UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934.

OR

XANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004.

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO _________________.

Commission file number: 0-30052

CARMANAH TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

Province of Alberta

(Jurisdiction of incorporation or organization)

925 West Georgia Street, Suite 1304, Vancouver, British Columbia, Canada, V6C 3L2

(Address of principal executive offices)

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

|Title of each Class |  | Name of each exchange on which registered
|------------------- |  | -----------------------------------------
|                    |  |                                          



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

Common shares without par value

(Title of Class)

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



(Title of Class)



Number of outstanding shares of each of the Corporations classes of capital or common stock as of the period covered by the annual report.As of December 31, 2004, there were 31,915,309 common shares issued and outstanding.









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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Not Applicable



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

Item 17 X



Item 18













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TABLE OF CONTENTS





GLOSSARY OF TERMS

3

NOTE REGARDING FORWARD-LOOKING STATEMENTS

4

PART I

5

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

5

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

5

ITEM 3.

KEY INFORMATION

5

A.

Selected Financial Data

6

B.

Capitalization and Indebtedness

8

C.

Reasons for the Offer and Use of Proceeds

8

D.

Risk Factors

8

ITEM 4.

INFORMATION ON THE COMPANY

14

A.

History and Development of the Corporation

14

B.

Business Overview

17

C.

Organizational Structure

19

D.

Property, Plants and Equipment

20

Item 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

22

A.

Operating Results

22

B.

Liquidity and Capital Resources

25

C.

Research and Development, Patents and Licenses, Etc.

26

D.

Trend Information

28

E.

Off-Balance Sheet Arrangements

28

F.

Tabular Disclosure of Contractual Obligations

28

Item 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

28

A.

Directors and Senior Management

28

B.

Compensation

32

C.

Board Practices

35

D.

Employees

36

E.

Share Ownership

36

Item 7.

Major SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

39

A.

Major Shareholders

39

A.1.a

Holdings by Major Shareholders

39

A.2

Canadian Share Ownership

39

A.3

Control of the Corporation

40

A.4

Change in Control Arrangements

40

B.

Related Party Transactions

41

C.

Interests of Experts and Counsel

41

Item 8.

FINANCIAL INFORMATION

41

A.

Consolidated Statements and Other Financial Information

41

B.

Significant Changes

42

Item 9.

THE OFFER AND LISTING

42

A.

Offer and Listing Details

42

B.

Plan of Distribution

43

C.

Markets

43

D.

Selling Shareholders

43

E.

Dilution

43

F.

Expenses of the Issue

44

Item 10.

ADDITIONAL INFORMATION

44





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A.

Share Capital

44

B.

Memorandum and Articles of Association

44

C.

Material Contracts

47

D.

Exchange Controls

47

E.

Taxation

48

F.

Dividends and Paying Agents

58

G.

Statements by Experts

58

H.

Documents on Display

58

I.

Subsidiary Information

58

Item 11.

quantitative and qualitative disclosures about market risk

58

Item 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

60

PART II

60

Item 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

60

Item 14.

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

60

ITEM 15.

controls and procedures

60

ITEM 16.

61

ITEM 16A.

Audit Committee Financial Expert

61

ITEM 16B.

Code of Ethics

61

ITEM 16C.

Principal Accountant Fees and Services

61

ITEM 16D.

Exemptions From The Listing Standards For Audit COMMITTEES

62

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

62

PART III

62

Item 17.

Financial Statements

62

Item 18.

Financial Statements

63

Item 19.

Exhibits

63

SIGNATURE

65









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GLOSSARY OF TERMS



|ABCA                    | The Business Corporations Act (Alberta).                                                                                                                               
|----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AVVA                    | AVVA Technologies Inc., a wholly owned subsidiary of the Corporation, incorporated under the laws of the Province of Alberta.                                          
|Board                   | Board of Directors of the Corporation.                                                                                                                                 
|Corporation or Carmanah | Carmanah Technologies Corporation (formerly Andina Development Corporation), a corporation incorporated pursuant to the Business Corporations Act (Alberta).           
|CSI                     | Carmanah Signs Inc. (formerly AVVA Light Corp.), a wholly owned operating subsidiary of AVVA Technologies Inc., incorporated under the laws of the Province of Alberta.
|CTI                     | Carmanah Technologies Inc., a wholly owned operating subsidiary of the Corporation, incorporated pursuant to the Corporation Act (British Columbia).                   
|Directors               | the Directors of Carmanah Technologies Corporation, formerly Andina Development Corporation.                                                                           
|Exchange                | means the TSX Venture Exchange Inc., formerly the Canadian Venture Exchange.                                                                                           
|GAAP                    | Generally accepted accounting principles.                                                                                                                              
|ICA                     | Investments Canada Act.                                                                                                                                                
|LED                     | Light-emitting diodes.                                                                                                                                                 
|                        |                                                                                                                                                                        



Words importing the singular number only include the plural and vice versa, and words importing any gender include all genders.





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NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for statements of historical fact, certain information contained in this Annual Report constitutes forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as expects or does not expect, is expected, anticipates or does not anticipate, plans, estimates, predicts, potential, continue, believe or intends, or stating that certain actions, events or results may, could, should, would, might or will be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements.  Such statements are included, among other places, in this document under the headings Key Information, Information on the Company and Operating and Financial Review and Prospects.



Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Carmanahs actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements.  Such factors include, but are not limited to, the following: Carmanahs limited operating history; exchange rate fluctuations; Carmanahs dependence upon key personnel; Carmanahs product recognition and development of markets; Carmanahs dependence upon outside agents and distributors; Carmanahs dependence upon the successful expansion of its marketing, sales, support and service organizations; competition; risks associated with field testing and resolution of product deficiencies; risks associated with technological change; Carmanahs potential additional capital requirements; Carmanahs history of no dividends; Carmanahs reliance upon technological innovation; Carmanahs protection of its patents and proprietary rights; the potential additional disclosure requirement for trades involving Carmanahs common shares; the potential difficulty of enforcing civil liabilities against Carmanah or its officers or directors under U.S. federal securities laws; potential product liability claims and other risk and uncertainties described elsewhere in this annual report and under the heading Risk Factors beginning on page 8 of this annual report.



Although Carmanah believes that the expectations reflected in its forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance, achievements or other future events.  Moreover, neither Carmanah nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements.  Carmanah is under no duty to update any of these forward-looking statements after the date of this report.  You should not place undue reliance on these forward-looking statements.







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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

The Corporation was incorporated as Andina Development Corporation by a Certificate of Incorporation issued pursuant to the provisions of the ABCA on March 26, 1996 with an authorized capital of an unlimited number of common shares without par value and an unlimited number of preferred shares, issuable in series. By a Certificate of Amendment dated November 18, 1999, the Corporation restated its Articles of Incorporation. Pursuant to a Certificate of Amendment dated January 14, 2000, the Corporation changed its name to Bargain Castle International Limited and pursuant to a Certificate of Amendment dated February 10, 2000, the Corporation changed its name back to Andina Development Corporation. Pursuant to a Certificate of Amendment and Registration of Restated Articles dated June 19, 2001, the Corporation changed its name from Andina Development Corporation to Carmanah Technologies Corporation and consolidated its issued and outstanding Common Shares on the basis of one post consolidated share for each 1.5 pre-consolidated shares outstanding. All share information presented in this Annual Report gives retroactive effect to this share consolidation.



The initial business of the Corporation was that of mineral exploration. The Corporation was engaged directly and indirectly in the acquisition, exploration and, if warranted, development of natural resource properties and related undertakings



On June 21, 2001, the Corporation completed a reverse takeover and changed its name to Carmanah Technologies Corporation. See Item 4. Information on the Company  B. Business Overview. Except where otherwise indicated, the financial information in this Annual Report gives effect to the reverse takeover accounting principles.



On October 1, 2003, the Corporation acquired all of the issued and outstanding share capital, stock options and warrants of AVVA in exchange for share capital, stock options and warrants of the Corporation.



The Corporation designs, manufactures and distributes LED (light emitting diode) products, using solar power as an alternative energy source, for a wide range of industrial and commercial lighting applications.



The Corporations head office is located at Suite 1304  925 West Georgia Street, Vancouver, BC Canada V6C 3L2 and its contact person and numbers are:



Peeyush Varshney, LL.B, Corporate Secretary

Telephone: (604) 629-0264

Toll Free: 1-866-629-0264





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Fax:  (604) 682-4768



The Corporation has an unlimited number of common shares authorized without par value. As of December 31, 2004, the end of the Corporations most recent fiscal year, there were 31,915,309 common shares issued and outstanding.



The Corporations common shares trade on the TSX Venture Exchange under the symbol CMH, Berlin and Deutsche Börse AG Exchanges under the trading symbol QCX and in the United States, Carmanahs shares are quoted over-the-counter on the Pinksheet® under the symbol CMHXF.

A.

Selected Financial Data

This data has been derived from our audited financial statements, which have been prepared in accordance with Canadian GAAP and reconciled for material measurement differences to U.S. GAAP. Set forth in the following table are selected financial data with respect to the Corporations financial condition and results of operation for the years ended December 31, 2004, 2003, 2002, 2001 and 2000. The selected financial and operating information as at December 31, 2004 and 2003 and for each of the years in the three year period ended December 31, 2004 should be read in conjunction with the financial statements and notes thereto included elsewhere herein and in conjunction with Item 5 - Operating and Financial Review and Prospects. The selected financial data as at and for these periods have been extracted from, and are qualified by reference to the financial statements included herein at Item 17.  The selected financial data as at December 31, 2001 and 2000 and for the years ended December 31, 2001 and 2000 have been extracted from audited financial statements not included herein.



|Fiscal Years ended December 31,
|-------------------------------
|                               
|                               
|                               
|                               
|                               
|                               
|                               
|                               
|                               
|                               
|                               
|                               
|                               













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|Fiscal Years ended December 31,
|-------------------------------

| |                                               | 2004         | 2003         | 2002        | 2001        | 2000      
| | --------------------------------------------- | ------------ | ------------ | ----------- | ----------- | ----------
| | Shareholders Equity                          |              |              |             |             |           
| | Canadian GAAP                                 | $
16,610,425 | $
8,388,037  | $
2,518,176 | $
2,255,193 | $
849,684 
| | U.S. GAAP                                     | $
16,489,338 | $
8,310,468  | $
2,502,484 | $
2,036,682 | $
641,492 
| | Share capital                                 |              |              |             |             |           
| | Canadian GAAP                                 | $
16,322,119 | $
8,924,722  | $
3,256,336 | $
3,029,746 | $
947,739 
| | U.S. GAAP                                     | $
18,751,672 | $
10,952,690 | $
4,678,490 | $
3,290,047 | $
959,124 
| | Weighted average number of shares outstanding |              |              |             |             |           
| | Canadian GAAP                                 |              |              |             |             |           
| | Basic                                         | 30,116,949   | 22,826,155   | 19,650,884  | 15,460,951  | 10,408,202
| | Diluted                                       | 32,055,307   | 23,743,404   | 20,562,279  | 15,460,951  | 10,408,202
| | U.S. GAAP                                     |              |              |             |             |           
| | Basic                                         | 30,116,949   | 22,826,155   | 19,650,884  | 15,460,951  | 10,408,202
| | Diluted                                       | 32,055,307   | 23,743,404   | 20,562,279  | 15,460,951  | 10,408,202
| | Net Income/(Loss) Per Share1                  |              |              |             |             |           
| | Canadian GAAP                                 |              |              |             |             |           
| | Basic and diluted                             | $
0.02       | $
(0.01)     | $
0.00      | $
(0.04)    | $
(0.01)  
| | U.S. GAAP                                     |              |              |             |             |           
| | Basic and diluted                             | $
0.00       | $
(0.04)     | $
(0.05)    | $
(0.06)    | $
(0.01)  



Exchange Rates

Unless otherwise indicated, all monetary references herein are denominated in Canadian Dollars. References to $ or Dollars are to Canadian Dollars and references to US$ or U.S. Dollars are to United States Dollars.



The following table sets forth, (i) for the five most recent financial years, the average rate of exchange for the Canadian dollar, expressed in U.S. dollars, calculated by using the average of the exchange rates on the last day for which data is available for each month during such periods; and (ii) the high and low exchange rate during the previous six months, in each case based on the noon buying rate in New City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York.



The Average Rate, calculated by using the average of the exchange rates on the last day of each month during the period, is set out for each of the periods indicated in the table below.





| | Year Ended December 31,
| | -----------------------
| |                        
| | Average for Period     







7





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The high and low exchange rates for each month during the previous six months are as follows:



| | Month Ended    
| | ---------------
| |                
| |                
| | High for Period
| | Low for Period 



As of December 31, 2004, the noon rate of exchange, as reported by the Federal Reserve Bank of New York for the conversion of United States dollars into Canadian dollars was US$0.8310 (US$1.00 = CDN$1.203).



As of May 20, 2005, the noon rate of exchange, as reported by the Federal Reserve Bank of New York for the conversion of United States dollars into Canadian dollars was US$0.7919 (US$1.00 = CDN$1.2627).

B.

Capitalization and Indebtedness

Not applicable.

C.

Reasons for the Offer and Use of Proceeds

Not applicable.

D.

Risk Factors

In addition to other information and other risk factors set forth elsewhere in this Annual Report, the following risk factors should be carefully considered in evaluating the Corporation and its business because such factors currently may have a significant impact on its business, operating results and financial condition.

Limited Operating History

The Corporation commenced its current operations in June 2001 and, therefore, has only a limited operating history upon which an evaluation of its business and prospects can be based. The Corporation had net income of $592,823 in the year ended December 31, 2004, and incurred a net loss of $126,394 in the year ended December 31, 2003.

In view of the rapidly evolving nature of the Corporations business and markets and limited operating history, the Corporation believes that period-to-period comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

Exchange Rate Fluctuations

Because the Corporations reporting currency is the Canadian dollar, its operations outside Canada face additional risks, including fluctuating currency values and exchange rates, hard currency shortages and





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controls on currency exchange. Although the Corporation currently engages in hedging activities and enters into foreign currency contracts in an attempt to reduce the Corporations exposure to foreign exchange risks, the declining US dollar reduced the Corporations reported revenues by approximately $1 million during the fiscal year ended December 31, 2004.  Further, to the extent the Corporation has operations outside Canada, it is subject to the impact of foreign currency fluctuations and exchange rate charges on the Corporations reporting in its financial statements of the results from such operations outside Canada. Since such financial statements are prepared utilizing Canadian dollars as the basis for presentation, results from operations outside Canada reported in the financial statements must be restated into Canadian dollars utilizing the appropriate foreign currency exchange rate, thereby subjecting such results to the impact of currency and exchange rate fluctuations. In addition, these fluctuations in the rates of currency exchange may materially affect the Corporations over-all financial position and results of operations.

Dependence on Key Personnel

The success of the Corporation depends, to a significant extent, upon the efforts and abilities of its senior management team, particularly that of Dr. David Green and Art Aylesworth. The loss of any key personnel, or the inability to attract and retain additional skilled employees could have a material adverse effect on the Corporations business, operating results and financial condition.

Product Recognition and Development of Markets

To attract users, the Corporation must develop an identity and increase public awareness for the products it offers.  To increase product awareness, traffic and revenue, the Corporation intends to substantially increase its offline and on-line advertising and promotional efforts. The Corporation's marketing activities may, however, not result in increased revenue and, even if they do, any increased revenue may not offset the expenses incurred in building brand recognition.  The promotional efforts required to successfully implement the Corporations business plan may require expenditures beyond the financial resources available to the Corporation.  Moreover, despite these efforts, the Corporation may be unable to increase public awareness of its products, which would have an adverse effect on the results of the operations of the Corporation.



While the Corporation has historical sales of its products upon which it bases its sales estimates and has conducted internal research on the size of its target markets, its estimated market size in any given industry sector may be significantly smaller or may not exist at all.  To the knowledge of management, there are no independent market studies for solar LED lighting.  Investors will have to rely on the expertise and knowledge of management in targeting and identifying emerging markets for solar LED lighting products.

Dependence on Outside Agents and Distributors

The Corporations success will also depend, to a significant extent, upon the ability to develop strategic alliances with distributors. Furthermore, the initial market penetration for the Corporations products and services will heavily depend on the level of success of sales efforts.  There can be no assurance that such alliances will develop or that they will prove successful over the course of the Corporations future operations.

Dependence upon Successful Expansion of Marketing, Sales, Support and Service Organizations





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The Corporation is currently developing its marketing, sales, support and service organizations.  The Corporations future success depends upon the successful expansion of these organizations.  Although the Corporation believes that such initiatives ultimately will improve the Corporations operating results, to the extent related expenditures are incurred and revenues do not correspondingly increase the Corporations operating results may be materially and adversely affected.  There can be no assurance that these steps will be successful.

Competition

The Corporation operates in an industry which is new, rapidly evolving and could be highly competitive.  The level of competition is likely to increase as new participants enter the market. Many of the Corporations potential competitors may have longer operating histories, larger customer bases and significantly greater financial, sales, marketing, technical and other resources than the Corporation.  Moreover, these competitors may enter into strategic or commercial relationships with larger, more established and better financed companies.  Some of the Corporations competitors may be able to enter into these strategic or commercial relationships on more favourable terms. Additionally, these competitors may have research and development capabilities that would allow them to develop new or improved products that may compete with the products of the Corporation.  New technologies and the expansion of existing technologies may also increase competitive pressures on the Corporation.  These competitors could with concerted research effort imitate the features of the Corporations solar LED lighting resulting in a market dilution and reduced profit margins.

Risks Related to Field Testing and Resolution of Product Deficiencies

The Corporations new lighting products are subjected to rigorous testing procedures and the Corporation plans to conduct additional field tests in such fashion in the future.  These field tests could potentially encounter problems for any number of reasons such as the failure of the Corporations technology, the failure of the technology of others, the failure to combine these technologies properly.  Any problems or perceived problem with the solar LED lighting products and any other field tests could damage the Corporations reputation, the reputation of its products and the Corporations ability to secure contracts in the future.



Difficulties in product design, performance and reliability could result in lost revenue, delays in customer acceptance of the Corporations products and lawsuits and would be detrimental to the Corporations market reputation.  Serious defects are frequently found during the period immediately following the introduction of new products or enhancements to existing products.  The Corporations products and the products incorporated from third parties, are not error free.  Undetected errors or performance problems may be discovered in the future.  Moreover, known errors which the Corporation considers minor may be considered serious by its customers.  The Corporation may not be able to successfully complete the development of planned or future products in a timely manner or to adequately address product defects, which could harm the Corporations business and prospects.  In addition, product defects may expose the Corporation to product liability claims, for which the Corporation may not have sufficient product liability insurance.  A successful suit against the Corporation could harm its business and financial condition.

Technological Change

The technical features of the Corporations products will contribute to the marketability of the its products.  There can be no assurance that current competitors or new market entrants will not succeed in developing and introducing new or enhanced systems having technologies and features superior to, or





10



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more effective than, any technologies which have been or are being developed rendering the Corporations current and proposed products obsolete or less marketable.  Accordingly, the ability for the Corporation to compete will be dependent on the timely enhancement of its existing products as well as the development of future products.  There can be no assurance that the Corporation will be able to keep pace with technological developments, or that its products will not become obsolete.  Technological obsolescence of the existing technology remains a possibility, which would have a material adverse affect on the Corporations operations.

Additional Capital Requirements

The Corporation has and may continue to have capital requirements in excess of its currently available resources.  In the event the Corporations plans change, its assumptions change or prove inaccurate, or its capital resources in addition to projected cash flow, if any, prove to be insufficient to fund operations, the Corporation could be required to seek additional financing sooner than currently anticipated.  To the extent that any such financing involves the sale of the Corporations equity securities, the interests of the Corporations then existing shareholders could be substantially diluted. There can be no assurance that such financing will be available to the Corporation on terms acceptable to it, if at all.

No Dividends

The payment of dividends on the common shares of the Corporation is within the discretion of the Board of Directors and will depend upon the Corporations future earnings, its capital requirements, its financial condition, and other relevant factors.  The Corporation has not paid dividends in the past, and it does not currently intend to declare any dividends on its common shares for the foreseeable future.

Reliance on Technological Innovation

The Corporation is relying on its ability to continue technological innovation and leadership. This requires competent staff and adequate financing. In addition, the Corporation will rely on its sales, marketing and customer service efforts to ensure customer demand meets expenditures. If it is unsuccessful in this regard, its future business, operating results and financial condition may be adversely affected.

Patents and Proprietary Rights

The Corporations success will depend, in part, on its ability to obtain patents and maintain its existing intellectual property rights and failure to do so could result in the loss of the Corporations exclusivity or the right to use its technologies.  The Corporations success will also depend, in part, on its ability to operate without infringing on the proprietary rights of third parties or without having third parties circumvent the Corporations rights.  The Corporation relies upon patent, trade secret, trademark and copyright laws to protect its intellectual property. Patents, patent applications and trademarks are described in "Proprietary Protection" herein.  Some of the Corporations intellectual property is not covered by any patent or patent application.  The protection afforded by patent, trade secret, trademark and copyright laws is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent.  Therefore, there are no assurances that any of the Corporations patents will not be declared invalid, circumvented, challenged, rendered unenforceable or licensed to others or that any pending or future patent applications will be issued with the breadths of claim coverage sought by the Corporation, if issued at all.  In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries.





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It is also anticipated that the Corporation will seek to protect its proprietary intellectual property, including intellectual property that may not be patented or patentable, in part, by confidentiality agreements and, if applicable, inventors rights agreements with its employees and strategic partners.  There can be no assurances that these agreements will not be breached, that the Corporation will have adequate remedies for any such breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships.  It may be necessary for the Corporation to acquire certain intellectual property on the basis of a non-exclusive licence from third parties who may also license such intellectual property to others, including the Corporation's competitors.  If necessary, the Corporation may seek licenses under the patents or other intellectual property rights of others.



The Corporation's competitive position will depend in part upon its ability to obtain or maintain certain proprietary intellectual property used in its products.  This may be achieved in part by prosecuting claims against others who the Corporation believes are infringing the Corporation's rights and by defending claims of intellectual property infringement which may be brought against the Corporation by competitors.  While the Corporation is not currently engaged in any material intellectual property litigation, it could become subject to lawsuits in which it is alleged that it has infringed the intellectual property rights of others or commence law suits against others who it believes are infringing upon the Corporation's rights.  Involvement in intellectual property litigation could result in significant expense to the Corporation, adversely affecting the development of sales of the challenged product or intellectual property and diverting the efforts of the Corporation's technical and management personnel, whether or not such litigation is resolved in the Corporation's favour.

Product Liability

The Corporation products may expose it to product liability claims. A product liability claim brought against the Corporation or a third-party that the Corporation is required to indemnify, whether with or without merit, could have a material adverse effect on the Corporations business, financial condition, operating results and cash flows.

Shares of the Corporation are Considered Penny Stocks and are Subject

to the Penny Stock Rules

Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving "a penny stock." Subject to certain exceptions, a penny stock generally includes any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than U.S.$5.00 per share. The Corporations shares are expected to be deemed penny stock for the purposes of the Exchange Act.  The additional sales practice and disclosure requirements imposed upon brokers-dealers may discourage broker-dealers from effecting transactions in the Corporations shares, which could severely limit the market liquidity of the shares and impede the sale of the shares in the secondary market.



Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse in each of the two most recent fiscal years with a reasonable expectation of achieving such level in the current fiscal year) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.  In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Commission relating to





12



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the penny stock market, unless the broker-dealer or the transaction is otherwise exempt.  A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities.  Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.

Enforcement of Civil Liabilities

The Corporation is incorporated under the laws of Alberta, Canada and all of the Directors and the Corporations officers are residents of Canada.  Consequently, it may be difficult for United States investors to effect service of process within the United States upon the Corporation or upon such persons who are not residents of the United States, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended.  A judgment of a U.S. court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter.  There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or the Corporation predicated solely upon such civil liabilities.

Acquisitions or other Business Transaction

The Corporation may, when and if the opportunity arises, acquire other products, technologies or businesses involved in activities, or having product lines, that are complementary to the Corporations business. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of managements attention from other business concerns, risks associated with entering markets or conducting operations with which the Corporation has no or limited direct prior experience and the potential loss of key employees of the acquired company. Moreover, there can be no assurance that any anticipated benefits of an acquisition will be realized. Future acquisitions by the Corporation could result in potentially dilutive issuances of equity securities, the use of cash, the incurrence of debt and contingent liabilities, and write-off of acquired research and development costs, all of which could materially and adversely affect the Corporations financial condition, results of operations and cash flows.

Passive Foreign Investment Corporation

Certain United States income tax legislation contains rules governing passive foreign investment companies (PFIC) which can have significant tax effects on U.S. Holders of foreign corporations.  These rules do not apply to non-U.S. Holders. In the U.S., a PFIC is defined as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is passive income, which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the Corporation is a controlled foreign corporation or makes an election, adjusted tax basis) of its assets that produce or are held for the production of passive income is 50% or more.  The Corporation believes that it qualified as a PFIC for the fiscal year ended December 31, 2001 and may or may not have qualified as a PFIC in subsequent years due to changes in its assets and business operations. There can be no assurance that the Corporations determination concerning its PFIC status will not be challenged or that it will be able to satisfy record keeping requirements which will be imposed on it.  This could adversely impact a U.S. Holders tax situation.  Each U.S. Holder of the Corporation is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.  For further tax information, see Item 7  Taxation  Passive Foreign Investment Corporation.





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ITEM 4.

INFORMATION ON THE COMPANY

A.

History and Development of the Corporation

Name and Incorporation



The Corporation was incorporated as Andina Development Corporation (the Corporation) by a Certificate of Incorporation issued pursuant to the provisions of the ABCA on March 26, 1996 with an authorized capital of an unlimited number of common shares without par value and an unlimited number of preferred shares, issuable in series. By a Certificate of Amendment dated November 18, 1999, the Corporation restated its Articles of Incorporation. Pursuant to a Certificate of Amendment dated January 14, 2000, the Corporation changed its name to Bargain Castle International Limited and pursuant to a Certificate of Amendment dated February 10, 2000, the Corporation changed its name back to Andina Development Corporation. Pursuant to a Certificate of Amendment and Registration of Restated Articles dated June 19, 2001, the Corporation changed its name from Andina Development Corporation to Carmanah Technologies Corporation and consolidated its issued and outstanding Common Shares on the basis of one post consolidated share for each 1.5 pre-consolidated shares outstanding.



The initial business of the Corporation was in mineral exploration, engaging directly and indirectly in the acquisition, exploration and, if warranted, development of natural resource properties and related undertakings. Effective June 14, 2001, the Corporation completed a reverse takeover of Carmanah Technologies Inc. and on October 1, 2003, the Corporation acquired AVVA. See Item 4. Information on the Company - B. Business Overview.



The head office and principal business address of the Corporation is located at Suite 1304, 925 West Georgia Street, Vancouver, British Columbia, V6C 3L2, telephone number: (604) 629-0264, and the registered and records office of the Corporation is located at 1600 Canada Place, 407 2nd Street S.W., Calgary, Alberta, T2P 2Y3.



History of the Corporation



Pursuant to a prospectus dated November 21, 1996, the Corporation made an initial public offering of 1,400,000 Common Shares pursuant to the policies in respect of junior capital pool companies.  The Common Shares were listed and posted for trading on the Exchange (as it then was) on January 8, 1997 under the symbol ADZ.



At a shareholders meeting held on January 21, 1998, the shareholders of the Corporation approved the acquisition of 110 mining claims located in southwestern Newfoundland (referred to collectively as the Nitty Gritty Brook Property) as the "Major Transaction" of the Corporation.  Effective March 20, 1998, the Corporations common shares were removed from the junior capital pool board of the Exchange to the regular listings board.



Acquisitions and Dispositions



Nitty Gritty Brook Property



After having completed its IPO, pursuant to an asset purchase agreement dated October 1, 1997 with 685307 Alberta Inc., the Corporation acquired the Nitty Gritty Brook Property (the Property) for total consideration of $25,000 cash. The Property, consisting of 110 mineral claims (the Claims), is situated





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in southwestern Newfoundland along the northeast trend of the Cape Ray Fault Zone. The acquisition of the Property was an arm's length transaction.



On January 21, 1998, the Corporation received shareholder approval of the agreement pursuant to which the Corporation acquired the Property. The Exchange approved the transaction on March 20, 1998.



The Corporation did not have any exploration expenses during the years ended December 31, 1999 and 2000. During the fiscal year ended December 31, 1998, the Corporation spent $141,279 on exploration of the Property. In August 1998, the independent firm of Mercator Geological Services Limited (Mercator), of Dartmouth, Nova Scotia, collected a total of 47 rock samples and 146 stream concentrates as part of a detailed mapping and sampling program which commenced in July 1998. In October 1998, a total of 41 rock samples and 83 stream concentrates were collected as part of a follow-up mapping and sampling program undertaken on the Property. All samples were sent to Eastern Analytical in Springdale, Newfoundland, for fire assay gold and multi-element ICP analysis.



After further reviewing the results of the work conducted by Mercator on the Property, the Corporation determined that the Property did not warrant further exploration expenditures. During the year ended December 31, 2000, the Corporation wrote of all of its interest in the Property.



Bargain Castle International Discount Centres Inc.



On September 15, 1999, the Corporation entered into a letter of intent with Bargain Castle International Discount Centres Inc. (Bargain Castle), pursuant to which the Corporation made an offer to purchase (the Proposed Acquisition) all of the issued and outstanding shares of Bargain Castle.



Bargain Castle is a Vancouver-based private corporation which sells inventory purchased from liquidation sources to retail customers.  Bargain Castle buys goods from a variety of liquidation sources at prices that range from 10% to 50% of regular wholesale prices and sells the goods to its customers at prices that represent a 30% to 90% discount from regular retail prices.



On February 1, 2000, the Corporation announced that it would not be proceeding with the acquisition as the conditions required to be met for closing the acquisition had not been satisfied. Certain closing conditions imposed by the Exchange and certain conditions imposed by the Corporation under the takeover bid offer had not been satisfied. The Corporation loaned various funds to Bargain Castle and wrote-down these advances by $111,500 during the year ended December 31, 2003. The debt is evidenced and secured by promissory notes and a first charge over all the assets of Bargain Castle.



The Corporation is negotiating the collection of these advances and received payments of $13,000 (2003 - $ 28,500; 2002 - $35,500) during the year ended December 31, 2004.



Carmanah Technologies Inc.



On June 14, 2001, the Corporation entered into a share purchase agreement (the Share Purchase Agreement) with David R. Green as principal, CTI and all the registered holders of CTI Shares whereby the Corporation acquired (the Acquisition) all of the issued and outstanding Class A shares, Class B shares and Class C shares of CTI (collectively, the CTI Shares) in consideration of the issuance of 14,000,000 common shares of the Corporation. 100,000 common shares were issued as a finders fee for the Acquisition. The Acquisition constituted a Reverse Takeover of the Corporation pursuant to the Exchanges Policies.







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In conjunction with the Acquisition, the Corporation completed the following transactions as approved by the shareholders of the Corporation at its annual general and special meeting held on June 18, 2001:



a)

a private placement (described below);

b)

the election of five directors of the Corporation;

c)

the consolidation of the Corporations common shares on the basis of 1 post-consolidated common share for each 1.5 common shares previously outstanding;

d)

the change of the Corporations name to Carmanah Technologies Corporation; and

e)

various other matters, including the adoption of a formal stock option plan of the Corporation.



Private Placement

On June 20, 2001, the Corporation completed a brokered private placement pursuant to an Offering Memorandum of 2,334,934 special warrants (Special Warrants) at a price of $0.75 per Special Warrant for gross proceeds of $1,751,201. All Special Warrants have been exercised and each Special Warrant was comprised of one unit (a Unit). Each Unit was comprised of one Common Share and one-half of one common share purchase warrant (a Warrant).  Each whole Warrant in turn will entitle the holder thereof to purchase one additional Common Share of the Corporation at a price of $1.00 during the first twelve months after issuance and $1.25 per share thereafter to a maximum of 18 months from the date of issuance.



The Corporation paid the agent, Research Capital Corporation, the sponsor of the Acquisition, pursuant to an agency agreement dated June 21, 2001, a commission of 7.5% of the gross proceeds raised on the private placement and brokers special warrants to acquire that number of units equal to 10% of the total Special Warrants sold.  Canaccord Capital Corporation also participated in the private placement.



Consolidation of Common Shares and Name Change

As a result of the Acquisition, the Corporation changed its name to Carmanah Technologies Corporation and consolidated its common shares on the basis of one post consolidated common shares for each 1.5 common shares previously outstanding.



Pooling Agreement

In conjunction with the execution of the Share Purchase Agreement, a voluntary pooling agreement was also signed pursuant to which all common shares issued to Carmanah Management Corp. and all of the shares issued, directly or indirectly, to Hari B. Varshney, on the Acquisition would be subject to a voluntary six year escrow, which permits the release of 5% of the post-consolidated shares on closing of the Acquisition, 7.5% every six months thereafter (for the next eleven release dates) and 12.5% at the conclusion of the term.  In addition, all other holders of CTI Shares agreed to a voluntary three year escrow which permits the release of 10% of the shares on closing of the Acquisition and 15% every six months thereafter in addition to any statutory hold periods imposed on the common shares issued to these individuals. See Item 7. Major Shareholders and Related Party Transactions  B. Related Party Transactions  Escrow Securities.



AVVA Technologies Inc.



On October 1, 2003, the Corporation completed the acquisition of all of the issued and outstanding securities of AVVA.





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Pursuant to the terms of the acquisition agreement, former shareholders of AVVA received 1 common share of Carmanah for every 8 AVVA shares held on the acquisition date. Common share purchase warrants and options outstanding in AVVA as at the effective date were also exchanged on an 8 to 1 ratio into common share purchase warrants and options of Carmanah, respectively.



As a result of the acquisition, Carmanah issued approximately 3,055,477 common shares to former shareholders of AVVA. In addition, Carmanah reserved an aggregate of 116,797 common shares pursuant to the exercise of warrants and 307,813 common shares pursuant to the exercise of stock options granted in conjunction with the acquisition.



AVVA designs, manufactures and distributes energy-efficient, illuminated sign products for corporate identity, point-of-purchase sales, architectural and signage applications. The shares of AVVA were publicly traded on the TSX Venture Exchange under the symbol "AVY. As a result of the acquisition, the shares of AVVA were delisted from the Exchange effective at the close of trading on October 1, 2003.



The Corporation does not have any commitments for material capital expenditures other than the recently completed leaseholds and equipment purchases of $200,000 during the first quarter of 2005 in support of setting up manufacturing for the Corporations roadways signage products. The Corporation expects to incur capital expenditures in the next 12 months, as required to maintain ongoing operations, however, no significant expenditures are anticipated.



B.

Business Overview

Following completion of the Acquisition, the principal business of the Corporation is that of CTI as described below:



Name and Incorporation



Carmanah Technologies Inc. ("CTI") was incorporated by a Certificate of Incorporation issued pursuant to the provisions of the Company Act (British Columbia) on January 9, 1998. The head office of CTI is located at Pacific Marine Technology Centre, Building 4, 203 Harbour Road, Victoria, British Columbia, V9A 3S2, and the registered and records office is located at 1000 Canterra Tower, 400 Third Avenue S.W., Calgary, AB T2P 4H2.



Historical



While CTI was actually incorporated in 1998, the origins of the company date to 1993 with the establishment of Carmanah Research Ltd. by Dr. David Green and the awarding of a National Research Council grant in 1994 to develop a solar-powered anchor light.



During 1995 and 1996, the Science Council of Canada assisted with market studies that identified a number of opportunities for solar lighting technology using light-emitting diodes ("LEDs").  During this period, a number of prototypes were developed for various markets. During 1997, as a result of a small order from the U.S. Navy to produce buoy lights for the Nanoose torpedo testing range, Carmanah Research Ltd. began to produce and market marine lights.  The business potential for the marine lights gradually emerged, and CTI was incorporated in January 1998, to focus on this market opportunity. The assets related to solar LED lighting were transferred from Carmanah Research Ltd. to CTI at that time,





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and the name of Carmanah Research Ltd. was changed to Carmanah Management Corp. to reflect that company's new role as a management and holding company, rather than a research company.



General Business Description



Carmanah Technologies Inc. (Carmanah) is an award-winning manufacturer of proprietary solar-powered LED lighting products for a wide range of industrial and commercial applications.  The Corporation now has more than 90,000 solar-powered LED lighting products installed in 110 countries.



Carmanah's unique solar-powered LED lighting products can operate almost anywhere in the world, and they meet or exceed reliability and maintenance criteria developed for traditional lights connected to an electrical power grid. The key benefits to Carmanah's customers are simple installation, lower capital costs, zero energy costs and no maintenance or servicing.



Carmanah manufactures to ISO 9001:2000 quality assurance standards at its primary facilities in Victoria, BC, Canada. Carmanah also has additional sales operations in Calgary, AB, Toronto, ON, the United States and the United Kingdom.



Markets Served



Solar LED Roadway Lighting

(www.roadlights.com)



The applications for solar LED technology within the roadway industry worldwide are numerous. Carmanah has developed a number of hazard marking products, as well as intelligent lighting systems to manage pedestrian crosswalks and school zones. These systems are remote controlled and capable of annual pre-programming and wireless communications for synchronization.



Carmanah has also recently developed LED edge-lit illuminated traffic and street signs.  These products are hardwired, but utilize a fraction of the energy of traditional incandescent or fluorescent alternatives.  They are also extremely durable and require no maintenance for their entire lifespan.



Solar LED Aviation Lighting

(www.solarairportlights.com)



Carmanah's solar-powered LED lighting systems and proprietary patented "energy management systems" have proven to be a natural choice for many reasons within the world aviation markets.



During the recent deployment of US and British military operations in the Middle East, Carmanah was called upon to deliver a means to light both runways and taxiways in remote locations. With the endorsement of international military authorities, Carmanah's aviation lighting products are now being used at private and commercial airports as well.



Solar LED Marine Lighting

(www.solarmarinelights.com)



The concept of alternative energy products has long been understood and adopted by coast guards and waterway authorities worldwide, including the UK's Trinity House. Since 1994, with the introduction and advancements in ultra bright LED's, Carmanah has been designing and developing solar-powered LED marine lighting that are easy to install and required little or no maintenance. Carmanah is considered an





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innovator and leader within the long established maritime aids-to-navigation industry. The Corporation continues to be the only recognized manufacturer of integrated LED-based lights for the US Coast Guard.



Solar LED Transit Lighting

(www.transitlights.com)



Led by the ambitious efforts of London Transport, Carmanah participated in over two years of product design, field testing and analysis in the development of solar powered bus stops and bus shelters. The Corporation has effectively leveraged the expertise gained through its marine lighting roots, where robustness and reliability in difficult solar environments are essential. Carmanah offers solar-powered LED shelter and stop illumination products that operate in extreme latitudes and challenging urban environments.



Emerging Secondary Markets



Carmanahs solar-powered LED and LED edge-lit acrylic technologies have also been applied to numerous secondary markets, including:



·

Obstruction lighting (www.obstructionlights.com)

·

Point-of-purchase sign illumination (www.edgelitsigns.com)

·

Architectural sign illumination (www.architecture-signs.com)

·

Industrial worksite lighting  (www.railwaylights.com / www.markinglights.com)

·

Consumer products (www.addresslighting.com)

C.

Organizational Structure





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The Corporation has two wholly-owned subsidiaries:



1.

CTI, located at Building 4, 203 Harbour Road, Victoria, BC, Canada V9A 3S2; and

2.

AVVA, located at Suite 5-6025 - 12th Street S.E., Calgary, AB T2H 2K1.



CSI, AVVAs wholly owned subsidiary, is located at #5, 6025-12th Street SE, Calgary, AB  T2H 2K1.

D.

Property, Plants and Equipment

The Corporations corporate office currently shares approximately 5,337 square feet of office space at Suite 1304, 925 West Georgia Street, Vancouver, B.C., Canada with a number of other companies under a lease which expires November 30, 2010. The shared property provides office space to the Corporation for administrative and shareholder promotion purposes. See map below.



[annualreport002.gif]



The Corporation operates at the following locations:



1.

Out of two buildings comprising about 20,000 square feet located at the Pacific Marine Technology Centre, 203 Harbour Road, in Victoria, B.C.  The lease expires in September, 2006.  CTI is currently up to date with its lease payments.  Some office space in close proximity has been rented to accommodate overflow staffing. Total rent for all facilities is approximately $10,743 per month. See map below.







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[annualreport004.gif]

2.

Suite 5-6025 - 12th Street S.E., Calgary, AB is the address of AVVA and CSI.  This space comprises about 10,000 square feet. The lease expires in September, 2006.  The Corporation is currently up to date with its lease payments.  Total rent for this space is approximately $9,218 per month. See map below.

[annualreport006.gif]

Equipment

Carmanah presently owns all of its own equipment with the exception of some computer equipment which is leased from Konica Minolta Equipment Leasing. CTI has entered into leases with Konica Minolta commencing September 2003 for a twenty four month term. CSI also leases some printer/copiers from Citicorp Vendor Financing pursuant to lease documents commencing August 2002, for a thirty-six month term.





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ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of the financial condition, changes in financial condition and results of operations of the Corporation as at December 31, 2004 and 2003 and for its last three fiscal years ending December 31, 2004, 2003 and 2002 should be read in conjunction with the audited consolidated financial statements of the Corporation and related notes included herein. Unless expressly stated otherwise, all references to dollar amounts in this section are to Canadian dollars.



A reconciliation of the financial statements to U.S. GAAP is set forth in Note 17 of the audited December 31, 2004 consolidated financial statements included herein at Part IV  Item 17.  Refer to Note 17 for an itemized discussion and analysis of the material measurement differences between Canadian GAAP and U.S. GAAP.

A.

Operating Results

A comparison of the results of operations for the fiscal years ended December 31, 2004, 2003 and 2002 are as follows:



Year Ended December 31, 2004 as compared to Year Ended December 31, 2003



Carmanahs total revenues for the year ended December 31, 2004 increased 72% to $15,895,041, compared with $9,220,018 for the preceding year. Revenues were derived from the sale of its existing product line of solar-powered LED lighting illumination products to the marine, aviation, transit and roadways markets through CTI, as well as from the sale of LED edge-lit signs through CSI. Sales were sourced through a worldwide distribution network and direct sales efforts within these two operating subsidiaries. CTI contributed $13,305,702 to the Corporations overall revenues for the year ended December 31, 2004, as compared to $8,419,917 for the same period in 2003. CSI sales totaled $2,589,339 for the year.



While Carmanah is pleased with this exceptional growth in 2004, the decline of the US dollar continues to impact the Corporations top line revenues.  The Corporation worked to counteract this impact by entering into foreign exchange hedge contracts, by selling in alternative currencies, and by monitoring the volatile US dollar when preparing quotes on custom orders that provide flexibility from fixed pricing.  However, despite the actions and initiatives taken, the declining US dollar reduced the Corporations reported revenues for 2004 by approximately $1 million.



Also, the Corporations edge-lit sign business (acquired in October 2003) was slow to ramp up its sales in early 2004.  However, once the challenges facing this area of the Corporation were addressed (in second quarter), the Corporation saw positive results and increased sales momentum through the latter half of the year.  Revenue increased from $1 million in the first six months of 2004, to $1.589 million in the last six months of 2004, providing a total of $2.589 million for the year.



Management is pleased to announce that outstanding orders at the end of 2004 were at a record high of $1.6 million, indicating continued sales momentum into 2005.  This is an increase of 46% in the amount of outstanding orders at the end of 2004 compared to the previous year.



Cost of sales was $7,655,700 (48% of revenue) for the year ended December 31, 2004, resulting in a gross profit margin of 52%.  In comparison, cost of sales was $4,455,250 (48% of revenue) for the year ended December 31, 2003, resulting in a gross profit margin of 52%.  Cost of sales includes labor, material, material burden and other manufacturing costs.  The Corporations cost of sales and gross profit





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margins are affected by a number of variables, including:  ratio of direct sales to distributor sales, purchasing volumes and practices, and foreign exchange fluctuations. These factors are continually monitored to maintain gross profit margins above 50%.



Wages and benefits expense represents the Corporations Sales and Marketing, Operations, Finance and Administration departments.  For the year ended December 31, 2004, wages and benefits increased 67% to $3,509,101, compared with $2,095,609 in 2003.  The increase of $1,413,492 is the result of $555,000 in additional wage expenses from the AVVA acquisition, $319,035 stock-based compensation expense, and an increase in sales and administrative staff in support of overall sales growth.  As a percentage of sales, total wages and benefits for the 2004 represents 22% of sales, compared to 23% for 2003.



Office and administration expenses in 2004 were $1,423,744, representing a 69% increase over 2003 at $844,706.  The increase is the result of $228,000 in additional office and administrative expenses from the AVVA acquisition, as well as an overall increase in support of sales and personnel growth. As a percentage of sales, office and administration expenses remained unchanged from 2003 to 2004, at 9%.



Sales and marketing expenses in 2004 were $1,341,112, representing a 78% increase over 2003 at $753,360.  This increase of $587,752 is the result of $286,000 increased expenses resulting from the AVVA acquisition, as well as increased investment in emerging markets such as transit, aviation, roadways and LED edge-lit signage where returns are starting to be realized.  As a percentage of sales, sales and marketing expenses have remained at 8% for the years 2003 and 2004.



During 2004, research and development expenses of $959,842 (net of $71,228 grant and $316,000 SRED Investment Tax Credit) represented a 22% increase over $787,309 (net of $286,038 grant) in the previous year.  The grant was from Sustainable Development Technology Canada and reimbursed up to $500,000 for certain research and development costs incurred to develop and commercialize specific projects.  The final project milestone was completed on December 31, 2004 resulting in booking the final recovery of $71,228 against eligible project expenses.  The SRED Investment Tax Credits in the amount of $316,000 were the result of credits generated from research and development expenses, and recoverable as an offset to income taxes payable on CTIs taxable income.



The Corporations growth in research and development was the result of increased staffing levels in an effort to invest in the development of new product offerings, including solar-powered LED bus stops, shelters and crosswalks for new market sectors, as well as existing product enhancements.  As a percentage of sales, gross research and development expenses were 9% of sales, down from 12% for the same period in 2003.



Income tax expense in the amount of $114 is comprised of $316,000 current tax expense on CTI taxable income, less a $315,886 recovery generated by future income tax assets.



Net earnings for 2004 were $592,823 as compared to a loss of $126,394 for the same period in 2003.  In 2004, the Corporation retroactively adopted the fair value based method for stock-based compensation resulting in a decrease in 2003 net earnings previously reported from $22,843 to a loss of $126,394 for the year ended December 31, 2003.



Carmanah's cash and cash equivalents at December 31, 2004 were $901,411, compared to $1,693,069 at December 31, 2003.  This $791,658 decrease was primarily the result of $96,809 of cash used in operating activities and $7,475,144 of cash used in investing activities, plus $6,780,295 of cash provided by financing activities.  Net working capital at the end of 2004 was $11,759,089, with a current ratio of 4.6:1 and $13,755 of non-current debt obligations.





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The overall performance of Carmanah for 2004 was strong despite the fluctuations in the US dollar and slower than anticipated sales in the LED edge-lit sign market during the first half of its fiscal year.  The Corporation believes its continued sales growth year after year, healthy and stable gross margins, increased net profits, and strong balance sheet offer support for its ongoing strategy of aggressive business development in new markets, and position the Corporation to grow and expand into 2005 and beyond. See Item 3.D  Risk Factors.



Year Ended December 31, 2003 as compared to Year Ended December 31, 2002



Carmanah's total revenues for the year ended December 31, 2003 increased 42% to $9,220,018, compared with $6,468,899 for the preceding year.  Revenues were derived from the sale of its existing product line of solar powered light-emitting diode hazard and safety lights to marine, roadway and aviation markets, and from the sale of new products primarily consisting of the illuminated bus shelters and bus stops to transit markets.  The acquisition of AVVA, late in the fiscal year contributed to Q4 revenues, representing 8% of total 2003 sales.  Sales were sourced through a worldwide distribution network and direct sales efforts in these key market segments and territories.



While Carmanah continued to enjoy exceptional growth in 2003, the decline of the US dollar impacted the Corporation's revenues, as a significant portion of its sales were in US dollars. The US dollar declined from an average rate of 1.57 in year 2002 to an average rate of 1.40 in year 2003, resulting in a reduction in a foreign exchange loss of $290,456.



Outstanding orders at the end of 2003 were at a record high of $1.1 million.  This was approximately 14 times the outstanding orders at the end of 2002, and was the result of strong sales momentum in the later half of 2003, particularly in December.



Carmanah's gross profit margin was 51% of sales, compared to previous year's 56%.  The difference was linked to the shift in the US dollar.  The Corporation's costs of goods were sourced primarily in Canadian dollars.  Gross margin becomes affected when US dollar sales are booked at a declining exchange rate.  To mitigate the erosion of margins in 2003, Carmanah raised its pricing and sold in currencies other than the US dollar where possible.  The Corporation also took advantage of its revenue growth to negotiate more favourable volume pricing on component supply.



Wages and benefits expense represents Carmanah's Sales and Marketing, Operations and Finance departments.  For the year ended December 31, 2003, wages and benefits increased 36% to $2,095,609, compared with $1,541,881 in 2002.  This increase was the result of an increase in new hires to support sales growth.  As a percentage of sales, wages and benefits expense represents 21% of sales in 2003, compared with 23% of sales in 2002.  Carmanah had 26 full-time equivalents (FTE's) in these departments during fiscal 2003, compared with 23 FTE's in 2002.  Carmanah had 53 FTE's in the entire Corporation during fiscal 2003, compared with 41 FTE's in 2002.



Office and administration expenses in 2003 were $844,706, representing a 23% increase over 2002 at $684,531.  During the 2003 fiscal year, Carmanah was operating out of approximately 19,205 square feet, whereas the Corporation operated out of this total space for only the latter half of 2002.  The first half of 2002 comprised approximately 8,841 square feet.  The increase in space for the entire fiscal year 2003, as well as the increased staffing levels, resulted in higher rent, utilities and general office costs.  Given the sales growth experienced in 2003, however, the total office and administration expenses in 2003 actually decreased slightly as a percentage of sales to 9% of total sales in 2003, as compared to 11% of total sales in 2002.





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During 2003, research and development expenses of $787,309 represented a 45% increase over $543,051 in the previous year.  The continued investment in (1) research for existing product enhancements and (2) new product development has enabled Carmanah to turn out prototypes and products at a faster rate.  This ability to keep up with market demands for technology enhancements and new product offerings has rewarded the Corporation with its current sales momentum.  Carmanah will continue to be proactive with its investment in research and development as the Corporation works with key market segments on new opportunities.  As a percentage of sales, research and development expenses grew at a consistent level in 2003 over 2002, with total research and development expense for both years representing 8% of total sales.



Sales and marketing expenses in 2003 were $753,360, representing a 41% increase over 2002 at $533,041.  The Corporation continued to increase sales and marketing activities for new and existing product lines throughout its worldwide marketplace.  In addition, a significant portion of the overall sales and marketing investment was allocated to markets and products where the Corporation has identified future revenue opportunity.  Sales and marketing expense continued to grow as a percentage of sales at a consistent level, with sales and marketing expense representing 8% of total sales for both 2003 and 2002 fiscal years.



The Corporation recorded a net loss for 2003 of $126,394 compared to net earnings of $11,928 for 2002. There were two expense adjustments booked in 2003 that have no comparatives in 2002: a one-time write-down of a pre-reverse takeover receivable in the amount of $111,502, and an expense for stock-based compensation for stock options exercised issued to non-employees in the amount of $27,288.

B.

Liquidity and Capital Resources

The Corporation reported working capital of $11,759,089 (current ratio of 4.63:1) at December 31, 2004 compared to working capital of $4,168,728 (current ratio of 2.91:1) at December 31, 2003.



As at December 31, 2004, the Corporations primary source of liquidity included cash and cash equivalents of $901,411, short term investments of $6,850,000 and trades accounts receivables of $2,385,728.



The Corporation, through its subsidiaries, Carmanah Technologies Inc. and Carmanah Signs Inc., has credit facilities with the Royal Bank of Canada, which includes demand operating loans to a combined maximum of $1,050,000 at prime plus 0.75%. These credit facilities are secured by general security agreements, and guarantees and postponement of claims by the Corporation. The Corporation repaid in full its bank loan in the amount of $383,332 during the year and has not drawn on the operating line at the end of the year.



The following table outlines the Corporations contractual obligations as at December 31, 2004:



Less than

More than

Contractual Obligation

Total              
1 year           1-3 years       
3-5 years       5 years





Obligations under capital leases

$35,328             
$21,573            $13,755           
$Nil             $Nil









Lease commitments (1)

$493,897           
$312,892           $181,005           
$Nil            $Nil









Advisory agreement (2)

$70,000             
$70,000             
$Nil               
$Nil            $Nil



(1)The Corporation has entered into lease agreements for rental of premises and equipment.





25



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(2)The Corporation has entered into an advisory agreement witha company partially owned by an officer of the Corporation in the amount of $10,000 per month expiring July 2005.



The Corporation generated cash flows from operations of $1,040,201 before changes in non-cash working capital for the year ended December 31, 2004 as compared to $399,726 during the prior fiscal year. Cash flows during the year came from net earnings of $592,823 and non-cash items totaling $447,378. Net changes in non-cash working capital items utilized cash of $1,137,010 for the year ended December 31, 2004, bringing cash utilized for operating activities to $96,809.



During the year ended December 31, 2004, the Corporation invested $6,850,000 of its cash in short term investments, utilized $603,917 of its cash for leasehold improvements and for the purchase of computers and office equipment and utilized $21,227 of its cash for the purchase of intangible assets.



During the year ended December 31, 2004, the Corporation raised an aggregate of $7,813,684 from a private placement and various exercises of share purchase warrants, brokers warrants and stock options and utilized $503,153 of its cash for share issuance costs, consisting of commissions, legal fees and financing fees.



During the year ended December 31, 2004, the Corporation utilized an aggregate of $438,471 of its cash to repay in full its outstanding obligations including bank loan of $383,332 and long term debt of $55,139. During the year, the Corporation utilized $91,765 of its cash to make principal payments on its obligations under capital leases.



The Corporation believes that its cash and cash equivalents, short-term investments and cash from improved operations going forward will be sufficient to satisfy its immediate and future operating cash requirements



The other sources of funds potentially available to the Corporation are through the exercise of 2,716,222 outstanding stock options which expire between February 3, 2005 to November 12, 2009, the exercise of 1,604,674 share purchase warrants expiring August 19, 2005 and 80,838 brokers warrants expiring August 19, 2005.

C.

Research and Development, Patents and Licenses, Etc.

At the present time Carmanah Technologies has five proprietary technologies that it has protected, or is in the process of protecting, through patent procedures. All five patented technologies relate to Carmanahs core technology of solar-powered LED lighting. The inventors on the various patents vary, but all patents have been assigned to Carmanah Technologies Inc.



The first proprietary technology relates to the manufacture of unitized solar-powered LED lights in which electrolytic double-layer capacitors (rather than batteries) are used as the energy storage mechanism. This technology is patented in the United States ("A Light Assembly", patent 5,782,552, July 21, 1998), and in Europe (patent 0851989, Sept., 27, 2000) The European patent is ratified in the U.K, France, Italy, and Germany (as patent number 696 10 504.7-08).



The second proprietary technology relates to the manufacture of unitized, sealed solar LED lights in which batteries are the energy storage mechanism. Patents have been obtained in the U.S. ("Sealed Solar-Powered Light Assembly", patent number .6,013,985, January 11, 2000) and Canada (patent number 2,241,044)







26



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The third proprietary technology relates to a software algorithm that allows solar LED products to adapt their energy consumption to their solar environment, and therefore extends the range of use of a solar LED light to very poor solar illumination conditions.  A U.S. patent for this technology was issued on June 3, 2003, as "Automatic Light Control for Solar-Powered Lighting", U.S. patent number 6,573,659).



The fourth proprietary technology relates to a method of doming solar panels and integrating them into the lighting product. It specifically identifies three highways products in which this doming process is used. This patent is filed as a Patent Convention Treaty International Application serial number PCT/CA02/00574  Potted Domed Solar Panel Capsule and Traffic Warning Lamps Incorporating Same, April 22, 2002.



The fifth proprietary technology relates to providing solar-powered lighting at bus stops. A U.S. Provisional Patent, serial number 60/412,779, entitled Solar-Powered Bus Stop, was submitted on September 24, 2002.



Carmanah has trademark protection in Canada and the U.S. for solar powered lighting.



Management believes that CTI's current proprietary rights are sufficient to carry on its research and development activities for new lighting products, as currently contemplated.  Despite CTI's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of its technology or to obtain and use information that CTI regards as proprietary.  The policing of unauthorized use of any intellectual property is difficult and the extent of any such piracy is difficult to determine.  The laws of some foreign countries do not protect proprietary rights as fully as do the laws of Canada and the United States.  There can be no assurance that CTI's efforts to protect its proprietary rights in Canada and the United States or abroad will be adequate or that competition will not independently develop similar technology.



CTI is not aware that it is infringing any proprietary rights of third parties.  CTI cannot assure investors that third parties will not claim that CTI has infringed their intellectual property rights.  CTI may experience infringement claims in the future as the number of products and competitors in this industry segment grows and the functionality or products in different industry segments overlap.  Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management's attention and resources, cause product shipment delays, or require CTI to enter into royalty or licensing agreements.  Such royalty or licensing agreements, if required, may not be available on acceptable terms to CTI, if at all.  In the event of successful claim of patent infringement against CTI and CTI's failure or ability to license the infringed or similar technology, the business, operating results and financial condition of CTI would be materially adversely affected.



In 2002, CTI entered into a Contribution Agreement (the Agreement) with Sustainable Development Technology Canada.  Under the terms of the Agreement, CTI is to be reimbursed for certain research and development costs incurred to develop and commercialize specific projects to a maximum contribution of $500,000. At December 31, 2004, eligible research and development expenses of $71,228 (2003 - $286,038; 2002 - $142,739) have been offset by contributions received and receivable under this Agreement.



During the year ended December 31, 2004, the Corporation spent $959,842 (2003 - $787,309; 2002 - $543,051) for research and development, net of $71,228 grant and $316,000 SRED Investment Tax Credit). The final project milestone was completed on December 31, 2004 resulting in booking the final recovery of $71,228 against eligible project expenses. The SRED Investment Tax Credits in the amount





27



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of $316,000 were the result of credits generated from research and development expenses, and recoverable as an offset to income taxes payable on CTIs taxable income.

D.

Trend Information

The decline of the US dollar continues to impact the Corporations top line revenues. The Corporation worked to counteract this impact by entering into foreign exchange hedge contracts, by selling in alternative currencies, and by monitoring the volatile US dollar when preparing quotes on custom orders that provide flexibility from fixed pricing. However, despite the actions and initiatives taken, the declining US dollar reduced the Corporations reported revenues for 2004 by approximately $1 million.

E.

Off-Balance Sheet Arrangements

The Corporation does not utilize off-balance sheet arrangements.

F.

Tabular Disclosure of Contractual Obligations

The following table outlines the Corporations contractual obligations as at December 31, 2004:



Less than

More than

Contractual Obligation

Total              
1 year        1-3 years       
3-5 years        5 years





Obligations under capital leases

$35,328

$21,573           
$13,755            $Nil               
$Nil





Lease commitments (1)

$493,897

$312,892         
$181,005            $Nil               
$Nil





Advisory agreement (2)

$70,000

$70,000            
$Nil               
$Nil               
$Nil



(1)The Corporation has entered into lease agreements for rental of premises and equipment.

(2)The Corporation has entered into an advisory agreement witha company controlled by an officer of the Corporation in the amount of $10,000 per month expiring July 2005.

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.

Directors and Senior Management

The following is a list of the Directors and senior officers of the Corporation as at December 31, 2004 and as at the date of this Form 20-F, their municipalities of residence, their current positions with the Corporation and their principal occupations during the past five years. All of the Directors are residents of Canada.



Directors were elected at the last Annual General Meeting held on May 27, 2005 and/or appointed to fill any vacancy created on the Board, and serve until the next Annual General Meeting of Shareholders, or until their successors are appointed.  Officers are appointed by the Board and serve at the pleasure of the Board.















28



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|Name, Age and Municipality of Residence                                        | Position(s) with the             Corporation    | Terms of the Various                    Offices Held                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------ | ----------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Art Aylesworth
Age: 51

4730 Spring Road
Victoria, B.C.
V9E 2B5
Canada         | Director, President and Chief Executive Officer | Director, President and Chief Executive Officer of the Corporation since June 18, 2001.

President & CEO of Carmanah Technologies Corporation since June 20, 2001; President & CEO of Carmanah Technologies Inc. since May, 2000; CEO of Carmanah Signs Inc. (formerly AVVA Light Corp.) (11) since October 1, 2003.                                                                                                                                                                                                                                                                                                                                                        
|Kelly Edmison(1) (2)

Age: 52

5592 Alma Street
Vancouver, B.C.
V6N 1Y1
Canada | Director                                        | Director of the Corporation since June 13, 2002.

Barrister & Solicitor; President, Chief Executive Officer and a Director of Devon Ventures Corporation, a merchant banking firm; has been a director of several publicly traded companies, such as, PCS Wireless Inc. (TSX), eDispatch Wireless Data Inc. (TSE), Icron Technologies Inc. (TSX), A.L.I. Technologies (TSE), and has been a secretary of venture capital financed companies, such as, NxtPhase Corporation, Sonigistix Corporation, Synapse Technologies Inc. and Colligo Technologies Corporation; Practiced Securities and Commercial Law with Ladner Downs (now Borden Ladner Gervais) from 1985 to 1995.























29



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|Name, Age and Municipality of Residence                                            | Position(s) with the             Corporation | Terms of the Various                    Offices Held                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|David Green(2)

Age: 56

5010 Lockehaven Drive
Victoria, B.C.
V8N 4J5
Canada       | Chairman                                     | Chairman and Director of the Corporation since June 18, 2001.
Scientist and Professional Engineer; Chairman and Chief Technology Officer of Carmanah Technologies Corporation since June 20, 2001; Chairman and Chief Technology Officer of Carmanah Technologoies Inc. since incorporation in 1998; President of Carmanah Management Corp. since 1989.                                                                                                                                                                                               
|Trevor Johnstone(1) (2)

Age: 50

3433 Marpole Avenue Vancouver, BC
V6J 2S3
Canada | Director                                     | Director of the Corporation since June 13, 2002.

Chartered Accountant and Certified Public Accountant (inactive); Founder and Managing Director of Tricor Pacific Capital, Inc., a private equity investment firm; Director of NorskeCanada (TSE);  Director and Corporate Secretary of Helijet International Inc. (TSX); Chairman of Pacifica Papers Inc. from July 1999 to August 2001; Principal and Chief Financial Officer of Macluan Capital Corporation from January 1990 to February 1996; Practicing Chartered Accountant 1979 through 1995.
|Mark Komonoski
Age: 44

635  54th Avenue
Calgary, AB
T2V 0C9
Canada               | Director                                     | President & Director of AVVA Technologies Inc. from September 1993 to March 1997; Since 1999, President of TradeMark Equity Marketing Inc., a venture capital public company development firm; Served as a Director and/or officer of various publicly traded companies.                                                                                                                                                                                                                                                                              

















30



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|Name, Age and Municipality of Residence                                                  | Position(s) with the             Corporation | Terms of the Various                    Offices Held                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---------------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Praveen K. Varshney (1)(3)
Age: 40

3886 West 38th Avenue
Vancouver, B.C.
V6N 2Y4
Canada | Director and Chief Financial Officer         | Director of the Corporation since May 21, 1996.

Director and Secretary of the Corporation from May 21, 1996 to January 30, 2000.

President, Chief Executive Officer, Chief Financial Officer and Director of the Corporation from January 31, 2000 to June 19, 2001.

Chartered Accountant; Principal and Director, Varshney Capital Corp., from January 1, 2000 to present; Principal, Varshney Chowdhry Group of Companies, from August, 1991 to December 31, 1999; Partner, Varshney Chowdhry & Co., Chartered Accountants, between May 1993 and September 1995.

Director and/or Officer of AssistGlobal Technologies Corp., Afrasia Mineral Fields Inc., Camphor Ventures Inc. and JER Envirotech International Corp.
|Peeyush Varshney(3)
Age: 38

3703 West 11th Avenue
Vancouver, B.C.
V6R 2K7
Canada        | Corporate Secretary                          | Secretary of the Corporation since January 31, 2000; Director of the Corporation from January 31, 2000 to June 18, 2001.

Barrister and Solicitor; Director or Executive Officer of various publicly traded companies; Principal and Director, Varshney Capital Corp., from January 1, 2000 to present; Principal, Varshney Chowdhry Group of Companies, from July, 1996 to December 31, 1999.                                                                                                                                                                                                                                                                                                                              



(1)

Member of the Corporations Audit Committee.

(2)

Member of the Corporations Compensation Committee

(3)

Praveen Varshney and Peeyush Varshney are brothers.





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B.

Compensation

The aggregate amount of compensation paid by the Corporation during the fiscal year ended December 31, 2004, to all Directors and the Corporations officers, as a group, for services in all capacities was approximately $503,000 (2003  $497,550; 2002  $491,303).



The Corporation is required under applicable securities legislation in Canada, to disclose to its shareholders details of compensation paid to its Directors and Officers. Set out below are particulars of compensation paid to the following persons (the "Named Executive Officers") during the three most recently completed fiscal years:

(a)

the Corporations chief executive officer (CEO);

(b)

the Corporations chief financial officer (CFO);

(c)

each of the Corporations three most highly compensated executive officers, other than the CEO and CFO, who was serving as an executive officer at the end of the most recently completed fiscal year and whose total salary and bonus exceeds $120,000 (US$100,000 @ $1.2036) per year; and

(d)

any additional individuals for whom disclosure would have been provided under (c) but for the fact that the individual was not serving as an executive officer of the Corporation at the end of the most recently completed fiscal year.



The following information fairly reflects all material information regarding compensation paid to the Directors and Corporations officers, which information has been disclosed to the Corporations shareholders in accordance with applicable Canadian law.



The criteria used in determining the amount of executive officer compensation which is appropriate is based on an assessment of salaries paid in the industry for similar duties in which the Corporation is engaged.



Executive officers are entitled to participate in stock options granted by the Corporation.  For additional information with respect to stock options granted to executive officers, please refer to Item 6E  Stock Option Plan.



As at December 31, 2004, the end of the most recently completed fiscal year of the Corporation, the Corporation had three Named Executive Officers, whose names and positions held within the Corporation are set out in the summary of compensation table below.













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Summary Compensation Table

Annual CompensationLong Term CompensationAwardsPayoutsName and Principal
Position of Named Executive OfficerFiscal
Year
EndingSalaryBonusOther Annual Compen-sationSecurities Under Options / SARs
GrantedRestricted Shares or Restricted Share UnitsLTIP
Pay-OutsAll 
Other 
Compen-
sationArt Aylesworth
President, CEO, & Director2004
2003
2002$200,000
$150,000
$135,000Nil
Nil
NilNil
Nil
NilNil
300,000
NilNil
Nil
NilN/A
N/A
N/ANil
Nil
NilPraveen Varshney
CFO & Director2004
2003
2002Nil 
Nil
NilNil
Nil
Nil$120,000 (1)$120,000 (1)$120,000 (1)Nil
Nil
NilNil
Nil
NilN/A
N/A
N/ANil
Nil
NilMatthew Watson
Vice President Corporate Development2004
2003
2002$137,917(2)$39,791(2)Nil$20,000
Nil
NilNil
Nil
NilNil
200,000
NilNil
Nil
NilN/A
N/A
N/ANil
Nil
Nil


(1)

Pursuant to an advisory agreement dated June 20, 2001, between the Corporation and Varshney Capital Corp. (VCC), the Corporation paid an aggregate of $120,000, being $10,000 per month to VCC during the fiscal year ended December 31, 2004. VCC is a B.C. private company of which Praveen Varshney, Chief Financial Officer and a director of the Corporation, and Peeyush Varshney, Corporate Secretary of the Corporation, are directors. VCC is also partially owned by Peeyush Varshney.

(2)

Matthew Watson was hired in September 2003 pursuant to a consulting agreement and was paid $11,250 per month. Effective May 1, 2004, Matthew Watson became a full-time employee of the Corporation and is paid an annual salary of $140,000.

Long Term Incentive Plan Awards to Executive Officers

The Corporation has no long-term incentive plans in place and, therefore, there were no awards made under any long-term incentive plan to the Named Executive Officers during the Corporations most recently completed fiscal year.  A "Long-Term Incentive Plan" is a plan under which awards are made based on performance over a period longer than one fiscal year, other than a plan for options, SARs (stock appreciation rights) or restricted share compensation.

Options & SARs Granted to Executive Officers

During the most recently completed fiscal year, no incentive stock options were granted to the Named Executive Officers and no SARs (stock appreciation rights) were granted during this period.

Aggregated Option/SAR Exercises During the Most Recently 
Completed Fiscal Year and Fiscal Year End Option/SAR Values

The following table sets out stock options exercised by the Named Executive Officers, during the most recently completed fiscal year as well as the fiscal year end value of stock options held by the Named Executive Officers. During this period, no outstanding SARs were held by the Named Executive Officers.







33



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NameSecurities
Acquired on 
Exercise
(#)Aggregate 
Value 
Realized ($) (1)Unexercised Options at
Fiscal Year-End
Exercisable/Unexercisable 
(#)Value of Unexercised In-the-Money Options at Fiscal Year-End ($) Exercisable / Unexercisable (2)Art Aylesworth120,000$264,000366,567 / 190,933$757,367 / $334,133Praveen Varshney24,000$56,400125,000 / Nil$275,000 / $NilMatthew WatsonNil$Nil100,000 / 100,000$175,000 / $175,000


(1)

Based on the difference between the option exercise price and the closing market price of the Corporations shares on the date of exercise.

(2)

In-the-Money Options are those where the market value of the underlying securities as at the most recent fiscal year end exceeds the option exercise price of $0.75 per share for 382,500 shares and $1.20 per share for 500,000 shares.  The closing market price of the Corporations shares as at December 31, 2004 was $2.95.

Option and SAR Repricings

There were no options repriced for the Named Executive Officers during the fiscal year ended December 31, 2004.

Termination of Employment, Change in Responsibilities and Employment Contracts

Pursuant to an employment agreement dated January 1, 2004 between the Corporation and Art Aylesworth, President and Chief Executive Officer of the Corporation, Mr. Aylesworth is paid an annual salary of $200,000. The employment agreement provides a formula of compensation upon termination.

Compensation of Directors

Executive officers of the Corporation (including the Named Executive Officers disclosed above) who also act as directors of the Corporation, do not receive any additional compensation for their services rendered as directors, other than as paid by the Corporation to such executive officers in their capacity as executive officers. During the most recently completed fiscal year, the Corporation paid an aggregate of $24,000 (being $1,000 per month to each director) to two non-management directors of the Corporation.

The Corporation has no standard incentive arrangement pursuant to which directors are compensated by the Corporation for their services in their capacity as directors except for the granting from time to time of stock options in accordance with the policies of the TSX Venture Exchange (the Exchange). During the most recently completed fiscal year, the Corporation granted 50,000 stock options to Mark Komonoski, a director of the Corporation.

Indebtedness of Directors and Senior Officers

None of the directors or senior officers of the Corporation have been indebted to the Corporation or its subsidiary during the fiscal year ended December 31, 2004.

Corporate Advisory Agreement



The Corporation is party to a corporate advisory agreement with the following company all of which relate to compensation paid to certain members of management for their services to the Corporation.

Varshney Capital Corp.





34



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Pursuant to an advisory agreement dated June 20, 2001 which was renewed on July 2004, between the Corporation and VCC, a B.C. private company partially owned by Hari Varshney (father of Peeyush Varshney and Praveen Varshney), Anuja Varshney (Praveen Varshneys spouse) and Peeyush Varshney, director and secretary of the Corporation, the Corporation paid an aggregate of $120,000 (2003 - $120,000; 2002 - $120,000), being $10,000 per month, to VCC during the fiscal year ended December 31, 2004. This agreement expires in July 2005.

C.

Board Practices

The Board consists of six members, the terms of which expire at the general meeting of shareholders to be held in each year. The information regarding the term each director has served in office in Item 6.A  Directors and Senior Management is hereby incorporated by reference in response to this item 6.C. Directors are elected by a majority of the votes of the Corporations common shares present in person or represented by proxy at its annual meeting of shareholders and entitled to vote at such election. Each director will hold office until his or her term expires and his or her successor has been elected and qualified. Executive officers serve at the discretion of the Board. Officers are elected at the annual meeting of the directors held immediately after the annual general meeting of shareholders. The directors hold regularly scheduled meetings at which members of management are not in attendance.



None of the directors of the Corporation have entered into service contracts with the Corporation or any of its subsidiaries that provide for benefits upon their termination as a director of the Corporation.



The Corporation has granted and intends to continue to grant stock options to employees, directors, officers and consultants on terms and conditions established by the Board at the time of the grant and in accordance with the Corporations stock option plan and prevailing Exchange policy. Except as disclosed above under Compensation of Directors, the Corporations directors do not receive any monies for serving in their capacity as directors and there is currently no arrangement for the payment of any compensation in the future.



The Corporation has the following committees of the Board:



Audit Committee



The audit committee is comprised of at least three directors, the majority of whom are not employees, control persons or officers of the Corporation or any of its associates or affiliates. The Board appoints or re-appoints an audit committee after each annual shareholders meeting.



The audit committee consists of Messrs. Varshney, Johnstone and Edmison. The audit committee engages on behalf of the Corporation the independent public accountants to audit the Corporations annual financial statements, and reviews and approves the planned scope of the annual audit.



Compensation Committee



The Board appoints a compensation committee composed entirely of directors who are not employees, control persons or officers of the Corporation or any of its associates and affiliates. The compensation committee has a written charter that establishes the committees purpose, responsibilities, member qualifications, member appointment and removal, structure and operations (including any authority to delegate to individual members or subcommittees), and the manner of reporting to the Board. In addition, the compensation committee has the authority to engage and compensate any outside advisor that it determines to be necessary to permit it to carry out its duties.





35



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The compensation committee is also responsible for the following:



(a)

reviewing and approving corporate goals and objectives relevant to CEO compensation, evaluating the CEOs performance in light of those corporate goals and objectives, and determining (or making recommendations to the Board with respect to) the CEOs compensation level based on this evaluation;



(b)

making recommendations to the Board with respect to non-CEO officer and director compensation, incentive-compensation plans and equity-based plans; and



(c)

reviewing executive compensation disclosure before the Corporation publicly discloses this information.



The members of the compensation committee are Messrs. Johnstone, Green and Edmison.

D.

Employees

As at December 31, 2004, CTI had a staff of 71 full-time employees, including 18 in research and engineering, 19 in manufacturing, 14 in sales and marketing, 9 in operations (including 2 in United Kingdom operations) and 11 in finance, information technology, administration and human resources. CTI operates out of two buildings comprising a total of approximately 20,000 square feet, at the Pacific Marine Technology Centre, Victoria, British Columbia, Canada.



As at December 31, 2004, CSI had a staff of 31 full-time employees, including 19 in manufacturing, 7 in sales and marketing and 5 in administration. CSI operates out of a building comprising a total of approximately 10,000 square feet, at #5  6025 12th Street SE, Calgary, Alberta, Canada.



None of the Corporations employees is represented by a labor union and the Corporation believes its employee relations to be good.

E.

Share Ownership

The following list indicates the number of shares held beneficially by current Directors and Officers of the Corporation as at May 20, 2005 and the corresponding percentage of the Corporations issued capital such shares represent:



Title of ClassAmount and Nature of Beneficial Ownership(8)Percent of Class(7) (8)David GreenCommon Stock2,642,277 (1)8.11%Art AylesworthCommon Stock578,129 (2)1.75%Praveen K. VarshneyCommon Stock246,933 (3)0.76%Trevor JohnstoneCommon Stock8,332 (4)0.03%Kelly EdmisonCommon Stock106,332 (5)0.33%






36



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Mark KomonoskiCommon Stock111,375 (6)0.34%All executive officers and directors as a group (6 persons)3,693,378 (7)11.08%


(1)

Shares are held beneficially through Carmanah Management Corporation, a private company owned by David Green; 25,000 of these shares are represented by currently exercisable stock options.

(2)

412,500 of these shares are represented by currently exercisable stock options. Of these options, 247,500 are held beneficially through Convertech Solutions, a private company partially owned by Art Aylesworth.

(3)

125,000 of these shares are represented by currently exercisable stock options.

(4)

These shares are represented by currently exercisable stock options.

(5)

Shares are held beneficially through Arbutus Family Holdings Limited; 83,332 shares are represented by currently exercisable stock options.

(6)

103,375 shares are represented by currently exercisable stock options.

(7)

Based on 32,573,359 shares outstanding at May 20, 2005.

(8)

757,539 shares are represented by currently exercisable stock options.

Stock Option Plan

The Board first adopted its written stock option plan on May 10, 2001, which was ratified by shareholders on June 18, 2001 (the Plan). At the Corporations annual general and special meeting held on May 26, 2004, the shareholders approved an amendment to the Plan to increase the number of stock options reserved for issuance under the Plan to 4,531,683 common shares, which represented 15% of the Corporations issued and outstanding share capital at that time. The purpose of the Plan is to advance the interests of the Corporation by encouraging the directors, officers, employees and consultants of the Corporation, and of its subsidiaries and affiliates, to acquire shares in the Corporation, thereby increasing their proprietary interest in the Corporation, encouraging them to remain associated with the Corporation and furnishing them with additional incentive in their efforts on behalf of the Corporation in the conduct of its affairs.



The Plan is administered by the Board or by a special committee of the Board if appointed from time to time.  The Plan provides that options will be issued pursuant to option agreements (Option Agreements). No optionee under the Plan shall be granted an option which exceeds the maximum number permitted by the TSX Venture Exchange (the Exchange). Options issued pursuant to the Plan will have an exercise price determined by the directors of the Corporation provided that the exercise price shall not be less than the price permitted by the Exchange.



Options granted under the Plan are non-transferable and expire the earlier of 5 years from the date of grant or 90 days from the date the optionee ceases to be a director, officer, employee or consultant of the Corporation of its subsidiaries or a management company employee (or, in the case of an optionee performing investor relations activities, within 30 days of the cessation of his service to the Corporation).



In the event of death of an optionee, options held by such optionee will expire the earlier of 5 years from the date of grant or one year from the date of such death.



Majority of the shares reserved under the Plan has now been allocated and management is proposing to amend the number of shares issuable pursuant to the Plan to 4,559,132 which represents 14% of the issued and outstanding capital of the Corporation on March 31, 2005. This will ensure that the





37



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Corporation will have an adequate pool of common shares under the Plan to enable the Corporation to attract and retain personnel of the highest calibre.



As at December 31, 2004, the following directors and employees stock options to purchase a total of 2,716,222 common shares of the Corporation were outstanding:

Number

Number

outstanding at

exercisable at

Exercise price

December 31, 2004                   
Expiry date               
December 31, 2004



$0.60

132,001

February 3, 2005

132,001

$0.75

1,344,932

June 20, 2006

1,344,932

$0.75

91,664

June 13, 2007

91,664

$0.75

132,000

January 13, 2008

132,000

$0.75

7,500

April 1, 2005

7,500

$0.95

50,000

August 25, 2008

33,836

$0.80

18,750

November 3, 2005

18,750

$0.90

63,750

June 30, 2008

63,750

$0.95

60,000

October 1, 2008

60,000

$0.96

25,625

August 22, 2006

25,625

$1.17

60,000

October 1, 2008

45,442

$1.20

300,000

November 10, 2008

109,067

$1.20

200,000

December 1, 2008

75,000

$0.95

50,000

August 18, 2008

36,730

$2.11

30,000

August 12, 2009

3,890

$2.35

100,000

September 1, 2009

36,152

$2.75

50,000

November 12, 2009

4,566

2,716,222

2,220,905



As at the date of this Annual Report, 933,539 of the 2,716,222 stock options were allocated to directors and executive officers of the Corporation as follows:



Name of Director/OfficerNumberExercise PriceExpiration DateArt Aylesworth (1)247,500$0.75June 20, 2006Art Aylesworth300,000$1.20November 10, 2008David Green25,000$0.75June 20, 2006Praveen Varshney125,000$0.75June 20, 2006Trevor Johnstone8,332$0.75June 13, 2007Kelly Edmison83,332$0.75June 13, 2007Mark Komonoski4,375$0.90June 30, 2008Mark Komonoski30,000$0.95October 1, 2008Mark Komonoski60,000$1.17October 1, 2008Mark Komonoski50,000$2.75November 12, 2009933,539






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(1)

These options are held beneficially through Convertech Solutions, a private company partially owned by Art Aylesworth.

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.

Major Shareholders

A.1.a

Holdings by Major Shareholders

The following table sets forth the shareholdings of those persons who own of record or are known to the Corporation to own beneficially, directly or indirectly, or exercise control or direction over, more than 5% of the issued and outstanding common shares of the Corporation as at May 20, 2005:



Identity of Person or GroupType of OwnershipAmount and Nature of Beneficial OwnershipPercent of Class (2)David GreenDirect & Indirect2,642,277 (1)8.11%


(1)

Shares are held beneficially through Carmanah Management Corporation, a private company owned by David Green; 25,000 of these shares are represented by currently exercisable stock options.

(2)

Based on 32,573,359 shares outstanding at May 20, 2005.



A.2

Canadian Share Ownership

The following table indicates the approximate number of Canadian record holders of common shares and the portion and percentage of common shares held in Canada as at May 20, 2005:



Total Number
of HoldersNumber of
Canadian HoldersNumber of Common Shares
Held in CanadaPercentage of Common
Shares Held in Canada473031,569,68896.92%




A substantial number of common shares are held in street name by trustees, executors, guardians, custodians or other fiduciaries, including depositories, brokerage firms and financial institutions.  Based on the number of annual reports and proxy statements requested by such nominees, management of the Corporation estimates that the number of Canadian beneficial holders of common shares exceeds 3,000.





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U.S. Share Ownership



The following table indicates the approximate number of record holders of common shares with United States addresses and the portion and percentage of common shares held in the United States as at May 20, 2005:



Total Number
of HoldersNumber of
U.S. HoldersNumber of Common Shares
Held in the U.S.Percentage of Common
Shares Held in the U.S.4715737,2612.26%




The computation of the number and percentage of common shares held in the United States is based upon the number of common shares held by record holders with United States addresses and by trusts, estates or accounts with United States addresses as disclosed to the Corporation following inquiry to all record holders known to the Corporation to be trustees, executors, guardians, custodians or other fiduciaries holding common shares for one or more trusts, estates or accounts. United States residents may beneficially own common shares held of record by non-United States residents.



A substantial number of common shares are held in street name by trustees, executors, guardians, custodians or other fiduciaries, including depositories, brokerage firms and financial institutions.  Based on the number of annual reports and proxy statements requested by such nominees, management of the Corporation estimates that the number of U.S. beneficial holders of common shares exceeds 400.



A.3

Control of the Corporation

The Corporation is a publicly owned Canadian company, the shares of which are owned by Canadian residents, U.S. residents and other foreign residents. To the best of the Corporations knowledge, the Corporation is not directly or indirectly owned or controlled by another corporation, any foreign governments or any other natural or legal person, jointly or severally.



A.4

Change in Control Arrangements

The Corporation is not aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Corporation.







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B.

Related Party Transactions

Other than as disclosed in Item 6. Directors, Senior Management and Employees  B. Compensation and the transactions set forth below, there are no other related party transactions or proposed transactions involving any insider, Director, or associate or affiliate of an insider, of the Corporation that have occurred during the most recently completed fiscal year of the Corporation or during the period since the end of the Corporations most recently completed fiscal year. There are no debts owing directly or indirectly to the Corporation by any Director or officer of the Corporation, or by an associate of any Director or officer of the Corporation.



Management of the Corporation has an interest in the following transactions, all of which relate to compensations paid to members of management for their services to the Corporation.



1.

Praveen Varshney and Peeyush Varshney are directors of VCC, and Peeyush Varshney is a controlling shareholder of VCC. During fiscal 2004, the Corporation paid VCC management fees of $120,000 (2003 - $120,000; 2002 - $120,000). VCC is in the business of providing management services to public companies. See B. Compensation  Corporate Advisory Agreement  Varshney Capital Corp.



2.

During fiscal 2004, the Corporation paid $83,000 (2003 - $83,000; 2002 - $74,083) for research and development services to David Green, Chairman of the Corporation.



The Corporation believes that the terms of the transaction were on terms as favorable as those which could have been negotiated with unaffiliated third parties.

C.

Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

A.

Consolidated Statements and Other Financial Information

Attached hereto are the Corporations consolidated audited financial statements, consisting of consolidated balance sheets as at December 31, 2004 and 2003, and consolidated statements of operations and deficit, and cash flows for each of the years in the three-year period ended December 31, 2004 along with related notes and the Report of Independent Registered Public Accounting Firm.  See Item 17. Financial Statements.

Legal Proceedings

There are no material legal or arbitration proceedings to which the Corporation was a party or in respect of which the property of the Corporation is subject. The Corporations management has no knowledge of any legal proceedings in which the Corporation may be involved or that are contemplated by governmental authorities or otherwise.

Dividend Policy





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No dividends have been paid on any class of shares of the Corporation since the date of its incorporation and it is not contemplated that any dividends will be paid in the immediate or foreseeable future.

B.

Significant Changes

No significant changes occurred subsequent to the year ended December 31, 2004.

ITEM 9.

THE OFFER AND LISTING

A.

Offer and Listing Details

The Corporations common shares commenced trading on the Exchange on January 8, 1997 under the symbol ADZ. Following the completion of the Corporations reverse takeover of Carmanah on June 21, 2001, the Corporation consolidated its share capital on a 1 new for 1.5 old basis and the common shares of Carmanah commenced trading on the Exchange on July 6, 2001 under the symbol CMH while the common shares of Andina (ADZ) were delisted.



The following table sets forth the reported high and low prices in Canadian funds for the Corporations common shares on the Exchange for (a) the most recent six months; (b) each quarterly period for the past two fiscal years and for the first quarter of 2005, and (c) the five most recent fiscal years:



|                                       | High   | Low   
|-------------------------------------- | ------ | ------
|Post-Consolidated Share Prices (CMH)
|Monthly Stock Prices                   |        |       
|April 2005                             | $
2.77 | $
2.50
|March 2005                             | $
2.95 | $
2.50
|February 2005                          | $
3.04 | $
2.87
|January 2005                           | $
2.99 | $
2.78
|December 2004                          | $
3.13 | $
2.87
|November 2004                          | $
3.07 | $
2.65
|Quarterly Stock Prices                 |        |       
|Fiscal 2005                            |        |       
|First Quarter                          | $
3.04 | $
2.50
|Fiscal 2004                            |        |       
|Fourth Quarter                         | $
3.13 | $
2.35
|Third Quarter                          | $
2.60 | $
1.98
|Second Quarter                         | $
3.22 | $
2.46
|First Quarter                          | $
3.05 | $
1.57
|Fiscal 2003                            |        |       





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|Fourth Quarter                        | $
1.55 | $
1.17
|------------------------------------- | ------ | ------
|Third Quarter                         | $
1.32 | $
0.85
|Second Quarter                        | $
1.08 | $
0.82
|First Quarter                         | $
0.99 | $
0.76
|Annual Stock Prices                  
|Fiscal 2004                           | $
3.22 | $
1.57
|Fiscal 2003                           | $
1.55 | $
0.76
|Fiscal 2002                           | $
0.90 | $
0.45
|Fiscal 2001                           | $
0.78 | $
0.42
|Pre-Consolidated Share Prices (ADZ)
|Fiscal 2000                           | $
1.45 | $
0.32



The common shares were halted from trading on the Exchange on December 21, 2000. On April 27, 2001, the common shares were reinstated for trading following the submission of a Sponsorship Acknowledgement pursuant to the Exchanges policies governing reverse takeovers.



The closing price of the Corporations shares on the Exchange was $2.95 on December 31, 2004 and $2.68 on May 20, 2005.



Although the Corporations share are sometimes quoted over-the-counter on the PinkSheets® under the symbol CMHXF in the United States, an established trading market for the Corporations securities does not exist in the United States.

B.

Plan of Distribution

Not applicable.

C.

Markets

The Corporations Common Shares are quoted on the following stock exchanges:



·

TSX Venture Exchange in the province of British Columbia, Canada under the trading symbol CMH.

·

Berlin and Deutsche Börse AG Exchanges under the trading symbol QCX.

·

In the United States, Carmanahs shares are sometimes quoted over-the-counter on the PinkSheets® under the symbol CMHXF.

D.

Selling Shareholders

Not applicable.

E.

Dilution

Not applicable.





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F.

Expenses of the Issue

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

A.

Share Capital

Not applicable.

B.

Memorandum and Articles of Association

Securities Register

The Corporation maintains at Pacific Corporate Trust Company (transfer agent) a securities register in which it records the securities issued by it in registered form, showing with respect to each class or series of securities:



a.

the names, alphabetically arranged and the latest known address of each person who is or has been a security holder;

b.

the number of securities held by each security holder; and

c.

the date and particulars of the issue and transfer of each security.



The transfer agent keeps information relating to a security holder that is entered in the securities register for at least seven years after the security holder ceases to be a security holder.

Powers of Directors

Approval and Voting

Every director who is a party to a material contract or a proposed material contract with the Corporation, or who is a director or an officer of or has a material interest in any person who is a party to a material contract or proposed material contract with the Corporation, must disclose in writing to the Corporation or request to have entered in the minutes of meetings of Directors, the nature and extent of the Directors or Officers interest in a material contract or proposed material contract if the contract is one that in the ordinary course of the Corporations business would not require approval of the Board of the Shareholders. The disclosure must be made immediately after the Director or Officer becomes aware of the contract or proposed contract. A Director who is required to disclose an interest in a material contract or proposed material contract may not vote on any resolution to approve the contract unless the contract is:



a.

an arrangement by way of security for money lent to or obligations undertaken by the Director, or by a body corporate in which the Director has an interest, for the benefit of the Corporation or an affiliate;

b.

a contract relating primarily to the Directors remuneration as a Director or Officer, employee or agent of the Corporation or as a director, officer, employee or agent of an affiliate;

c.

a contract for indemnity or insurance under the ABCA; or

d.

a contract with an affiliate.





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If a material contract is made between the Corporation and a Director or Officer, or between the Corporation and another person of which a Director or Officer is a director or officer or in which the Director or Officer has a material interest:



a.

the contract is neither void nor voidable by reason only of that relationship, or by reason only that a Director with an interest in the contract is present at or is counted to determine the presence of a quorum at a meeting of Directors or committee of Directors that authorized the contract; and

b.

a Director or Officer or former Director or Officer to whom a profit accrues as a result of the making of the contract is not liable to account to the Corporation for that profit by reason only of holding office as a Director or Officer, if the Director or Officer disclosed the Directors or Officers interest in the contract in the manner prescribed by the ABCA and the contract was approved by the Board or the Shareholders and was reasonable and fair to the Corporation at the time it was approved.

Remuneration and Expenses

Neither the Articles nor the By-Laws provide for the Directors power to vote compensation to themselves or any members of their body in the absence of an independent quorum.



However, the Directors are entitled to receive remuneration for their services in the amount the Board determines. Subject to the Boards approval, the Directors are also entitled to be reimbursed for traveling and other expenses incurred by them in attending meetings of the Board or any committee of Directors or in the performance of their duties as Directors.



Nothing contained in the By-Laws precludes a Director from serving the Corporation in another capacity and receiving remuneration for acting in that other capacity.



The Directors must disclose to the Shareholders the aggregate remuneration paid to the Directors. The disclosure must be in a written document to be placed before the Shareholders at every annual meeting of Shareholders and must relate to the same time period as the financial statements required to be presented at the meeting.

Borrowing

Without limiting the borrowing power of the Corporation provided by the ABCA, the Board may, without authorization of the Shareholders borrow money on the credit of the Corporation, issue, reissue, sell or pledge debt obligations of the Corporation, subject to section 42 of the ABCA, give a guarantee on behalf of the Corporation to secure performance of an obligation of any person and mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation, owned or subsequently acquired, to secure any obligation of the Corporation.



The Directors may, by resolution, delegate to a Director, a committee of Directors or an Officer all or any of the powers conferred on them by the above.

Qualification

A person is not required to hold shares issued by the Corporation to qualify for election as a director of the Corporation. A person is disqualified for election as a Director if that person:





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a.

is less than 18 years of age;

b.

is

i)

a dependant adult as defined in the Dependant Adults Act (Alberta) or the subject of a certificate of incapacity under that Act.

ii)

a formal patient as defined in the Mental Health Act (Alberta),

iii)

the subject of an order under The Mentally Incapacitated Persons Act (Alberta) appointing a committee of his or her person, estate or both, or

iv)

a person who has been found to be of unsound mind by a court elsewhere than in Alberta;

c.

is not an individual; or

d.

has the status of bankrupt.

Description of Securities

The Corporation is authorized to issue an unlimited number of Common Shares.

Common Shares

The Corporation is authorized to issue an unlimited number of common shares without nominal or par value of which, as at December 31, 2004, 31,915,309 are issued and outstanding as fully paid and non-assessable, 2,716,222 are reserved under directors and management stock options (see Item 6E. Directors, Senior Management and Employees  Share Ownership  Stock Options), 1,604,674 are reserved pursuant to the exercise of previously issued common share purchase warrants and 80,838 are reserved pursuant to the exercise of previously issued brokers warrants. The holders of the common shares are entitled to vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote, and on every poll taken at every such meeting, or adjourned meeting, every holder of Common Shares shall be entitled to one vote in respect of each Common Share held.

Annual and Extraordinary General Meetings

The Board must call an annual general meeting of Shareholders to be held not later than 18 months after the date of incorporation and subsequently, not later than 15 months after holding the last preceding annual meeting. An annual meeting is to be held for the purposes of considering the financial statements and auditors report, fixing the number of Directors for the following year, electing Directors, appointing an auditor and transacting any other business that may properly be brought before the meeting.



The Board may at any time call a special meeting of Shareholders.

Notice of Meetings

Notice of the time and place of a meeting of Shareholders must be sent not less than 21 days and not more than 50 days before the meeting to each Shareholder entitled to vote at the meeting, each Director and the auditor of the Corporation.



Notice of a meeting of Shareholders called for the purpose of transacting any business other than a consideration of the financial statements and auditors report, fixing the number of Directors for the





46



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following year, election of Directors and reappointment of the incumbent auditor must state the nature of the business to be transacted in sufficient detail to permit a Shareholder to form a reasoned judgment on that business and must state the text of any special resolution to be submitted to the meeting.

C.

Material Contracts



During the year, the Corporation has not entered into any material contracts other than sales contracts.

D.

Exchange Controls

There are no governmental laws, decrees or regulations in Canada relating restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of the Corporations common shares.  Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (5% if the shareholder is a corporation owning at least 10 % of the common shares of the Corporation) pursuant to Article X of the reciprocal treaty between Canada and the United States.



Except as provided in the Investment Canada Act, there are no limitations under the laws of Canada, the Province of Ontario or in the Articles of Incorporation of the Corporation on the right of foreigners to hold or vote the common shares of the Corporation.



The Investment Canada Act (the ICA), which became effective on 6/30/85, regulates the acquisition by non-Canadians of control of a Canadian business enterprise.  In effect, the ICA required review by Investment Canada, the agency which administers the ICA, and approval by the Canadian government in the case of an acquisition of control of a Canadian business by a non-Canadian where: (i) in the case of acquisition (for example, through a share purchase or asset purchase),  the assets of the business are $5 million or more in value; or  (ii)  in the case of an indirect acquisition  ( for example,  the acquisition of the foreign parent of the Canadian business)  where the Canadian business has assets of $50 million or more in value or if the Canadian business represents more than 50% of the assets of the original group and the Canadian business has assets of $5 million or more in value.  Review and approval are also required for the acquisition or establishment of a new business in areas concerning Canadas cultural heritage or national identity such as book publishing, film production and distribution, television and radio, production and distribution of music, and the oil and natural gas industry, regardless of the size of the investment.



In the context of the Corporation, in essence, three methods of acquiring control of a Canadian business are regulated by the ICA:  (i) the acquisition of all or substantially all of the assets used in carrying on the Canadian business; (ii) the acquisition, directly or indirectly, of voting shares of a Canadian corporation carrying on the Canadian business; (iii) the acquisition of voting of an entity which controls, directly or indirectly, another entity carrying on a Canadian business.  An acquisition of a majority of the voting interests of an entity, including a corporation, is deemed to be an acquisition of control under the ICA.  An acquisition of less than one- third of the voting shares of a corporation is deemed not to be an acquisition of control.  An acquisition of less than a majority, but one-third or more, of the voting shares of a corporation is presumed to be an acquisition of control unless it can be established that on the acquisition the corporation is not, in fact, controlled by the acquirer through the ownership of voting shares.  For partnerships, trusts, joint ventures or other unincorporated entities, an acquisition of less than a majority of the voting interests is deemed not to be an acquisition of control.



As a result of the cumulative impact of the Free Trade Agreement between Canada and the United States to relax the restriction of the ICA, except where the Canadian business is in the cultural, oil and gas,





47



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uranium, financial services or transportation sectors, the threshold for direct acquisition of control by U.S.  Investors and other foreign investors acquiring control of a Canadian business from U.S. Investors has been raised from $5 million to $223 million of gross assets, and indirect acquisitions are not reviewable.



In addition to the foregoing, the ICA requires that all other acquisitions of control of Canadian businesses by non-Canadians are subject to formal notification to the Canadian government.  Theses provisions require a foreign investor to give notice in the required form, which notices are for information, as opposed to review, purposes.

E.

Taxation

The following summary of the material Canadian federal income tax consequences generally applicable in respect of the common stock reflects the Corporations opinion.  The tax consequences to any particular holder of common stock will vary according to the status of that holder as an individual, trust, corporation or member of a partnership, the jurisdiction in which that holder is subject to taxation, the place where that holder is resident and, generally, according to that holders particular circumstances.  This summary is applicable only to holders who are resident in the United States, have never been resident in Canada, deal at arms length with the Corporation, hold their common stock as capital property and who will not use or hold the common stock in carrying on business in Canada.  Special rules, which are not discussed in this summary, may apply to a United States holder that is an issuer that carries on business in Canada and elsewhere.



This summary is based upon the provisions of the Income Tax Act of Canada and the regulations thereunder  (collectively, the Tax Act or ITA) and the Canada-United States Tax Convention  (the Tax Convention)  as at the date of the Registration Statement and the current administrative practices of Canada Customs and Revenue Agency.  This summary does not take into account provincial income tax consequences.



Each holder should consult his own tax advisor with respect to the income tax consequences applicable to him in his own particular circumstances.



Canadian Federal Income Tax Considerations



If a non-resident were to dispose of common stock of the Corporation to another Canadian corporation which deals or is deemed to deal on a non-arms length basis with the non-resident and which, immediately after the disposition, is connected with the Corporation (i.e., which holds shares representing more than 10% of the voting power and more than 10% of the market value of all issued and outstanding shares of the Corporation), the amount by which the fair market value of any consideration (other than any shares of the purchaser corporation) exceeds the paid-up capital of the common stock sold will be deemed to be taxable as a dividend paid by the purchasing corporation, either immediately or eventually by means of a deduction in computing the paid-up capital of the purchasing corporation, and subject to withholding taxes as described below.



Under the Tax Act, a gain from the sales of common stock by a non-resident will not be subject to Canadian tax, provided the shareholder (and/or persons who do not deal at arms length with the shareholder) have not held a substantial interest in the Corporation (25% or more of the shares of any class of the Corporations stock) at any time in the five years preceding the disposition.  Generally, the Tax Convention will exempt from Canadian taxation any capital gain realized by the resident of the





48



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United States, provided that the value of the common stock is not derived principally from real property situated in Canada.



Dividends



In the case of any dividends paid to non-residents, the Canadian tax is withheld by the Corporation, which remits only the net amount to the shareholder.  By virtue of Article X of the Tax Convention, the rate of tax on dividends paid to residents of the United States is generally limited to 15% of the gross dividend (or 5% in the case of certain corporate shareholders owing at least 10% of the Corporations voting shares).  In the absence of the treaty provisions, the rate of Canadian withholding tax imposed on non-residents is 25% of the gross dividend.  Stock dividends received by non-residents from the Corporation are taxable by Canada as ordinary dividends.



Where a holder disposes of common stock to the Corporation (unless the Corporation acquired the common stock in the open market in the manner in which shares would normally be purchased by any member of the public) will result in a deemed dividend to the U.S. holder equal to the amount by which the consideration paid by the Corporation exceeds the paid-up capital of such stock, the amount of such dividend will be subject to withholding tax as described above.



Capital Gains



A non-resident of Canada is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of a share of a class that is listed on a prescribed stock exchange unless the share represents taxable Canadian property to the holder thereof.  A common share of the Corporation will be taxable Canadian property to a non-resident holder if, at any time during the period of five years immediately preceding the disposition, the non-resident holder, persons with whom the non-resident holder did not deal at arms length, or the non-resident holder and persons with whom he/she did not deal at arms length owned 25% or more of the issued shares of any class or series of the Corporation.  In the case of a non-resident holder to whom shares of the Corporation represent taxable Canadian property and who is resident in the United States, no Canadian tax will be payable on a capital gain realized on such shares by reason of the Canada-United States Income Tax Convention 1980) (the Treaty) unless the value of such shares is derived principally from real property situated in Canada or the non-resident holder previously held the share while resident in Canada.  However, in such a case, certain transitional relief under the Treaty may be available.



U.S. Federal Income Tax Consequences



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



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





49



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and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.



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



U.S. Holders



As used herein, a U.S. Holder means a holder of common shares issued by the Corporation who is (i) a citizen or individual resident of the U.S., (ii) a corporation created or organized in or under the laws of the U.S. or of any political subdivision thereof, (iii) an estate whose income is taxable in the U.S. irrespective of source or (iv) a trust subject to the primary supervision of a court within the U.S. and control of a U.S. fiduciary as described Section 7701(a)(30) of the Code.  If a partnership or other pass-through entity treated as a partnership for U.S. federal income tax purposes holds shares issued by the Corporation, the U.S. federal income tax treatment of the partners or owners of such partnership or other pass-through entity generally will depend on the status of such partners or owners and the activities of such partnership or pass-through entity.



Persons Not Covered



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



Distributions Made by the Corporation to U.S. Holders



General Rules.  U.S. Holders receiving distributions (including constructive distributions) with respect to common shares issued by the Corporation are required to include in gross income as a dividend for U.S. federal income tax purposes the gross amount of such distributions (without reduction for any Canadian income tax withheld from such distributions), equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Corporation has current or accumulated earnings and profits.  To the extent that distributions from the Corporation exceed its current and accumulated earnings and profits, such distributions will be treated first as a return of capital, to the extent of the U.S. Holders adjusted basis in the shares, and thereafter as gain from the sale or exchange of the shares.  (See more detailed discussion at Disposition of Shares below).  Any Canadian





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tax withheld from a distribution by the Corporation may be credited, subject to certain limitations, against the U.S. Holders U.S. federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder's U.S. federal taxable income by those who itemize deductions.  (See more detailed discussion at Foreign Tax Credit below).



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



Dividend may be Eligible for Reduced Tax Rate.  For taxable years beginning after December 31, 2002 and before January 1, 2009, dividends received by U.S. Holders that are individuals, estates or trusts from qualified foreign corporations, as defined in Section 1(h)(11) of the Code, generally are taxed at the same preferential tax rates applicable to long-term capital gains.  Although not free from doubt, it appears that the Corporation would be a qualified foreign corporation, as defined in Section 1(h)(11) of the Code pursuant to the U.S. Canada income tax treaty if the Corporation is not a Passive Foreign Investment Company (PFIC).  A corporation that is properly described as a PFIC, Foreign Personal Holding Company (defined below), or a Foreign Investment Company (defined below) for its taxable year during which it pays a dividend, or for its immediately preceding taxable year, will not be treated as a qualifying foreign corporation and dividends received by U.S. Holders that are individuals, estates or trusts generally will be subject to U.S. federal income tax at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains).



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



Dividend Paid to Shareholder who Made QEF Election may be Exempt from Tax.  Generally, shareholders are not subject to additional income taxation on distributions made by a PFIC to the extent of the shareholders basis in the corporations shares if a Qualified Electing Fund (QEF) election is in effect.  (Please see the QEF election discussion below.)  A shareholders basis in this situation is usually equal to the cost of purchasing the shares plus the amount of the corporations income that was reported on the shareholders return pursuant to the QEF election less any prior distributions made by the corporation to the shareholder.  Again, these rules are subject to several exceptions that are beyond the scope of this discussion.  U.S. Holders of shares issued by the Corporation should consult their own financial advisor, legal counsel or accountant regarding whether dividends paid by the Corporation to them will be exempt from federal income tax if a QEF election is made.







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Disposition of Shares



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



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



The Corporation may be a Passive Foreign Investment Company



General Discussion.  Management of the Corporation believes that it qualified as a PFIC, within the meaning of Sections 1291 through 1298 of the Code, for the fiscal year ended December 31, 2001 and may have qualified as a PFIC in prior years.  The Corporation may or may not have qualified as a PFIC in subsequent years due to changes in its assets and business operations.  However, there can be no assurance that the Corporation will not be considered a PFIC, for the fiscal year ended December 31, 2004, and may qualify as a PFIC in subsequent years.  This determination is not binding on U.S. Holders or the IRS and there can be no assurance that the IRS will not challenge this determination.  A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to numerous special U.S. federal income taxation rules and may elect to be taxed under two alternative tax regimes.  The following is a discussion of these three sets of special rules applied to U.S. Holders of shares issued by the Corporation.  In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a controlled foreign corporation (as defined below) and a U.S. Holder owns, actually or constructively, 10 % or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation (See more detailed discussion at Controlled Foreign Corporation below).



Definition of PFIC.  Section 1297 of the Code defines a PFIC as a corporation that is not formed in the U.S. and, for any taxable year, either (a) 75% or more of its gross income is passive income or (b) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of passive income is 50% or more.  Passive income includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.  However, gains resulting from commodities transactions are generally excluded from the definition of passive income if substantially all of a merchants, producers or handlers business is as an active merchant, producer or handler of such commodities.  For purposes of the PFIC income test and the assets test, if a foreign corporation owns (directly or indirectly) at least 25% by value of the stock of another corporation, such foreign corporation shall be treated as if it (a) held a proportionate share of the assets of such other corporation, and (b)





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



Generally Applicable PFIC Rules.  If a U.S. Holder does not make a timely election to be taxed in conformity with the Mark-to-Market rules or the QEF rules during a year in which it holds (or is deemed to have held) shares issued by the Corporation while it is a PFIC (a Non-Electing U.S. Holder), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reasons of a pledge) of his common shares and (ii) certain excess distributions (generally, distributions received in the current taxable year that are in excess of 125% of the average distributions received during the three preceding years or, if shorter, the U.S. Holders holding period) by the Corporation.



A Non-Electing U.S. Holder generally would be required to pro rate all gains realized on the disposition of his common shares and all excess distributions on his common shares over the entire holding period for the common shares.  All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to the Corporations first taxable year during such U.S. Holders holding period and beginning after January 1, 1987 for which the Corporation was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income.  The Non-Electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year.  A Non-Electing U.S. Holder that is not a corporation must treat this interest charge as personal interest which, as discussed above, is wholly nondeductible.  The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.



If the Corporation is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds shares issued by the Corporation, then it will continue to be treated as a PFIC with respect to such common shares, even if it ceases meeting the definition of a PFIC.  A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such common shares had been sold on the last day of the last taxable year for which it was a PFIC.



Market-to-Market Election.  Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold, actually or constructively, marketable stock (as specifically defined in the Treasury Regulations) of a foreign corporation that qualifies as a PFIC may annually elect to mark such stock to the market (a mark-to-market election).  If such an election is made, such U.S. Holder will generally not be subject to the special taxation rules of Section 1291 discussed above.  However, if the mark-to-market election is made by a Non-Electing U.S. Holder after the beginning of the holding period for the PFIC stock, then the Section 1291 rules will apply to certain dispositions of, distributions on and other amounts taxable with respect to the Corporations common shares.  A U.S. Holder who makes the mark-to market election will include in income for the taxable year for which the election was made an amount equal to the excess, if any, of the fair market value of the Corporations common shares as of the close of such tax year over such U.S. Holders adjusted basis in such common shares.  In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holders adjusted





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tax basis in the common shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the Corporations shares included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior tax year but for the Section 1291 interest on tax deferral rules discussed above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years.  A U.S. Holders adjusted tax basis in his shares will be adjusted to reflect the amount included in or deducted from income as a result of a mark-to-market election.  A mark-to-market election applies to the taxable year in which the election is made and to each subsequent taxable year, unless the shares cease to be marketable, as specifically defined, or the IRS consents to revocation of the election.



QEF Election.  A U.S. Holder who makes a timely QEF election (an Electing U.S. Holder) regarding his shares issued by the Corporation will be subject, under Section 1293 of the Code, to current U.S. federal income tax for any taxable year in which the Corporation qualifies as a PFIC on his pro rata share of the Corporations (i) net capital gain (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) ordinary earnings (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the shareholders taxable year in which (or with which) the Corporations taxable year ends, regardless of whether such amounts are actually distributed.



The effective QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares (or deemed to be realized on the pledge of his shares) as capital gain; (ii) treat his share of the Corporations net capital gain, if any, as long-term capital gain instead of ordinary income; and (iii) either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Corporations annual realized net capital gain and ordinary earnings subject, however, to an interest charge.  If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as personal interest that is not deductible.



The procedure a U.S. Holder must comply with in making an effective QEF election, and the U.S. federal income tax consequences of the QEF election, will depend on whether the year of the election is the first year in the U.S. Holders holding period in which the Corporation is a PFIC.  If the U.S. Holder makes a QEF election in such first year, i.e., a timely QEF election, then the U.S. Holder may make the QEF election by simply filing the appropriate QEF election documents at the time the U.S. Holder files his tax return for such first year.  However, if the Corporation qualified as a PFIC in a prior year, then in addition to filing the QEF election documents, the U.S. Holder must elect to recognize (i) under the rules of Section 1291 of the Code (discussed herein), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date or (ii) if the Corporation is a controlled foreign corporation, the U.S. Holders pro rata share of the Corporations post-1986 earnings and profits as of the qualification date.  The qualification date is the first day of the Corporations first tax year in which the Corporation qualified as a QEF with respect to such U.S. Holder.  The elections to recognize such gain or earnings and profits can only be made if such U.S. Holders holding period for the shares includes the qualification date.  By electing to recognize such gain or earnings and profits, the U.S. Holder will be deemed to have made a timely QEF election.  A U.S. Holder who made elections to recognize gain or earnings and profits after May 1, 1992 and before January 27, 1997 may, under certain circumstances, elect to change such U.S. Holders qualification date to the first day of the first QEF year.  U.S. Holders are urged to consult a tax advisor regarding the availability of and procedure for electing to recognize gain or earnings and profits under the foregoing rules.  In addition to the above rules, under very limited circumstances, a U.S. Holder may make a retroactive QEF election if such U.S. Holder failed to file the QEF election documents in a timely manner.





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A QEF election, once made with respect to the Corporation, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or terminated, or the IRS consents to revocation of the election.  If a QEF election is made by a U.S. Holder and the Corporation ceases to qualify as a PFIC in a subsequent tax year, the QEF election will remain in effect, although not applicable, during those tax years in which the Corporation does not qualify as a PFIC.  Therefore, if the Corporation again qualifies as a PFIC in a subsequent tax year, the QEF election will be effective and the U.S. Holder will be subject to the rules described above for Electing U.S. Holders in such tax year and any subsequent tax years in which the Corporation qualifies as a PFIC.  In addition, the QEF election remains in effect, although not applicable, with respect to an Electing U.S. Holder even after such U.S. Holder disposes of all of his or its direct and indirect interest in the Corporations shares.  Therefore, if such U.S. Holder reacquires an interest in the Corporation, that U.S. Holder will be subject to the rules described above for Electing U.S. Holders for each tax year in which the Corporation qualifies as a PFIC.



Generally, shareholders do not make a QEF election unless they have sufficient information to determine their proportionate shares of a corporations net capital gain and ordinary earnings.  The Corporation has not calculated these amounts for any shareholder and do not anticipate making these calculations in the foreseeable future.  Therefore, U.S. Holders of the Corporations common shares should consult their own financial advisor, legal counsel or accountant regarding the QEF election before making this election.



Other PFIC Rules.  Under Section 1291(f) of the Code, the IRS has issued Proposed Treasury Regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.  Generally, in such cases the basis of shares in the hands of the transferee and the basis of any property received in the exchange for those shares would be increased by the amount of gain recognized.  However, the specific U.S. federal income tax consequences to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred.



Certain special, generally adverse, rules will apply with respect to shares issued by the Corporation while it is a PFIC whether or not it is treated as a QEF.  For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.



The PFIC rules are very complicated, and U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the PFIC rules, including the advisability of and procedure for making a QEF election or a mark-to-mark election, and how these rules may impact their U.S. federal income tax situation.



Foreign Tax Credit



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





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and applies to all foreign taxes paid by (or withheld from distributions to) the U.S. Holder during that year.



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



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



Information Reporting; Backup Withholding



Certain information reporting and backup withholding rules may apply with respect to certain payments related to shares issued by the Corporation.  In particular, a payor or middleman within the U.S., or in certain cases outside the U.S., will be required to withhold 28% (which rate is scheduled for periodic adjustment) of any payments to a U.S. Holder regarding dividends paid by the Corporation, or proceeds from the sale of, such common shares within the U.S., if a U.S. Holder fails to furnish its correct taxpayer identification number (generally on Form W-9) or otherwise fails to comply with, or establish an exemption from, the backup withholding tax requirements.  Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holders U.S. federal income tax liability, provided the required information is furnished to the IRS.  U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the information reporting and backup withholding rules applicable to the Corporations shares.



Other Considerations for U.S. Holders



In the following circumstances, the above sections of this discussion may not describe the U.S. federal income tax consequences to U.S. Holders resulting from the ownership and disposition of shares issued by a foreign corporation.



Foreign Personal Holding Company.  If at any time during a taxable year (a) more than 50% of the total voting power or the total value of outstanding shares issued by the Corporation is owned, directly or indirectly, by five or fewer individuals who are citizens or residents of the U.S. and (b) 60% (or 50% in certain cases) or more of the Corporations gross income for such year is foreign personal holding company income as defined in Section 553 of the Code (e.g., dividends, interest, royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions), the Corporation may be treated as a Foreign Personal Holding Company (FPHC)  In that event, U.S. Holders of the





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Corporations common shares would be required to include in gross income for such year their allocable portions of such foreign personal holding company income to the extent the Corporation does not actually distribute such income.



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



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



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



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



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



If the Corporation is classified as both a PFIC and a CFC, it generally will not be treated as a PFIC with respect to 10% Shareholders.  This rule generally will be effective for taxable years of 10% Shareholders beginning after 1997 and for its taxable years ending with or within such taxable years of 10% Shareholders.



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



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





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F.

Dividends and Paying Agents

Not applicable.

G.

Statements by Experts

Not applicable.

H.

Documents on Display

The Corporation has filed with the Securities and Exchange Commission (the SEC) this Annual Report on Form 20-F, including exhibits, under the Exchange Act with respect to the Corporations common shares.



You may read and copy all or any portion of this annual report of other information in the Corporations files in the SECs public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC located at Seven World Trade Centre, 13th Floor, New York, NY 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.

I.

Subsidiary Information

Not applicable.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the Corporations financial position due to adverse changes in financial market prices and rates. The Corporations market risk exposure is primarily a result of fluctuations in foreign currency exchange rates.



Foreign Currency Risk



The Corporation conducts business on a global basis in international currencies. As such, the Corporation is exposed to adverse or beneficial movements in foreign exchange rates. The Corporations sales are denominated in various currencies such as the U.S. dollar, Canadian dollar, British pound and Euro. The Corporations functional currency and the currency in which it reports its financial statements are in Canadian dollars.



The Corporation is exposed to foreign exchange fluctuations as its revenues are translated into Canadian dollars. All translation gains and losses are included in the determination of net income (loss). As exchange rates vary, these results when translated may impact the Corporations overall expected financial results.



The Corporation has evaluated its exposure to foreign currency risk and has determined that while it has a degree of exposure to the Euro and British pound, its most significant operating exposure to foreign currencies at this time is to the U.S. dollar. In certain historical periods, the weakening of the U.S. dollar has negatively affected the Corporations revenues.





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As of December 31, 2004, the potential reduction in future earnings from a hypothetical instantaneous 10% change in quoted foreign currency rates applied to our foreign currency sensitive contracts and assets would be approximately $500,000. The foreign currency sensitivity model is limited by the assumption that all foreign currencies, to which the Corporation is exposed, would simultaneously change by 10%. Such synchronized changes are unlikely to occur. The sensitivity model does not include the inherent risks associated with anticipated future transactions denominated in foreign currencies or future forward contracts entered into for hedging purposes.



To minimize the risk associated with the effects of certain foreign currency exposures, the Corporation entered into three foreign exchange forward contracts in the amount of U.S.$500,000 each, which are option dated for the month of January 2005 at a rate of 1.2228, for the month of February 2005 at a rate of 1.2229, and for the month of March 2005 at a rate of 1.223. The Corporation has also been selling in alternative currencies and monitoring the volatile U.S. dollar when preparing quotes on custom orders that provide flexibility from fixed pricing. At December 31, 2004, the fair value of these foreign exchange forward contracts was $(30,850).



Foreign exchange losses (gains) recognized in the determination of net earnings (loss) for the year were $(30,850) (2003 - $290,456; 2002 - $26,710).



Interest Rate Risk



The Corporations exposure to market rate risk for changes in interest rates relates primarily to its investment portfolio. The investment of cash is regulated by the Corporations investment policy of which the primary objective is the security of principal. Among other selection criteria, the investment policy states that the term to maturity of investments cannot exceed one year in length. The Corporation invest its cash in a variety of short-term financial instruments, including government bonds, commercial paper and money market instruments. The Corporations portfolio consists primarily of investment grade securities to minimize credit risk. These investments are typically denominated in Canadian dollars. Cash balances in foreign currencies are operating balances and are only invested in demand or short term deposits of the local operating bank. The Corporation does not use derivative financial instruments in its investment portfolio.



Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted because of a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, the Corporations future investment income may fall short of expectations because of changes in interest rates or it may suffer losses in principal if forced to sell securities that have seen a decline in market value because of changes in interest rates.



While interest income on the Corporations cash, cash equivalents, and short-term investments is subject to interest rate fluctuations, the Corporation believes that the impact of these fluctuations does not have a material effect on its financial position due to the short-term nature of these financial instruments. The Corporations interest income and interest expense are most sensitive to the general level of interest rates in Canada. Sensitivity analysis is used to measure the Corporations interest rate risk. Based on analysis of the Corporations balances as of December 31, 2004, a 100 basis-point adverse change in interest rates would not have a material effect on its consolidated financial position, results of operation, or cash flows.



The Corporation does not have any material exposure to commodity risks. The Corporation is exposed to economic and political changes in international markets where the Corporation competes such as





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inflation rates, recession, foreign ownership restrictions and other external factors over which the Corporation has no control; domestic and foreign government spending, budgetary and trade policies.



ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There have been no defaults, dividend arrearages or delinquencies.

ITEM 14.

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

There have been no material modifications to the Corporations common shares.

ITEM 15.

CONTROLS AND PROCEDURES

Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Corporation. Management, including the CEO and CFO, directly supervises the preparation of all of the financial reports prepared by the Corporation and is directly involved in the Corporations financial record keeping and reporting. All accounting records and financial reports prepared by the Corporation are reviewed for accuracy by the CEO and CFO.



As of the end of the period covered by this annual report, an evaluation was carried out under the supervision and with the participation of the Corporations management, including the CEO and CFO, of the effectiveness of the design and operation of the Corporations disclosure controls and procedures, as such term is defined under Rules 13(a)  15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO have concluded that the Corporations disclosure controls and procedures are effective in ensuring that material information required to be disclosed in this annual report is recorded, processed, summarized and reported, and required disclosure is made within the time period specified in the rules and forms of the U.S. Securities and Exchange Commission.



During the period covered by this report, there has been no change in the Corporations internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.



Management, including its CEO and CFO, does not expect that the Corporations disclosure controls and procedures or internal controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by





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the individual acts of some persons, by collusion of two or more people, or by management override of control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 16.





ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

As at the date hereof, the Audit Committee is composed of Messrs. Johnstone, Edmison and Varshney. The Board has determined that Messrs. Johnstone and Varshney are audit committee financial experts as defined in Item 16A of the Form 20-F. Messrs. Johnstone and Edmison are independent directors under Rule 4200(a)(15) of the National Association of Securities Dealers listing standards, as such standards may be amended and modified.



ITEM 16B.

CODE OF ETHICS

The Corporation has not yet adopted a written code of ethics that meets the new United States' Sarbanes-Oxley standards. The Board believes that its existing standards and procedures are adequate for its purposes.  The Corporation believes that its management structure and corporate culture effectively deter wrongdoing and promote honest and ethical conduct, full, fair and accurate, timely, and understandable disclosure in reports and documents, compliance with applicable governmental laws, rules and regulations, prompt internal reporting of unethical conduct and accountability for adherence to the conduct standards. The Corporation has a small number of employees and most of its officers are also directors, thus eliminating any split between the Corporations management and the directors who are responsible to safeguard shareholder interests.  As a result, the Corporation believes that the activities of the Corporations officers, employees and other agents can be easily monitored by its directors, thus eliminating the need for a formal written code of ethics.



ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG LLP, Chartered Accountants (KPMG), are the independent auditors of the Corporation and examined the financial statements of the Corporation for the fiscal years ending December 31, 2004, 2003 and 2002. KPMG performed the services listed below and were paid the corresponding fees for the fiscal years ended December 31, 2004 and 2003.



Audit Fees



Fees billed by KPMG for professional services totaled $75,000 for the year ended December 31, 2004, and $65,000 for the year ended December 31, 2003. Such fees were for the audit of the Corporations annual financial statements and for services in connection with statutory and regulatory filings for such fiscal years.



Audit-Related Fees







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Fees for audit-related services totaled $nil for the year ended December 31, 2004, and $21,993 for the year ended December 31, 2003.



Tax Fees



Fees for tax services billed by KPMG, including fees for tax compliance, tax advice and tax planning work, totaled $12,090 for the year ended December 31, 2004, and $11,342 for the year ended December 31, 2003.



All other Fees



No other fees were billed by KPMG during the fiscal years ended December 31, 2004 or 2003.



During the fiscal years ended December 31, 2004 and December 31, 2003, KPMG did not bill for any products or services other than as described above.



The audit committee pre-approves audit engagement terms and fees prior to the commencement of any audit work, other than that which may be necessary for the Corporations independent auditors to prepare the proposed audit approach, scope and fee estimates. The independent auditors annually submit a written proposal that details all audit and audit related services. Audit fees are fixed and contained in the proposal, and the audit committee reviews the nature and dollar value of services provided under such proposal. Any revisions to such proposal after the engagement has begun are reviewed and pre-approved by the audit committee.



There were no fees in 2004 or 2003 that were not pre-approved by the audit committee. All services described above under the captions Audit Fees and Audit Related Fees and Tax Fees and All Other Fees were approved by the audit committee pursuant to SEC Regulation S-X, Rule 2-01(c)(7)(i).



ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.



ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

No purchases of shares or any other units of any class of the Corporations equity securities have been made by or on behalf of the Corporation or any affiliated purchaser during the last fiscal year.

PART III

ITEM 17.

FINANCIAL STATEMENTS

The Financial Statements have been prepared in accordance with Canadian GAAP and are presented in Canadian dollars.  There are material measurement differences between United States and Canadian GAAP.  A reconciliation of the financial statements to United States GAAP is set forth in Note 17 to the Financial Statements.





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|Financial Statements                                                                                   
|-------------------------------------------------------------------------------------------------------
|Report of Independent Registered Public Accounting Firm dated February 18, 2005.                       
|Consolidated Balance Sheets at December 31, 2004 and 2003.                                             
|Consolidated Statements of Operations 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 Years Ended December 31, 2004, 2003 and 2002.       

ITEM 18.

FINANCIAL STATEMENTS

Not applicable.

ITEM 19.

EXHIBITS

|ExhibitNumber | Description                                                                                                                          
|------------- | -------------------------------------------------------------------------------------------------------------------------------------
|1.1 (1)       | Articles of Andina Development Corporation dated March 26, 1996.                                                                     
|1.2 (1)       | Certificate of Incorporation for Andina Development Corporation dated March 26, 1996.                                                
|1.3 (1)       | By-law effective May 21, 1996, relating generally to the transaction of the business and affairs of Andina Development Corporation.  
|1.4 (2)       | Certificate of Amendment and Registration of Restated Articles of Carmanah Technologies Corporation dated June 19, 2001.             
|4.1 (1)       | Stock Option Plan dated May 21, 1996.                                                                                                
|4.2 (2)       | Stock Option Plan dated May 10, 2001.                                                                                                
|4.3 (2)       | Corporate Advisory Agreement between Varshney Capital Corp. and Carmanah Technologies Corporation dated June 20, 2001.               
|4.4           | Amended Stock Option Plan dated April 15, 2004.                                                                                      
|4.5           | Amended Stock Option Plan dated April 20, 2005.                                                                                      
|4.6           | Amalgamation Agreement dated August 27, 2003 among Carmanah Technologies Corporation, AVVA Technologies Inc. and 1057614 Alberta Ltd.
|4.7           | Lease agreement between the Corporation of the City of Victoria and Carmanah Holdings Ltd. Dated September 1, 1994.                  
|4.8           | Lease agreement between AVVA and Airstate Ltd. dated August 26, 1998.                                                                
|8.1           | List of subsidiaries                                                                                                                 
|12.1          | Section 302 Certification                                                                                                            
|12.2          | Section 302 Certification                                                                                                            
|13.1          | Section 906 Certification                                                                                                            





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|13.2 | Section 906 Certification
|---- | -------------------------

* Indicates management contract or compensatory plan, contract or arrangement.

(1) Incorporated by reference to Form 20-F filed on April 21, 1999.

(2) Incorporated by reference to Form 20-F filed on July 1, 2002.







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SIGNATURE

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





CARMANAH TECHNOLOGIES CORPORATION



Praveen K. Varshney

By:



Praveen K. Varshney



Director & CFO

(Principal Financial Officer)



DATED:  June 22, 2005







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EXHIBIT INDEX

|Exhibit
Number |  | Exhibit
Description                                                                                                                  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|1.1 (1)        |  | Articles of Andina Development Corporation dated March 26, 1996.                                                                     
|1.2 (1)        |  | Certificate of Incorporation for Andina Development Corporation dated March 26, 1996.                                                
|1.3 (1)        |  | By-law effective May 21, 1996, relating generally to the transaction of the business and affairs of Andina Development Corporation.  
|1.4 (2)        |  | Certificate of Amendment and Registration of Restated Articles of Carmanah Technologies Corporation dated June 19, 2001.             
|4.1 (1)        |  | Stock Option Plan dated May 21, 1996.                                                                                                
|4.2 (2)        |  | Stock Option Plan dated May 10, 2001.                                                                                                
|4.3 (2)        |  | Corporate Advisory Agreement between Varshney Capital Corp. and Carmanah Technologies Corporation dated June 20, 2001.               
|4.4            |  | Amended Stock Option Plan dated April 15, 2004.                                                                                      
|4.5            |  | Amended Stock Option Plan dated April 20, 2005.                                                                                      
|4.6            |  | Amalgamation Agreement dated August 27, 2003 among Carmanah Technologies Corporation, AVVA Technologies Inc. and 1057614 Alberta Ltd.
|4.7            |  | Lease agreement between the Corporation of the City of Victoria and Carmanah Holdings Ltd. dated September 1, 1994.                  
|4.8            |  | Lease agreement between AVVA and Airstate Ltd. dated August 26, 1998.                                                                
|8.1            |  | List of subsidiaries                                                                                                                 
|12.1           |  | Section 302 Certification                                                                                                            
|12.2           |  | Section 302 Certification                                                                                                            
|13.1           |  | Section 906 Certification                                                                                                            
|13.2           |  | Section 906 Certification                                                                                                            

* Indicates management contract or compensatory plan, contract or arrangement.

(1) Incorporated by reference to Form 20-F filed on April 21, 1999.

(2) Incorporated by reference to Form 20-F filed on July 1, 2002.













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Exhibit 4.4



2004 STOCK OPTION PLAN

CARMANAH TECHNOLOGIES CORPORATION



1.

Purpose



The purpose of the Stock Option Plan (the "Plan") of Carmanah Technologies Corporation, a corporation incorporated under the Business Corporations Act (Alberta) (the "Corporation"), is to advance the interests of the Corporation by encouraging the directors, officers, employees and consultants of the Corporation, and of its subsidiaries and affiliates, to acquire shares in the Corporation, thereby increasing their proprietary interest in the Corporation, encouraging them to remain associated with the Corporation and furnishing them with additional incentive in their efforts on behalf of the Corporation in the conduct of its affairs.



2.

Administration



The Plan shall be administered by the Board of Directors of the Corporation or by a special committee of the directors appointed from time to time by the Board of Directors of the Corporation pursuant to rules of procedure fixed by the Board of Directors (such committee or, if no such committee is appointed, the Board of Directors of the Corporation is hereinafter referred to as the Board).  A majority of the Board shall constitute a quorum, and the acts of a majority of the directors present at any meeting at which a quorum is present, or acts unanimously approved in writing, shall be the acts of the directors.



Subject to the provisions of the Plan, the Board shall have authority to construe and interpret the Plan and all option agreements entered into thereunder, to define the terms used in the Plan and in all option agreements entered into thereunder, to prescribe, amend and rescind rules and regulations relating to the Plan and to make all other determinations necessary or advisable for the administration of the Plan.  All determinations and interpretations made by the Board shall be binding and conclusive on all participants in the Plan and on their legal personal representatives and beneficiaries.



Each option granted hereunder may be evidenced by an agreement in writing, signed on behalf of the Corporation and by the optionee, in such form as the Board shall approve.  Each such agreement shall recite that it is subject to the provisions of this Plan.



3.

Stock Exchange Rules



All options granted pursuant to this Plan shall be subject to rules and policies of any stock exchange or exchanges on which the common shares of the Corporation are then listed and any other regulatory body having jurisdiction hereinafter (collectively referred to as, the Exchange).



4.

Shares Subject to Plan



Subject to adjustment as provided in Section 15 hereof, the shares to be offered under the Plan shall consist of shares of the Corporation's authorized but unissued common shares.  The aggregate number of shares issuable upon the exercise of all options granted under the Plan shall not exceed 4,531,683 common shares.  If any option granted hereunder shall expire or terminate for any reason in accordance with the terms of the Plan without being exercised, the unpurchased shares subject thereto shall again be available for the purpose of this Plan.



5.

Maintenance of Sufficient Capital



The Corporation shall at all times during the term of the Plan reserve and keep available such numbers of shares as will be sufficient to satisfy the requirements of the Plan.



6.

Eligibility and Participation







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Directors, officers, consultants, and employees of the Corporation or its subsidiaries, and employees of a person or company which provides management services (excluding investor relations services) to the Corporation or its subsidiaries (Management Company Employees) shall be eligible for selection to participate in the Plan (such persons hereinafter collectively referred to as "Participants").  Subject to compliance with applicable requirements of the Exchange, Participants may elect to hold options granted to them in an incorporated entity wholly owned by them and such entity shall be bound by the Plan in the same manner as if the options were held by the Participant.



Subject to the terms hereof, the Board shall determine to whom options shall be granted, the terms and provisions of the respective option agreements, the time or times at which such options shall be granted and vested, and the number of shares to be subject to each option.  In the case of employees or consultants of the Corporation or Management Company Employees, the option agreements to which they are party must contain a representation of the Corporation that such employee, consultant or Management Company Employee, as the case may be, is a bona fide employee, consultant or Management Company Employee of the Corporation or its subsidiaries.



An individual who has been granted an option may, if he is otherwise eligible, and if permitted under the policies of the Exchange, be granted an additional option or options if the Board shall so determine.



7.

Exercise Price



(a)

The exercise price of the shares subject to each option shall be determined by the Board, subject to applicable Exchange approval, at the time any option is granted.  In no event shall such price be lower than the price permitted by the Exchange.



(b)

Once the exercise price has been determined by the Board, accepted by the Exchange and the option has been granted, the exercise price of an option may only be reduced, in the case of options held by insiders of the Corporation (as defined by the Exchange), if disinterested shareholder approval is obtained at a meeting of the shareholders of the Corporation and Exchange approval is obtained.



8.

Number of Optioned Shares



The number of shares subject to an option granted to any one Participant shall be determined by the Board, but no one Participant shall be granted an option which exceeds the maximum number permitted by the Exchange.



No individual may be granted options to purchase a number of shares equalling more than 5% of the issued shares of the Corporation in any twelve-month period.



No more than 2% of the issued shares of the Corporation may be granted to any one consultant of the Corporation or its subsidiaries in any twelve-month period.



No more than 2% of the issued shares of the Corporation may be granted to any employee of the Corporation or its subsidiaries who is conducting investor relation activities in any twelve-month period.



9.

Duration of Option



Each option and all rights thereunder shall be expressed to expire on the date set out in the option agreement and shall be subject to earlier termination as provided in Sections 11 and12, provided that in no circumstances shall the duration of an option exceed the maximum term permitted by the Exchange.  For greater certainty, if the Corporation is listed on the Exchange, the maximum term may not exceed 10 years if the Corporation is classified as a Tier 1 issuer by the Exchange, and the maximum term may not exceed 5 years if the Corporation is classified as a Tier 2 issuer by the Exchange.







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10.

Option Period, Consideration and Payment



(a)

The option period shall be a period of time fixed by the Board not to exceed the maximum period of time permitted by the Exchange, provided that the option period shall be reduced with respect to any option as provided in Sections 11 and 12 covering cessation as a director, officer, consultant, employee or Management Company Employee of the Corporation or its subsidiaries, or death of the Participant.



(b)

Subject to the policies of the Exchange, an option shall vest and may be exercised (in each case to the nearest full share) during the option period:



(i)

in the circumstance where the number of shares reserved for issuance by the Board pursuant to the exercise of options granted is less than or equal to 10% of the number of issued and outstanding shares of the Corporation, in such manner as the Board may determine;



(ii)

in the circumstance where the Corporation is a Tier 2 Issuer, as defined in the policies of the Exchange, and the number of shares reserved for issuance by the Board pursuant to the exercise of options granted is greater than 10% of the issued and outstanding shares of the Corporation, in accordance with a vesting schedule. Unless approved by the Exchange, vesting of options granted shall occur over a period of at least 18 months, and shall vest no more than equally on a quarterly basis.  Having regard to the foregoing minimums, the specific terms of the vesting for individual options shall be as determinedby the Board andnegotiated withtheindividual optionee.



(c)

Options which have vested, may be exercised in whole or in part at any time and from time to time during the option period.  To the extent required by the Exchange, no options may be exercised under this Plan until this Plan has been approved by a resolution duly passed by the shareholders of the Corporation.



(d)

Except as set forth in Sections 11 and 12, no option may be exercised unless the Participant is at the time of such exercise a director, officer, consultant, or employee of the Corporation or any of its subsidiaries, or a Management Company Employee of the Corporation or any of its subsidiaries.



(e)

The exercise of any option will be contingent upon receipt by the Corporation at its head office of a written notice of exercise, specifying the number of common shares with respect to which the option is being exercised, accompanied by cash payment, certified cheque or bank draft for the full purchase price of such common shares with respect to which the option is exercised.  No Participant or his legal representatives, legatees or distributees will be, or will be deemed to be, a holder of any shares subject to an option under this Plan, unless and until the certificates for such shares are issued to him or them under the terms of the Plan.



11.

Ceasing To Be a Director, Officer, Consultant or Employee



If a Participant shall cease to be a director, officer, consultant, employee of the Corporation or its subsidiaries, or a Management Company Employee for any reason (other than death), he may exercise his option to the extent that he was entitled to exercise it at the date of such cessation, but only within 90 days after his ceasing to be a director, officer, consultant, employee or a Management Company Employee, unless such Participant was engaged in investor relations activities in which case, only within 30 days after the cessation of his services to the Corporation.



Nothing contained in the Plan, nor in any option granted pursuant to the Plan, shall as such confer upon any Participant any right with respect to continuance as a director, officer, consultant, employee or Management Company Employee of the Corporation or of any of its subsidiaries or affiliates.







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12.

Death of Participant



In the event of the death of a Participant, the option previously granted to him shall be exercisable only within the one (1) year after such death and then only:



(a)

by the person or persons to whom the Participant's rights under the option shall pass by the Participant's will or the laws of descent and distribution; and



(b)

if and to the extent that he was entitled to exercise the Option at the date of his death.



13.

Rights of Optionee



No person entitled to exercise any option granted under the Plan shall have any of the rights or privileges of a shareholder of the Corporation in respect of any shares issuable upon exercise of such option until certificates representing such shares shall have been issued and delivered.



14.

Proceeds from Sale of Shares



The proceeds from sale of shares issued upon the exercise of options shall be added to the general funds of the Corporation and shall thereafter be used from time to time for such corporate purposes as the Board may determine.



15.

Adjustments



If the outstanding shares of the Corporation are increased, decreased, changed into or exchanged for a different number or kind of shares of securities of the Corporation through re-organization, merger, re-capitalization, re-classification, stock dividend, subdivision or consolidation, an appropriate and proportionate adjustment shall be made by the Board in its discretion in the number or kind of shares optioned and the exercise price per share, as regards previously granted and unexercised options or portions thereof, and as regards options which may be granted subsequent to any such change in the Corporations capital.



Upon the liquidation or dissolution of the Corporation or upon a re-organization, merger or consolidation of the Corporation with one or more corporations as a result of which the Corporation is not the surviving corporation, or upon the sale of substantially all of the property or more than eighty (80%) percent of the then outstanding shares of the Corporation to another corporation, the Plan shall terminate, and any options theretofore granted hereunder shall terminate unless provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of options theretofore granted, or the substitution for such options of new options covering the shares of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to number and kind of shares and exercise prices, in which event the Plan and options theretofore granted shall continue in the manner and upon the terms so provided.  If the Plan and unexercised options shall terminate pursuant to the foregoing sentence, the shares subject to all options granted shall, subject to prior Exchange acceptance,immediately vest and all Participants then entitled to exercise an unexercised portion of options then outstanding shall have the right at such time immediately prior to consummation of the event which results in the termination of the Plan as the Corporation shall designate, to exercise their options to the full extent not theretofore exercised.



Adjustments under this Section shall be made by the Board whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive.  No fractional share shall be required to be issued under the Plan on any such adjustment.



16.

Transferability



All benefits, rights and options accruing to any Participant in accordance with the terms and conditions of the Plan shall not be transferrable or assignable unless specifically provided herein or the extent, if any, permitted by





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the Exchange.  During the lifetime of a Participant any benefits, rights and options may only be exercised by the Participant.



17.

Amendment and Termination of Plan



Subject to applicable approval of the Exchange, the Board may, at any time, suspend or terminate the Plan.  Subject to applicable approval of the Exchange, the Board may also at any time amend or revise the terms of the Plan, provided that no such amendment or revision shall resulting in a material adverse change to the terms of any options theretofore granted under the Plan, unless shareholder approval, or disinterested shareholder approval, as the case may be, if obtained for such amendment or revision.



18.

Necessary Approvals



The ability of a Participant to exercise options and the obligation of the Corporation to issue and deliver shares in accordance with the Plan is subject to any approvals which may be required from shareholders of the Corporation and any regulatory authority or stock exchange having jurisdiction over the securities of the Corporation.  If any shares cannot be issued to any Participant for whatever reason, the obligation of the Corporation to issue such shares shall terminate and any option exercise price paid to the Corporation will be returned to the Participant.



19.

Effective Date of Plan



The Plan has been adopted by the Board of the Corporation subject to the approval of the Exchange and, if so approved, the Plan shall become effective upon such approvals being obtained.



20.

Interpretation



The Plan will be governed by and construed in accordance with the laws of the Province of British Columbia.



MADE by the Board of Directors of the Corporation as evidenced by the signature of the following director duly authorized in that behalf effective April 15, 2004.



CARMANAH TECHNOLOGIES CORPORATION



Per  Peeyush K. Varshney



Name:

Peeyush K. Varshney, LL.B.

Title:

Corporate Secretary











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Exhibit 4.5



2005 STOCK OPTION PLAN

CARMANAH TECHNOLOGIES CORPORATION



1.

Purpose



The purpose of the Stock Option Plan (the "Plan") of Carmanah Technologies Corporation, a corporation incorporated under the Business Corporations Act (Alberta) (the "Corporation"), is to advance the interests of the Corporation by encouraging the directors, officers, employees and consultants of the Corporation, and of its subsidiaries and affiliates, to acquire shares in the Corporation, thereby increasing their proprietary interest in the Corporation, encouraging them to remain associated with the Corporation and furnishing them with additional incentive in their efforts on behalf of the Corporation in the conduct of its affairs.



2.

Administration



The Plan shall be administered by the Board of Directors of the Corporation or by a special committee of the directors appointed from time to time by the Board of Directors of the Corporation pursuant to rules of procedure fixed by the Board of Directors (such committee or, if no such committee is appointed, the Board of Directors of the Corporation is hereinafter referred to as the Board).  A majority of the Board shall constitute a quorum, and the acts of a majority of the directors present at any meeting at which a quorum is present, or acts unanimously approved in writing, shall be the acts of the directors.



Subject to the provisions of the Plan, the Board shall have authority to construe and interpret the Plan and all option agreements entered into thereunder, to define the terms used in the Plan and in all option agreements entered into thereunder, to prescribe, amend and rescind rules and regulations relating to the Plan and to make all other determinations necessary or advisable for the administration of the Plan.  All determinations and interpretations made by the Board shall be binding and conclusive on all participants in the Plan and on their legal personal representatives and beneficiaries.



Each option granted hereunder may be evidenced by an agreement in writing, signed on behalf of the Corporation and by the optionee, in such form as the Board shall approve.  Each such agreement shall recite that it is subject to the provisions of this Plan.



3.

Stock Exchange Rules



All options granted pursuant to this Plan shall be subject to rules and policies of any stock exchange or exchanges on which the common shares of the Corporation are then listed and any other regulatory body having jurisdiction hereinafter (collectively referred to as, the Exchange).



4.

Shares Subject to Plan



Subject to adjustment as provided in Section 15 hereof, the shares to be offered under the Plan shall consist of shares of the Corporation's authorized but unissued common shares.  The aggregate number of shares issuable upon the exercise of all options granted under the Plan shall not exceed 4,559,133 common shares.  If any option granted hereunder shall expire or terminate for any reason in accordance with the terms of the Plan without being exercised, the unpurchased shares subject thereto shall again be available for the purpose of this Plan.



5.

Maintenance of Sufficient Capital



The Corporation shall at all times during the term of the Plan reserve and keep available such numbers of shares as will be sufficient to satisfy the requirements of the Plan.



6.

Eligibility and Participation





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Directors, officers, consultants, and employees of the Corporation or its subsidiaries, and employees of a person or company which provides management services (excluding investor relations services) to the Corporation or its subsidiaries (Management Company Employees) shall be eligible for selection to participate in the Plan (such persons hereinafter collectively referred to as "Participants").  Subject to compliance with applicable requirements of the Exchange, Participants may elect to hold options granted to them in an incorporated entity wholly owned by them and such entity shall be bound by the Plan in the same manner as if the options were held by the Participant.



Subject to the terms hereof, the Board shall determine to whom options shall be granted, the terms and provisions of the respective option agreements, the time or times at which such options shall be granted and vested, and the number of shares to be subject to each option.  In the case of employees or consultants of the Corporation or Management Company Employees, the option agreements to which they are party must contain a representation of the Corporation that such employee, consultant or Management Company Employee, as the case may be, is a bona fide employee, consultant or Management Company Employee of the Corporation or its subsidiaries.



An individual who has been granted an option may, if he is otherwise eligible, and if permitted under the policies of the Exchange, be granted an additional option or options if the Board shall so determine.



7.

Exercise Price



(a)

The exercise price of the shares subject to each option shall be determined by the Board, subject to applicable Exchange approval, at the time any option is granted.  In no event shall such price be lower than the price permitted by the Exchange.



(b)

Once the exercise price has been determined by the Board, accepted by the Exchange and the option has been granted, the exercise price of an option may only be reduced, in the case of options held by insiders of the Corporation (as defined by the Exchange), if disinterested shareholder approval is obtained at a meeting of the shareholders of the Corporation and Exchange approval is obtained.



8.

Number of Optioned Shares



The number of shares subject to an option granted to any one Participant shall be determined by the Board, but no one Participant shall be granted an option which exceeds the maximum number permitted by the Exchange.



No individual may be granted options to purchase a number of shares equalling more than 5% of the issued shares of the Corporation in any twelve-month period.



No more than 2% of the issued shares of the Corporation may be granted to any one consultant of the Corporation or its subsidiaries in any twelve-month period.



No more than 2% of the issued shares of the Corporation may be granted to any employee of the Corporation or its subsidiaries who is conducting investor relation activities in any twelve-month period.



9.

Duration of Option



Each option and all rights thereunder shall be expressed to expire on the date set out in the option agreement and shall be subject to earlier termination as provided in Sections 11 and12, provided that in no circumstances shall the duration of an option exceed the maximum term permitted by the Exchange.  For greater certainty, if the Corporation is listed on the Exchange, the maximum term may not exceed 10 years if the Corporation is classified as a Tier 1 issuer by the Exchange, and the maximum term may not exceed 5 years if the Corporation is classified as a Tier 2 issuer by the Exchange.







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10.

Option Period, Consideration and Payment



(a)

The option period shall be a period of time fixed by the Board not to exceed the maximum period of time permitted by the Exchange, provided that the option period shall be reduced with respect to any option as provided in Sections 11 and 12 covering cessation as a director, officer, consultant, employee or Management Company Employee of the Corporation or its subsidiaries, or death of the Participant.



(b)

Subject to the policies of the Exchange, an option shall vest and may be exercised (in each case to the nearest full share) during the option period:



(i)

in the circumstance where the number of shares reserved for issuance by the Board pursuant to the exercise of options granted is less than or equal to 10% of the number of issued and outstanding shares of the Corporation, in such manner as the Board may determine;



(ii)

in the circumstance where the Corporation is a Tier 2 Issuer, as defined in the policies of the Exchange, and the number of shares reserved for issuance by the Board pursuant to the exercise of options granted is greater than 10% of the issued and outstanding shares of the Corporation, in accordance with a vesting schedule. Unless approved by the Exchange, vesting of options granted shall occur over a period of at least 18 months, and shall vest no more than equally on a quarterly basis.  Having regard to the foregoing minimums, the specific terms of the vesting for individual options shall be as determined by the Board and negotiated with the individual optionee.



(c)

Options which have vested, may be exercised in whole or in part at any time and from time to time during the option period.  To the extent required by the Exchange, no options may be exercised under this Plan until this Plan has been approved by a resolution duly passed by the shareholders of the Corporation.



(d)

Except as set forth in Sections 11 and 12, no option may be exercised unless the Participant is at the time of such exercise a director, officer, consultant, or employee of the Corporation or any of its subsidiaries, or a Management Company Employee of the Corporation or any of its subsidiaries.



(e)

The exercise of any option will be contingent upon receipt by the Corporation at its head office of a written notice of exercise, specifying the number of common shares with respect to which the option is being exercised, accompanied by cash payment, certified cheque or bank draft for the full purchase price of such common shares with respect to which the option is exercised.  No Participant or his legal representatives, legatees or distributees will be, or will be deemed to be, a holder of any shares subject to an option under this Plan, unless and until the certificates for such shares are issued to him or them under the terms of the Plan.



11.

Ceasing To Be a Director, Officer, Consultant or Employee



If a Participant shall cease to be a director, officer, consultant, employee of the Corporation or its subsidiaries, or a Management Company Employee for any reason (other than death), he may exercise his option to the extent that he was entitled to exercise it at the date of such cessation, but only within 90 days after his ceasing to be a director, officer, consultant, employee or a Management Company Employee, unless such Participant was engaged in investor relations activities in which case, only within 30 days after the cessation of his services to the Corporation.



Nothing contained in the Plan, nor in any option granted pursuant to the Plan, shall as such confer upon any Participant any right with respect to continuance as a director, officer, consultant, employee or Management Company Employee of the Corporation or of any of its subsidiaries or affiliates.







74



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12.

Death of Participant



In the event of the death of a Participant, the option previously granted to him shall be exercisable only within the one (1) year after such death and then only:



(a)

by the person or persons to whom the Participant's rights under the option shall pass by the Participant's will or the laws of descent and distribution; and



(b)

if and to the extent that he was entitled to exercise the Option at the date of his death.



13.

Rights of Optionee



No person entitled to exercise any option granted under the Plan shall have any of the rights or privileges of a shareholder of the Corporation in respect of any shares issuable upon exercise of such option until certificates representing such shares shall have been issued and delivered.



14.

Proceeds from Sale of Shares



The proceeds from sale of shares issued upon the exercise of options shall be added to the general funds of the Corporation and shall thereafter be used from time to time for such corporate purposes as the Board may determine.



15.

Adjustments



If the outstanding shares of the Corporation are increased, decreased, changed into or exchanged for a different number or kind of shares of securities of the Corporation through re-organization, merger, re-capitalization, re-classification, stock dividend, subdivision or consolidation, an appropriate and proportionate adjustment shall be made by the Board in its discretion in the number or kind of shares optioned and the exercise price per share, as regards previously granted and unexercised options or portions thereof, and as regards options which may be granted subsequent to any such change in the Corporations capital.



Upon the liquidation or dissolution of the Corporation or upon a re-organization, merger or consolidation of the Corporation with one or more corporations as a result of which the Corporation is not the surviving corporation, or upon the sale of substantially all of the property or more than eighty (80%) percent of the then outstanding shares of the Corporation to another corporation, the Plan shall terminate, and any options theretofore granted hereunder shall terminate unless provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of options theretofore granted, or the substitution for such options of new options covering the shares of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to number and kind of shares and exercise prices, in which event the Plan and options theretofore granted shall continue in the manner and upon the terms so provided.  If the Plan and unexercised options shall terminate pursuant to the foregoing sentence, the shares subject to all options granted shall, subject to prior Exchange acceptance, immediately vest and all Participants then entitled to exercise an unexercised portion of options then outstanding shall have the right at such time immediately prior to consummation of the event which results in the termination of the Plan as the Corporation shall designate, to exercise their options to the full extent not theretofore exercised.



Adjustments under this Section shall be made by the Board whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive.  No fractional share shall be required to be issued under the Plan on any such adjustment.



16.

Transferability



All benefits, rights and options accruing to any Participant in accordance with the terms and conditions of the Plan shall not be transferrable or assignable unless specifically provided herein or the extent, if any, permitted by





75



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the Exchange.  During the lifetime of a Participant any benefits, rights and options may only be exercised by the Participant.



17.

Amendment and Termination of Plan



Subject to applicable approval of the Exchange, the Board may, at any time, suspend or terminate the Plan.  Subject to applicable approval of the Exchange, the Board may also at any time amend or revise the terms of the Plan, provided that no such amendment or revision shall resulting in a material adverse change to the terms of any options theretofore granted under the Plan, unless shareholder approval, or disinterested shareholder approval, as the case may be, if obtained for such amendment or revision.



18.

Necessary Approvals



The ability of a Participant to exercise options and the obligation of the Corporation to issue and deliver shares in accordance with the Plan is subject to any approvals which may be required from shareholders of the Corporation and any regulatory authority or stock exchange having jurisdiction over the securities of the Corporation.  If any shares cannot be issued to any Participant for whatever reason, the obligation of the Corporation to issue such shares shall terminate and any option exercise price paid to the Corporation will be returned to the Participant.



19.

Effective Date of Plan



The Plan has been adopted by the Board of the Corporation subject to the approval of the Exchange and, if so approved, the Plan shall become effective upon such approvals being obtained.



20.

Interpretation



The Plan will be governed by and construed in accordance with the laws of the Province of British Columbia.



MADE by the Board of Directors of the Corporation as evidenced by the signature of the following director duly authorized in that behalf effective April 20, 2005.



CARMANAH TECHNOLOGIES CORPORATION



Per  Peeyush K. Varshney



Name:

Peeyush K. Varshney, LL.B.

Title:

Corporate Secretary





































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Exhibit 8.1



LIST OF SUBSIDIARIES





|Subsidiary                 | Jurisdiction of Incorporation
|-------------------------- | -----------------------------
|                           |                              
|AVVA Technologies, Inc.    | Alberta, Canada              
|Carmanah Signs Inc.        | Alberta, Canada              
|Carmanah Technologies Inc. | British Columbia, Canada     







77



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Exhibit 12.1



CERTIFICATION

I, Art Aylesworth, certify that:



1.

I have reviewed this annual report on Form 20-F of Carmanah Technologies Corp.;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;



4.

The companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and



5.

The companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.





Art Aylesworth

Date:  June 22, 2005

_____________________________________

Art Aylesworth, President and Chief Executive Officer

(Principal Executive Officer)





78



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Exhibit 12.2



CERTIFICATION



I, Praveen Varshney, certify that:



1.

I have reviewed this annual report on Form 20-F of Carmanah Technologies Corp.;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;



4.

The companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and



5.

The companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.





Praveen Varshney

Date:  June 22, 2005

__________________________________

Praveen Varshney, Chief Financial Officer

(Principal Financial Officer)





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Exhibit 13.1



CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the annual report of Carmanah Technologies Corporation (the Corporation) on Form 20-F for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Art Aylesworth, President and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.





Art Aylesworth

Date:

June 22, 2005

_________________________________________

Art Aylesworth, President and Chief Executive Officer

(Principal Executive Officer)









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Exhibit 13.2



CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the annual report of Carmanah Technologies Corporation (the Corporation) on Form 20-F for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Praveen Varshney, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.





Praveen Varshney

Date:

June 22, 2005

__________________________________

Praveen Varshney, Chief Financial Officer

(Principal Financial Officer)













81

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Exhibit
4.6



THIS
AMALGAMATION AGREEMENT made as of the 27th day of August, 2003

AMONG:

CARMANAH
TECHNOLOGIES CORPORATION, a body corporate incorporated under the laws of
the Province of Alberta with its head office in the City of Vancouver, in the
Province of British Columbia (hereinafter called "Carmanah")

-
and -

AVVA
TECHNOLOGIES INC., a body corporate incorporated under the laws of the
Province of Alberta with its head office in the City of Calgary, in the Province
of Alberta (hereinafter called "AVVA")

-
and -

1057614
ALBERTA LTD., a body corporate incorporated under the laws of the
Province of Alberta with its head office in the City of Vancouver, in the
Province of British Columbia (hereinafter called "Newco")

WHEREAS
Carmanah wishes to purchase, directly or indirectly, all of the issued and
outstanding securities of AVVA;

AND
WHEREAS Newco is a newly incorporated, wholly-owned subsidiary of Carmanah
and has not carried on any business;

AND
WHEREAS Carmanah, Newco and AVVA wish to effect the foregoing merger through
the amalgamation of Newco with AVVA, such that the amalgamated corporation is a
wholly-owned subsidiary of Carmanah and the existing shareholders of AVVA will
become shareholders of Carmanah, in accordance with the terms and conditions
herein set forth;

NOW
THEREFORE IN CONSIDERATION of the covenants and agreements herein contained
and other good and valuable consideration (the receipt and sufficiency of which
is hereby acknowledged), the parties hereto covenant and agree as follows:

ARTICLE
1
DEFINITIONS

1.1

In
this Agreement, unless the context otherwise requires:

(a)

"ABCA"
means the Business Corporations Act (Alberta);

(b)

"affiliate"
shall have the meaning given thereto in the ABCA;

(c)

"Agreement"
means this agreement, including the recitals and all Schedules to this agreement
as amended or supplemented from time to time, and "hereby", "hereof',
"herein", "hereunder", "herewith" and similar terms refer to this
Agreement and not to any particular provision of this Agreement;





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-
2 -



(d)

"Amalgamated
Corporation" means the continuing corporation constituted upon the
Amalgamation;

(e)

"Amalgamation"
means the amalgamation of AVVA and Newco under Section 181 of the ABCA, as
provided for herein;

(f)

"Articles
of Amalgamation" means the articles of amalgamation in respect of the
Amalgamation;

(g)

"associates"
shall have the meaning given thereto in the Securities Act (British
Columbia);

(h)

"AVVA"
means AVVA Technologies Inc., a corporation incorporated under the ABCA;

(i)

"AVVA
Common Shares" or "AVVA Shares" means the common shares without
nominal or par value in the capital of AVVA as constituted on the date hereof;

(j)

"AVVA
Financial Statements" means, collectively, the audited financial
statements of AVVA for the years ended December 31, 2002 and 2001, and the
unaudited financial statements of AVVA for the period ended June 30, 2003;

(k)

"AVVA
Information Circular" means the information circular to be used in
connection with the holding of the AVVA Meeting;

(l)

"AVVA
Meeting" means the special meeting of the holders of AVVA Shares to be
held on the Meeting Date, to consider and, if thought fit, approve and adopt the
Amalgamation pursuant hereto, and any adjournments thereof;

(m)

"AVVA
Options" means those options to purchase AVVA Shares held by employees,
consultants, directors and officers of AVVAas more particularly
described in Section 7.1(b) hereof;

(n)

"AVVA
Warrant" means a common share purchase warrant entitling the holder
thereof to purchase AVVA shares as more particularly described in
Section 7.1(b) hereof;

(o)

"BLG"
means Borden Ladner Gervais LLP;

(p)

"Business
Day" means a day, other than a Saturday, Sunday or statutory holiday, when
banks in the City of Calgary are generally open for the transaction of banking
business;

(q)

"Carmanah"
means Carmanah Technologies Corporation, a corporation incorporated under the
ABCA;

(r)

"Carmanah
Amalgamation Options" means those options to purchase Carmanah Shares held
by employees, directors and officers of Carmanah as more particularly described
in Section 8.1(b) hereof;

(s)

"Carmanah
Amalgamation Warrant" means a common share purchase warrant entitling the
holder thereof to acquire one Carmanah Share at a price of $0.95 per Carmanah
Share.  Of the Carmanah Amalgamation Warrants to be issued, 20,643 will





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-
3 -



have
an expiry date of November 28, 2003, 48,077 will have an expiry date of
February 8, 2004, and the remaining 48,077 will have an expiry date of
April 12, 2004;

(t)

"Carmanah
Assets" means all of the assets and properties of Carmanah;

(u)

"Carmanah
Common Shares" or "Carmanah Shares" means common shares in the
capital of Carmanah as constituted on the date hereof;

(v)

"Carmanah
Financial Statements" means, collectively the audited financial statements
of Carmanah for the years ended December 31, 2002 and 2001 and the unaudited
financial statements of Carmanah for the period ended June 30, 2003;

(w)

"Closing"
means the delivery of the documents contemplated by this Agreement to be
delivered by or on behalf of one party hereunder to another party hereunder in
order to effect the completion of the Amalgamation and the other transactions
contemplated herein, which delivery of documents shall take place at the Closing
Time at the offices of BLG in Calgary, Alberta, unless otherwise agreed by
Carmanah and AVVA;

(x)

"Closing
Date" shall be the date on which the Closing shall occur, which date shall
be the date following the Meeting Date, unless otherwise agreed in writing by
Carmanah and AVVA;

(y)

"Closing
Time" shall be the time on the Closing Date at which the Closing shall
occur, which time shall be 10:00 a.m.  (Calgary time) unless otherwise
agreed by Carmanah and AVVA;

(z)

"Control"
means, with respect to control of a body corporate by a person, the holding
(other than by way of security) by or for the benefit of that person of
securities of that body corporate to which are attached more than 50% of the
votes that may be cast to elect directors of the body corporate (whether or not
securities of any other class or classes shall or might be entitled to vote upon
the happening of any event or contingency) provided that such votes, if
exercised, are sufficient to elect a majority of the board of directors of the
body corporate;

(aa)

"Depositary"
means Pacific Corporate Trust Company, at its principal stock transfer office in
Vancouver, British Columbia;

(bb)

"Depositary
Agreement" means the agreement to be entered into between Carmanah and the
Depositary with respect to the deposit of AVVA Shares pursuant to the
Amalgamation;

(cc)

"Dissenting
Shareholder" means a shareholder of AVVA that validly exercises its right
of dissent under the ABCA in respect of the Amalgamation and thereby is entitled
to receive payment of fair value of its AVVA shares;

(dd)

"Effective
Date" means the date the Amalgamation becomes effective under the ABCA;

(ee)

"Effective
Time" means 12:01 a.m.  (Calgary time) on the Effective Date;





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-
4 -



(ff)

"Governmental
Authority" includes any federal, provincial, municipal or other political
subdivision, government, department, commission, board, bureau, agency or
instrumentality, domestic or foreign;

(gg)

"Letter
of Intent" means the letter of intent dated June 20, 2003 between AVVA and
Carmanah;

(hh)

"Letters
of Transmittal" means the letters of transmittal to be forwarded by
Carmanah to the holders of AVVA Shares for use in exchanging Carmanah Shares for
AVVA Shares, Carmanah Amalgamation Options for AVVA Options and Carmanah
Amalgamation Warrants for AVVA Warrants;

(ii)

"Mailing
Date" means the date on which the AVVA Information Circular is mailed to
the AVVA shareholders, which date shall be the soonest reasonable date following
the TSXV Filing Date as the mailing can take place;

(jj)

"Meeting
Date" means the date of the AVVA Meeting which date shall be the soonest
reasonable date following the Mailing Date as may be permitted by Governmental
Authorities;

(kk)

"misrepresentation"
includes any untrue statement of a material fact, any omission to state a
material fact that is required to be stated and any omission to state a material
fact that is necessary to be stated in order for a statement not to be
misleading;

(ll)

"Newco"
means 1057614 Alberta Ltd., a corporation incorporated under the ABCA;

(mm)

"Newco
Common Shares" or "Newco Shares" means the common shares
without nominal or par value in the capital of Newco as constituted as at the
Effective Date;

(nn)

"person"
includes any individual, partnership, firm, trust, body corporate, government,
governmental body, agency or instrumentality, unincorporated body of persons or
association;

(oo)

"Public
Record" means all information filed by and on behalf of Carmanah or AVVA,
as applicable, with any securities commission in Canada, in compliance or
intended compliance with all applicable securities laws;

(pp)

"Subsidiary"
means a subsidiary as defined in the ABCA;

(qq)

"Transaction
Documents"means those documents necessary to give effect to the
transactions contemplated in this Agreement;

(rr)

"TSXV"
means the TSX Venture Exchange Inc.; and

(ss)

"TSXV
Filing Date" means the date AVVA files with TSXV a draft copy of the AVVA
Information Circular for review and approval.





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-
5 -



ARTICLE
2
INTERPRETATION

2.1

The
division of this Agreement into Articles, Sections, subsections and paragraphs
and the insertion of headings are for convenience of reference only and shall
not affect in any way the meaning or interpretation of this Agreement.

2.2

Unless
the contrary intention appears, references in this Agreement to an article,
section, subsection, paragraph, clause, subclause or schedule by number or
letter or both refer to the article, section, subsection, paragraph, clause,
subclause or schedule, respectively, bearing that designation in this Agreement.

2.3

In
this Agreement, unless the contrary intention appears, words importing the
singular include the plural and vice versa and words importing gender shall
include all genders.

2.4

In
the event that the date on which any action is required to be taken hereunder by
any of the parties is not a business day in the place where the action is
required to be taken, such action shall be required to be taken on the next
succeeding day which is a business day in such place.

2.5

References
in this Agreement to any statute or sections thereof shall include such statute
as amended or substituted and any regulations promulgated thereunder from time
to time in effect.

2.6

Unless
otherwise stated, all references in this Agreement to sums of money are
expressed in lawful money of Canada.

2.7

All
representations, warranties, covenants and opinions in or contemplated by this
Agreement as to the enforceability of any covenant, agreement or document are
subject to enforceability being limited by applicable bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally and by the
discretionary nature of certain remedies (including specific performance and
injunctive relief).

ARTICLE
3
AMALGAMATION

3.1

Amalgamation.AVVA and Newco agree to amalgamate pursuant to the provisions of
Section 181 of the ABCA and to continue as one corporation effective on the
Effective Date, on the terms and subject to the conditions set out herein.

3.2

Name.The name of the amalgamated corporation shall be AVVA Technologies
Inc. (the "Amalgamated Corporation").

3.3

Registered
Office.The registered office of the Amalgamated Corporation shall be
situate at Suite 1000, 400 - 3rd Avenue S.W., Calgary, Alberta,
Canada, T2P 4H2.

3.4

Authorized
Capital and Restrictions on Share Transfers.The Amalgamated
Corporation shall be authorized to issue an unlimited number of common shares,
and an unlimited number of preferred shares, each of which shall have the
rights, privileges, restrictions and conditions set forth in the Articles of
Amalgamation and the ABCA.  No shares of the Amalgamated Corporation shall
be transferred without approval of the board of directors of the Amalgamated
Corporation.

3.5

Number
of Directors.The number of directors of the Amalgamated Corporation
shall be six (6).





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-
6 -



3.6

First
Directors.The first directors of the Amalgamated Corporation shall be
David Green, Art Aylesworth, Praveen Varshney, Kelly Edmison, Trevor Johnstone
and Mark Komonoski.

The
first directors shall hold office until the first annual or general meeting of
the shareholders of the Amalgamated Corporation (or a resolution in lieu
thereof) or until their successors are duly appointed or elected.  The
subsequent director(s) shall be elected each year thereafter as provided for in
the ABCA and the by-laws of the Amalgamated Corporation.  The management
and operation of the business and affairs of the Amalgamated Corporation shall
be under the control of the director(s) thereof as constituted from time to
time.

3.7

Effect
of Certificate of Amalgamation.On the Effective Date, the
Amalgamation of AVVA and Newco and their continuance as one corporation shall
become effective; the property of each of AVVA and Newco shall continue to be
the property of the Amalgamated Corporation; the Amalgamated Corporation shall
continue to be liable for the obligations of each of AVVA and Newco; any
existing cause of action, claim or liability to prosecution of either of AVVA or
Newco shall be unaffected; any civil, criminal or administrative action or
proceeding pending by or against either AVVA or Newco may be continued to be
prosecuted by or against the Amalgamated Corporation; any conviction against, or
ruling, order or judgment in favour of or against, either AVVA or Newco may be
enforced by or against the Amalgamated Corporation; and the Articles of
Amalgamation shall be deemed to be the Articles of Incorporation for the
Amalgamated Corporation and the certificate of amalgamation to be issued
evidencing the Amalgamation shall be deemed to be the certificate of
incorporation of the Amalgamated Corporation.

3.8

First
Auditors.The first auditors of the Amalgamated Corporation shall be
KPMG LLP.  The first auditors of the Amalgamated Corporation shall hold
office until the first annual meeting of the Amalgamated Corporation following
the Amalgamation or until its successors are elected or appointed.

3.9

Restrictions
on Business.  There shall be no restrictions on the business that the
Amalgamated Corporation may carry on.

3.10

Articles
of Amalgamation and By-laws.  The Articles of Amalgamation of the
Amalgamated Corporation shall be substantially in the form attached hereto as
Schedule A.

3.11

Effects
of the Amalgamation on Capital.  On the Effective Date:

(a)

1)

except
for Dissenting Shareholders, a holder of AVVA Shares shall be entitled to
receive 1 Carmanah Share for every 8 AVVA Shares held as of the Effective Date,
at a deemed price of $0.95 per Carmanah Share (being the closing Carmanah Share
price on June 23, 2003), following which all such AVVA Shares shall be
cancelled;

(ii)

a
holder of AVVA Options shall be entitled to receive 1 Carmanah Amalgamation
Option for every 8 AVVA Options owned as of the Effective Date.  Each
Carmanah Amalgamation Option shall entitle the holder thereof to purchase 1
Carmanah Share at an exercise price equal to the exercise price of the
applicable AVVA Option multipled by 8, following which all such AVVA Options
shall be cancelled.  For clarification, the range of exercise prices of the
Carmanah Amalgamation Options to be granted shall range from $0.80 per Carmanah
Share to $0.96 per Carmanah Share;





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7 -



(iii)

a
holder of AVVA Warrants shall be entitled to receive 1 Carmanah Amalgamation
Warrant for every 8 AVVA Warrants owned as of the Effective Date.  Each
Carmanah Amalgamation Warrant shall entitle the holder thereof to purchase 1
Carmanah Share at a price of $0.95 per share.  The expiry date of the
resulting Carmanah Amalgamation Warrant shall continue to correspond with the
original expiry date of the previous AVVA Warrants (that is, 20,643 Carmanah
Amalgamation Warrants will expire on November 28, 2003, 48,077 Carmanah
Amalgamation Warrants will expire on February 8, 2004, and 48,077 Carmanah
Amalgamation Warrants will expire on April 12, 2004).  Following the
exchange of AVVA Warrants into Carmanah Amalgamation Warrants, all such AVVA
Warrants shall be cancelled;

(b)

Carmanah
shall receive one fully-paid and non-assessable common share of the Amalgamated
Corporation for each one Newco common share held by Carmanah, following which
all such Newco common shares shall be cancelled;

(c)

in
consideration for the issue by Carmanah of Carmanah Amalgamation Shares pursuant
to Section 3.11(a)(i), the Amalgamated Corporation shall issue to Carmanah
one fully paid and non-assessable common share of the Amalgamated Corporation
for each Carmanah Amalgamation Share issued;

(d)

if
a holder of AVVA Shares is entitled, pursuant to Section 3.11 to receive a
fraction of a Carmanah Share, then in respect of such fraction the holder shall
be entitled to receive one whole Carmanah Share, rounded up or down to the
nearest whole number.  In calculating such fraction, all AVVA Shares held
by a beneficial holder shall in each case be aggregated.

3.12

Share
Certificates On the Effective Date:

(a)

the
register of transfers of AVVA Shares shall be closed;

(b)

subject
to Section 3.14, the registered holders of AVVA Shares shall cease to be holders
of AVVA Shares and shall be deemed to be the registered holders of Carmanah
Shares to which they are entitled, calculated in accordance with the provisions
hereof; and certificates representing the number of Carmanah Shares issuable to
that holder will, as soon as practicable, (but no later than five (5) business
days following the later of the Effective Date and the date of deposit with the
Depositary of a duly completed Letter of Transmittal and the certificates
representing those AVVA Shares) be:

(i)

forwarded
by Carmanah to that holder, at the address specified in the Letter of
Transmittal, by first class mail (postage prepaid); or

(ii)

made
available at the Depositary for pick-up by the holder, if requested by the
holder in the Letter of Transmittal; and

(c)

Carmanah,
as the registered holder of Newco Common Shares, shall cease to be the holder of
Newco Common Shares and shall be deemed to be the registered holder of one (1)
common share of the Amalgamated Corporation to which it is entitled calculated
in accordance with the provisions hereof.







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3.13

Certificate
for Warrants, Options  On the Effective Date:

(a)

the
register of transfers of AVVA Warrants shall be closed; and

(b)

the
registered holders of AVVA Warrants and AVVA Options shall cease to be holders
of AVVA Warrants and AVVA Options, respectively, and shall be deemed to be the
registered holders of Carmanah Amalgamation Warrants and Carmanah Amalgamation
Options, to which they are respectively entitled in accordance with the terms
hereof; and certificates representing the Carmanah Amalgamation Warrants and
Carmanah Amalgamation Options issuable to that holder will, as soon as
practicable, (but no later than five (5) business days following the later of
the Effective Date and the date of deposit with the Depositary of a duly
completed Letters of Transmittal and the certificates representing the
applicable AVVA Warrants or AVVA Options) be:

(i)

forwarded
by Carmanah to that holder, at the address specified in the Letter of
Transmittal, by first class mail (postage prepaid); or

(ii)

made
available at the Depositary for pick-up by the holder, if requested by the
holder in the Letter of Transmittal.

3.14

Stale
Certificates.  Any certificate formerly representing AVVA Shares which
is not deposited with the Depositary on or prior to the third anniversary of the
Effective Date shall cease to represent a right or claim of any kind or nature,
and the Carmanah Shares to which the holder of such certificate for AVVA Shares
was entitled shall be cancelled.

ARTICLE
4
CLOSING CONDITIONS OF AVVA

4.1

The
obligation of AVVA to complete the transactions contemplated herein is subject
to the fulfilment of the following conditions precedent on or before the Closing
Time or such other time as is specified below:

(a)

receipt
of all required third party approvals for Carmanah to both the Amalgamation and
this Agreement, including without limitation, the board of directors of Carmanah,
any lenders or financial institutions, the TSXV, the Alberta Securities
Commission and the British Columbia Securities Commission, as applicable;

(b)

the
Carmanah Shares that are issued as consideration for the AVVA Shares shall be
issued as fully paid and non-assessable common shares in the capital of Carmanah,
free and clear of any and all encumbrances, liens, charges, demands of
whatsoever nature, and free of any restriction on trading that is longer than 4
months plus one day from the date of issue thereof, pursuant to applicable
securities laws, rules and regulations in the provinces of Alberta and British
Columbia and the requirements of the TSXV, and any other stock exchange on which
the Carmanah Shares are listed at the Time of Closing;

(c)

execution
of employment agreements between AVVA and Tom Charleton and Carmanah and Mark
Komonoski on the terms substantially set forth in section 2 of the Letter of
Intent and/or such other terms that are mutually agreed to prior to the Closing
Time between the parties thereto;





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(d)

no
material adverse change shall have occurred in business, results of operations,
assets, liabilities, financial condition or affairs of Carmanah, financial or
otherwise, between the date of signing the Letter of Intent and the Time of
Closing;

(e)

the
representations and warranties of Carmanah contained in the Letter of Intent and
in this Agreement shall be deemed to have been made again on the Closing Date
and shall be true and correct in all material respects as of that date as if
made on that date and Carmanah shall have provided to AVVA on the Closing Date a
certificate of a senior officer of Carmanah to that effect;

(f)

Carmanah
shall provide a legal opinion to AVVA in relation to the Amalgamation and this
Agreement that is satisfactory to AVVA and its counsel, acting reasonably;

(g)

there
being no legal proceeding or regulatory actions or other proceedings against
Carmanah at the Closing Date which may, if determined against the interest of
Carmanah, have a material adverse change on Carmanah;

(h)

there
being no prohibition at law against the Amalgamation;

(i)

any
inquiry or investigation (whether formal or informal) in relation to Carmanah or
its directors or officers, shall not have been commenced or threatened by any
officer of official of the TSXV, the Alberta Securities Commission, or any
similar regulatory body having jurisdiction such that the outcome of such
inquiry or investigation could have a material adverse effect on Carmanah; and

(j)

material
compliance of Carmanah with the terms of the Letter of Intent.

The
foregoing conditions precedent are for the benefit of AVVA and may be waived, in
whole or in part, by AVVA in writing at any time.  If any of the said
conditions precedent shall not be complied with or waived by AVVA on or before
the date required for the performance thereof, AVVA may, in addition to the
other remedies it may have at law or equity, rescind and terminate this
Agreement by written notice to Carmanah.

ARTICLE
5
CARMANAH'S CLOSING CONDITIONS

5.1

The
obligations of Carmanah and Newco to complete the transactions contemplated
herein are subject to fulfilment of the following conditions precedent on or
before the Closing Time or such other time as is specified below:

(a)

receipt
of satisfactory tax advice from Carmanah's tax advisors as to the structure of
the Amalgamation and the business combination among Carmanah, AVVA and Newco
generally;

(b)

concurrent
with the execution of this Agreement, receipt of signed shareholder lockup
agreements from at least Tom Charlton, Mark Komonoski, John Lemoine and AVVA's
principal investors in Europe (collectively, the "Principal Shareholders")
for all of the AVVA Shares owned by such Principal Shareholders which represent,
in aggregate, at least 20% of AVVA's outstanding voting shares;





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(c)

receipt
of all required third party approvals for Carmanah to both the Proposed
Acquisition and the Transaction Documents, including without limitation the
approval of the board of directors of Carmanah, the TSXV, any applicable lenders
or financial institutions, the Alberta Securities Commission and the British
Columbia Securities Commission, as applicable;

(d)

no
material adverse change shall have occurred in business, results of operations,
assets, liabilities, financial condition or affairs of AVVA, financial or
otherwise, between the date of signing of the Letter of Intent and the Time of
Closing;

(e)

on
the Closing Date, AVVA shall have a positive working capital position, being
greater than zero and no less than that represented on the financial statements
of AVVA for the three month period ended March 31, 2003;

(f)

the
representations and warranties of AVVA and the Principal Shareholders contained
in the Letter of Intent, the lock-up agreements and this Agreement, as
applicable, shall be deemed to have been made again on the Closing Date and
shall be true and correct in all material respects as of that date as if made on
that date and AVVA shall have provided to Carmanah on the Closing Date a
certificate of a senior officer of AVVA to that effect;

(g)

AVVA
shall provide a legal opinion to Carmanah in relation to the Amalgamation and
this Agreement that is satisfactory to Carmanah and its counsel, acting
reasonably;

(h)

there
being no debts or amounts owing to AVVA by any of its officers, former officers,
directors, former directors, shareholders, employees or former employees or any
family member thereof, or any person with whom AVVA does not deal at arm's
length within in the meaning of the Income Tax Act (Canada), except as
set out in the AVVA Financial Statements or any amounts advanced to such person
for expenses incurred on behalf of AVVA in the ordinary course;

(i)

there
being no legal proceeding or regulatory actions or proceedings against AVVA at
the Closing Date which may, if determined against the interest of AVVA, have a
material adverse change on AVVA;

(j)

there
being no prohibition at law against making the Amalgamation;

(k)

any
inquiry or investigation (whether formal or informal) in relation to AVVA or its
directors or officers, shall not have been commenced or threatened by any
officer of official of the TSXV, the Alberta Securities Commission, or any
similar regulatory body having jurisdiction such that the outcome of such
inquiry or investigation could have a material adverse effect on AVVA;

(l)

material
compliance of AVVA and the Principal Shareholders with the terms of the letter
of Intent and lock-up agreements, as applicable;

(m)

no
material breach of the representations and warranties of AVVA or its Principal
Shareholders to be contained in the lock-up agreements or this Agreement; and

(n)

at
the Effective Time there shall not be outstanding more than 24,649,314 AVVA
Shares.





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11 -



The
foregoing conditions precedent are for the benefit of Carmanah and may be
waived, in whole or in part, by Carmanah in writing at any time.  If any of
the said conditions precedent shall not be complied with or waived Carmanah on
or before the date required for the performance thereof, Carmanah may, in
addition to the other remedies it may have at law or equity, rescind and
terminate this Agreement by written notice to AVVA.

ARTICLE
6
MUTUAL CLOSING CONDITIONS

6.1

The
obligations of Carmanah and AVVA to complete the transactions contemplated
herein are subject to fulfilment of the following conditions precedent on or
before the Effective Date or such other time as is specified below:

(a)

a
special resolution shall have been passed at the AVVA Meeting by the holders of
AVVA Shares duly approving the Amalgamation pursuant hereto in accordance with
the ABCA;

(b)

all
requisite regulatory approvals (including, without limitation, approvals of the
TSXV, the Alberta Securities Commission and the British Columbia Securities
Commission), as applicable shall have been obtained on terms satisfactory to
AVVA and Carmanah, acting reasonably;

(c)

there
shall not exist any prohibition at law against Carmanah or AVVA consummating the
proposed Amalgamation;

(d)

the
Articles of Amalgamation shall have been executed, as required, by Newco and
AVVA and filed with the Registrar under the ABCA in a diligent manner as soon as
possible following the Closing Date; and

(e)

the
Effective Date shall be no later than October 1, 2003.

The
foregoing conditions are for the mutual benefit of Carmanah and AVVA and may be
waived, in whole or in part, by Carmanah and AVVA at any time.  If any of
the said conditions precedent shall not be complied with or waived as aforesaid
on or before the date required for the performance thereof, Carmanah and AVVA
may, in addition to the other remedies it may have at law or in equity, rescind
and terminate this Agreement by written notice to the other party.

ARTICLE
7
AVVA'S REPRESENTATIONS AND WARRANTIES

7.1

AVVA
represents and warrants to Carmanah and Newco as follows:

(a)

AVVA
has been duly incorporated and organized, and is validly existing as a
corporation, under the ABCA and has full corporate power and authority to own
its assets and conduct its business as now owned and conducted;

(b)

the
authorized share capital of AVVA consists of an unlimited number of: common
shares without nominal or par value and an unlimited number of preferred shares
without nominal or par value.  A total of 24,649,314 common shares (and no
more) are validly issued and outstanding as fully paid and non-assessable shares
in the capital of AVVA;





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(c)

no
person has any agreement or options or any right or privilege (whether by law,
pre-emptive or contractual) capable of becoming an agreement or option or right
or privilege, for the purchase, subscription, allotment or issuance of any of
the unissued shares in the capital of AVVA or for the issue of any other
securities of any nature or kind of AVVA except for:

(i)

AVVA
Options granted to acquire 2,462,500 AVVA Shares at exercise prices ranging from
$0.10 per share to $0.12 per share, and with expiry dates ranging from November
2005 to June 2008; and

(ii)

934,643
AVVA Warrants entitling the holder(s) thereof to acquire up to 934,643 AVVA
Shares at an exercise price of $0.25 per share.  Of the outstanding AVVA
Warrants, 165,143 expire on November 28, 2003, 384,615 expire on February 8,
2004, and the remaining 384,615 expire on April 12, 2004;

(d)

to
the knowledge of AVVA, none of the outstanding AVVA Shares are subject to escrow
restrictions, pooling arrangements or voting trusts, whether voluntary or
otherwise;

(e)

AVVA
is a "reporting issuer" within the meaning of the Securities Act
(Alberta) and the Securities Act (British Columbia) and neither the
Alberta Securities Commission, the British Columbia Securities Commission nor
the TSXV has issued any order preventing the proposed transaction or the trading
in the securities of AVVA;

(f)

there
are no claims, actions, suits, judgements, litigation or proceedings pending
against or affecting AVVA which will or may have a material adverse affect upon
AVVA after giving effect to the Amalgamation, or which may prevent the
completion of the Amalgamation, and AVVA is not aware of any existing ground on
which any such claim, action, suit, judgement, litigation or proceeding might be
commenced with any reasonable likelihood of success;

(g)

AVVA
has the corporate power and authority to enter into this Agreement and to carry
out the transactions contemplated hereby and the execution and delivery of this
letter of intent and the completion of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of AVVA;

(h)

other
than the approval of the TSXV, the directors of AVVA and the shareholders of
AVVA, no permit, authorization or consent of any party is necessary for the
consummation by AVVA of the Amalgamation, and the execution and delivery of this
agreement and the consummation by AVVA of the Amalgamation will not result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default under any indenture, agreement or other instrument to
which AVVA is a party or by which it is bound;

(i)

the
information and statements set forth in the Public Record as at the date hereof,
as relates to AVVA, is true, correct, and does not contain any
misrepresentation, as of the respective dates of such information or statements,
and no material change has occurred in relation to AVVA which is not disclosed
in the Public Record, and AVVA has not filed any confidential material change
reports which continue to be confidential;

(j)

other
than payments made to employees in the ordinary course or pursuant to new
employment arrangements negotiated in conjunction with the Amalgamation, no
person





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13 -



or
corporation is entitled to a finder's fee or other form of compensation from
AVVA with respect to the Amalgamation; and

(k)

AVVA
will have positive working capital position, being greater than zero and not
less than that represented by the financial statements of AVVA for the three
month period ended March 31, 2003;

(l)

the
AVVA Financial Statements were prepared in accordance with generally accepted
accounting principles in Canada consistently applied and fairly represent the
financial condition of AVVA for the periods indicated;

(m)

the
issued and outstanding AVVA Shares are listed and posted for trading on the
TSXV;

(n)

the
minute book of AVVA is complete and correct in all material respects and contain
the minutes of all meetings and all resolutions of the directors and
shareholders thereof, except as has been expressly discussed with Carmanah or
its counsel;

(o)

all
information in respect of AVVA in the AVVA Information Circular as at the
respective dates such information is given, does not and will not contain an
untrue statement of a material fact and does not and will not omit to state a
material fact that is required to be stated or that is necessary to make a
statement not misleading in the circumstances in which it was made;

(p)

the
issued and outstanding AVVA Shares are listed and posted for trading on the
TSXV;

(q)

there
are reasonable grounds for believing that AVVA is, and immediately prior to the
Effective Date will be, able to pay its liabilities as they become due; and

(r)

there
are reasonable grounds for believing that no creditor of AVVA will be prejudiced
by the Amalgamation.

ARTICLE
8
CARMANAH'S REPRESENTATIONS AND WARRANTIES

8.1

Carmanah
represents and warrants to AVVA and Newco as follows:

(a)

Carmanah
has been duly incorporated and organized, and is validly existing as a
corporation, under the ABCA and has full corporate power and authority to own
its assets and conduct its business as now owned and conducted;

(b)

the
authorized share capital of Carmanah consists of an unlimited number of common
shares without nominal or par value and an unlimited number of preferred shares
without nominal or par value, of which 22,892,037 common shares (and no more)
and no preferred shares are validly issued and outstanding as fully paid and
non-assessable shares in the capital of Carmanah;

(c)

no
person has any agreement or options or any right or privilege (whether by law,
pre-emptive or contractual) capable of becoming an agreement or option or right
or privilege, for the purchase, subscription, allotment or issuance of any of
the unissued shares in the capital of Carmanah or for the issue of any other
securities of any nature or kind of Carmanah except for the following
outstanding securities:





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(i)

3,493,662
Carmanah Shares are reserved for issuance pursuant to the exercise of 3,493,662
stock options previously granted to directors, officers, employees and
consultants of Carmanah and its subsidiaries;

(d)

Carmanah
is a "reporting issuer" within the meaning of the Securities Act
(Alberta) and the Securities Act (British Columbia), and neither the
Alberta Securities Commission, the British Columbia Securities Commission or the
TSXV has issued any order preventing the Proposed Acquisition or the trading of
any securities of Carmanah;

(e)

there
are no claims, actions, suits, judgements, litigation or proceedings pending
against or affecting Carmanah which will or may have a material adverse affect
upon Carmanah after giving effect to the Amalgamation, or which may prevent the
completion of the Amalgamation, and Carmanah is not aware of any existing ground
on which any such claim, action, suit, judgement, litigation or proceeding might
be commenced with any reasonable likelihood of success;

(f)

Carmanah
has the corporate power and authority to enter into this agreement and to carry
out the transactions contemplated hereby and the execution and delivery of this
agreement and the completion of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Carmanah;

(g)

other
than the approval of the TSXV, and the directors of Carmanah, no permit,
authorization or consent of any party is necessary for the consummation by
Carmanah of the Amalgamation, and the execution and delivery of this agreement
and the consummation by Carmanah of the Amalgamation will not result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default under any indenture, agreement or other instrument to
which Carmanah is a party or by which it is bound;

(h)

the
information and statements set forth in the Public Record as at the date hereof,
as relates to Carmanah is true, correct, and complete and does not contain any
misrepresentation, as of the respective dates of such information or statements,
and no material change has occurred in relation to Carmanah which is not
disclosed in the Public Record, and Carmanah has not filed any confidential
material change reports which continue to be confidential;

(i)

the
Carmanah Financial Statements were prepared in accordance with generally
accepted accounting principles in Canada consistently applied and fairly present
the consolidated financial condition of Carmanah for the periods indicated and
the results of operations of Carmanah for such applicable period;

(j)

all
information provided by Carmanah in respect of Carmanah for inclusion in the
AVVA Information Circular does not and will not contain an untrue statement of a
material fact and does not and will not omit to state a material fact that is
required to be stated or that is necessary to make a statement not misleading in
the circumstance in which it was made; and

(k)

the
issued and outstanding Carmanah Shares are listed and posted for trading on the
TSXV and prior to the Effective Time the Carmanah Shares to be issued to holders
of AVVA Shares (including Carmanah Shares issuable upon exercise of Carmanah





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Amalgamation
Warrants and Carmanah Amalgamation Options pursuant to the Amalgamation) will be
conditionally approved for listing on the TSXV.

ARTICLE
9
NEWCO REPRESENTATIONS AND WARRANTS

9.1

Newco
represents to AVVA and Carmanah as follows:

(a)

Newco
has not carried on any business to the date hereof and has no assets or
liabilities other than pursuant to this Agreement;

(b)

all
outstanding equity securities of Newco are 100% owned and controlled by Carmanah
and other than pursuant to this Agreement, no person, firm or corporation has
any agreement, option, right or privilege (whether by law, pre-emptive or
contractual) capable of becoming an agreement, option or privilege to acquire
any unissued securities of Newco or any interest therein;

(c)

Newco
has been duly incorporated and organized, and is validly existing as a
corporation, under the ABCA;

(d)

Newco
has no Subsidiaries;

(e)

Newco
is duly qualified to carry on business, and is in good standing in Alberta,
which is the only jurisdiction where the nature of its activities makes such
qualification necessary; and

(f)

Newco
has the corporate power and authority to enter into this Agreement and to carry
out the transactions contemplated hereby and the execution and delivery of this
Agreement and the completion of the transactions contemplated herein have been
duly and validly authorized by all necessary corporate action on the part of
Newco.

ARTICLE
10
COVENANTS

10.1

AVVA
hereby agrees from the date hereof until the Termination Date (as hereinafter
defined):

(a)

not
to initiate, propose, assist or participate in any activities or solicitations
in opposition to or in competition with the Amalgamation, and without limiting
the generality of the foregoing, not to induce or attempt to induce any other
person to initiate any shareholder proposal or "takeover bid," exempt or
otherwise, within the meaning of the Securities Act (Alberta) or the Securities
Act (British Columbia), for securities of AVVA, nor to undertake any
transaction or negotiate any transaction which would be or potentially could be
in conflict with the Amalgamation and not to take actions of any kind which may
reduce the likelihood of success of the Amalgamation, except as required by
statutory obligations;

(b)

to
use its reasonable commercial efforts to cause all AVVA shareholders to vote in
favour of the Amalgamation and to not take any action contrary to or in
opposition to the Amalgamation;





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(c)

not
to issue any debt or equity or other securities, except with the written consent
of Carmanah;

(d)

not
to borrow money or incur any indebtedness for money borrowed, except in the
ordinary course of business pursuant to lines of credit existing as at the date
of the Letter of Intent or as agreed to by Carmanah in writing;

(e)

not
to make loans, advances, or other payments, excluding routine advances to
employees of the AVVA for expenses incurred in the ordinary course or as is
agreed to by Carmanah in writing;

(f)

not
to make any capital expenditures in an amount exceeding $10,000 in the aggregate
or $5,000 on an individual expenditure basis, except as agreed to by Carmanah in
writing;

(g)

not
to declare or pay any dividends or distribute any of AVVA's properties or
assets to shareholders;

(h)

not
to alter or amend AVVA's articles or by-laws in any manner which may adversely
affect the success of the Offer, except as agreed to by Carmanah in writing or
as required to give effect to the matters contemplated herein;

(i)

not
to enter into any transaction or material contract not in the ordinary course of
business and not to engage in any business enterprise or activity different from
that carried on as of the date hereof, unless written approval of Carmanah is
obtained; and

(j)

to
cooperate fully with Carmanah and to use all reasonable commercial efforts to
assist Carmanah in its efforts to acquire all of the AVVA Shares, unless such
cooperation and efforts would subject AVVA to liability or would be in breach of
applicable statutory and regulatory requirements.

10.2

In
the event that AVVA: (1) has not breached the terms of the standstill agreement
set forth in section 10.1 above; (2) obtains a bona fide and non-solicited offer
from a third party to acquire the assets or shares of AVVA which it wishes to
pursue; and (3) it receives the consent of Carmanah to terminate this Agreement
or the Letter of Intent in accordance with this provision, then AVVA shall
forward a $50,000 (Cdn) payment to Carmanah on termination, which payment
constitutes compensation to Carmanah for the non-performance of its obligations
under Letter of Intent and this Agreement.

10.3

Carmanah
agrees from the date hereof until the Termination Date (as hereinafter defined)
not to initiate, propose, assist or participate in any activities or
solicitations in opposition to or in competition with the Offer, and without
limiting the generality of the foregoing, not to induce or attempt to induce any
other person to initiate any shareholder proposal or "takeover bid," exempt
or otherwise, within the meaning of the Securities Act (Alberta) or the Securities
Act(British Columbia), for securities of AVVA, nor to undertake any
transaction or negotiate any transaction which would be or potentially could be
in conflict with the Proposed Acquisition and not to take actions of any kind
which may reduce the likelihood of success of the Proposed Acquisition, except
as required by statutory obligations.

10.4

Newco
agrees to take all steps necessary on its behalf to implement the terms hereof
and the transactions contemplated hereby.





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ARTICLE
11
CONFIDENTIALITY

11.1

No
disclosure or announcement, public or otherwise, in respect of this Agreement or
the transactions contemplated herein or therein will be made by any party
without the prior agreement of the other party as to timing, content and method,
hereto, provided that the obligations herein will not prevent any party from
making, after consultation with the other party, such disclosure as its counsel
advises is required by applicable law or the rules and policies of the TSXV.

11.2

Unless
and until the transactions contemplated in this Agreement have been completed,
except with the prior written consent of the other party, each of the parties
hereto and its respective employees, officers, directors, shareholders, agents,
advisors and other representatives will hold all information received from the
other party in strictest confidence, except such information and documents
available to the public or as are required to be disclosed by applicable law or
regulatory authorities.

11.3

All
such information in written form and documents will be returned to the party
originally delivering them in the event that the transactions provided for in
this Agreement are not consummated.

ARTICLE
12
ACCESS TO INFORMATION

12.1

Beginning
with the execution of the Letter of Intent until the completion of the
transactions contemplated by this Agreement or the Termination Date, each party
will allow the other and its respective authorized representatives, including
legal counsel and consultants, access to all information, books or records
relevant for the purpose of the transactions contemplated herein.  Each
party hereto agrees that all information and documents so obtained will be kept
confidential and the contents thereof will not be disclosed to any person
without the prior written consent of the disclosing party.

ARTICLE
13
CONDUCT OF BUSINESS

13.1

Beginning
with the execution of the Letter of Intent until the completion of the
transactions contemplated by this Agreement or the Termination Date, Carmanah
and AVVA will each operate its business in a prudent and business-like manner in
the ordinary course and in a manner consistent with past practice.

ARTICLE
14
EXPENSES AND COMMISSION

14.1

Each
of Carmanah and AVVA shall be responsible for their own costs and charges
incurred with respect to the transactions contemplated herein including, without
limitation, all costs and charges incurred prior to the date of the Letter of
Intent and all legal and accounting fees and disbursements relating to preparing
this Agreement, the lock-up agreements or otherwise relating to the transactions
contemplated herein.  Notwithstanding the foregoing, Carmanah shall approve
all expenses and invoices of AVVA related to the Amalgamation and all matters
related thereto prior to payment, such approval not to be unreasonably withheld.





---

-
18 -



ARTICLE
15
TERMINATION

15.1

This
Agreement may be terminated on the Termination Date.  For the purposes of
this Article and Article 10, "Termination Date" shall be the date on
which the earliest of the following event occurs:

(a)

written
agreement of the parties to terminate this Agreement and the Amalgamation
transaction;

(b)

the
board of directors of Carmanah not approving this Agreement prior to the date of
mailing of the AVVA Information Circular;

(c)

any
applicable regulatory authority having notified in writing either Carmanah or
AVVA that will not permit the Amalgamation to proceed; and

(d)

shareholders
of AVVA not approving the Amalgamation at a duly constituted meeting of the AVVA
shareholders.

15.2

Notwithstanding
any other rights contained herein, AVVA or Carmanah may terminate this Agreement
upon notice to the other in the event the Amalgamation has not become effective
on or before October 1, 2003.

ARTICLE
16
AMENDMENT

16.1

This
Agreement may, at any time and from time to time before or after the holding of
the AVVA Meeting be amended by written agreement of the parties hereto without
further notice to or authorization on the part of its respective shareholders,
and any such amendment may, without limitation:

(a)

change
the time for performance of any of the obligations or acts of the parties
hereto;

(b)

waive
any inaccuracies or modify any representation contained herein or in any
document delivered pursuant hereto; and

(c)

waive
compliance with or modify any of the covenants herein contained and waive or
modify performance of any of the obligations of the parties hereto;

provided
that, notwithstanding the foregoing, the number of Carmanah Shares to which the
holders of AVVA Shares shall have the right to receive on the Amalgamation may
not be reduced without the approval of the shareholders of AVVA given in the
same manner as required for the approval of the Amalgamation.

16.2

This
Agreement may only be amended by a written instruction signed by the parties
hereto.

ARTICLE
17
DISCLOSURE

17.1

Without
the prior written consent of the other parties hereto, no party hereto may
disclose to any person either the fact that discussions or negotiations are
taking place concerning the proposed





---

-
19 -



transaction
or any of the terms, conditions or other facts with respect to the proposed
transaction, including the status thereof, except where the receiving party or
its affiliates are required to do so by law, including but not limited to the
requirements of securities and other regulatory agencies.

ARTICLE
18
NOTICES

18.1

All
notices, requests, demands and other communications hereunder shall be deemed to
have been duly given and made, if in writing and if served by personal delivery
upon the party for whom it is intended or delivered, by registered or certified
mail, return receipt requested, or if sent by telecopier, upon receipt of oral
confirmation that such transmission has been received, to the person at the
address set forth below, or such other address as may be designated in writing
hereafter, in the same manner, by such person:

if
to AVVA:

AVVA
Technologies Inc.

#5,
6025 - 12th Street S.E.

Calgary,
Alberta

T2H
2K1

Attention:

Thomas
Charlton, President

Facsimile:

(403)
252-5580

with
a copy to:

McLeod
& Company

3rd
Floor, 14505 Banister Road S.E.

Calgary,
Alberta,  T2X 3J3

Attention:

W.M.
(Bill) Walker

Facsimile:

(403)
271-1769

if
to Carmanah or Newco:

Carmanah
Technologies Corporation

Building
4, 203 Harbour Road

Victoria,
B.C. V9A 3S2

Attention:

Chuck
Francis, Chief Operating Officer

Facsimile:

(250)
380-0062

with
a copy to:

Borden
Ladner Gervais LLP

Suite
1000, 400 - 3rd Avenue S.W.

Calgary,
Alberta, T2P 4H2

Attention:

C.
Tamiko Ohta

Facsimile:

(403)
266-1395





---

-
20 -



ARTICLE
19
TIME

19.1

Time
shall be of the essence in this Agreement.

ARTICLE
20
ENTIRE AGREEMENT

20.1

This
Agreement constitutes the entire agreement between the parties hereto and
cancels and supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof, except such binding and
continuing matters explicitly referred to in the Letter of Intent.

ARTICLE
21
FURTHER ASSURANCES

21.1

Each
party hereto shall, from time to time, and at all times hereafter, at the
request of the other party hereto, but without further consideration, take all
such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.

ARTICLE
22
GOVERNING LAW

22.1

This
Agreement shall be governed by, and be construed in accordance with, the laws of
the Province of British Columbia and applicable laws of Canada but the reference
to such laws shall not, by conflict of laws rules or otherwise, require the
application of the law of any jurisdiction other than the Province of British
Columbia.

22.2

Each
party hereto irrevocably attorns to the jurisdiction of the Courts of the
Province of British Columbia in respect of all matters arising under or in
relation to this Agreement.

ARTICLE
23
INDEMNITY

23.1

Each
of Carmanah, AVVA and Newco (the "first party") hereby agrees to indemnify
and save harmless each of the other parties and the directors and officers of
the other parties from and against any and all claims, suits, actions, causes of
action, liabilities, damages, costs, charges and expenses of every nature and
kind whatsoever for which the other parties and the directors or officers of the
other parties may become liable by virtue of information with respect to the
first party and its businesses and properties contained in the AVVA Information
Circular containing a misrepresentation provided that such information is
included in the AVVA Information Circular in the form approved by the supplying
party and this indemnity shall survive the filing of the Articles of
Amalgamation and the termination of this Agreement.

ARTICLE
24
EXECUTION IN COUNTERPARTS

24.1

This
Agreement may be executed in counterparts and by facsimile, each of which is and
is hereby conclusively deemed to be an original and counterparts collectively
are to be conclusively deemed one instrument.





---

-
21 -



ARTICLE
25
WAIVER

25.1

No
waiver by any party hereto shall be effective unless in writing and any waiver
shall affect only the matter, and the occurrence thereof, specifically
identified and shall not extend to any other matter or occurrence.





---

-
22 -





ARTICLE
26
ENUREMENT AND ASSIGNMENT

26.1

This
Agreement shall enure to the benefit of and be binding upon the parties hereto
and its respective successors and assigns.  This Agreement may not be
assigned by any party hereto without the prior consent of the other parties
hereto.

IN
WITNESS WHEREOF the parties hereto have executed this Agreement.

| | AVVA
      TECHNOLOGIES INC.
      
      Per:
      "Thomas
      Charlton"
      
      Thomas
      Charlton
      President
      and Director
      
      
      Per:
      "Mark
      Komonoski"
      
      Mark
      Komonoski
      CEO
      and Director
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | CARMANAH
      TECHNOLOGIES CORPORATION
      
      Per:
      "Art
      Aylesworth"
      
      Art
      Aylesworth
      President
      and Director
      
      
      Per:
      "Praveen
      Varshney"
      
      Praveen
      Varshney
      Director 
| | 1057614
      ALBERTA LTD.
      
      Per:
      "Art
      Aylesworth"
      
      Art
      Aylesworth
      President                                                                                                                                            



---

-
23 -





SCHEDULE
"A"

TO
THE AMALGAMATION AGREEMENT MADE AS OF
THE 27th DAY OF AUGUST, 2003,
BETWEEN CARMANAH TECHNOLOGIES CORPORATION,
AVVA TECHNOLOGIES INC. AND 1057614 ALBERTA LTD.

Articles
of Amalgamation of the Amalgamated Corporation

SCHEDULE "A"

TO
THE ARTICLES OF INCORPORATION OF NEWCO



The
shares which the Corporation is authorized to issue are:

(a)

an
unlimited number of common shares without nominal or par value with the
following rights, privileges, restrictions and conditions:

(i)

to
vote at meetings of shareholders, except meetings at which only holders of a
specified class of shares are entitled to vote;

(ii)

subject
to the rights, privileges, restrictions and conditions attaching to any other
class of shares of the Corporation, to share equally, in the remaining property
of the Corporation upon liquidation, dissolution or winding-up of the
Corporation; and

(iii)

subject
to the rights of the preferred shares, the common shares shall be entitled to
receive dividends if, as and when declared by the Directors of the Corporation;
and

(b)

an
unlimited number of preferred shares without nominal or par value which, as a
class, have attached thereto the following:

(i)

the
preferred shares may from time to time be issued in one or more series and
subject to the following provisions, and subject to the sending of articles of
amendment in prescribed form, and the issuance of a certificate of amendment in
respect thereof, the directors may fix from time to time before such issue the
number of shares which is to comprise each series and the designation, rights,
privileges, restrictions and conditions attaching to each series of preferred
shares including, without limiting the generality of the foregoing, the rate or
amount of dividends or the method of calculating dividends, the dates of payment
thereof, the redemption, purchase and/or conversion prices and terms and
conditions of redemption, purchase and/or conversion, and any sinking fund or
other provisions;

(ii)

the
preferred shares of each series shall, with respect to the payment of dividends
and the distribution of assets or return of capital in the event of liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
or any other return of capital or distribution of the assets of the Corporation
among its shareholders for the purpose of winding up its affairs, rank on a
parity with the preferred shares of every other series and be entitled to
preference over the common shares and over any other shares of the Corporation
ranking junior to the preferred shares. The preferred shares of any series may
also be given such other preferences, not inconsistent with these articles, over
the common shares and any other shares of the Corporation ranking junior to such
preferred shares as may be fixed in accordance with clause (b)(i);





---

-
24 -



(iii)

if
any cumulative dividends or amounts payable on the return of capital in respect
of a series of preferred shares are not paid in full, all series of preferred
shares shall participate rateably in respect of accumulated dividends and return
of capital; and

(iv)

unless
the directors otherwise determine in the articles of amendment designating a
series, the holder of each share of a series of preferred shares shall not,
except as otherwise specifically provided in The Business Corporations Act
(Alberta), be entitled to receive notice of or vote at any meeting of
shareholders.

SCHEDULE "B"

TO
THE ARTICLES OF INCORPORATION OF NEWCO

1.

No
shares of the Corporation shall be transferred without the written approval of
the board of directors of the Corporation.



2.

The
directors may, between annual general meetings, appoint one or more additional
directors of the Corporation to serve until the next annual general meeting, but
the number of additional directors shall not at any time exceed 1⁄3 of the
number of directors who held office at the expiration of the last annual meeting
of the Corporation.



---

AMENDMENT
TO THE AMALGAMATION AGREEMENT



THIS
AMENDMENTdated the 29th day of September, 2003.

AMONG:

CARMANAH
TECHNOLOGIES CORPORATION, a body corporate incorporated under the laws of
the Province of Alberta with its head office in the City of Vancouver, in the
Province of British Columbia (hereinafter called "Carmanah")

AND:

AVVA
TECHNOLOGIES INC.,a body corporate incorporated under the laws of the
Province of Alberta with its head office in the City of Calgary, in the Province
of Alberta (hereinafter called "AVVA")



AND:

1057614
ALBERTA LTD.,a body corporate incorporated under the laws of the Province
of Alberta with its head office in the City of Vancouver, in the Province of
British Columbia (hereinafter called "Newco")



WHEREAS:



(a)

the
parties hereto entered into an amalgamation agreement dated August 27, 2003 (the
"Amalgamation Agreement") regarding the amalgamation of Newco and AVVA; and



(b)

the
parties have agreed to amend various sections of the Amalgamation Agreement to
(i) give effect to various changes in outstanding securities; and (ii) more
directly reflect the requirements of the Business Corporations Act(Alberta)
(the "ABCA"); and



NOW
THEREFOREin consideration of the mutual covenants and agreements contained
herein, the parties hereto agree as follows:



1.

INTERPRETATION

1.1

Definitions

Capitalized
terms used in this Amendment and not otherwise defined shall have the respective
meanings ascribed to them in the Amalgamation Agreement.





2.

AMENDMENT

2.1

The
parties hereto declare, confirm, consent and agree that the Amalgamation
Agreement shall be and is hereby amended as follows:

(a)

Section
3.6 of the Amalgamation Agreement is deleted in its entirety and replaced with
the following:

"3.6

First
Directors.   The first directors of the Amalgamated Corporation
shall be David Green, Art Aylesworth and Chuck Francis.  The residential
address of each of the first directors is as follows:







---



Name
        of Director
      Residential
        AddressDavid
        Green
      1312
        Victoria Avenue
        Vancouver,
        British Columbia V8S 4P5Art
        Aylesworth
      4730
        Spring Road
        Victoria,
        British Columbia V9E 2B5Chuck
        Francis
      402
        Sparton Road
        Victoria
        B.C. V9E 2H4




The
first directors shall hold office until the first annual or general meeting of
the shareholders of the Amalgamated Corporation (or a resolution in lieu
thereof) or until their successors are duly appointed or elected. The subsequent
director(s) shall be elected each year thereafter as provided for in the ABCA
and the by-laws of the Amalgamated Corporation. The management and operation of
the business and affairs of the Amalgamated Corporation shall be under the
control of the director(s) thereof as constituted from time to time."

(b)

Section
3.10 of the Amalgamation Agreement is deleted in its entirety and replaced with
the following:

"3.10

Articles
of Amalgamation and By-laws.The Articles of Amalgamation of the
Amalgamated Corporation shall be substantially in the form attached hereto as
Schedule A. The By-laws of the Amalgamated Corporation shall be the By-laws of
AVVA Technologies Inc."

(c)

The
second sentence of section 7.1(b) of the Amalgamation Agreement is deleted in
its entirety and replaced with the following:

"A
total of 24,443,814 common shares (and no more) are validly issued and
outstanding as fully paid and non-assessable shares in the capital of AVVA;"

(d)

Section
8.1(b) is deleted in its entirety and replaced with the following:

"the
authorized share capital of Carmanah consists of an unlimited number of common
shares without nominal or par value and an unlimited number of preferred shares
without nominal or par value, of which 22,942,037 common shares (and no more)
and no preferred shares are validly issued and outstanding as fully paid and
non-assessable shares in the capital of Carmanah;"

(e)

Section
8.1(c)(i) is deleted in its entirety and replaced with the following:

"(i)

3,488,662
Carmanah Shares are reserved for issuance pursuant to the exercise of 3,488,662
stock options previously granted to directors, officers, employees and
consultants of Carmanah and its subsidiaries;"

3.

GENERAL

3.1

It
is declared and agreed that except as provided in this Amendment, all covenants,
agreements, provisions, stipulations, conditions, powers and matters and things
whatsoever contained in the Amalgamation Agreement shall continue in all
respects in full force and effect.

3.2

This
Amendment shall enure to the benefit of and be binding upon the successors and
assigns of the parties hereto.

3.3

This
Amendment shall be executed in several counterparts, each of which so executed
shall be deemed to be an original and such counterparts together shall
constitute one and the same



2



---

agreement
notwithstanding the foregoing, the date of execution shall be deemed to be so
executed from the dated hereof.

IN
WITNESS WHEREOFthe parties hereto have executed this Amendment as of the
date first above written.



CARMANAH
TECHNOLOGIES

AVVA
TECHNOLOGIES INC.

CORPORATION



"Art
Aylesworth"

"Thomas
Charlton"

Per:

Per:



Art
Aylesworth

Thomas
Charlton

President

President





1057614
ALBERTA LTD.



"Art
Aylesworth"

Per:



Art
Aylesworth

President

3

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Audited
Consolidated Financial Statements of

CARMANAH
TECHNOLOGIES

CORPORATION

Years
ended December 31, 2004 and 2003







---





kpmg

KPMGLLP

Chartered
Accountants

St.
Andrew's Square II

Telephone (250) 480-3500

800-730
View Street

Telefax (250) 480-3539

Victoria
BC V8W 3Y7

www.kpmg.ca







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors,

Carmanah
Technologies Corporation



We
have audited the consolidated balance sheets of Carmanah Technologies
Corporation as at December 31, 2004 and 2003 and the consolidated statements of
operations and deficit and cash flows for each of the years in the three-year
period ended December 31, 2004.  These consolidated financial statements
are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.

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

In
our opinion, the consolidated financial statements referred to above 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 its cash flows
for each of the years in the three-year period ended December 31, 2004 in
accordance with Canadian generally accepted accounting principles.

As
discussed in note 1(k) to the consolidated financial statements, the Company
changed its method of accounting for stock-based compensation in 2004.

Canadian
generally accepted accounting principles vary in certain significant respects
from accounting principles generally accepted in the United States of America.
 Information relating to the nature and effect of such differences is
presented in note 17 to the financial statements.

[gaapfs002.gif]

Chartered
Accountants



Victoria,
Canada

February
18, 2005

1

---

CARMANAH
TECHNOLOGIES CORPORATION

Consolidated Balance Sheets

(Expressed
in Canadian dollars)



December
31, 2004 and 2003



2004                      
2003



Assets

Current
assets:

Cash
and cash equivalents

$

901,411

$

1,693,069

Short-term
investments

6,850,000

-

Accounts
receivable, net

2,385,728

2,698,061

Inventories
(note 3)

2,758,250

1,904,872

Receivable
from forward foreign exchange contracts (note 14(b))

1,834,350

-

Prepaid
expenses and deposits

271,337

53,376

15,001,076             
6,349,378



Equipment
and leasehold improvements, net (note 4)

1,072,434

871,683

Intangible
assets, net (note 5)

170,484

190,320

Goodwill

3,072,173

3,072,173

Future
income taxes (note 6)

550,000

190,114



$

19,866,167        
$   10,673,668



Liabilities
and Shareholders' Equity

Current
liabilities:

Accounts
payable and accrued liabilities

$

1,327,693

$

1,648,841

Payable
under forward foreign exchange contracts (note 14(b))

1,803,300

-

Deferred
revenue

45,421

71,228

Future
income taxes (note 6)

44,000

-

Current
portion of obligations under capital leases

21,573

55,435

Bank
loan (note 7)

-

383,332

Current
portion of long-term debt

-

21,814

3,241,987             
2,180,650



Long-term
debt (note 8)

-

33,325

Obligations
under capital leases (note 9)

13,755

71,656

3,255,742              
2,285,631

Shareholders'
equity:

Share
capital (note 10)

16,322,119

8,924,722

Contributed
surplus (note 10(f))

610,690

378,522

Deficit

(322,384)

(915,207)

16,610,425             
8,388,037

Commitments
(note 15)

$

19,866,167       
$   10,673,668



See
accompanying notes to consolidated financial statements.

2

---

CARMANAH
TECHNOLOGIES CORPORATION

Consolidated
Statements of Operations and Deficit

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002



2004                     
2003

2002



Sales

$

15,895,041

$

9,220,018

$

6,468,899



Cost
of sales

7,655,700

4,455,250

2,808,745

8,239,341             
4,764,768              
3,660,154



Operating
expenses:

Wages
and benefits

3,509,101

2,095,609

1,541,881

Office
and administration

1,423,744

844,706

684,531

Sales
and marketing

1,341,112

753,360

533,041

Research
and development (note 12)

959,842

787,309

543,051

Bank
charges and interest

97,531

91,537

49,086

Amortization
of:

Equipment
and leasehold improvements

400,439

209,416

140,014

Deferred
development costs

-

-

216,895

Intangible
assets

41,063

20,270

9,091

7,772,832             
4,802,207             
3,717,590





Operating
income (loss)

466,509               
(37,439)                
(57,436)



Other
income (expense):

Interest
and other income

126,428

30,954

51,364

Write-down
of advances receivable

-

(111,502)

-

126,428               
(80,548)                  
51,364







Earnings
(loss) before income taxes

592,937              
(117,987)                 
(6,072)



Income
tax expense (recovery) (note 6):

Current

316,000

-

-

Future

(315,886)

8,407

(18,000)

114                   
8,407                
(18,000)







Net
earnings (loss)

592,823             
(126,394)                  
11,928



Deficit,
beginning of year, as previously reported

(741,505)

(764,348)

(800,741)



Adjustment
to reflect change in accounting for

stock
compensation expense (note 1(k))

(173,702)

(24,465)

-

Deficit,
beginning of year, restated

(915,207)              
(788,813)              
(800,741)



Deficit,
end of year

$

(322,384)        
$     (915,207)       
$     (788,813)



Earnings
(loss) per share - basic and fully diluted

$

0.02

$

(0.01)

$           
0.00



Weighted
average number of shares outstanding:

Basic

30,116,949

22,826,155

19,650,884

Diluted

32,055,307

23,743,404

20,562,279



See
accompanying notes to consolidated financial statements.

3

---

CARMANAH
TECHNOLOGIES CORPORATION

Consolidated
Statements of Cash Flows

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002

2004                           
2003                             
2002



Cash
provided by (used in):

Operations:

Net
earnings (loss)

$

592,823

$

(126,394)

$

11,928

Items
not involving cash:

Amortization

441,502

229,686

366,000

Loss
on disposal of capital assets

2,727

-

-

Write-down
of advances receivable

-

111,502

-

Stock-based
compensation

319,035

176,525

24,465

Future
income tax expense (recovery)

(315,886)

8,407

(18,000)

Changes
in non-cash working capital:

Accounts
receivable

312,333

(756,030)

(983,934)

Inventories

(853,378)

(475,947)

(470,227)

Prepaid
expenses and deposits

(217,961)

12,106

(16,736)

Accounts
payable and accrued liabilities

(321,147)

163,495

606,138

Forward
exchange contracts

(31,050)

-

-

Deferred
foreign revenue

(25,807)

52,402

11,042

(96,809)                   
(604,248)                   
(469,324)



Investing:

Short-term
investments

(6,850,000)

-

-

Purchase
of equipment and leasehold

improvements

(603,917)

(304,379)

(269,428)

Purchase
of intangible assets

(21,227)

(9,172)

(13,757)

Cash
acquired upon acquisition of AVVA

Technologies
Inc., net of acquisition costs

-

(59,467)

-

Repayments
of advances receivable

-

28,500

22,628

Proceeds
on disposal of equipment

-

-

4,600

(7,475,144)                   
(344,518)                   
(255,957)

Financing:

Proceeds
on share issuances

7,813,684

2,075,029

237,600

Share
issuance costs

(503,153)

(177,282)

(11,010)

Bank
loan

(383,332)

116,147

110,000

Repayment
of long-term debt

(55,139)

(21,684)

(43,114)

Principal
payments on obligations under

capital
leases

(91,765)

(29,475)

(24,912)

Proceeds
from issuance of long-term debt

-

-

75,000

6,780,295                  
1,962,735                      
343,564





Increase
(decrease) in cash and cash equivalents

(791,658)                  
1,013,969

(381,717)



Cash
and cash equivalents, beginning of year

1,693,069

679,100

1,060,817

Cash
and cash equivalents, end of year

$

901,411           
$    
1,693,069           
$         679,100



Supplemental
cash flow information:

Cash
during the year for:

Bank
charges and interest paid

$

97,531

$

188,632

$

127,569

Non-cash
investing and financing activities:

Acquisition
of equipment through capital lease

-

-

66,392

Shares/stock
options issued for services:

Share
issue costs

138,200

38,198

-

Shares
issued on exercise of stock options and

broker
warrants

225,066

93,377

-

Shares,
options and warrants issued to acquire

non-cash
assets of AVVA Technologies Inc.

-

3,873,371

-



See
accompanying notes to consolidated financial statements.

4

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





Carmanah
Technologies Corporation (the "Company" or "CTC") was incorporated
pursuant to the provisions of the Business Corporations Act (Alberta) on March
26, 1996.  On June 21, 2002, the Company acquired all the issued and
outstanding share capital of Carmanah Technologies Inc. ("CTI").  CTI
is in the business of developing and manufacturing solar-powered LED (light
emitting diode) lighting solutions and the sale of related products.  On
October 1, 2003, the Company acquired all the issued and outstanding share
capital, stock options and warrants of AVVA Technologies Inc. ("AVVA") in
exchange for share capital, stock options and warrants of the Company.
 AVVA's operating subsidiary, Carmanah Signs Inc. ("CSI") (formerly
AVVA Light Corporation), is in the business of designing, manufacturing and
distributing energy efficient, illuminated sign products for corporate identity,
point-of-purchase sales, and architectural and signage applications.

1.

Significant
accounting policies:

The
consolidated financial statements of the Company have been prepared in
accordance with Canadian generally accepted accounting principles.  The
following is a summary of the significant accounting policies used in the
preparation of the financial statements.  Material measurement differences
to accounting principles generally accepted in the United States of America are
set out in note 17.

(a)

Basis
of presentation:

These
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, CTI, AVVA and CSI.  All inter-company
transactions and balances have been eliminated.

(b)

Cash
and cash equivalents:

Cash
and cash equivalents include highly liquid investments, consisting primarily of
term deposits, with terms to maturity of three months or less at the date of
purchase.

(c)

Short-term
investments:

Short-term
investments which are marketable securities that will be realized beyond three
months but are recorded at the lower of cost and market.

(d)

Inventories:

Inventories
are valued on a first-in, first-out basis at the lower of average cost and
replacement cost for raw materials and at the lower of cost and net realizable
value for work-in-process and finished goods.  Inventories are recorded net
of any obsolescence provisions.

5

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





1.

Significant
accounting policies (continued):

(e)

Equipment
and leasehold improvements:

Equipment
and leasehold improvements are carried at cost less accumulated amortization.
 Amortization is determined at rates which will reduce original cost to
estimated residual value over the useful life of each asset.  The annual
rates used to compute amortization are as follows:

Asset                                                                                   
Basis                             
Rate



Computer
hardware

declining
balance

30%

Computer
software

declining
balance

50%

Leasehold
improvements

straight-line

term
of lease

Office,
production and research equipment

declining
balance

20%



The
cost of repairs and maintenance is expensed as incurred.

(f)

Intangible
assets:

Intangible
assets are amortized over their estimated useful lives, which vary from three
months to five years.

(g)

Goodwill:

Goodwill
is the residual amount that results when the purchase price of an acquired
business exceeds the sum of the amounts allocated to the identifiable assets
acquired, less liabilities assumed, based on their fair values.  Goodwill
is allocated as of the date of the business combination to the Company's
reporting units that are expected to benefit from the synergies of the business
combination.

Goodwill
is not amortized but is tested for impairment annually or more frequently if
events or changes in circumstances indicate that it might be impaired.  The
impairment test is carried out in two steps.  In the first step, the
carrying amount of the reporting unit is compared with its fair value.
 When the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not to be impaired and the second
step of the impairment test is unnecessary.  The second step is carried out
when the carrying amount of a reporting unit exceeds its fair value, in which
case the implied fair value of the reporting unit's goodwill is compared with
its carrying amount to measure the amount of the impairment loss, if any.
 The implied fair value of goodwill is determined in the same manner as the
value of goodwill is determined in a business combination described in the
preceding paragraph, using the fair value of the reporting unit as if it was the
purchase price.  When the carrying amount of reporting unit goodwill
exceeds its implied fair value, an impairment loss is recognized in an amount
equal to the excess and is presented as a separate line item in the statement of
operations and deficit before extraordinary items and discontinued operations.

6

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





1.

Significant
accounting policies (continued):

(g)

Goodwill
(continued):

All
goodwill is assigned to the combined CTI and CSI reporting unit.  The
Company completed its annual impairment test on December 31, 2004 and determined
that no impairment charge was required.

(h)

Revenue
recognition:

Revenue
from the sale of products is recognized at the time the product is shipped and
title passes, persuasive evidence exists of a sales arrangement, collection is
probable and the price is fixed or determinable.  Provisions are
established for estimated product returns and warranty costs at the time revenue
is recognized based on historical experience for the product.  If there is
a requirement for customer acceptance of any products shipped, revenue is
recognized only after customer acceptance has been received.  Payments
received in advance of the satisfaction of the Company's revenue recognition
policies are recorded as deferred revenue.

(i)

Research
and development:

Research
costs are expensed as incurred.  Development costs are expensed as incurred
unless certain stringent criteria for deferral, as specified by the Canadian
Institute of Chartered Accountants, have been met.  These criteria
primarily relate to the establishment of technical feasibility, identification
of specified markets, and availability of adequate resources to complete the
project under development.  Costs of product development, net of any
applicable research and development tax credits, are capitalized until project
completion or commencement of commercial sales of the product.  Costs are
then amortized over the estimated period of future benefit.

(j)

Earnings
(loss) per share:

The
Company calculates basic earnings (loss) per share using the weighted average
number of common shares outstanding during the period excluding escrowed shares
for which the release is subject to the satisfaction of performance criteria.
 Diluted net earnings (loss) per share are calculated by the treasury stock
method.  Under the treasury stock method, the weighted average number of
common shares outstanding assumes that the proceeds to be received on the
exercise of dilutive stock options and warrants are applied to repurchase common
shares at the average market price for the period in calculating the net
dilution impact.  Stock options and warrants are dilutive when the Company
has income from continuing operations and the average market price of the common
shares during the period exceeds the exercise price of the options and warrants.

7

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





1.

Significant
accounting policies (continued):

(k)

Stock-based
compensation:

The
Company has a stock-based compensation plan, which is described in note 10(c).
 Effective January 1, 2002, the Company applied the fair value based method
of accounting prescribed by CICA Handbook Section 3870, Stock-based
Compensation and Other Stock-based Payments, only to employee stock
appreciation rights, and applied the settlement method of accounting to employee
stock options.  Under the settlement method, any consideration paid by
employees on the exercise of stock options or purchase of stock is credited to
share capital and no compensation expense was recognized.

The
CICA Accounting Standards Board has amended CICA Handbook Section 3870, Stock-based
Compensation and Other Stock-based Payments, to require entitles to account
for employee stock options using the fair value based method, beginning January
1, 2004.  Under the fair value based method, compensation cost is measured
at fair value at the date of grant and is expensed over award's vesting
period.  In accordance with one of the transitional options permitted under
amended Section 3870, the Company has retroactively applied the fair value based
method to all employee stock options granted on or after January 1, 2002, and
has restated prior periods.  The effect of retroactively adopting the fair
value based method is to decrease net earnings by $24,465 ($0.00 per share) for
the year ended December 31, 2002 and by $149,237 ($(0.01) per share) for the
year ended December 31, 2003 to increase deficit and contributed surplus by
$173,702 as at December 31, 2003 (2002 - $24,465).

During
the period, the Company granted stock options to directors, officers and
employees as set out in note 10(c).

(l)

Future
income taxes:

The
Company uses the asset and liability method of accounting for income taxes.
 Under the asset and liability method, future tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.  Future tax assets and
liabilities are measured using enacted or substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  The effect on future
tax assets and liabilities of future changes in tax rates is recognized in
income in the period that included the date of substantive enactment. To the
extent that it is not more likely than not that a future tax asset will be
realized, a valuation allowance is provided.

8

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





1.

Significant
accounting policies (continued):

(m)

Foreign
currency transactions:

The
Company's functional currency is the Canadian dollar.  Monetary assets
and liabilities denominated in foreign currency are translated into Canadian
dollars at the rate of exchange prevailing at the balance sheet date.
 Non-monetary items are translated at rates of exchange in effect when the
amounts were acquired or obligations incurred.  Revenues and expenses are
translated at rates in effect at the time of the transaction.  Foreign
exchange gains and losses are recognized in the determination of net earnings
(loss) in the year in which they arise.

(n)

Derivative
financial instruments:

The
Company uses certain derivative financial instruments, principally forward
foreign exchange contracts, to manage foreign currency exposures on export
sales.  Derivative financial instruments are used for risk management
purposes and not for generating trading profits.  Derivative financial
instruments are not accounted for as hedges.  The realized and unrealized
gains and losses are recognized in the operating income of the Company.
 Fair values are determined using current market rates for the settlement
of the derivative instruments.

(o)

Measurement
uncertainty:

The
presentation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities, and the
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the period.
 Significant areas requiring the use of estimates include the estimation of
warranty provisions, amortization periods of intangible assets, valuation of
stock compensation, and the estimation of future income tax asset valuation
allowances.  Actual results could differ from those estimates.

(p)

Impairment
of long-lived assets:

The
Company monitors the recoverability of long-lived assets, including equipment
and leasehold improvements, and intangible assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  The Company reviews factors such as current market value,
future asset utilization and business climate and compares the carrying value of
the assets to the future undiscounted cash flows expected to result from the use
of the related asset.  If such cash flows are less than the carrying value,
the impairment charge to be recognized equals the excess.

9

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





2.

Acquisition
of AVVA Technologies Inc.:

On
October 1, 2003, the Company acquired all the issued and outstanding share
capital, stock options and warrants of AVVA.

Pursuant
to the terms of the acquisition agreement, former shareholders of AVVA received
1 common share of the Company for every 8 AVVA shares held on the acquisition
date.  Common share purchase options and warrants outstanding in AVVA as at
the effective date were also exchanged on an 8 to 1 ratio into common share
purchase options and warrants of the Company, respectively.

As
a result of the acquisition, the Company issued 3,055,477 common shares to the
former shareholders of AVVA.  In addition, the Company reserved an
aggregate of 116,797 common shares pursuant to the exercise of warrants and
307,813 common shares pursuant to the exercise of stock options granted in
conjunction with the acquisition.

The
fair value of shares issued on acquisition was based on the market price of CTC
shares at the date the acquisition was agreed to and announced based on
management's evaluation that the CTC shares trade in an active and liquid
market.  The fair value of options and warrants issued has been determined
using an option pricing model.

The
following summarizes the fair value of the assets acquired and liabilities
assumed:



Assets:

Current
assets

$  
1,079,423



Equipment
and leasehold improvements

305,641

Intangible
assets

167,265

Goodwill

3,072,173

Future
income tax assets

198,521

4,823,023

Liabilities:

Current
liabilities

711,165

Obligations
under capital leases

81,796

792,961



Total
consideration

$

4,030,062



Consideration:

Common
shares

$

3,715,460

Options

160,587

Warrants

45,936

3,921,983

Plus
acquisition costs

108,079



$

4,030,062



10

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002



3.

Inventories:

2004

2003



Raw
materials

$

2,101,277

$

1,453,289

Work-in-process

165,218

206,241

Finished
goods

491,755

245,342



$

2,758,250

$

1,904,872



4.

Equipment
and leasehold improvements:



Accumulated

Net
book

2004

Cost

amortization

value



Computer
hardware

$

425,227

$

214,324

$

210,903

Computer
software

361,987

263,578

98,409

Leasehold
improvements

488,250

245,067

243,183

Office
equipment

173,833

57,539

116,294

Production
equipment

425,615

143,057

282,558

Research
equipment

166,531

45,444

121,087



$

2,041,443

$

969,009

$

1,072,434





Accumulated

Net
book

2003

Cost

amortization

value



Computer
hardware

$

282,839

$

154,765

$

128,074

Computer
software

165,169

140,657

24,512

Leasehold
improvements

409,867

134,637

275,230

Office
equipment

128,517

36,492

92,025

Production
equipment

361,087

86,813

274,274

Research
equipment

100,939

23,371

77,568



$

1,448,418

$

576,735

$

871,683



Equipment
and leasehold improvements include $245,065 (2003 - $245,065) of equipment
acquired under capital leases.  Amortization of equipment under capital
lease of $110,555 (2003 - $48,336; 2002 - $24,856) is included in amortization
expense.

11

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





5.

Intangible
assets:



Accumulated

Net
book

2004

Cost

amortization

value



Licensed
technology

$

17,265

$

3,085

$

14,180

Customer
relationships

150,000

37,500

112,500

Patents
and trademarks

97,001

53,197

43,804



$

264,266

$

93,782

$

170,484





Accumulated

Net
book

2003

Cost

amortization

value



Licensed
technology

$

17,265

$

3,085

$

14,180

Customer
relationships

150,000

7,500

142,500

Patents
and trademarks

75,773

42,133

33,640



$

243,038

$

52,718

$

190,320



6.

Income
taxes:

Income
tax recovery (expense) differs from the amounts computed by applying the
combined federal and provincial tax rates of 35.62% (2003 - 37.6%; 2002 - 39.6%)
to pre-tax income from continuing operations as a result of the following:



2004

2003

2002



Earnings
(loss) before income taxes

$

592,937

$

(117,987)

$

(6,702)



Computed
expected tax expense

(recovery)

$

211,200

$

(44,363)

$

(2,654)

Non-deductible
expenses

112,000

60,232

14,680

Other

42,914

(7,462)

(736)

Increase
in income tax valuation

allowance

(366,000)

67,000

-

Tax
effect of loss carryforwards

not
previously recognized

-

(67,000)

(29,290)



Income
tax expense (recovery)

$

114

$

8,407

$

(18,000)



12

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





6.

Income
taxes (continued):

Temporary
differences give rise to the following future tax assets and liabilities at
December 31:



2004

2003



Future
tax assets:

Warranty
reserve

$

26,000

$

46,000

Share
issue costs

318,000

305,000

Losses
available for future periods

673,000

828,000

Scientific
research and experimental development

-

69,000

Equipment

400,000

138,000

Accrued
liabilities

-

40,000

Other

14,000

14,000

1,431,000

1,440,000



Future
tax liabilities:

Investment
tax credits

(70,000)

-

Intangible
assets

(25,000)

(51,000)

Equipment

-

(3,000)

(95,000)

(54,000)



Less
valuation allowance

(830,000)

(1,195,886)



Net
future tax assets

$

506,000

$

190,114





2004

2003



Future
income tax assets

$

550,000

$

190,114

Future
income tax liabilities

(44,000)

-



Net
future tax assets

$

506,000

$

190,114



13

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





6.

Income
taxes (continued):

As
at December 31, 2004, the Company has non-capital loss carryforwards of
$1,900,000 available to reduce taxable income otherwise calculated in future
years.  These losses will expire as follows:



Non-capital
losses



2005

$

500,000

2006

200,000

2007

200,000

2008

200,000

2009

200,000

2010

400,000

2011

200,000



$

1,900,000



7.

Bank
loan:

The
Company, through its subsidiaries CTI and CSI, have credit facilities with the
Royal Bank of Canada, which includes demand operating loans to a combined
maximum of $1,050,000 (2003 - $750,000) at prime plus 0.75% (2003 - 0.75%).
 These credit facilities are secured by general security agreements, and
guarantees and postponement of claims by CTC.

8.

Long-term
debt:



2004

2003



Business
Development Bank loan, payable in monthly

instalments of
$1,675 including annual interest at

prime plus 1.25%,
maturing July 31, 2006.

Secured by a general
security agreement on

manufacturing
equipment.

$

-

$

50,250



City
of Victoria, payable in monthly instalments of $170

including
annual interest at 7.92%, maturing August 1, 2006

-

4,889

-

55,139

Less
current portion of long-term debt

-

21,814



$

-

$

33,325



14

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





9.

Obligations
under capital leases:

The
Company leases equipment under lease agreements, which are classified as capital
leases.  The future minimum annual lease payments are repayable as follows:



2004

2003



2004

$

-

$

69,555

2005

23,568

47,320

2006

14,017

31,247

2007

2,119

6,352

39,704

154,474

Less
amounts representing interest at 7.75% to 10.75%

(4,376)

(27,383)

Present
value of capital lease obligations

35,328

127,091

Less
current portion

21,573

55,435

$

13,755

$

71,656



Interest
expense incurred during 2004 on capital leases amounted to $4,976 (2003 -
$6,152; 2002 - $7,692).

10.

Share
capital:

(a)

Authorized:

Unlimited
number of common shares without par value

(b)

Issued
and outstanding:

Number of

common

shares                
Amount



Balance,
December 31, 2001

20,212,710

$

3,029,746

Private
placement

440,000

237,600

Less
share issuance costs

-

(11,010)

Balance,
December 31, 2002

20,652,710

3,256,336

Private
placement

2,000,000

1,480,000

Exercise
of brokers' warrants

220,160

165,120

Exercise
of warrants

68,720

65,284

Exercise
of options

486,667

458,002

Issue
of shares on acquisition of AVVA

3,055,477

3,715,460

Less
share issuance costs

-

(215,480)

Balance,
December 31, 2003

26,483,734

8,924,722

Private
placement

3,484,848

5,749,999

Exercise
of brokers' warrants

267,646

681,580

Exercise
of warrants

185,827

341,836

Exercise
of options

1,493,254

1,265,335

Less
share issuance costs

-

(641,353)

Balance,
December 31, 2004

31,915,309

$

16,322,119



15

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





10.

Share
capital (continued):

(b)

Issued
and outstanding (continued):

During
the year ended December 31, 2002, the Company completed a private placement of
440,000 common shares at $0.54 per common share for gross proceeds of $237,600.

During
the year ended December 31, 2003, the Company completed a private placement of
2,000,000 common shares of $0.74 per common share for gross proceeds of
$1,480,000.

During
the year ended December 31, 2003, 68,720 warrants were exercised for 68,720
common shares at a price of $0.95 per common share for gross proceeds of
$65,284.

During
the year ended December 31, 2003, 6,667 options, 467,500 options and 12,500
options were exercised at a price of $0.60 per common share, $0.75 per common
share and $0.80 per common share, respectively, and an aggregate of 486,667
common shares were issued for gross proceeds of $364,625.

During
the year ended December 31, 2004, the Company completed a brokered private
placement of 3,484,848 units at $1.65 per unit for gross proceeds of $5,749,999.
Each unit consists of one common share and one half (1/2) of one common share
purchase warrant. Each whole share purchase warrant entitles the holder to
acquire one additional common share at an exercise price of $2.15 per common
share for a period of 18 months expiring August 19, 2005. The agent received a
cash commission of 7% of the gross proceeds of the financing and 348,484 agent's
warrants exercisable at a price of $2.15 per share for a period of 18 months
expiring August 19, 2005.

During
the year ended December 31, 2004, 267,646 brokers' warrants were exercised at
a price of $2.15 per common share and 267,646 common shares were issued for
gross proceeds of $575,439.

During
the year ended December 31, 2004, 48,077 warrants and 137,750 warrants were
exercised at a price of $0.95 per common share and $2.15 per common share,
respectively, and an aggregate of 185,827 common shares were issued for gross
proceeds of $341,836.

During
the year ended December 31, 2004, 90,666 options, 1,159,900 options, 75,313
options, 55,000 options, 37,500 options, 51,875 options and 23,000 options were
exercised at a price of $0.60 per common share, $0.75 per common share and $0.80
per common share, $0.90 per common share, $0.95 per common share, $0.96 per
common share and $1.17 per common share respectively, and an aggregate of
1,493,254 common shares were issued for gross proceeds of $1,146,410.

16

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





10.

Share
capital (continued):

(c)

Stock
options:

The
Company maintains a fixed stock option plan that enables it to grant options to
its directors, officers, employees and other service providers.  Each
option agreement with the grantee sets forth, among other things, the number of
options granted, the exercise price and the vesting conditions of the options.
 A summary of the status of the options outstanding and exercisable
follows:



Number
of                    
Weighted

common
shares               
average
price









Balance,
December 31, 2001

3,224,833

$

0.74

Granted

166,664

0.75

Cancelled

(241,668)

(0.75)

Balance,
December 31, 2002

3,149,829

0.74

Granted

783,000

0.85

Granted
on acquisition of AVVA

307,813

0.88

Cancelled

(245,000)

(0.75)

Exercised

(486,667)

(0.75)

Balance,
December 31, 2003

3,508,975

0.77

Granted

830,000

1.45

Cancelled

(129,499)

(1.24)

Exercised

(1,493,254)

(0.77)

Balance,
December 31, 2004

2,716,222

$                  
0.96





The
following table summarizes the stock options outstanding and exercisable at
December 31, 2004:





Number

Number

outstanding
at

exercisable
at

Exercise
price

December
31, 2004

Expiry
date

December
31, 2004



$0.60

132,001

February
3, 2005

132,001

$0.75

1,344,932

June
20, 2006

1,344,932

$0.75

91,664

June
13, 2007

91,664

$0.75

132,000

January
13, 2008

132,000

$0.75

7,500

April
1, 2005

7,500

$0.95

50,000

August
25, 2008

33,836

$0.80

18,750

November
3, 2005

18,750

$0.90

63,750

June
30, 2008

63,750

$0.95

60,000

October
1, 2008

60,000

$0.96

25,625

August
22, 2006

25,625

$1.17

60,000

October
1, 2008

45,442

$1.20

300,000

November
10, 2008

109,067

$1.20

200,000

December
1, 2008

75,000

$0.95

50,000

August
18, 2008

36,730

$2.11

30,000

August
12, 2009

3,890

$2.35

100,000

September
1, 2009

36,152

$2.75

50,000

November
12, 2009

4,566

2,716,222

2,220,905



17

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





10.

Share
capital (continued):

(c)

Stock
options (continued):

The
compensation costs reflected in the consolidated statements of operations were
calculated using the Black-Scholes option pricing model using the following
weighted average assumptions:



2004

2003

2002



Risk
free interest rate

2.78%

3.33%

4.19%

Expected
dividend yield

0%

0%

0%

Stock
price volatility

59%

58%

61%

Expected
life of options

2
years

2
years

3
years



The
weighted average fair value of options granted during the year ended December
31, 2004 is $0.51 (2003 - $0.41; 2002 - $0.23) each.

(d)

Shares
held in escrow:

As
at December 31, 2004, the Company held nil (2003 - 1,366,206) common shares in
escrow subject to time-based or performance-based release criteria.

The
time-based escrow shares were eligible for release at 15% semi-annually until
July 2004.  During the year ended December 31, 2004, all of the remaining
1,141,205 (2003 - 6,466,808) shares have been released from the time-based
escrow.

Performance
escrow shares were released at one share for every $3.00 in Qualifying Revenue
or $3.00 in Qualifying Financing, whichever results in the greater number of
escrow securities.  Shares eligible for annual release from escrow were
limited to 30% of total escrow securities.  During the year ended December
31, 2004, all of the remaining 225,001 (2003 - 1,275,010) shares have been
released from performance escrow.

(e)

Warrants:

Each
warrant entitles the holder to purchase one common share of the Company.

During
the year, pursuant to a private placement, the Company issued 1,742,424 share
purchase warrants and 348,484 broker's warrants enabling the holders to
purchase additional common shares of the Company at an exercise price of $2.15
per share expiring August 19, 2005.

18

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





10.

Share
capital (continued):

(e)

Warrants
(continued):

During
the year, the remaining 48,077 warrants expiring April 12, 2004, were exercised
at a price of $0.95 per common share and 48,077 common shares were issued for
gross proceeds of $45,673.

During
the year, 137,750 warrants were exercised at a price of $2.15 per common share
and 137,750 common shares were issued for gross proceeds of $341,836, leaving a
balance of 1,604,674 share purchase warrants outstanding at December 31, 2004,
expiring August 19, 2005.

During
the year, 267,646 brokers' warrants were exercised at a price of $2.15 per
common share and 267,646 common shares were issued for gross proceeds of
$575,439, leaving a balance of 80,838 broker's warrants outstanding at
December 31, 2004, expiring August 19, 2005.

(f)

Contributed
surplus:



Year
ended December 31,

2004

2003



Balance,
beginning of year, as previously stated

$

298,197

$

26,188



Adjustment
for stock compensation (note 1(j))

173,702

24,465

Transfer
to share capital on exercise of options

(93,377)

-

Balance,
beginning of year, restated

378,522

50,653



Stock
compensation

319,035

214,723

Brokers'
warrants issued

138,199

-

Transfer
to share capital on exercise of

options
and broker warrants

(225,066)

(93,377)

Stock
options issued on AVVA acquisition

-

160,587

Warrants
issued on AVVA acquisition

-

45,936



Balance,
end of year

$

610,690

$

378,522



19

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





11.

Earnings
(loss) per share:

The
weighted average number of common shares used in the computation of earnings
(loss) per share is as follows:



Year
ended December 31,

2004

2003

2002



Weighted
average common shares used in

in the computation
of basic income (loss)

per
share

30,116,949

22,826,155

19,650,884



Weighted
average common shares from

assumed conversion
of dilutive

stock
options

1,685,959

913,088

911,395



Weighted
average common shares from

assumed
conversion of dilutive warrants

252,399

4,161

-



32,055,307

23,743,404

20,562,279



12.

Contribution
agreement:

CTI
has entered into a Contribution Agreement (the "Agreement") with Sustainable
Development Technology Canada.  Under the terms of the Agreement, CTI is to
be reimbursed for certain research and development costs incurred to develop and
commercialize specific projects to a maximum contribution of $500,000.  At
December 31, 2004, eligible research and development expenses of $71,223 (2003 -
$286,038; 2002 - $142,739) have been offset by contributions received and
receivable under this Agreement.

13.

Related
party transactions:

During
the year ended December 31, 2004, the Company paid $83,000 (2003 - $83,000; 2002
- $74,083) for research and development services to a director of the Company.
 During the year ended December 31, 2004, the Company paid nil in contract
fees to a company partly owned by a director of the Company.  During the
2004 fiscal year, this director was paid directly under the Company's payroll
program.  In prior years fees paid to the company part-owned by the
director of the Company were $279,550 in 2003 and $297,220 in 2002.  This
company provided two senior management positions and one administrative position
to the Company.

The
Company has entered into an advisory agreement with a company controlled by a
director and officer of the Company in the amount of $10,000 per month, expiring
July 2005.  During the year ended December 31, 2004, the Company paid
management fees of $120,000 (2003 - $120,000; 2002 - $120,000) under this
agreement.

20

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





14.

Financial
instruments:

(a)

Fair
value:

For
certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities and
bank loan, the carrying amounts approximate fair value due to their immediate or
short-term maturity.  The fair value of obligations under long-term debt
and obligations under capital leases, calculated at the present value of future
payments and discounted at the current market rates of interest available to the
Company for debt instruments with similar terms and maturity, approximate their
carrying values.  The fair value of forward exchange contacts is calculated
using current market rates for the settlement of the derivative instruments.

(b)

Currency
risk:

The
Company enters into forward foreign exchange contracts to manage its foreign
currency exposure.  The contracts oblige the Company to sell U.S. dollars
in the future at predetermined exchange rates.  The contracts are matched
with anticipated future sales in foreign currencies.  At December 31, 2004,
the Company had purchased contracts to sell U.S. $1,500,000 in the next 12
months at an average exchange rate of $1.223.  At December 31, 2004,
current assets included $1,834,350 of the fair value of unrealized forward
contracts due to the Company in Canadian dollars and current liabilities
included $1,803,300 of the fair value of unrealized forward contracts due by the
Company in Canadian dollars to December 31, 2004.  The difference between
the unrealized forward contracts receivables and payables balances of $31,050
has been recorded as an unrealized gain in the statements of operations and
deficit for the year ended December 31, 2004.

Foreign
exchange losses (gains) recognized in the determination of net earnings (loss)
for the year were $(30,850) (2003 - $290,456; 2002 - $26,710).

(c)

Concentrations
of credit risk:

Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash equivalents and trade accounts
receivable.  To reduce credit risk, cash equivalents are only held at major
financial institutions and management performs ongoing credit evaluations of its
customers' financial condition.  The Company maintains reserves for
potential credit losses.

21

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





15.

Commitments:

The
Company has operating lease agreements for the rental of premises and equipment.
 The minimum future annual rental payments under the leases are as follows:





Year
ending December 31:



2005

$

312,892

2006

178,875

2007

2,130



$

493,897



16.

Industry
segment and foreign operations:

The
Company operates in one segment being the development and manufacturing of
lighting solutions and the sale of related products to consumers and suppliers
worldwide.  Since the Company operates in one segment, all financial
segment information can be found in the consolidated financial statements.

There
were no sales to any individual customer in the year ended December 31, 2004,
2003 and 2002 that represented more than 10% of sales for the period.

As
at December 31, 2004 and 2003, all of the assets related to the Company's
operations were located in Canada.

For
geographical reporting, revenues are attributed to the geographic location in
which the customer is located as follows:



(thousands
of dollars)

2004

2003

2002



North
America

$

11,898

$

6,509

$

3,997

South
Amercia

326

173

205

Europe

2,058

1,852

1,688

Middle
East

1,006

330

97

Asia

462

222

348

South
Pacific

145

134

133



$

15,895

$

9,220

$

6,468



22

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





17.

Reconciliation
to United States generally accepted accounting principles:

The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP") which
differ in certain respects from those measurement principles and practices that
the Company would have followed had its consolidated financial statements been
prepared in accordance with generally accepted accounting principles in the
United States of America ("U.S. GAAP") and the requirements of the
Securities and Exchange Commission.  The material measurement differences
to the consolidated financial statements are as follows:

(a)

Income
taxes:

Under
U.S. GAAP, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
 Under Canadian GAAP, the effect of a change in tax rates is recognized in
the period of substantive enactment.  The application of this difference
under U.S. GAAP does not result in a material difference between future income
taxes as recorded under Canadian GAAP.

(b)

Stock-based
compensation:

Under
Canadian GAAP, prior to January 1, 2002, the Company did not recognize any
compensatory element for options granted to employees or directors.  The
Financial Accounting Standards Board in the U.S. has issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") which became effective for transactions
entered into after December 15, 1995.  The FAS 123 encourages entities to
adopt a fair value methodology of accounting for employee stock-based
compensation.  As permitted by the FAS 123, the Company has elected to
continue measuring employee compensation costs using the intrinsic value method
of accounting under APB Option 25 and related interpretations.  Under the
intrinsic value based method, employee stock option compensation is determined
by the excess, if any, of the quoted market value of the stock at the date of
the grant over the amount an optionee must pay to acquire the stock.  The
excess is recognized by a charge to operations over the vesting period.

Stock
options granted to non-employees for services rendered to the Company are
required to be accounted for based on the fair value of the services provided or
the stock options granted as the services are performed and the options earned.
 The Company applies a similar accounting policy under Canadian GAAP for
non-employee awards made on or after January 1, 2002.  The stock-based
compensation expense in respect of options granted to non-employees prior to
January 1, 2002, under U.S. GAAP, based on the fair value of the options using
an option pricing model, would be $23,191 for the year ended December 31, 2004
(2003 - $81,168; 2002 - $302,802).

23

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





17.

Reconciliation
to United States generally accepted accounting principles (continued):

(b)

Stock-based
compensation (continued):

With
respect to escrowed shares, U.S. GAAP considers shares held in and releasable
from escrow based on performance to be a compensatory arrangement between the
Company and the holder of the shares.  Accordingly, the difference between
the fair value of escrowed shares at the time the shares are eligible for
release from escrow and the issue price of the shares is recognized and charged
to operations as compensation expense in the period in which the escrowed shares
are eligible for release from escrow.  No such recognition is given under
Canadian GAAP.  As at December 31, 2004, the Company held nil (2003 -
1,336,206) common shares in escrow.

Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under FAS 123, the Company's net earnings (loss)
would have been as follows:



2004

2003

2002



Net
income (loss):

As
reported under US GAAP

(note
17(h)(v))

$

147,721

$

(818,550)

$

(922,641)

Pro
forma net loss

(167,464)

(982,923)

(947,106)

Income
(loss) per share:

As
reported under US GAAP

(note 17(h)(v))

Basic
and fully diluted

0.00

(0.04)

(0.05)

Pro
forma basic and fully diluted

(0.00)

(0.04)

(0.05)



The
fair value of these options has been determined using the Black-Scholes option
pricing formula with the following weighted average assumptions:



2004

2003

2002



Risk
free interest rate

2.78%

3.33%

4.19%

Expected
dividend yield

0%

0%

0%

Stock
price volatility

59%

58%

61%

Expected
life of options

2
years

2
years

3 years



The
weighted average fair value of options granted during the year ended December
31, 2004 was $0.51 (2003 - $0.41; 2002 - $0.23) per option.

(c)

Write-down
of advances receivable:

Under
U.S. GAAP, the write-down of advances receivable would be included in operating
income (loss) resulting in operating income (loss) of $466,509 for the year
ended December 31, 2004 (2003 - $(148,941); 2002 - $(57,436)).

24

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





17.

Reconciliation
to United States generally accepted accounting principles (continued):

(d)

Deferred
development costs expenditures:

Costs
of product development that are capitalized as technology and amortized under
Canadian GAAP are required to be expensed in the period incurred under U.S.
GAAP.  In a year prior to 2002, the Company had incurred such costs and
capitalized them under Canadian GAAP.  As they would have been expensed
under U.S. GAAP at that time, an adjustment is required in 2002 when the
remaining portion of such costs were amortized.

Deferral
of these costs under Canadian GAAP resulted in a future income tax liability
since costs are deductible in the year incurred for tax purposes.  The
expensing of development costs under U.S. GAAP results in the elimination of
this temporary difference.  The adjustments shown are gross of the
estimated deferred tax impact under U.S. GAAP with the deferred tax impact
presented separately.

(e)

Research
equipment:

The
cost of research equipment that has been capitalized for Canadian GAAP purposes
but does not have an alternative future use separate from the research project
is required to be expensed in the period incurred under U.S. GAAP.
 Accordingly, the amortization of such equipment recognized under Canadian
GAAP would not be recognized under U.S. GAAP.

(f)

Product
warranties:

Product
warranties included in accounts payable and accrued liabilities are as follows:



2004

2003



Balance,
beginning of year

$

125,218

$

67,851

Warranty
accruals

23,893

147,228

Warranty
charges

(73,994)

(89,861)



Balance,
end of year

$

75,117

$

125,218



(g)

Recent
accounting pronouncements:

In
December 2004, the Financial Accounting Standards Board ("FASB") issued
revised Statement of Financial Accounting Standards No. 123 entitled "Share-Based
Payment" ("FAS No. 123R).  FAS 123R addresses accounting for
stock-based compensation and requires that the fair value of all stock-based
compensation arrangements, including options, be recognized as an expense in a
company's financial statements, as opposed to the presentation of supplemental
pro forma disclosure in the notes to financial statements.  FAS 123R
eliminates the ability to account for stock-based compensation transactions
using APB Opinion No. 25.  FAS No. 123R is effective for public entities
that do not file as small business issuers as of the beginning of the first
annual reporting period of the first fiscal year that begins after June 15,
2005.

25

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





17.

Reconciliation
to United States generally accepted accounting principles (continued):

(g)

Recent
accounting pronouncements (continued):

In
November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 151 entitled "Inventory Costs
- an amendment to ARB No. 43, Chapter 4" ("FAS No. 151").  This
statement amends the guidance in ARB No. 43 to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and spoilage.
 FAS No. 151 requires that these items be recognized as current period
charges.

The
Company is currently evaluating the impact of these recent accounting
pronouncements on its consolidated financial statements.

(h)

Reconciliation:

The
effect of the differences between Canadian and U.S. GAAP (including practices
prescribed by the SEC) on the consolidated balance sheets, statements of
operations and deficit and cash flows is summarized as follows:

(i)

Assets:



2004

2003



Assets,
under Canadian GAAP

$

19,866,167

$

10,673,668

Adjustment
for research equipment

expensed
under U.S. GAAP (note 17(c))

(121,087)

(77,569)



Assets,
under U.S. GAAP

$

19,745,080

$

10,596,099



(ii)

Liabilities:



2004

2003



Liabilities,
under Canadian and US GAAP

$

3,255,742

$

2,285,631



26

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





17.

Reconciliation
to United States generally accepted accounting principles (continued):

(h)

Reconciliation
(continued):

(iii)

Share
capital:



2004

2003



Share
capital, under Canadian GAAP

$

16,322,119

$

8,924,722

Adjustment for
stock-based compensation relating

to
stock options issued to non-employees (note 17(b))

417,437

394,246

Adjustment for
stock-based compensation relating

to
stock options and escrowed shares allotted to

employees
and directors (note 17(b))

2,504,853

1,807,424

Adjustment to
reverse stock compensation under

Canadian
GAAP

(492,737)

(173,702)



Share
capital, under U.S. GAAP

$

18,751,672

$

10,952,690



(iv)

Deficit:



2004

2003



Deficit,
under Canadian GAAP

$

(322,384)

$

(915,207)

Expense for
stock-based compensation relating to

stock
options issued to non-employees (note 17(b))

(417,437)

(394,246)

Expense for
stock-based compensation relating

to
stock options and escrowed shares allotted to

employees
and directors (note 17(b))

(2,504,853)

(1,807,424)

Adjustment to
reverse stock compensation under

Canadian
GAAP

492,737

173,702

Adjustment for
research equipment expensed

under
U.S. GAAP (note 17(d))

(121,087)

(77,569)



Deficit,
determined under U.S. GAAP

$

(2,873,024)

$

(3,020,744)



27

---

CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2004, 2003 and 2002





17.

Reconciliation
to United States generally accepted accounting principles (continued):

(h)

Reconciliation
(continued):

(v)

Income
(loss) and income (loss) per share for the year:



2004

2003

2002



Net earnings (loss),
under Canadian

GAAP

$

592,823

$

(126,394)

$

11,928

Expense for
stock-based compensation

relating
to stock options issued to

non-employees
(note 17(b))

(23,191)

(81,168)

(302,802)

Expense for
stock-based compensation

relating
to stock options and escrowed

shares
allocated to employees and

directors
(note 17(b))

(697,428)

(698,348)

(859,050)

Adjustment to
reverse stock

compensation
under Canadian

GAAP

319,035

149,237

24,465

Adjustment for
deferred development

costs
expensed under U.S. GAAP

(note
17(c))

-

-

216,895

Adjustment for
research equipment

expensed
under U.S. GAAP (note 17(d))

(43,518)

(61,877)

3,923

Deferred income
taxes on U.S. GAAP

adjustments

-

-

(18,000)



Net
earnings (loss), determined under

U.S.
GAAP

$

147,721

$

(818,550)

$

(922,641)



Weighted average
number of common

shares
outstanding under Canadian

GAAP
and U.S GAAP:

Basic

30,116,949

22,826,155

19,650,884

Diluted

32,055,307

23,743,404

20,562,279



Loss per share,
basic and diluted

-
U.S. GAAP

$

0.00

$

(0.04)

$

(0.05)





28