accrued
                    interest fromdirectors
                
                
                293,751
                
                $
                128,000
                
                
                
                
                
                
                
                $
                128,000Consulting
                    fees andexpenses
                    fromrelated
                    parties
                
                
                586,592
                
                $
                332,360
                
                
                
                
                
                
                
                $
                332,360Net
                    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
 
 **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.
 
  F-31
 **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:
 
 **2004**
                
                **2003**
                
                **2002**Decrease
                    (increase) in receivables
                
                
                ($
                    2,544
                )
                $
                29,440
                
                $
                7,123Decrease
                    (increase in prepaid expenses
                
                
                27,088
                
                
                112,571
                
                
                (
                    148,727
                )Decrease
                    (increase) in investment tax creditsrefundable
                
                
                (
                    199,586
                )
                
                216,608
                
                
                (
                    216,608
                )Increase
                    (decrease) in payables and accruals
                
                
                (
                    143,303
                )
                
                (
                    10,913
                )
                
                149,568Increase
                    (decrease) in goods and servicesTax
                    payable
                
                
                (11,269
                )
                
                (26,547
                )
                
                (12,614
                )($329,614
                )
                $
                321,159
                
                
                ($221,258
                )
 
 **9.**
                **SEGMENTED
                    FINANCIAL INFORMATION**
 
 The
                    Company currently operates in a single reporting segment, being
                    the
                    design, development, manufacturing and sale of alkaline fuel
                    cells (AFCs)
                    and alkaline fuel cell systems, fuel cell and battery test loads
                    and
                    provides engineering and other services.  Substantially
                    all of the
                    Company’s long lived assets are located in Canada.  Revenue is
                    derived primarily from the sale of goods and services to customers
                    located
                    as follows:
 
 **2004**
                
                **2003**
                
                **2002**Canada
                
                $
                7,508
                
                $
                7,008
                
                $
                591Czech
                    Republic
                
                
                4,310
                
                
                45,901
                
                
                140,575Rest
                    of the World
                
                
                76,980
                
                
                14,961
                
                
                39,002$
                88,798
                
                $
                67,870
                
                $
                180,168
 
 
 F-32
 **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
                      $1.00.
   F-33
 **ASTRIS
              ENERGI INC.**
 **(A
              Development Stage Company)**
 **Notes
              to the Consolidated Financial Statements**
 December
              31, 2004 (Canadian
                          Dollars)
  The
                    following amounts are based on that valuation in
                    CDN$:
  Current
                    assets
                
                $
                150,041Property,
                    plant and equipment
                
                
                570,564Technology
                
                
                1,520,847Total
                    assets acquired
                
                
                2,241,452Less:
                    Current liabilities assumed
                
                
                (32,452
                )Net
                    assets acquired
                
                $
                2,209,000
 
 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
                
                $
                569,027Property
                    and equipment
                
                
                607,010Technology
                
                
                1,520,847$
                2,696,884
 
 **12.**
                **SUBSEQUENT
                    EVENTS**(continued)
 
 **Liabilities**Current
                
                $
                288,282**Shareholders’
                    Equity**Share
                    capital
                
                
                8,090,419Contributed
                    surplus
                
                
                3,270,647Deficit
                
                
                (8,952,464
                )2,408,602$
                2,696,884
 
 
 F-34
 **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
                
                
                954,344General
                    and administrative
                
                
                2,195,430Interest
                    expense
                
                
                7,000Professional
                    fees
                
                
                243,077Amortization
                
                
                153,1663,553,017Net
                    loss for the year
                
                
                ($3,430,043
                )
  **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***
   F-35
 **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.
 
 
 F-35