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

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003.

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 ClassName 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:

None

(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, 2003, there were 26,483,734 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 17Ö



Item 18











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i

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ii

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GLOSSARY OF TERMS



ABCAThe Business Corporations Act (Alberta).BoardBoard of Directors of the Corporation.Common Sharespost-consolidated common shares in the capital of the Corporation.Company ActThe Company Act, RSBC 1996, c. 62, as amended (British Columbia).Consolidationthe consolidation of the Corporation's Common Shares on the basis of one Post Consolidated Common Share for each 1.5 Common Shares then outstanding.The Corporation or CarmanahCarmanah Technologies Corporation (formerly Andina Development Corporation), a corporation incorporated pursuant to the Business Corporations Act (Alberta).CTICarmanah Technologies Inc., a corporation incorporated pursuant to the Corporation Act (British Columbia).Directorsthe Directors of Carmanah Technologies Corporation, formerly Andina Development Corporation.Exchangemeans the TSX Venture Exchange Inc., formerly the Canadian Venture Exchange.GAAPGenerally accepted accounting principles.ICAInvestments Canada Act.LEDLight-emitting diodes.Principal Shareholderthe principal shareholder of CTI, being Carmanah Management Corp.Private Placementthe private placement of up to 2,500,000 Units completed in conjunction with the Acquisition.Acquisitionthe acquisition of all of the issued and outstanding CTI Shares by the Corporation pursuant to the Share Purchase Agreement.Reverse Takeovera reverse takeover more particularly described in the Exchange's Policy 5.2, and as described under the heading "Business of the Corporation - Reverse Takeover and Majority of Minority Approval".




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Share Purchase Agreementthe share purchase agreement to be dated on or around June 20, 2001 among the Corporation, CTI, various principals of CTI and all of the shareholders of CTI.Unita unit of the Corporation consisting of one Post Consolidated Common Share and one Warrant, at a deemed price of $0.75 per Unit, to be offered pursuant to the Private Placement.Warranta common share purchase warrant entitling the holder thereof to purchase one additional Post Consolidated Common Share at a price of $1.00 per share, up to 12 months from the date of issuance and a price of $1.25 per share thereafter up to 18 months from the date of issuance.WTOWorld Trade Organization.




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."  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" or "intends", or stating that certain actions, events or results
"may", "could", "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."



Forward-looking statements are based on expectations, estimates and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated.



Certain forward-looking statements are identified by a cross-reference to this Note. Additional information concerning these and other factors which could affect the operation or financial results of Carmanah Technologies Corporation are included in this document under the heading
"Key Information - Risk Factors".



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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 (the
"Corporation") by a Certificate of Incorporation issued pursuant to the provisions of the Business Corporations Act (Alberta) 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 Technologies Inc. ("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 head office and principal business address of the Corporation is located at Suite 1304, 925 West Georgia Street, Vancouver, British Columbia, V6C 3L2 and the registered and records office of the Corporation is located at 1600 Canada Place, 407 2nd Street S.W., Calgary, Alberta, T2P 2Y3.

A.

Selected Financial Data

This data has been derived from our audited financial statements, which have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP") and reconciled



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for material measurement differences to accounting principles generally accepted in the United States ("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, 2003, 2002, 2001, 2000 and 1999. The selected financial and operating information as at December 31, 2003 and 2002 and for each of the years in the three year period ended December 31, 2003 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, 2000 and 1999 and for the years ended December 31, 2001, 2000 and 1999 have been extracted from audited financial statements not included herein.



Fiscal Years ended December 31,20032002200120001999RevenuesCanadian GAAP$
9,220,018$
6,468,899$
3,373,453$
2,262,905$
1,181,287U.S. GAAP$
9,220,018$
6,468,899$
3,373,453$
2,262,905$
1,181,287Total AssetsCanadian GAAP$
10,673,668$
3,790,636$
2,745,106$
1,483,828$
789,243U.S. GAAP$
10,596,099$
3,774,944$
2,508,596$
1,257,636$
611,750Net Income/(Loss)Canadian GAAP$
22,843$
36,393$
(676,498)$
(89,269)$
18,986U.S. GAAP$
(884,036)$
(922,641)$
(947,118)$
(121,233)$
(104,055)DeficitCanadian GAAP$
(741,505)$
(764,348)$
(800,741)$
(89,269)$
18,986U.S. GAAP$
(3,086,230)$
(2,202,194)$
(1,279,553)$
(121,233)$
(104,055)Shareholders' EquityCanadian GAAP$
8,388,037$
2,518,176$
2,255,193$
849,684$
196,286U.S. GAAP$
8,038,459$
2,502,484$
2,036,682$
641,492$
18,793Share capitalCanadian GAAP$
8,831,345$
3,256,336$
3,029,746$
947,739$
231,260U.S. GAAP$
11,098,501$
4,678,490$
3,290,047$
959,124$
241,380Weighted average number of shares outstandingCanadian GAAPBasic22,826,15519,650,88415,460,95110,408,2027,668,632Diluted23,473,40420,562,27915,460,95110,408,2027,668,632U.S. GAAPBasic22,826,15519,650,88415,460,95110,408,2027,668,632Diluted23,473,40420,562,27915,460,95110,408,2027,668,632






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Fiscal Years ended December 31,20032002200120001999Net Income/(Loss) Per Share1Canadian GAAPBasic and diluted$
0.00$
0.00$
(0.04)$
(0.01)$
0.00U.S. GAAPBasic and diluted$
(0.04)$
(0.05)$
(0.06)$
(0.01)$
(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, for the five most recent financial years, (i) 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 31,20032002200120001999Average for PeriodUS$0.7186US$0.6370US$0.6443US$0.6723US$0.6744




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



Month EndedMayAprilMarchFebruaryJanuaryDecember200420042004200420042004High for PeriodUS$0.7364US$0.7637US$0.7645US$0.7629US$0.7880US$0.7738Low for PeriodUS$0.7158US$0.7293US$0.7418US$0.7439US$0.7496US$0.7460




As of December 31, 2003, 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$0.7738 (US$1.00 = CDN$1.2923).



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As of May 28, 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$0.7317 (US$1.00 = CDN$1.3666).

Dividend Policy

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.

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 our business because such factors currently may have a significant impact on our business, operating results and financial condition.

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.



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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

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.



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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 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.

No Dividends

The payment of dividends on the 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 does not currently intend to declare any dividends on its 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 may be adversely affected.



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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.



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 law suits 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.

Shares Reserved for Future Issuance; Dilution

As of December 31, 2003, the Corporation has reserved 3,557,052 common shares for issuance on the exercise of 48,077 share purchase warrants, and 3,508,975 incentive stock options.  If such options and warrants are fully exercised, such common shares would constitute 13% of the Corporation's then share capital. The issuance of new common shares will result in dilution to the Corporation's existing shareholders.  The exercise of such options and the subsequent resale of such common shares in the public market could adversely affect the prevailing market price and the Corporation's ability to raise equity capital in the future at a time and price which it deems appropriate.  The Corporation may also enter into commitments in the future which would require the issuance of additional common shares and the Corporation may grant additional share purchase warrants and stock options.  See
"Options to Purchase Securities From Corporation."



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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 Securities Exchange Act of 1934 (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 non-NASDAQ equity security that has a market price of less than $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) 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 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.

Foreign Incorporation

The Corporation is incorporated under the laws of Alberta, Canada and all of the Corporation's Directors and 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 those directors or officers 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.

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, 1998 and may qualify as a PFIC in subsequent years. There can be no assurance that the



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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".

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 Business Corporations Act (Alberta) 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 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.



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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 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, of which $160,972 remains outstanding as at December 31, 2001. Interest on these advances accrues at the rate of 8% per annum. The loan is evidenced and secured by promissory notes and a general security agreement. Bargain Castle is paying the Corporation $3,000 per month until the indebtedness has been paid in full. Subsequent to December 31, 2001, the Company received payments of $12,636 on the loan leaving a balance of $148,336 at December 31, 2002 in loans receivable.



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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 agreed to acquire (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 Policy 5.2.



The shareholders of the Corporation approved the Acquisition and the following transactions relating thereto at an annual general and special meeting of shareholders held on June 18, 2001:

a)

the Acquisition;

b)

the Private Placement;

c)

the election of five directors of the Corporation;

d)

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;

e)

the change of the Corporation's name to
"Carmanah Technologies Corporation"; and

f)

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 is comprised of one unit (a
"Unit"). Each Unit is 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



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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."

Accounting Matters

The Acquisition was accounted for on the purchase basis as a reverse takeover in accordance with generally accepted accounting principles. For accounting purposes, CTI (the legal subsidiary) was the acquiror and the Corporation (the legal parent) was the acquiree. The pre-acquisition financial information presented in the Corporation's consolidated financial statements and elsewhere throughout the document is that of CTI prior to the Reverse Takeover consolidated with the Corporation subsequently.

AVVA Technologies Inc.

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



At a September 29, 2003 shareholders' meeting, a special resolution was passed by the shareholders of AVVA approving the amalgamation of AVVA with 1057614 Alberta Ltd., a wholly owned subsidiary of Carmanah. Pursuant to the terms of the amalgamation agreement signed among the parties, 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 3,055,484 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 the world's finest, 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".



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 1212, 1175 Douglas Street, Victoria, British Columbia, V8W 2E1.



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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, 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 Company 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.





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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 innovator and leader within the long established maritime aids-to-navigation industry. The Company 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 Company 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

The Corporation was incorporated as Andina Development Corporation (the
"Corporation") by a Certificate of Incorporation issued pursuant to the provisions of the Business Corporations Act (Alberta) 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. On June 10, 2002, after completing its reverse takeover of
CTI, 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.

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The Corporation's common shares were originally listed on the Canadian Venture Exchange (now the TSX Venture Exchange) on January 8, 1997 having a trading symbol
"ADZ".  On June 21, 2001, after completion of the Corporation's reverse takeover of CTI, the Corporation's common shares traded under the symbol
"CMH".



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



CTI, the Corporation's wholly owned subsidiary is located at Building 4, 203 Harbour Road, Victoria, BC, Canada V9A 3S2.



Effective October 1, 2003, AVVA became the Corporation's wholly owned subsidiary and its office is located at Suite 5-6025 - 12th Street S.E., Calgary, AB  T2H 2K1.

D.

Property, Plants and Equipment

The Corporation's corporate office currently shares approximately 6,700 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, 2004. The shared property provides office space to the Corporation for administrative and shareholder promotion purposes.



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.

2.

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

Equipment

Carmanah presently owns all of its own equipment with the exception of some computer equipment which is leased from IBM Leasing and GE Capital Leasing.  CTI has entered into leases with IBM commencing March 2001 and May 2001, and with GE Capital Leasing commencing November 2002.  The aforementioned leases are for a twenty four month term.  CTI also leases some printer/copiers from Minolta pursuant to lease documents commencing August 2002, for a thirty-six month term.  AVVA operations owns all of its equipment with the exception some printers/copiers leased from NNNNNNN, which commenced MM,YY and MM,YY, and run for a XX month term.  AVVA also has a lease with
Equirex Leasing for some manufacturing equipment.  This lease was paid out in full subsequent to December 31, 2003.

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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, 2003, 2002 and 2001 and for its last three fiscal years ending December 31, 2003, 2002 and 2001 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 18 of the audited December 31, 2003 consolidated financial statements included herein at Part IV  Item 17.  Refer to Note 18 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, 2003, 2002 and 2001 are as follows:



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



Carmanah's total revenues for the 12 months 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 Technologies Inc., 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 Company'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 Company's cost 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 Company also took advantage of its revenue growth to negotiate more favourable volume pricing on component supply.

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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 26% to $1,919,084, compared with $1,517,416 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 Full-Time Equivalents (FTE's) in the entire company during fiscal 2003, compared with 41 FTE's in 2002.



Office and administration expenses in 2003 were $871,994, representing a 27% increase over 2002 at $684,531.  During the 2003 fiscal year, Carmanah was operating out of approximately 19,205 square feet, whereas the Company 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.

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 Company with its current sales momentum.  Carmanah will continue to be proactive with its investment in research and development as the Company 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 Company 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 Company 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.



Net earnings for 2003 before income tax, depreciation and amortization (EBITDA) were $260,936, compared with $384,393 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.  The Company recorded net earnings of $22,843.



Year Ended December 31, 2002 as compared to Year Ended December 31, 2001



The Corporation's total revenues for the 12 months ended December 31, 2002 increased 91% to $6,468,899, compared with $3,373,453 for the preceding year.  Revenues were derived from the sale of solar-powered LED (light emitting diode) hazard, safety and navigation lights.  Sales were sourced through a worldwide distribution network and direct sales efforts in key market segments and territories.  Revenue growth was achieved through increased investment in direct sales and marketing resources and



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activities.  Sales increased throughout the Corporation's existing product lines and through the introduction of several new products.



Net income (loss) for 2002 was $36,393, compared with $(676,498) for 2001.  The net profit for 2002 was primarily the result of increased sales, improved gross margins and lowered operating costs as a percentage of sales.





The Corporation's gross profit margin increased to 56% of sales, a 3% increase over previous year's 53% gross profit margin.  This increase was the result of an aggressive direct sales program.  Products sold via direct sales methods were priced at retail, rather than at the wholesale pricing extended to distributors. Direct sales comprised 43% of total sales in fiscal 2002, compared with 22% in fiscal 2001.



Wages and benefits expense represents the Sales and Marketing, Operations and Finance departments.  For the year ended December 31, 2002, wages and benefits increased 34% to $1,517,416, compared with $1,135,033 in 2001.  This increase was the result of the implementation of a direct sales commission plan in 2002, as well as an increase in new hires.  Carmanah had 47 Full-Time Equivalent's (FTE's) in fiscal 2002, compared with 31 FTE's in 2001. Office and administration expenses in 2002 were $684,531, representing a 27% increase over 2001 at $539,360.  During the 2002 year, the Corporation moved its sales, operations, and engineering departments into an adjacent building, resulting in increased rent, utilities and general office costs.  Given the sales growth experienced in 2002, however, the total office and administration expenses in 2002 were minimal; office and administration represented only 11% of total sales in 2002, as compared to 16% in 2001.



During 2002, research and development expenses of $543,051 represented a 100% increase over the previous year's $271,485.  This $543,051 is net of eligible expenses recovered under a grant awarded to the Corporation by Sustainable Development Technology Canada.  Under the terms of the agreement, the Corporation will be reimbursed for certain research and development costs incurred to develop and commercialize specific projects to a maximum contribution of $500,000.  As at December 31, 2002, eligible research and development expenses in the amount of $142,734 were recovered.  Carmanah also invested in development of products for new markets.  Approximately 41% of total research and development expenses represent new product development.  Furthermore, in 2002, the Corporation did not defer any of its research and development expenses in 2002, whereas it deferred $231,202 in 2001.



Sales and marketing expenses in 2002 were $533,041, representing a 166% increase over 2001 at $200,705.  Carmanah continued to increase sales and marketing activities for new and existing product lines throughout its worldwide marketplace.  Focus was also placed on new market introduction as well as key trade shows and customer contact.



Year Ended December 31, 2001 as compared to Year Ended December 31, 2000



The Corporation's total revenues for the year ended December 31, 2001 increased 52% to $3,373,453 compared with $2,240,897 for the preceding year.  Revenue growth was achieved through increased investment in sales and marketing resources and activities.  Sales were increased throughout our existing product lines and through the introduction of several new products as well.



Net income (loss) for fiscal 2001 before depreciation and amortization was $(335,652), compared with $154,385 in fiscal 2000.  The 2001 loss includes the significant increase to research and development expenses on the income statement of $271,485, versus the minimal expense in 2000 of $24,773.  The loss
can also be attributed to the costs of our public listing in 2000 and the additional resources and administrative expenses required to support the extensive sales and marketing activities.



The Corporation's gross profit margin increased to 54% of sales, an 8% increase over previous year's 46% gross profit margin.  This increase is the result of an aggressive direct sales program and an increased focus and emphasis on e-commerce sales initiatives.  Direct sales comprised 22% of total sales in fiscal 2001, compared with 4% in fiscal 2000.



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Wages and benefits for the 2001 fiscal year increased 116% to $1,135,033, compared with $559,148 in 2000.  This is the result of increased sales, business development, production and administrative staff to support the Corporation's expansion into new products and new markets.  The Corporation's staffing grew 100% to 30 Full-Time Equivalent's (FTE's) in fiscal 2001, compared with 15 FTE's in 2000.



Fiscal 2001 office and administration expenses of $539,360 increased significantly over last year's $176,296.  This is the result of the one-time costs incurred for the reverse takeover listing, as well as additional ongoing public company expenses and the increased infrastructure required to support staffing growth.



Sales and marketing expense in the amount of $200,705 at 2001 year end, represents a 132% increase over $86,550 at 2000 year end.  The Corporation continued to increase sales and marketing activities for new and existing product lines, throughout its worldwide marketplace.  Focus was placed on new market introduction as well as key trade shows and customer contact.



Year end 2001 indicates research and development expenditures of $271,485, compared with fiscal 2000's $24,773.  This significant increase on the statement of operations and deficit is the result of two factors.  Firstly, the Corporation did not book the Scientific Research and Experimental Development ("SRED") cost recovery against its R&D expenses in year 2001, as was done in 2000.  As a wholly owned subsidiary of the public company Carmanah Technologies Corporation, Carmanah Technologies Inc. may no longer recover research and development expense reimbursement through SRED.  The claim may only be applied as a tax credit against future cash taxes payable.  Secondly, the Corporation did not capitalize as many of its projects in this current year.  Carmanah's previous investment in intellectual property (over the past several years) to develop the underlying core technology has resulted in the ability to turn new ideas for new markets into saleable product much faster.



The total investment in research and development including the capitalized portion increased 42%, represented by $502,687 in 2001 compared with $354,112 in 2000.  However, as a percentage of sales, total investment in research and development was 15% of 2001 sales, compared to 16% of 2000 sales, indicating that growth in R&D investment is maintained at a consistent level with sales.



The Corporation's cash balance increased from $185,634 as at December 31, 2000 to $1,060,817 as at December 31, 2001, an increase of $875,183.  Net cash usage from operations and investing activities for the year was $750,345 versus $511,137 last year.   Financing for Carmanah's operations was funded from the $1.75 million raised in the capital transactions entered into upon completion of the reverse takeover.  Net working capital at year-end was $1,664,885, with a current ratio of 4.76 and $47,447 of non-current debt obligations.



B.

Liquidity and Capital Resources

The
Corporation reported a positive working capital of $4,168,728 at December 31,
2003 compared to a positive working capital of $2,006,148 at December 31, 2002,
representing an increase in working capital of $2,162,580. As at December 31,
2003, the Corporation had a net cash on hand of $1,693,169 compared to
$2,161,506 in the previous year. Financing for the Corporation's operations
was funded primarily from a private placement during 2003 in the amount of
$1,480,000, and the exercise of warrants and stock options in the amount of
$595,029.





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Current assets excluding cash at December 31, 2003 increased by $1,448,269 compared to December 31, 2001 which is attributable to increases in accounts receivable by $1,331,281 inventories by $847,206 and prepaid expenses and deposits by $9,863. Current portion of advances receivable decreased by $26,844. Current liabilities at December 31, 2003 increased by $1,012,895 due to increases in accounts payable by $701,827, bank loan by $243,332, deferred revenue by $60,186 and current portion of obligations under capital leases by $7,420.



Net changes in non-cash working capital balances utilized $1,003,974 of cash for the year ended December 31, 2003, increasing cash utilized in operating activities to $604,248. By comparison, net changes in non-cash working capital balances utilized $853,717 of cash for the year ended December 31, 2002, increasing cash utilized in operating activities to $469,324.



During the year ended December 31, 2003, the Corporation purchased capital assets of $304,379, invested $9,172 in patents and received payments of $28,500 against advances receivables. The Corporation leases computer equipment under lease agreements with a present value of $127,091 (2002 - $97,581) and paid interests of $6,152 (2002 - $7,692) during the year on these leases. The Corporation also has operating lease agreements for the rental of premises and equipment amounting to $654,349 until 2007. During the year ended December 31, 2002, the Corporation purchased capital assets of $269,428 sold an automobile for $4,600, invested $13,757 in patents and received payments of $22,628 against advances receivables.



During the year ended December 31, 2003, the Corporation completed a brokered private placement of 2,000,000 common shares at a price of $0.74 per common share for gross proceeds of $1,480,000. Expenses on the private placement amounted to $177,282 which consists of commissions paid of $112,500, legal costs of $21,312, consulting fees of $35,570 and regulatory fees of $7,900. The proceeds from the private placement were allocated towards general operating expenses. During the year ended December 31, 2003, the Corporation received an aggregate of $595,029 from various exercises of brokers' warrants, share purchase warrants and options and $116,147 from a bank loan. During the year ended December 31, 2003, the Corporation utilized an aggregate of $51,159 of its cash to repay its long term debt of $21,684 and obligations under capital leases of $29,475



By comparison, during the previous year, the Corporation completed a private placement of 440,000 common shares at $0.54 per common share for gross proceeds of $237,600. Expenses on this private placement amounted to $11,010. During the year ended December 31, 2002, the Corporation utilized an aggregate of $68,026 of its cash to repay its long term debt of $43,114 and obligations under capital leases of $24,912. The Corporation received $110,000 from a bank loan and $75,000 from an issuance of long-term debt.

As at December 31, 2003, the Corporation had accounts receivable of $2,698,061 and aggregate advances receivable of $nil (2002 - $138,344). The advances receivable represents the funds advanced to Bargain Castle which were written off during the year. Management is negotiating the collection of these advances and any repayments will be recorded in income upon collection. The debt is secured by a first charge over all the assets of Bargain Castle, pursuant to a general security agreement.



Financing for the Corporation's operations was funded primarily from various private placements during the current year of $2,075,029 (2002 - $237,600). 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 may be required to seek additional financing. Although revenue growth in 2003 and 2002 was significant, there is no guarantee those increases will continue in the future.



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The other sources of funds potentially available to the Corporation are through the exercise of outstanding 48,077 share purchase warrants and 4,158,975 stock options as follows:



SecurityNumberExercise PriceExpiry DateShare purchase warrants48,077$0.95April 12, 2004Stock options222,666$0.60February 3, 20052,316,332$0.75June 20, 2006166,664$0.75June 13, 2007163,000$0.75January 13, 2008100,000$0.75April 1, 200582,813$0.80November 3, 200511,250$0.80June 30, 2008118,750$0.90June 30, 200850,000$0.95August 25, 200860,000$0.95October 1, 200818,750$0.96March 31, 200543,125$0.96August 22, 200615,625$0.96June 30, 2008140,000$1.17October 1, 2008300,000(1)$1.20November 10, 2008200,000(1)$1.20December 1, 200850,000(1)$0.95August 18, 2008


50,000(1)$0.95April 1, 200850,000(1)$1.50January 5, 2009


(1)These stock options are subject to regulatory and disinterested shareholder approvals.



There can be no assurance, whatsoever, that any of these outstanding exercisable securities will be exercised.

C.

Reseach 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



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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)



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



27

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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.

D.

Trend Information

The Corporation does not know of any other trends, demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, the Corporation's liquidity either materially increasing or decreasing at present or in the foreseeable future.

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, 2002, 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 June 13, 2002 and/or appointed to fill any vacancy created on the Board of Directors, and serve until the next Annual General Meeting of Members, or until their successors are appointed.  Officers are appointed by the Board of Directors and serve at the pleasure of the board.

28





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Name, Age and Municipality of ResidencePosition(s) with the
      CorporationTerms of the Various
      Offices Held


David Green

Age: 55

5010 Lockehaven Drive
Victoria, B.C.
V8N 4J5
CanadaChairman, Chief Technology Officer and DirectorChairman, Chief Technology Officer 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. (10) since incorporation in 1998; President of Carmanah Management Corp. since 1989.Art Aylesworth
Age: 50

4730 Spring Road
Victoria, B.C.
V9E 2B5
CanadaDirector, President and Chief Executive OfficerDirector, 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. (10) since May, 2000; CEO of AVVA Light Corp. (11) since October 1, 2003.




Name, Age and Municipality of ResidencePosition(s) with the
      CorporationTerms of the Various
      Offices HeldPraveen K. Varshney (1)(2)
Age: 38

3886 West 38th Avenue
Vancouver, B.C.
V6N 2Y4
CanadaDirectorDirector 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.

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.




29



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Trevor Johnstone(1)

Age: 49

3433 Marpole Avenue Vancouver, BC
V6J 2S3
CanadaDirectorDirector 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.




30



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Kelly Edmison(1)

Age: 51

5592 Alma Street
Vancouver, B.C.
V6N 1Y1
CanadaDirectorDirector 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.




31



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Mark Komonoski
Age: 43

635  54th Avenue
Calgary, AB
T2V 0C9
CanadaDirectorPresident & 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.Peeyush K. Varshney (2)

Age: 36

3703 West 11th Avenue
Vancouver, B.C.
V6R 2K7
CanadaCorporate SecretaryDirector of the Corporation from January 31, 2000 to June 12, 2002.

Secretary of the Corporation since January 31, 2000.

President, Chief Executive Officer, Chief Financial Officer and Director of the Corporation from March 26, 1996 to January 30, 2000.

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; Associate, Campney & Murphy, Barristers and Solicitors, from September 1994 to July 1996; Articled Student, Farris, Vaughan, Wills & Murphy, Barristers and Solicitors, from September 1993 to August 1994.


(1)

Denotes member of the Corporation's Audit Committee.

(2)

Messrs. Praveen Varshney and Peeyush Varshney are brothers.

B.

Compensation

The aggregate amount of compensation paid by the Corporation during the fiscal year ended December 31, 2002, to all Directors and Officers, as a group, for services in all capacities was $497,550 (2002  $491,303). See
"Management Contracts" below.



The Corporation is required under applicable securities legislation in Canada, to disclose to its shareholders details of compensation paid to its Directors and Officers.  The following information fairly reflects all material information regarding compensation paid to the Corporation's Directors and Officers, which information has been disclosed to the Corporation's shareholders in accordance with applicable Canadian law:

32





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As at December 31, 2003, the end of the most recently completed fiscal year of the Corporation, the Corporation had one Named Executive Officer, Art Aylesworth, the Chief Executive Officer and a Director of the Corporation.



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 incentive stock options granted by the Corporation.  For additional information with respect to stock options granted to executive officers, please refer to the heading  "Stock Options" under Item 12 below.



The following table sets forth particulars concerning the compensation of the Named Executive Officer for the Corporation's previous three financial years:

Summary Compensation Table

Annual CompensationLong Term CompensationAwardsPayoutsName and
Position
of Principal
Fiscal
Year
Ending
Salary
Bonus
Other Annual Compen-sation
Securities Under Options
GrantedRestricted Shares or Restricted Share Units
LTIP
Pay-Outs
All 
Other 
Compen-
sationArt AylesworthPresident, CEO, & Director2003
2002
2001$150,000
$135,000
$135,000Nil
Nil
NilNil
Nil
Nil300,000(4)Nil
425,000Nil
Nil
NilN/A
N/A
N/ANil
Nil
Nil


(1)

Comprised of employee benefits.

(2)

Comprised of employee benefits (including health) equalling approximately 15% of salary.

(3)

Mr. Aylesworth commenced employment in May 2000 on a part-time basis and began full time employment in September 2000. Mr. Aylesworth was appointed President & CEO effective December 31, 2000. Salary listed above represents compensation from May 2000 to December 31, 2000.

(4)

These options are subject to regulatory and disinterested shareholder approvals

Long Term Incentive Plan Awards to Executive Officer

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 Officer 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 Officer

During the year ended December 31, 2003, 300,000 stock options were granted to the Named Executive Officer of the Corporation. The following table summarizes the stock options held by the Named Executive Officer of the Corporation as at December 31, 2003.
"Options to Purchase Securities from Corporation  Stock Options." No SARs (Stock Appreciation Rights) were granted during this period.

33



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Name
Date of Grant
Securities Under Options Granted
(#)
Exercise or Base Price
($/ Security)
% of Total Options Granted to Employees in Fiscal yearMarket Value of Securities Underlying Options on the Date of Grant ($/Security (1)
Expiration DateArt AylesworthNovember 10, 2003300,000$1.2076%$1.20November 10, 2008


(1)

Calculated as the closing price of the Corporation's shares on the TSX Venture Exchange on the date of grant.

Aggregate Options/SARs Exercised During the Most Recently Completed Fiscal Year and Fiscal Year End Options/SARs Values

During the year, no stock options were exercised by the Named Executive Officer of the Corporation. During the year, no outstanding SARs were held by the Named Executive Officer.

Termination of Employment, Change in Responsibilities and Employment Contracts

Pursuant to an employment agreement effective September 1, 2000, renewed as of January 1, 2002 and amended on October 18, 2002, between the Corporation and Convertech Solutions through which Art Aylesworth is employed as President and Chief Executive Officer, Convertech Solutions is entitled to an aggregate of $19,150 per month, a portion of which is allocated to Art Aylesworth whose salary is $150,000 per year. The employment agreement provides a formula of compensation upon termination.

Compensation of Directors

Compensation for the Named Executive Officer has already been disclosed above. During the most recently completed financial year, the Corporation paid an aggregate of $14,000 (being $1,000 per month to each director commencing June 1, 2002) to two directors of the Corporation.



The Corporation has no standard 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 incentive stock options in accordance with the policies of the Exchange. During the most recently completed financial year, the Corporation granted incentive stock options to purchase an aggregate of 496,875 common shares to directors 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, 2003.

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.

34



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Varshney Capital Corp.

Pursuant to an advisory agreement dated June 20, 2001, between the Corporation and Varshney Capital Corp., ("VCC"), a B.C. private company partially owned by Praveen Varshney and Peeyush Varshney, director and secretary of the Corporation, the Corporation paid an aggregate of $120,000 (2002 - $120,000), being $10,000 per month, to VCC during the fiscal year ended December 31, 2003. This agreement expires in July 2004.

Stock Options

The shareholders of the Corporation approved the adoption of the Corporation's current stock option plan by a resolution dated May 10, 2001 (the
"Existing Plan"). Pursuant to the Existing Plan, the Board of Directors may allocate non-transferrable options to purchase common shares of the Corporation to directors, officers, employees and consultants of the Corporation and its subsidiaries. The aggregate number of shares issuable upon the exercise of all options granted under the Plan shall not exceed 4,075,555 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, purchased shares subject thereto shall again be available for the purpose of this Plan.



Under the Existing Plan, at the time of granting the options, the aggregate number of common shares to be delivered upon the exercise of all options granted thereunder and the aggregate number of common shares to be delivered upon exercise of the options to any one individual granted thereunder may not exceed the maximum number permitted by any stock exchange on which the common shares may be listed or to other regulatory body having jurisdiction.



Options issued pursuant to the Existing Plan, will have an exercise price to 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.



As at December 31, 2003, the following directors' and employees' stock options to purchase a total of 4,158,975 common shares of the Corporation were outstanding:



NumberExercise PriceExpiration Date222,666$0.60February 3, 20052,316,332$0.75June 20, 2006166,664$0.75June 13, 2007163,000$0.75January 13, 2008100,000$0.75April 1, 200582,813$0.80November 3, 200511,250$0.80June 30, 2008118,750$0.90June 30, 2008




35



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50,000$0.95August 25, 200860,000$0.95October 1, 200818,750$0.96March 31, 200543,125$0.96August 22, 200615,625$0.96June 30, 2008140,000$1.17October 1, 2008300,000(1)$1.20November 10, 2008200,000(1)$1.20December 1, 200850,000(1)$0.95August 18, 200850,000(1)$0.95April 1, 200850,000(1)$1.50January 5, 2009


(1)

These options are subject to regulatory and disinterested shareholders approval.





As at the date of this Annual Report, 1,234,997 of the 4,158,975 stock options were allocated to directors and officers of the Corporation as follows:



Name of Director/OfficerNumberExercise PriceExpiration DateArt Aylesworth through Convertech Solutions425,000$0.75June 20, 2006Art Aylesworth through Convertech Solutions300,000 (1)$1.20November 10, 2008David Green125,000$0.75June 20, 2006Praveen Varshney125,000$0.75June 20, 2006Praveen Varshney93,333$0.60February 3, 2005Trevor Johnstone83,332$0.75June 13, 2007Kelly Edmison83,332$0.75June 13, 20071,234,997


(1)

These options are subject to regulatory and disinterested shareholders approval.



C.

Board Practices

The Corporation's board of directors consists of five members, the terms of which expire at the general meeting of shareholders to be held in each year. 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

36



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of the board of directors. Officers are elected at the annual meeting of the directors held immediately after the annual general meeting of shareholders.



The Corporation have granted and intend to continue to grant incentive stock options to employees, directors, officers and consultants on terms and conditions established by the Board of Directors 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 Board of Directors has set up an audit committee which consists of Messrs. Praveen Varshney, Trevor Johnstone and Kelly 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.

D.

Employees

As at December 31, 2003, Carmanah has a staff of fifty and 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, 2003, AVVA operations has a staff of twenty five and operates out of a building comprising a total of approximately 10,000 square feet, at #5  6025 12th Street SE, Calgary, Alberta, Canada.

E.

Share Ownership

The following list indicates the number of shares held beneficially by current Directors of the Corporation as at April 21, 2004 and the corresponding percentage of the Corporation's issued capital such shares represent:



Title of ClassNumber OwnedPercent of ClassDavid GreenCommon Stock4,318,412 (2)16.31%Art AylesworthCommon Stock151,301 (3)0.57%Praveen K. VarshneyCommon Stock114,683 (1)0.43%Trevor JohnstoneCommon StockNilNilKelly EdmisonCommon Stock40,000 (4)0.15%Mark KomonoskiCommon Stock35,0000.13%4,659,396


(1)

Praveen Varshney's spouse partially owns Varshney Capital Corp., a private corporation which owns directly or indirectly 10,333 common shares of the Corporation. Number above includes 2,583 shares held beneficially through Varshney Capital Corp.

(2)

David Green controls Carmanah Management Corporation, a private company which owns directly or indirectly 6,051,783 common shares of the Corporation. Number above includes those held beneficially through Carmanah Management Corporation. 3,241,468of these common shares are held in escrow.

(3)

Shares are held beneficially through Convertech Solutions

37





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(4)

Shares are held beneficially through Arbutus Family Holdings Limited.

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.

Major Shareholders

To the best of the Corporation's knowledge, the Corporation is not directly or indirectly owned or controlled by another corporation or by any foreign government.



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 the date of this annual report:



Identity of Person or GroupType of OwnershipAmount OwnedPercent of ClassDavid GreenDirect & Indirect4,318,412 (1)16.31%


(1)

David Green controls Carmanah Management Corporation, a private company which owns directly or indirectly 6,051,783 common shares of the Corporation. Number above includes those held beneficially through Carmanah Management Corporation. 3,241,468 of these common shares are held in escrow.



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, proposed nominee for election as director, or associate or affiliate of an insider, of the Corporation that have occurred during the three most recently completed fiscal years 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)

Peeyush K. Varshney is a controlling shareholder of Varshney Capital Corp. ("VCC"). During fiscal 2003, the Corporation paid VCC management fees of $120,000. VCC is in the business of providing management services to public companies. See B. Compensation  Corporate Advisory Agreement  Varshney Capital Corp.



(2)

Art Aylesworth is a part owner of Convertech Solutions. During fiscal 2002, the Corporation paid to Convertech contract fees of $297,550, a portion of which was allocated to Art Aylesworth whose annual salary is $150,000 per year. Convertech provides two senior management positions and one administrative position to CTI.



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

38





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Escrow Securities



As at the date of this annual report, 1,366,206 (2002 - 4,339,883) shares were held in escrow (the
"Escrow Shares") by Pacific Corporate Trust (the "Trustee") pursuant to an Escrow Agreement Value Security dated June 19, 2001 (the
"Escrow Agreement"), subject to the direction or determination of the Exchange or the Executive Director of the Alberta Securities Commission (the
"Executive Director"). The Escrow Shares are held by the following persons as at December 31, 2003:



Names of ShareholdersNo. of
Escrowed SharesCarmanah Management Corporation1,076,731David Green for Hari Varshney120,000Hari B. Varshney105,001Cheryl Alexander29,650David Green3,750Johny Mendez19,624Merrill Lynch Canada Inc. ITF Douglas Robinson11,450Total




The shares shall be released from escrow as follows:



(a)

The remaining 3,423,606 Common Shares held by Carmanah Management Corp., Cheryl Alexander, Johny Mendez, Douglas Robinson and David Green will be released over a three-year period in accordance with the Exchange's Form 5D Value Security Escrow Agreement for Tier 2 issuers, as follows:



Release DatesPercentage of Total Escrowed Securities to be ReleasedTotal Number of      Escrowed Securities to be ReleasedJuly 6, 200415%1,141,205




(b)

The remaining Common Shares held indirectly by Hari B. Varshney were placed into a three year escrow and are subject to performance criteria whereby the number of Common Shares to be earned out will be equal to the greater of : (a) 1 Common Share for every $3.00 in revenue of CTI in excess of $4,250,000, or (b) 1 Common Share for every $3.00 in financing raised by the Corporation.



Only those Common Shares which meet the performance criteria will be released to Mr. Varshney with the consent of the Exchange.  Any remaining Common Shares issued to Mr. Varshney which are not earned out will be returned to the Corporation for cancellation. As at December 31, 2003, 1,275,010 shares were released from performance escrow and 225,001 remain in performance-based escrow.



39



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The terms of the pooling agreement described herein will continue to apply notwithstanding the escrow restrictions described herein.  More specifically, after all releases from escrow have occurred over a three year period, the Common Shares issued to Carmanah Management Corp. and Hari B. Varshney will continue to be subject to pooling restrictions for three additional years (that is, the remainder of the six year pooling restrictions).

C.

Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

A.

Statements and Other Financial Information

Attached hereto are the Corporation's consolidated audited financial statements, consisting of consolidated balance sheets as at December 31, 2003 and 2002, and consolidated statements of operations and deficit, and cash flows for each of the years in the three year period ended December 31, 2003 along with related notes and Auditors' Report.  See
"Item 17. Financial Statements."

Legal Proceedings

There are no material legal 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 which are contemplated by governmental authorities or otherwise.

Dividend Policy

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

The following changes occurred subsequent to December 31, 2003:



1)

On February 20, 2004, the Corporation completed a private placement financing for gross proceeds of $5,750,000. A total of 3,484,848 units were issued at a price of $1.65 per unit. Each unit consists of one common share and one half (1/2) of one common share purchase warrant. Each full common share purchase warrant entitles the holder to acquire one additional common share at an exercise price of $2.15 per share expiring August 19, 2005. The underwriter 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 expiring August 19, 2005.

40



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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 2004, and (c) the five most recent fiscal years:



HighLowPost-Consolidated Share Prices (CMH")Monthly Stock PricesApril 2004$
3.22$
2.94March 2004$
3.05$
2.39February 2004$
2.20$
1.83January 2004$
1.95$
1.57December 2003$
1.55$
1.25November 2003$
1.29$
1.18Quarterly Stock PricesFiscal 2004First Quarter$
3.05$
1.57Fiscal 2003Fourth Quarter$
1.55$
1.17Third Quarter$
1.32$
0.85Second Quarter$
1.08$
0.82First Quarter$
0.99$
0.76Fiscal 2002Fourth Quarter$
0.90$
0.75Third Quarter$
0.80$
0.50Second Quarter$
0.70$
0.54




41



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First Quarter$
0.70$
0.45Annual Stock PricesFiscal 2003$
1.55$
0.76Fiscal 2002$
0.90$
0.45Fiscal 2001$
0.78$
0.42Pre-Consolidated Share Prices ("ADZ")Fiscal 2000$
1.45$
0.32Fiscal 1999$
0.70$
0.20




In accordance with Rule 12g5-1 of the Securities Exchange Act of 1934, as amended, and to the best of the Corporation's knowledge, at December 31, 2003, there were 12 shareholders of the Corporation of record having addresses in the United States.



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 $1.55 on December 31, 2003 and $2.96 on April 30, 2004.

B.

Plan of Distribution

Not applicable.

C.

Markets

The Corporation's Common Shares are quoted on the TSX Venture Exchange in the province of British Columbia, Canada under the trading symbol
"CMH".

D.

Selling Shareholders

Not applicable.

E.

Dilution

Not applicable.

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 shall maintain at its records office 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.



42



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The Corporation shall keep 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.

43



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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

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the Corporation. A person is disqualified for election as a Director if that person:



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;

a.

is not an individual; or

b.

has the status of bankrupt.

Description of Securities

The Corporation is authorized to issue two classes of shares, namely an unlimited number of Preferred Shares without nominal or par value 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, 2002, 20,652,710 are issued and outstanding as fully paid and non-assessable, 3,149,829 are reserved under directors' and management stock options (see
"Item 6E. Directors, Senior Management and Employees  Share Ownership  Stock Options"), 1,167,467 are reserved pursuant to the exercise of previously issued common share purchase warrants and 233,493 are reserved pursuant to the exercise of previously issued brokers' warrants. The holders of the common shares are entitled to:

a.

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;



b.

subject to the rights of the holders of Preferred Shares, to receive the remaining property of the Corporation upon a dissolution; and



c.

subject to the rights to dividends of the holders of Preferred Shares, to receive all other dividends declared by the Corporation.

Preferred Shares

The Corporation is authorized to issue an unlimited number of preferred shares, none of which, as at the date of this Annual Report, are issued and outstanding.

The Preferred Shares as a class shall carry and be subject to the following rights, privileges, restrictions and conditions:



a.

Directors' Rights to Issue in One or More Series



The Preferred Shares may at any time or be issued from time to time be issued in one or more series, each series to consist of such number of shares as may before the issue thereof be determined by the Directors by resolution; the Directors of the Corporation may (subject as hereinafter provided) by resolution to fix, from time to time before the issue thereof, the designation, rights, privileges, restrictions and conditions attaching to the shares of each series including without limiting the generality of the foregoing (1) the issue price, (2) the rate, amount or method of calculation of dividends and whether the same are subject to change of dividends and whether the same are subject to change or adjustment, (3) whether such dividends shall be cumulative, non-cumulative or partly cumulative, (4) the dates, manner and currencies of payments of dividends and the dates from which dividends shall accrue, (5) the redemption and/or purchase prices and terms and conditions of redemption and/or purchase, with or without provision for sinking or similar funds, (6) conversion and/or exchange and/or reclassification rights, (7) the voting rights if any, and/or (8) other provisions, the whole subject to the following provisions and to the issue of Certificate(s) of Amendment setting forth such designations, rights, privileges, restrictions and conditions attaching to the shares of each series.



b.

Ranking of Preferred Shares



The Preferred Shares shall be entitled to preference over the Common Shares of the Corporation and over any other shares ranking junior to the Preferred Shares with respect to payment of dividends and distribution of assets in the event of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs and may also be given such other preferences not inconsistent with paragraphs (a) and (b) hereof over the Common Shares of the Corporation and over any other shares ranking junior to the Preferred Shares as may be determined in the case of each series of Preferred Shares authorized to be issued.

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c.

Amendment with Approval of Holders of Preferred Shares



The rights, privileges, restrictions and conditions attaching to the Preferred Shares as a class my be repealed, altered, modified, amended or amplified by Certificates(s) of Amendment, but in each case with the approval of the holders of Preferred Shares (only as a class but not as individual series) given as hereinafter specified.



d.

Approval of Holders of Preferred Shares



Subject to the provisions of the Alberta Business Corporations act, any consent or approval given by the holders of Preferred Shares as a class shall be deemed to have been sufficiently given if it shall have been given in writing by the holders of at least sixty-six and two thirds (66 2/3%) percent of the outstanding Preferred Shares or by a resolution passed at a meeting of holders of Preferred Shares duly called and held upon not less than fifteen days' notice at which the holders of at least a majority of the outstanding Preferred Shares are present or are represented by proxy and carried by the affirmative vote of not less than sixty-six and two-thirds percent of the votes cast at such meetings, in addition to any other consent or approval required by the Alberta Business Corporations Act.  If at any such meeting the holders of a majority of the outstanding Preferred Shares are not present or represented by proxy within one-half hour after the time appointed for such meeting, then the meeting shall be adjourned to such date not less than fifteen days thereafter and to such time and place as may be designated by the Chairman, and not less than ten days' written notice shall be given of such adjourned meeting.  At such adjourned meeting the holders of the Preferred Shares present or represented by proxy may transact the business for which the meeting was originally convened and a resolution passed thereat by the affirmative vote not less than sixty-six and two-thirds (66 2/3%) percent of the votes cast at such meeting shall constitute the consent or approval of the holders of Preferred Shares.  On every poll taken at every such meeting, every holder of Preferred Shares shall be entitled to one vote in respect of each such share held.  Subject to the foregoing, the formalities to be observed in respect of the giving or waiving or notice of any such meeting and the conduct thereof shall be those from time to time prescribed in the By-laws of the Corporation with respect to meetings of shareholders.  Any consent or approval given by the holders of Preferred Shares of a series as a class shall be deemed to have been sufficiently given in the same manner as provided herein regarding holders of Preferred Shares as a class.

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



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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 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 entered into the following contracts:



(1)

Investor Relations Agreement with Vanguard Shareholder Solutions Inc. ("Vanguard"), whereby the Corporation pays Vanguard $6,500 per month plus expenses for a term of 11 months effective February 1, 2002, with a review to take place after five months. Vanguard provides financial public relations services to the Corporation. Vanguard is a full-service investor relations firm located in Vancouver, BC and is headed by Mr. Paul Lathigee.  This contract was terminated effective December 31, 2002.

D.

Exchange Controls

The following disclosure addresses provisions of the Investment Canada Act (the
"ICA"), enacted on June 20, 1985, that are material to an investment in the Corporation.



Canada has no system of exchange controls.  There are no exchange restrictions on borrowing from foreign countries nor on the remittance of dividends, interest, royalties and similar payments, management fees, loan repayments, settlement of trade debts or the repatriation of capital.



The ICA requires prior notification to the Government of Canada on the
"acquisition of control" of Canadian businesses by non-Canadians, as defined in the ICA.  Certain acquisitions of control, discussed below, are reviewed by the Government of Canada.  The term
"acquisition of control" is defined as any one or more non-Canadian persons acquiring all or substantially all of the assets used in the Canadian business, or the acquisition of the voting shares of a Canadian corporation carrying on the Canadian business or the acquisition of the voting interests of an entity controlling or carrying on the Canadian business.  The acquisition of the majority of the outstanding shares is deemed to be an
"acquisition of control" of a corporation.  The acquisition of less than a majority, but one-third or more, of the voting



47



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shares of a corporation is presumed to be an
"acquisition of control" of a corporation unless it can be established that the purchaser will not control the corporation.



Investments requiring notification and review are all direct acquisitions of Canadian businesses with assets of $5,000,000 or more (subject to the comments below on WTO investors), and all indirect acquisitions of Canadian businesses (subject to the comments below on WTO investors) with assets of more than $50,000,000 or with assets of between $5,000,000 and $50,000,000 which represent more than 50% of the value of the total international transaction. In addition, specific acquisitions or new businesses in designated types of business activities related to Canada's cultural heritage or national identity could be reviewed if the Government of Canada considers that it is in the public interest to do so.



The ICA was amended with the implementation of the Agreement establishing the World Trade Organization ("WTO") to provide for special review thresholds for
"WTO investors", as defined in the ICA.  "WTO investor" generally means:



(a)

an individual, other than a Canadian, who is a national of a WTO member (such as, for example, the United States), or who has the right of permanent residence in relation to that WTO member;



(b)

governments of WTO members; and



(c)

entities that are not Canadian controlled, but which are WTO investor controlled, as determined by rules specified in the ICA.



The special review thresholds for WTO investors do not apply, and the general rules described above do apply, to the acquisition of control of certain types of businesses specified in the ICA, including a business that is a
"cultural business".  If the WTO investor rules apply, an investment in the shares of the Corporation by or from a WTO investor will be reviewable only if it is an investment to acquire control of the Corporation and the value of the assets of the Corporation is equal to or greater than a specified amount (the
"WTO Review Threshold").  The WTO Review Threshold is adjusted annually by a formula relating to increases in the nominal gross domestic product of Canada.  For 2001, the WTO Review Threshold was determined to be $209,000,000.



If any non-Canadian, whether or not a WTO investor, acquires control of the Corporation by the acquisition of shares, but the transaction is not reviewable as described above, the non-Canadian is required to notify the Canadian government and to provide certain basic information relating to the investment.  A non-Canadian, whether or not a WTO investor, is also required to provide a notice to the government on the establishment of a new Canadian business.  If the business of the Corporation is then a prescribed type of business activity related to Canada's cultural heritage or national identity, and if the Canadian government considers it to be in the public interest to do so, then the Canadian government may give a notice in writing within 21 days requiring the investment to be reviewed.



For non-Canadians (other than WTO investors), an indirect acquisition of control, by the acquisition of voting interests of an entity that directly or indirectly controls the Corporation, is reviewable if the value of the assets of the Corporation is then $50,000,000 or more.  If the WTO investor rules apply, then this requirement does not apply to a WTO investor, or to a person acquiring the entity from a WTO investor.  Special rules specified in the ICA apply if the value of the assets of the Corporation is more than 50% of the value of the entity so acquired.  By these special rules, if the non-Canadian (whether or not a WTO investor) is acquiring control of an entity that directly or indirectly controls the Corporation, and the value of the assets of the Corporation and all other entities carrying on business in Canada, calculated in



48



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the manner provided in the ICA and the regulations under the ICA, is more than 50% of the value, calculated in the manner provided in the ICA and the regulations under the ICA, of the assets of all entities, the control of which is acquired, directly or indirectly, in the transaction of which the acquisition of control of the Corporation forms a part, then the thresholds for a direct acquisition of control as discussed above will apply, that is, a WTO Review Threshold of $209,000,000 (in 2001) for a WTO investor or a threshold of $5,000,000 for a non-Canadian other than a WTO investor.  If the value exceeds that level, then the transaction must be reviewed in the same manner as a direct acquisition of control by the purchase of shares of the Corporation.



If an investment is reviewable, an application for review in the form prescribed by the regulations is normally required to be filed with the Director appointed under the ICA (the
"Director") prior to the investment taking place and the investment may not be consummated until the review has been completed.  There are, however, certain exceptions.  Applications concerning indirect acquisitions may be filed up to 30 days after the investment is consummated and applications concerning reviewable investments in culture-sensitive sectors are required upon receipt of a notice for review.  In addition, the Minister (a person designated as such under the ICA) may permit an investment to be consummated prior to completion of the review, if he is satisfied that delay would cause undue hardship to the acquiror or jeopardize the operations of the Canadian business that is being acquired.  The Director will submit the application to the Minister, together with any other information or written undertakings given by the acquiror and any representation submitted to the Director by a province that is likely to be significantly affected by the investment.



The Minister will then determine whether the investment is likely to be of net benefit to Canada, taking into account the information provided and having regard to certain factors of assessment where they are relevant.  Some of the factors to be considered are:



(a)

the effect of the investment on the level and nature of economic activity in Canada, including the effect on employment, on resource processing, and on the utilization of parts, components and services produced in Canada;



(b)

the effect of the investment on exports from Canada;



(c)

the degree and significance of participation by Canadians in the Canadian business and in any industry in Canada of which it forms a part;



(d)

the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;



(e)

the effect of the investment on competition within any industry or industries in Canada;



(f)

the compatibility of the investment with national industrial, economic and cultural policies;



(g)

the compatibility of the investment with national industrial, economic and cultural policies taking into consideration industrial, economic and cultural objectives enunciated by the government or legislature of any province likely to be significantly affected by the investment; and



(h)

the contribution of the investment to Canada's ability to compete in world markets.

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To ensure prompt review, the ICA sets certain time limits for the Director and the Minister.  Within 45 days after a completed application has been received, the Minister must notify the acquirer that he is satisfied that the investment is likely to be of net benefit to Canada, or that he is unable to complete his review, in which case he shall have 30 additional days to complete his review (unless the acquirer agrees to a longer period), or he is not satisfied that the investment is likely to be of net benefit to Canada.



Where the Minister has advised the acquirer that he is not satisfied that the investment is likely to be of net benefit to Canada, the acquirer has the right to make representations and submit undertakings within 30 days of the date of the notice (or any further period that is agreed upon between the acquirer and the Minister).  On the expiration of the 30 day period (or the agreed extension), the Minister must quickly notify the acquirer that he is now satisfied that the investment is likely to be of net benefit to Canada or that he is not satisfied that the investment is likely to be of net benefit to Canada.  In the latter case, the acquirer may not proceed with the investment or, if the investment has already been consummated, must divest itself of control of the Canadian business.



The ICA provides civil remedies for non-compliance with any provision.  There are also criminal penalties for breach of confidentiality or providing false information.



Except as provided in the ICA, there are no limitations under the laws of Canada, the Province of Alberta or in any constituent documents of the Corporation on the right of non-Canadians to hold or vote the common shares of the Corporation.



The ICA specifically exempts certain transactions from either notification or review.  Included among this category of transactions is the acquisition of voting shares or other voting interests by any person in the ordinary course of that person's business as a trader or dealer in securities.



The Corporation does not have assets of more than $179 million.

E.

Taxation

The following is a general discussion of certain possible United States federal income tax consequences, under current law, generally applicable to a U.S. Holder (as hereinafter defined) of common shares of the Corporation.  This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a U.S. Holder.  In addition, this discussion does not cover any state, local or foreign tax consequences.  (see
"Taxation  Canadian Federal Tax Consequences" below).



The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the
"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 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 holder or prospective holder of common shares of the corporation and no opinion or representation with respect to the United States federal income tax consequences to any such holder or perspective holder is made.  Accordingly, holders and prospective holders of common shares of the Corporation should consult their own tax advisors about the federal,



50



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state, local and foreign tax consequences of purchasing, owning and disposing of common shares of the Corporation.

U.S. Holders

As used herein, a
"U.S. Holder" means a holder of common shares of the Corporation who is (i) a citizen or individual resident of the United States, (ii) a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, (iii) an estate whose income is taxable in the United states irrespective of source or (iv) a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described Section 7701(a)(30) of the Code.  This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to specific provisions of federal income tax law, such as 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, broker-dealers, persons or entities that have a
"functional currency" other than the U.S. dollar, shareholders subject to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging or a conversion transaction, constructive sale or other arrangement involving more than one position, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services.  This summary is limited to U.S. Holders who own common shares as capital assets within the meaning of Section 1221 of the Code.  This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.

Distribution on Common Shares of the Corporation

U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Corporation are required to include in gross income for United States federal income tax purposes the gross amount of 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, without reduction for any Canadian income tax withheld from such distributions.  Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder's federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder's federal taxable income by those who itemize deductions.  (See more detailed discussion at
"Foreign Tax Credit" below).  To the extent that distributions exceed current or accumulated earnings and profits of the Corporation, they will be treated first as a return of capital up to the U.S. Holder's adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares.  Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust.  There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.



In the case of foreign currency received as a dividend 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 requirement 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.

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Dividends paid on the common shares of the Corporation generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.  A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of the Corporation may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of the Corporation) deduction of the United States source portion of dividends received from the Corporation (unless the Corporation qualifies as a
"foreign personal holding company" or a "passive foreign investment Corporation," as defined below).  The availability of this deduction is subject to several complex limitations which are beyond the scope of this discussion.



Certain information reporting and backup withholding rules may apply with respect to the Corporation's common shares.  In particular, a payor or middleman within the U.S., or in certain cases outside the U.S., will be required to withhold 31% of any payments to a holder of the Corporation's common shares of dividends on, or proceeds from the sale of, such common shares within the U.S., unless the holder is an exempt recipient, if the holder fails to furnish its correct taxpayer identification number 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. federal income tax liability, provided the required information is furnished to the IRS.  U.S. Holders are urged to consult their own tax counsel regarding the information reporting and backup withholding rules applicable to the Corporation's common shares.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Corporation may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld.  Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income subject to tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year.  There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder's United States income tax liability that the U.S. Holder's foreign sources income bears to his or its worldwide taxable income.  In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources.  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
"passive income" or, in the case of certain U.S. Holders, "financial services income" for these purposes.  In addition, U.S. Holders which are corporations that own 10% or more of the voting stock of the Corporation may be entitled to an
"indirect" foreign tax credit under Section 902 with respect to 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 on the credit are fact specific, and U.S. Holders of common shares of the Corporation should consult their own tax advisors regarding their particular circumstances.

Disposition of Common Shares of the Corporation

A U.S. Holder will recognize gain or loss upon the sale of common shares of the Corporation equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and

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(ii) the shareholder's tax basis in the common shares of the Corporation.  Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts.  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 common shares of the Corporation are held for more than one year. Deductions for net capital losses are subject to significant limitations.  For U.S. Holders which 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.

Other Considerations

In the following circumstances, the above sections of this discussion may not describe the United States federal income tax consequences resulting from the holding and disposition of common shares:

Foreign Personal Holding Corporation

If at any time during a taxable year (i) more than 50% of the total combined voting power or the total value of the Corporation's outstanding shares is owned, directly or indirectly, by five or fewer individuals who are citizens or residents of the United States and (ii) 60% (50% in some circumstances) or more of the Corporation's gross income for such year was
"foreign personal holding Corporation."  In that event, U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such passive income to the extent the Corporation does not actually distribute such income.  The Corporation does not believe that it currently qualifies as a foreign personal holding corporation.  However, there can be no assurance that the Corporation will not be considered a foreign personal holding corporation for the current or any future taxable year.

Foreign Investment Corporation

If 50% or more of the combined voting power or total value of the Corporation's outstanding shares is held, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and the Corporation is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Corporation may be treated as a
"foreign investment corporation" as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares to be treated as ordinary income rather than capital gain.  The Corporation does not believe that it currently qualifies as a foreign investment corporation.  However, there can be no assurance that the Corporation will not be considered a foreign investment corporation for the current or any future taxable year.

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.  Section 1297 of the Code defines a PFIC 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 not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis) of its assets that produce or



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are held for the production of
"passive income" is 50% or more.  If a foreign corporation owns, directly or indirectly, at least 25% by value of the stock a second corporation, then for purposes of the PFIC tests described above, the first corporation will be treated as owning a proportionate share of the assets of, and as receiving a proportionate share of the income of, the second corporation.



The Corporation believes that it qualified as a PFIC for the fiscal year ended December 31, 2001 and may have qualified as a PFIC in prior years.  The Corporation may or may not qualify 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 that will be imposed on a qualified electing fund ("QEF").  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.



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 United States federal income taxation under one of two alternative tax regimes at the election of each such U.S. Holder.  The following is a discussion of such two alternative tax regimes applied to such U.S. Holders of 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 s stock entitled to vote of such foreign corporation (See more detailed discussion at
"Controlled Foreign Corporation" below).



A U.S. Holder who elects in a timely manner to treat the Corporation as a QEF (an
"Electing U.S. Holder") will be subject, under Section 1293 of the Code, to current 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 Corporation 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 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 documents at the time the U.S. Holder files his tax return for such first year.  If, however, the Corporation qualified as a PFIC in a prior year, then in addition to filing 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

54



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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 common shares of the Corporation 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.



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 PCIF.  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 shares of the Corporation qualifies as a PFIC.



If a U.S. Holder does not make a timely QEF election during a year in which it holds (or is deemed to have held) the shares in question and the Corporation 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 Corporation 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 Corporation common shares and all excess distribution of his Corporation 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 first taxable year of the Corporation during such U.S. Holder's holding period and beginning after January 1, 1987 for which it 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 of 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 Corporation common shares, then the Corporation will continue to be treated as a PFIC with respect to such Corporation common shares, even if it is no longer definitionally a PFIC.  A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize a gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such Corporation common shares had been sold on the last day of the last taxable year for which it was a PFIC.

55



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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 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 such shares as of the common shares of the Corporation 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 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 common shares in the Corporation 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 loses for shares that were allowed as deductions for prior tax years.  A U.S. Holder's adjusted tax basis in the common shares of the Corporation 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 Corporation common shares cease to be marketable, as specifically defined, or the IRS consents to revocation of the election.  Because the IRS has not established procedures for making a mark-to-market election, U.S. Holders should consult their tax advisor regarding the manner of making such an election.



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 were generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.  Generally, in such ceases the basis of the Corporation common shares in the hands of the transferee and the basis of any property received in exchange for those common shares would be increased by the amount of gain recognized.  Under the Proposed Treasury Regulations, an Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.  The transferee's basis in this case will depend on the manner in which the common shares are transferred.  The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred.  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.



Certain special, generally adverse, rules will apply with respect to Corporation common shares while the Corporation 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.

Controlled Foreign Corporation

If more than 50% of the total combined voting power of all classes of shares entitled to vote or the total value of the shares of the Corporation is owned, actually or constructively, by citizens or residents of the United States, United States domestic partnerships and corporations or estates or trusts other than foreign

56



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estates or trusts (as defined by the Code Section 7701(a)(31)), each of whom own, actually or constructively, 10% or more of the total combined voting power of all classes of shares entitled to vote of the Corporation ("United States shareholder"), the Corporation could be treated as a controlled foreign corporation ("CFC") under Subpart F of the Code.  This classification would affect many complex results, one of which is the inclusion of certain income of a CFC which is subject to current U.S. tax.  The United States generally taxes a United States Shareholder of a CFC currently on their pro rata shares of the Subpart F income of the CFC.  Such United States Shareholders are generally treated as having received a current distribution out of the CFC's Subpart F income and are also subject to current U.S. tax on their pro rata shares of the CFC's earnings invested in U.S. property.  The foreign tax credit described above may reduce the U.S. tax on these amounts.  In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder of common shares of the Corporation who is or was a United States Shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary income to the extent of earnings and profits of the Corporation attributable to the shares sold or exchanged.  If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to United States Shareholders of the CFC.  This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States Shareholders.  Special rules apply to United States shareholders who are subject to the special taxation rules under Section 1291 discussed above with respect to a PFIC.  Because of the complexity of Subpart F, a more detailed review of these rules is outside of the scope of this discussion.  The Corporation does not believe that it currently qualifies as a CFC.  However, there can be no assurance that the Corporation will not be considered a CFC for the current or any future taxable year.

Canadian Federal Income Tax Consequences

The following is a general discussion of al material Canadian federal income tax consequences, under current law, generally applicable to (a
"Holder") of one or more common shares of Telesis North Communications Inc. (the
"Corporation") who for the purposes of the Income Tax Act (Canada)(the "Act") is a non-resident of Canada, holds his common shares as capital property and deals at arm's length with the Corporation and is restricted to such circumstances.

Dividends

A Holder will be subject to Canadian withholding tax ("Part XIII Tax") equal to 25%, or such lower rate as may be available under an applicable tax treaty, of the gross amount of any dividend paid or deemed to be paid on his common shares.  Under the 1995 Protocol amending the Canada-U.S. Income Tax Convention (1980) (the
"Treaty") the rate of Part XIII Tax applicable to a dividend on common shares paid to a Holder who is a resident of the United States is reduced from the 25% rate.  Under the Treaty, the Corporation will be required to withhold Part XIII Tax at 15% from each dividend so paid and remit the withheld amount directly to the Receiver General for Canada for the account of the Holder.  The 15% rate is further reduced to 5% if the shareholder is a corporation owning at least 10% of the outstanding common shares of the Corporation.

Disposition of Common Shares

A Holder who disposes of a common share, including by deemed disposition on death, will not be subject to Canadian tax on any capital gain (or capital loss) thereby realized unless the common share constituted
"taxable Canadian property" as defined by the Act.  Generally, a common share will not constitute taxable Canadian property of a Holder unless he held the common share as capital property used by him carrying on a business (other than an insurance business) in Canada, or he or persons with whom he did

57



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not deal at arm's length alone or together held or held options to acquire, at any time within the five years preceding the disposition, 25% or more of the shares of any class of the capital stock of the Corporation.  The disposition of a common share that constitutes
"taxable Canadian property" of a Holder could also result in a capital loss, which can be used to reduce all taxable income (only that portion of taxable income derived from a capital gain).



A capital gain occurs when proceeds from the disposition of a share of other capital property exceeds the original cost.  A capital loss occurs when the proceeds from the disposition of a share are less than the original cost.  Under the Act, capital gain is effectively taxed at a lower rate as only 50% of the gain is effectively included in the Holder's taxable income.



A Holder who is a resident of the United States and realizes a capital gain on a disposition of a common share that was taxable Canadian property will nevertheless, by virtue of the Treaty, generally be exempt from Canadian tax thereon unless (a) more than 50% of the value of the common share is derived from, or forms an interest in, Canadian real estate, including Canadian mineral resource properties, (b) the common share formed part of the business property of a permanent establishment that the Holder has or had in Canada within the 12 months preceding disposition, or (c) the Holder (i) was a resident of Canada at any time within the 10 years immediately, and for a total of 120 months during the 20 years, preceding the disposition, and (ii) owned the common share when he ceased to be a resident in Canada.



A Holder who is subject to Canadian tax in respect of a capital gain realized on disposition of a common share must include one half of the capital gain (taxable capital gain) in computing his taxable income earned in Canada.  The Holder may, subject to certain limitations, deduct one half of any capital loss (allowable capital loss) arising on disposition of taxable Canadian property from taxable gains realized in the year of disposition in respect to taxable Canadian property.  To the extent the capital loss is not deductible in the current year the taxpayer may deduct the capital loss (after taking into account the inclusion rate of a previous year) from such taxable capital gains of any of the three preceding years or any subsequent year.

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 this Annual Report on Form 20-F, including exhibits, under the Securities and Exchange Act of 1934 with respect to the Corporation's Common Shares.



You may read and copy all or any portion of the Annual Report of other information in our files in the Commission'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 Commission 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 Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms.

58



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I.

Subsidiary Information

Not applicable.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.

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

None.

ITEM 15.

RESERVED

ITEM 16.

RESERVED

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.

ITEM 18.

FINANCIAL STATEMENTS

See
"Item 17. Financial Statements."

ITEM 19.

FINANCIAL STATEMENTS AND EXHIBITS

|(a) | Financial Statements
|--- | --------------------



59



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Auditors' Report dated February 20, 2004Consolidated Balance Sheets at December 31, 2003 and 2002.Consolidated Statements of Operations and Deficit for the Years Ended December 31, 2003, 2002 and 2001.Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001.Notes to Consolidated Financial Statements for the Years Ended December 31, 2003, 2002 and 2001.




(b)ExhibitsExhibitNumber
Description1.1**Articles of Andina Development Corporation dated March 26, 1996.1.2**Certificate of Incorporation for Andina Development Corporation dated March 26, 1996.1.3**By-law effective May 21, 1996, relating generally to the transaction of the business and affairs of Andina Development Corporation.3.1**Management Agreement effective April 1, 1998, between Andina Development Corporation and Sangam Management Ltd.3.2**Management Agreement effective April 1, 1998, between Andina Development Corporation and Futura Capital Ltd.3.3**Management Agreement effective April 1, 1998, between Andina Development Corporation and Sedun De Witt Capital Corp.3.4**Escrow Agreement dated November 21, 1996, between Andina Development Corporation, R-M Trust Corporation and Security Holders.3.5**Letter from the Alberta Securities Commission dated October 27, 1998 approving the transfer within escrow of the shares of Andina Development Corporation.3.6**Letter from the Alberta Securities Commission dated February 5, 1999 approving the release of escrow shares.3.8**Asset Purchase Agreement dated October 1, 1997, between Andina Development Corporation and 653607 Alberta Inc.3.9**Fourth Sublease dated June 30, 1998 among Afrasia Mineral Fields Inc. and Akash Ventures Inc., Andina Development Corporation, Axion Communications Inc., Camphor Ventures Inc., and IGN Internet Global Network Inc.3.10**Stock Option Plan dated May 21, 1996.


60



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3.11**Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and Peeyush K. Varshney.3.12**Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and Raj I. Chowdhry.3.13**Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and Hari B. Varshney.3.14**Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and David E. De Witt.3.15**Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and Praveen K. Varshney.3.16**Letter from CIBC Mellon Trust Corporation dated February 10, 1999, regarding the release of one-third of shares held in escrow.3.17**Letter from CIBC Mellon Trust Corporation dated January 21, 2000, regarding the second release of one-third of shares held in escrow.3.18**Letter from Sangam Management Ltd. dated August 20, 1999, regarding the amendment on the management services agreement dated April 1, 1998.3.19**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Amy Woo.3.20**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Bonnie Woo.3.21**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Bali Chowdhry.3.22**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Hari B. Varshney.3.23**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Jason Van Bergen.3.24**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Linda Chang.3.25**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Marose Baybay.3.26**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Nilda Rivera.3.27**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Praveen K. Varshney.3.28**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Peeyush K. Varshney.




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3.29**Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Jill Tang.3.30**Letter of Intent between Andina Development Corporation and Carmanah Management Corp. dated December 22, 2000.3.31**Addendum to the Letter of Intent among Carmanah Management Corp. (CMC), Andina Development Corporation and the Shareholders of CMC dated December 22, 2000.3.32**General Security Agreement between Carmanah Technologies Inc. and Andina Development Corporation dated January 26, 2001.3.33**Share Purchase Agreement dated June 14, 2001, among all of the shareholders of Carmanah Technologies Inc. and Andina Development Corporation and Carmanah Technologies Inc.3.34**Certificate of Amendment and Registration of Restated Articles of Carmanah Technologies Corporation dated June 19, 2001.3.35**Certificate of Status (Form 32) of Carmanah Technologies Corporation dated June 20, 2001.3.36**Certificate of Good Standing of Carmanah Technologies Corporation dated June 20, 2001.3.37**Pooling Agreement dated June 20, 2001 between Carmanah Technologies Inc. and certain Registered Shareholders.3.38**Corporate Advisory Agreement between Varshney Capital Corp. and Carmanah Technologies Corporation dated June 20, 2001.3.39**Escrow Agreement Value Security between Carmanah Technologies Corporation, Pacific Corporate Trust and certain Security Holders of the Issuer dated June 19, 2001.3.40**Stock Option Plan dated May 10, 2001.3.41**Investor Relations Agreement Between Carmanah Technologies Corporation and Vanguard Shareholder Solutions Inc. dated February 1, 2002.


** Previously submitted with the filing of the Registration Statement and 1999, 2000, 2001 & 2002 Annual Reports.



SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Corporation certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.





CARMANAH TECHNOLOGIES CORPORATION



"Praveen K. Varshney"

By:

Praveen K. Varshney

Director & CFO



DATED:  June 22, 2004



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CERTIFICATIONS

We, Praveen Varshney and Art Aylesworth, certify that:



1.

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



2.

Based on our knowledge, this annual 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 annual report;



3.

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



4. The registrant's other certifying officers and we are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a.

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c.

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and we have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a.

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and we have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



"Art Aylesworth"

"Praveen Varshney"

_________________________________

_____________________________________

Art Aylesworth

Praveen Varshney

Chief Executive Officer

Chief Financial Officer



Date: June 22, 2004

Date: June 22, 2004









63



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FINANCIAL STATEMENTS INDEX

DescriptionAppears at Sequentially Numbered PageAuditors' Report dated February 20, 200468Consolidated Balance Sheets at December 31, 2003 and 2002.69Consolidated Statements of Operations and Deficit for the Years Ended December 31, 2003, 2002 and 2001.70Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001.71Notes to Consolidated Financial Statements for the Years Ended December 31, 2003, 2002 and 2001.72-96






EXHIBIT INDEX

**Exhibit 
Number
Exhibit
DescriptionExhibit
Appears at Sequentially Numbered Page1.1Memorandum and Articles of Andina Development Corporation dated March 26, 1996.**1.2Certificate of Incorporation for Andina Development Corporation dated March 26, 1996.**1.3By-law effective May 21, 1996, relating generally to the transaction of the business and affairs of Andina Development Corporation.**3.1Management Agreement effective April 1, 1998, between Andina Development Corporation and Sangam Management Ltd.**3.2Management Agreement effective April 1, 1998, between Andina Development Corporation and Futura Capital Ltd.**




64



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3.3Management Agreement effective April 1, 1998, between Andina Development Corporation and Sedun De Witt Capital Corp.**3.4Escrow Agreement dated November 21, 1996, between Andina Development Corporation, R-M Trust Corporation and Security Holders.**3.5Letter from the Alberta Securities Commission dated October 27, 1998, approving the transfer within escrow of the shares of Andina Development Corporation.**3.6Letter from the Alberta Securities Commission dated February 5, 1999 approving the release of escrow shares.**3.8Asset Purchase Agreement dated October 1, 1997, between Andina Development Corporation and 653607 Alberta Inc.**3.9Fourth Sublease dated June 30, 1998 among Afrasia Mineral Fields Inc. and Akash Ventures Inc., Andina Development Corporation, Axion Communications Inc., Camphor Ventures Inc., and IGN Internet Global Network Inc.**3.10Stock Option Plan dated May 21, 1996.**3.11Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and Peeyush K. Varshney.**3.12Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and Raj I. Chowdhry.**3.13Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and Hari B. Varshney.**3.14Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and David E. De Witt.**3.15Incentive Stock Option Agreement effective May 21, 1996, between the Corporation and Praveen K. Varshney.**3.16Letter from CIBC Mellon Trust Corporation dated February 10, 1999, regarding the release of one-third of shares held in escrow.**3.17Letter from CIBC Mellon Trust Corporation dated January 21, 2000, regarding the second release of one-third of shares held in escrow.**3.18Letter from Sangam Management Ltd. dated August 20, 1999, regarding the amendment on the management services agreement dated April 1, 1998.**3.19Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Amy Woo.**


65



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3.20Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Bonnie Woo.**3.21Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Bali Chowdhry.**3.22Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Hari B. Varshney.**3.23Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Jason Van Bergen.**3.24Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Linda Chang.**3.25Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Marose Baybay.**3.26Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Nilda Rivera.**3.27Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Praveen K. Varshney.**3.28Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Peeyush K. Varshney.**3.29Incentive Stock Option Agreement effective February 3, 2000, between the Corporation and Jill Tang.**3.30Letter of Intent between Andina Development Corporation and Carmanah Management Corp. dated December 22, 2000.**3.31Addendum to the Letter of Intent among Carmanah Management Corp. (CMC), Andina Development Corporation and the Shareholders of CMC dated December 22, 2000.**3.32General Security Agreement between Carmanah Technologies Inc. and Andina Development Corporation dated January 26, 2001.**3.33Share Purchase Agreement dated June 14, 2001, among all of the shareholders of Carmanah Technologies Inc. and Andina Development Corporation and Carmanah Technologies Inc.**3.34Certificate of Amendment and Registration of Restated Articles of Carmanah Technologies Corporation dated June 19, 2001.**3.35Certificate of Status (Form 32) of Carmanah Technologies Corporation dated June 20, 2001.**3.36Certificate of Good Standing of Carmanah Technologies Corporation dated June 20, 2001.**3.37Pooling Agreement dated June 20, 2001 between Carmanah Technologies Inc. and certain Registered Shareholders.**




66



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|3.38 |  | Corporate Advisory Agreement between Varshney Capital Corp. and Carmanah Technologies Corporation dated June 20, 2001.                                                                       |  | **
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|3.39 |  | Escrow Agreement Value Security (7,608,013 escrow shares) between Carmanah Technologies Corporation, Pacific Corporate Trust and certain Security Holders of the Issuer dated June 19, 2001. |  | **
|3.40 |  | Escrow Agreement Value Security (1,500,011 escrow shares) between Carmanah Technologies Corporation, Pacific Corporate Trust and certain Security Holders of the Issuer dated June 19, 2001. |  | **
|3.41 |  | Stock Option Plan dated May 10, 2001.                                                                                                                                                        |  | **
|3.42 |  | Investor Relations Agreement Between Carmanah Technologies Corporation and Vanguard Shareholder Solutions Inc. dated February 1, 2002.                                                       |  | **

** Previously submitted with the filing of the Registration Statement and 1999, 2000, 2001 and 2002 Annual Reports.



67

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Audited
Consolidated Financial Statements of

CARMANAH
TECHNOLOGIES

CORPORATION

Years
ended December 31, 2003 and 2002







68



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AUDITORS'
REPORT TO THE SHAREHOLDERS

We
have audited the consolidated balance sheets of Carmanah Technologies
Corporation as at December 31, 2003 and 2002 and the consolidated statements of
operations and deficit and cash flows for each of the years in the three-year
period ended December 31, 2003.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In
our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2003
and 2002 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2003, in accordance with
Canadian generally accepted accounting principles.



[fin002.jpg]



Chartered
Accountants



Victoria,
Canada

February
20, 2004





69





---





CARMANAH TECHNOLOGIES CORPORATION

|Consolidated Balance
      Sheets                                  |          |           |            |   |           |           | 
|------------------------------------------------------------------ | -------- | --------- | ---------- | - | --------- | --------- | 
|(Expressed in Canadian
      dollars)                              |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|December 31, 2003 and
      2002                                   |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|                                                                   |          |           | 2003       |   |           | 2002      | 
|                                                                   |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|Assets                                                             |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|Current
      assets:                                              |          |           |            |   |           |          
|Cash and
      cash equivalents                                    | $        | 1,693,069 |            | $ | 679,100   |          
|Accounts
      receivable, net                                     |          | 2,698,061 |            |   | 1,366,780 |          
|Inventories
      (note 3)                                         |          | 1,904,872 |            |   | 1,057,666 |          
|Prepaid
      expenses and deposits                                |          | 53,376    |            |   | 43,513    |          
|Current
      portion of advances receivable                       |          | -         |            |   | 26,844    |          
|                                                                   |          |           |            |   |           |          
|                                                                   |          |           | 6,349,378  |   |           | 3,173,903 | 
|                                                                   |          |           |            |   |           |           | 
|Advances
      receivable (note 4)                                 |          | -         |            |   | 111,500   |          
|Equipment
      and leasehold improvements, net (note 5)           |          | 871,683   |            |   | 471,079   |          
|Intangible
      assets, net (note 6)                              |          | 190,320   |            |   | 34,154    |          
|Goodwill                                                           |          |           | 3,072,173  |   |           | -         | 
|Future income taxes
      (note 7)                                 |          |           | 190,114    |   |           | -         | 
|                                                                   |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|                                                                   |          | $         | 10,673,668 |   | $         | 3,790,636 | 
|                                                                   |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|Liabilities
      and Shareholders' Equity                         |          |           |            |   |           |          
|                                                                   |          |           |            |   |           |           | 
|Current
      liabilities:                                         |          |           |            |   |           |          
|Accounts
      payable and accrued liabilities                     | $        | 1,648,841 |            | $ | 947,014   |          
|Bank loan
      (note 8)                                           |          | 383,332   |            |   | 140,000   |          
|Deferred
      revenue                                             |          | 71,228    |            |   | 11,042    |          
|Current
      portion of long-term debt                            |          | 21,814    |            |   | 21,684    |          
|Current
      portion of obligations under capital leases          |          | 55,435    |            |   | 48,015    |          
|                                                                   |          |           |            |   |           |          
|                                                                   |          |           | 2,180,650  |   |           | 1,167,755 | 
|                                                                   |          |           |            |   |           |           | 
|Long-term
      debt (note 9)                                      |          | 33,325    |            |   | 55,139    |          
|Obligations
      under capital leases (note 10)                   |          | 71,656    |            |   | 49,566    |          
|                                                                   |          |           |            |   |           |          
|                                                                   |          |           | 2,285,631  |   |           | 1,272,460 | 
|                                                                   |          |           |            |   |           |           | 
|Shareholders'
      equity:                                        |          |           |            |   |           |          
|Share
      capital (note 11)                                      |          | 8,831,345 |            |   | 3,256,336 |          
|Contributed
      surplus (note 11(f))                             |          | 298,197   |            |   | 26,188    |          
|Deficit                                                            |          | (741,505) |            |   | (764,348) |          
|                                                                   |          |           |            |   |           |          
|                                                                   |          |           | 8,388,037  |   |           | 2,518,176 | 
|Commitments (note 16)                                              |          |           |            |   |           |           | 
|Subsequent event (note
      19)                                   |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|                                                                   |          | $         | 10,673,668 |   | $         | 3,790,636 | 
|                                                                   |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|See
      accompanying notes to consolidated financial statements. |          |           |            |   |           |          
|                                                                   |          |           |            |   |           |           | 
|On behalf of the
      Board:                                      |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|"Art
      Aylesworth"                                             | Director |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 
|"Praveen Varshney"                                                 | Director |           |            |   |           |           | 
|                                                                   |          |           |            |   |           |           | 









70





---



CARMANAH TECHNOLOGIES CORPORATION

|Consolidated
      Statements of Operations and Deficit   |   |            |  |   |            |  |   |            | 
|--------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
|(Expressed
      in Canadian dollars)                     |   |            |  |   |            |  |   |            | 
|                                                          |   |            |  |   |            |  |   |            | 
|Years
      ended December 31, 2003, 2002 and 2001        |   |            |  |   |            |  |   |            | 
|                                                          |   |            |  |   |            |  |   |            | 
|                                                          |   | 2003       |  |   | 2002       |  |   | 2001       | 
|                                                          |   |            |  |   |            |  |   |            | 
|Sales                                                     | $ | 9,220,018  |  | $ | 6,468,899  |  | $ | 3,373,453  | 
|                                                          |   |            |  |   |            |  |   |            | 
|Cost of
      sales                                       |   | 4,455,250  |  |   | 2,808,745  |  |   | 1,549,306  | 
|                                                          |   |            |  |   |            |  |   |            | 
|                                                          |   | 4,764,768  |  |   | 3,660,154  |  |   | 1,824,147  | 
|                                                          |   |            |  |   |            |  |   |            | 
|Operating
      expenses:                                 |   |            |  |   |            |  |   |            | 
|Wages and
      benefits                                  |   | 1,919,084  |  |   | 1,517,416  |  |   | 1,135,033  | 
|Office and
      administration                           |   | 871,994    |  |   | 684,531    |  |   | 539,360    | 
|Research
      and development (note 13)                  |   | 787,309    |  |   | 543,051    |  |   | 271,485    | 
|Sales and
      marketing                                 |   | 753,360    |  |   | 533,041    |  |   | 200,705    | 
|Bank
      charges and interest                           |   | 91,537     |  |   | 49,086     |  |   | 38,912     | 
|Amortization
      of:                                    |   |            |  |   |            |  |   |            | 
|Equipment
      and leasehold improvements                |   | 209,416    |  |   | 140,014    |  |   | 111,129    | 
|Deferred
      development costs                          |   | -          |  |   | 216,895    |  |   | 217,588    | 
|Intangible
      assets                                   |   | 20,270     |  |   | 9,091      |  |   | 12,129     | 
|                                                          |   |            |  |   |            |  |   |            | 
|                                                          |   | 4,652,970  |  |   | 3,693,125  |  |   | 2,526,341  | 
|                                                          |   |            |  |   |            |  |   |            | 
|Operating
      income (loss)                             |   | 111,798    |  |   | (32,971)   |  |   | (702,194)  | 
|                                                          |   |            |  |   |            |  |   |            | 
|Other
      income (expense):                             |   |            |  |   |            |  |   |            | 
|Interest
      and other income                           |   | 30,954     |  |   | 51,364     |  |   | 25,696     | 
|Write-down
      of advances receivable (note 4)          |   | (111,502)  |  |   | -          |  |   | -          | 
|                                                          |   |            |  |   |            |  |   |            | 
|                                                          |   | (80,548)   |  |   | 51,364     |  |   | 25,696     | 
|                                                          |   |            |  |   |            |  |   |            | 
|Earnings
      (loss) before income taxes                 |   | 31,250     |  |   | 18,393     |  |   | (676,498)  | 
|                                                          |   |            |  |   |            |  |   |            | 
|Income tax
      expense (recovery):                      |   |            |  |   |            |  |   |            | 
|Future
      (note 7)                                     |   | 8,407      |  |   | (18,000)   |  |   | -          | 
|                                                          |   |            |  |   |            |  |   |            | 
|Net
      earnings (loss)                                 |   | 22,843     |  |   | 36,393     |  |   | (676,498)  | 
|                                                          |   |            |  |   |            |  |   |            | 
|Deficit,
      beginning of year                          |   | (764,348)  |  |   | (800,741)  |  |   | (124,243)  | 
|                                                          |   |            |  |   |            |  |   |            | 
|Deficit,
      end of year                                | $ | (741,505)  |  | $ | (764,348)  |  | $ | (800,741)  | 
|                                                          |   |            |  |   |            |  |   |            | 
|Earnings
      (loss) per share - basic and fully diluted | $ | 0.00       |  | $ | 0.00       |  | $ | (0.04)     | 
|                                                          |   |            |  |   |            |  |   |            | 
|Weighted
      average number of shares outstanding:      |   |            |  |   |            |  |   |            | 
|Basic                                                     |   | 22,826,155 |  |   | 19,650,884 |  |   | 15,460,951 | 
|Diluted                                                   |   | 23,743,404 |  |   | 20,562,279 |  |   | 15,460,951 | 
|                                                          |  

See accompanying notes to consolidated
financial statements.



71



---



CARMANAH TECHNOLOGIES CORPORATION

|Consolidated
      Statements of Cash Flows                                                          |   |           |  |   |           |  |   |           | 
|---------------------------------------------------------------------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | 
|(Expressed in Canadian
      dollars)                                                                |   |           |  |   |           |  |   |           | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|Years ended December
      31, 2003, 2002 and 2001                                                   |   |           |  |   |           |  |   |           | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|                                                                                                     |   | 2003      |  |   | 2002      |  |   | 2001      | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|Cash provided by (used
      in):                                                                    |   |           |  |   |           |  |   |           | 
|Operations:                                                                                          |   |           |  |   |           |  |   |           | 
|Net
      earnings (loss)                                                                            | $ | 22,843    |  | $ | 36,393    |  | $ | (676,498) | 
|Items
      not involving cash:                                                                      |   |           |  |   |           |  |   |           | 
|Amortization                                                                                         |   | 229,686   |  |   | 366,000   |  |   | 340,846   | 
|Write-down
      of advances receivable                                                              |   | 111,502   |  |   | -         |  |   | -         | 
|Stock
      compensation                                                                             |   | 27,288    |  |   | -         |  |   | -         | 
|Future
      income tax expense (recovery)                                                           |   | 8,407     |  |   | (18,000)  |  |   | -         | 
|Changes
      in non-cash working capital:                                                           |   |           |  |   |           |  |   |           | 
|Accounts
      receivable                                                                            |   | (756,030) |  |   | (983,934) |  |   | (8,087)   | 
|Inventories                                                                                          |   | (475,947) |  |   | (470,227) |  |   | (92,439)  | 
|Prepaid
      expenses and deposits                                                                  |   | 12,106    |  |   | (16,736)  |  |   | (23,915)  | 
|Accounts
      payable and accrued liabilities                                                       |   | 163,495   |  |   | 606,138   |  |   | 66,753    | 
|Deferred
      revenue                                                                               |   | 52,402    |  |   | 11,042    |  |   | -         | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|                                                                                                     |   | (604,248) |  |   | (469,324) |  |   | (393,340) | 
|Investing:                                                                                           |   |           |  |   |           |  |   |           | 
|Purchase
      of equipment and leasehold                                                            |   |           |  |   |           |  |   |           | 
|improvements                                                                                         |   | (304,379) |  |   | (269,428) |  |   | (138,848) | 
|Purchase
      of intangible assets                                                                  |   | (9,172)   |  |   | (13,757)  |  |   | (12,627)  | 
|Cash
      acquired upon acquisition of                                                              |   |           |  |   |           |  |   |           | 
|AVVA
      Technologies Inc., net of                                                                 |   |           |  |   |           |  |   |           | 
|acquisition
      costs                                                                              |   | (59,467)  |  |   | -         |  |   | -         | 
|Repayments
      of advances receivable                                                              |   | 28,500    |  |   | 22,628    |  |   | 10,528    | 
|Advances
      received                                                                              |   | -         |  |   | -         |  |   | 300,000   | 
|Deferred
      development costs                                                                     |   | -         |  |   | -         |  |   | (231,202) | 
|Proceeds
      on disposal of equipment                                                              |   | -         |  |   | 4,600     |  |   | -         | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|                                                                                                     |   | (344,518) |  |   | (255,957) |  |   | (72,149)  | 
|Financing:                                                                                           |   |           |  |   |           |  |   |           | 
|Proceeds
      on share issuance                                                                     |   | 2,075,029 |  |   | 237,600   |  |   | 1,468,014 | 
|Share
      issuance costs                                                                           |   | (177,282) |  |   | (11,010)  |  |   | (31,835)  | 
|Bank
      loan                                                                                      |   | 116,147   |  |   | 110,000   |  |   | (60,000)  | 
|Repayment
      of long-term debt                                                                    |   | (21,684)  |  |   | (43,114)  |  |   | (51,906)  | 
|Principal
      payments of obligations under                                                        |   |           |  |   |           |  |   |           | 
|capital
      leases                                                                                 |   | (29,475)  |  |   | (24,912)  |  |   | (17,001)  | 
|Proceeds
      from issuance of long-term debt                                                       |   | -         |  |   | 75,000    |  |   | 33,400    | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|                                                                                                     |   | 1,962,735 |  |   | 343,564   |  |   | 1,340,672 | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|Increase (decrease) in
      cash and cash equivalents                                               |   | 1,013,969 |  |   | (381,717) |  |   | 875,183   | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|Cash and cash
      equivalents, beginning of year                                                   |   | 679,100   |  |   | 1,060,817 |  |   | 185,634   | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|Cash and cash
      equivalents, end of year                                                         | $ | 1,693,069 |  | $ | 679,100   |  | $ | 1,060,817 | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|                                                                                                     |   |           |  |   |           |  |   |           | 
|Supplemental cash flow
      information:                                                            |   |           |  |   |           |  |   |           | 
|Cash during the year
      for:                                                                      |   |           |  |   |           |  |   |           | 
|Interest
      paid                                                                                  | $ | 188,632   |  | $ | 127,569   |  | $ | 38,912    | 
|Non-cash investing and
      financing activities:                                                   |   |           |  |   |           |  |   |           | 
|Acquisition
      of equipment through capital lease                                                 |   | -         |  |   | 66,392    |  |   | 43,682    | 
|Shares/stock
      options issued for services:                                                      |   |           |  |   |           |  |   |           | 
|Share
      issue costs                                                                              |   | 38,198    |  |   | -         |  |   | 36,000    | 
|Shares,
      options and warrants issued to acquire non-cash
      assets of AVVA Technologies Inc. |   | 3,873,371 |  |   | -         |  |   | -         | 
|Shares issued to acquire non-cash assets                                                             |   | -         |  |   | -         |  |   | 645,828   | 



72





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





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, 2001, 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.

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 18.

(a)

Basis
of presentation:

(i)

Reverse
takeover transaction:

On
June 21, 2001, the Company acquired all of the issued and outstanding common
shares of CTI in exchange for common shares.

As
the former shareholders of CTI held the majority of the outstanding shares of
the Company immediately following the transaction, the transaction has been
accounted for as a reverse takeover in accordance with Canadian generally
accepted accounting principles.

Application
of reverse takeover accounting results in the following:

(a)

The
consolidated financial statements of the combined entity are issued under the
name of the legal parent, the Company, but are considered a continuation of the
financial statements of the legal subsidiary, CTI.

(b)

As
CTI is deemed to be the acquirer for accounting purposes, its assets and
liabilities are included in the consolidated balance sheets for the continuing
entity at their historical carrying values.  The Company's assets and
liabilities at the date of the transaction are included in the consolidated
balance sheets at their estimated fair market value, which equaled their book
value at the date of the transaction.





73





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





1.

Significant
accounting policies (continued):

(a)

Basis
of presentation (continued):

(ii)

Consolidation:

These
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, CTI and AVVA.  All inter-company transactions
and balances have been eliminated.

(a)

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)

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.

(d)

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
      RateComputer
        hardware
      declining
        balance
      30%Computer
        software
      declining
        balance
      50%Leasehold
        improvements
      straight-line
      term
        of leaseOffice,
        production and research equipment
      declining
        balance
      20%






The
cost of repairs and maintenance is expensed as incurred.





74





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





1.

Significant
accounting policies (continued):

(e)

Intangible
assets:

Intangible
assets are amortized over their estimated useful lives, which vary from 3 months
to 5 years.

(f)

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.

(g)

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.



75





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





1.

Significant
accounting policies (continued):

(h)

Research
and development costs:

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.

(i)

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.

(j)

Stock-based
compensation:

The
Company has a stock-based compensation plan, which is described in note 11(c).
 The Company accounts for all stock-based payments to non-employees, and
employee awards that are direct awards of stock, call for settlement in cash or
other assets, or are stock appreciation rights that call for settlement by the
issuance of equity instruments, granted on or after January 1, 2002, using the
fair value based method.  No compensation cost is recorded for all other
stock-based employee compensation awards.  Consideration paid by employees
on the exercise of stock options is recorded as share capital and contributed
surplus.  The pro forma effect of accounting for these awards under
the fair value based method is disclosed in note 11(c).



76



---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





1.

Significant
accounting policies (continued):

(j)

Stock-based
compensation (continued):

Under
the fair value based method, stock-based payments to non-employees are measured
at the fair value of the equity instruments issued or liabilities incurred.
 The fair value of stock-based payments to non-employees is periodically
re-measured until counterparty performance is complete, and any change therein
is recognized over the period and in the same manner as if the Company had paid
cash instead of paying with or using equity instruments.  The cost of
stock-based payments to non-employees that are fully vested and non-forfeitable
at the grant date is measured and recognized at that date.

Under
the fair value based method, compensation cost attributable to awards to
employees that are direct awards of stock appreciation rights that call for
settlement by the issuance of equity instruments, is measured at fair value at
the grant date and recognized over the vesting period.  Compensation cost
attributable to awards to employees that call for settlement in cash or other
assets is measured at intrinsic value and recognized over the vesting period.
 Changes in intrinsic value between the grant date and the measurement date
result in a change in the measure of compensation cost.  For awards that
vest at the end of the vesting period, compensation cost is recognized on a
straight-line basis; for awards that vest on a graded basis, compensation cost
is recognized on a pro-rata basis over the vesting period.

(k)

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.



77





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





1.

Significant
accounting policies (continued):

(l)

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.

(m)

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.

(n)

Impairment
of long-lived assets:

The
Company monitors the recoverability of long-lived assets, including equipment
and leasehold improvements, and patents, 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.



78





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





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 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 | 











79





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001



|3. | Inventories:                                      |   |           |  |   |           | 
|-- | ------------------------------------------------- | - | --------- |  | - | --------- | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   | 2003      |  |   | 2002      | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|   | Raw materials                                     | $ | 1,453,289 |  | $ | 737,039   | 
|   | Work-in-process                                   |   | 206,241   |  |   | 115,290   | 
|   | Finished goods                                    |   | 245,342   |  |   | 205,337   | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   | $ | 1,904,872 |  | $ | 1,057,666 | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|4. | Advances
      receivable:                        |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   | 2003      |  |   | 2002      | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|   | Advances, beginning of
      year                 | $ | 138,344   |  | $ | 160,972   | 
|   | Payments received                                 |   | (28,500)  |  |   | (35,500)  | 
|   | Accrued interest at 8%
      per annum            |   | 1,658     |  |   | 12,872    | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   | 111,502   |  |   | 138,344   | 
|   | Less current portion
      of advances receivable |   | -         |  |   | (26,844)  | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   | 111,502   |  |   | 111,500   | 
|   | Less allowance for
      doubtful account         |   | (111,502) |  |   | -         | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   |   |           |  |   |           | 
|   |                                                   | $ | -         |  | $ | 111,500   | 
|   |                                                   |   |           |  |   |           | 



The
Company entered into a Letter of Intent dated September 15, 1999 which sets
forth the basic terms and conditions of a proposed acquisition of all the issued
and outstanding securities of Bargain Castle International Discount Centres Inc.
("Bargain Castle"), a private company which carries on the business of
selling goods that are purchased from liquidation sources.  The transaction
was not completed as certain conditions required to be met for the closing were
not satisfied.  The debt is secured by a first charge over all the assets
of Bargain Castle, pursuant to a general security agreement.  In 2003,
certain principal and interest payments were not received from Bargain Castle.
 Management is negotiating the collection of these advances with Bargain
Castle and any repayments received will be recorded in income upon collection.







80





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





5.

Equipment
and leasehold improvements:



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

|                       |   |         |  | Accumulated  |         |  | Net book |        
|---------------------- | - | ------- |  | ------------ | ------- |  | -------- | -------
|2002                   |   | Cost    |  | amortization |         |  | value    |        
|                       |   |         |  |              |         |  |          |        
|                       |   |         |  |              |         |  |          |        
|Computer hardware      | $ | 221,546 |  | $            | 116,340 |  | $        | 105,206
|Computer software      |   | 119,475 |  |              | 108,023 |  |          | 11,452 
|Leasehold improvements |   | 199,008 |  |              | 62,439  |  |          | 136,569
|Office equipment       |   | 96,262  |  |              | 18,713  |  |          | 77,549 
|Production equipment   |   | 175,876 |  |              | 51,265  |  |          | 124,611
|Research equipment     |   | 28,701  |  |              | 13,009  |  |          | 15,692 
|                       |   |         |  |              |         |  |          |        
|                       |   |         |  |              |         |  |          |        
|                       | $ | 840,868 |  | $            | 369,789 |  | $        | 471,079
|                       |   |         |  |              |         |  |          |        



Equipment
and leasehold improvements include $245,065 (2002 - $151,037) of equipment
acquired under capital leases.  Amortization of equipment under capital
lease of $48,336 (2002 - $24,856; 2001 - $19,558) is included in amortization
expense.





81





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





6.

Intangible
assets:



|                             |   |          |  | 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
|                             |   |          |  |                                |        |  |                            |        
|                             |   |          |  |                                |        |  |                            |        
|                             |   |          |  |                                |        |  |                            |        
|                             |   |          |  |                                |        |  |                            |        
|                             |   | Cost     |  | Accumulated
      amortization |        |  | Net
      book
      value |        
|Patents
      and trademarks |   | $ 66,602 |  | $
      32,448                 |        |  | $ 34,154                   |        



7.

Income
taxes:

Income
tax recovery (expense) differs from the amounts computed by applying the
combined federal and provincial tax rates of 37.6% (2002 - 39.6%; 2001 - 43.6%)
to pre-tax income from continuing operations as a result of the following:



|                                          |   | 2003     |  |   | 2002     |  |   | 2001      | 
|----------------------------------------- | - | -------- |  | - | -------- |  | - | --------- | 
|                                          |   |          |  |   |          |  |   |           | 
|                                          |   |          |  |   |          |  |   |           | 
|Earnings (loss) before
      income taxes | $ | 31,250   |  | $ | 18,393   |  | $ | (676,498) | 
|                                          |   |          |  |   |          |  |   |           | 
|                                          |   |          |  |   |          |  |   |           | 
|Computed expected tax
      expense       |   |          |  |   |          |  |   |           | 
|(recovery)                                | $ | 11,750   |  | $ | 7,284    |  | $ | (294,953) | 
|Non-deductible
      expenses             |   | 4,119    |  |   | 4,742    |  |   | 4,959     | 
|Other                                     |   | (7,462)  |  |   | (736)    |  |   | -         | 
|Increase in income tax
      valuation    |   |          |  |   |          |  |   |           | 
|allowance                                 |   | 67,000   |  |   | -        |  |   | 289,994   | 
|Tax effect of loss
      carryforwards    |   |          |  |   |          |  |   |           | 
|not
      previously recognized           |   | (67,000) |  |   | (29,290) |  |   | -         | 
|                                          |   |          |  |   |          |  |   |           | 
|                                          |   |          |  |   |          |  |   |           | 
|Income tax expense
      (recovery)       | $ | 8,407    |  | $ | (18,000) |  | $ | -         | 
|                                          |   |          |  |   |          |  |   |           | 







82





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





7.

Income
taxes (continued):

Temporary
differences give rise to the following future tax assets and liabilities at
December 31:



|                                                       |   | 2003        |  |   | 2002      | 
|------------------------------------------------------ | - | ----------- |  | - | --------- | 
|                                                       |   |             |  |   |           | 
|                                                       |   |             |  |   |           | 
|Future tax assets:                                     |   |             |  |   |           | 
|Warranty
      reserve                                 | $ | 46,000      |  | $ | 23,000    | 
|Share
      issue costs                                |   | 305,000     |  |   | 89,000    | 
|Losses
      available for future periods              |   | 828,000     |  |   | 353,000   | 
|Scientific
      research and experimental development |   | 69,000      |  |   | 192,000   | 
|Equipment                                              |   | 138,000     |  |   | -         | 
|Accrued
      liabilities                              |   | 40,000      |  |   | -         | 
|Other                                                  |   | 14,000      |  |   | 14,000    | 
|                                                       |   |             |  |   |           | 
|                                                       |   | 1,440,000   |  |   | 671,000   | 
|                                                       |   |             |  |   |           | 
|Future tax
      liabilities:                          |   |             |  |   |           | 
|Intangible
      assets                                |   | (51,000)    |  |   | -         | 
|Equipment                                              |   | (3,000)     |  |   | (12,000)  | 
|                                                       |   |             |  |   |           | 
|                                                       |   | (54,000)    |  |   | (12,000)  | 
|                                                       |   |             |  |   |           | 
|Less valuation
      allowance                         |   | (1,195,886) |  |   | (659,000) | 
|                                                       |   |             |  |   |           | 
|                                                       |   |             |  |   |           | 
|Net future tax asset                                   | $ | 190,114     |  | $ | -         | 
|                                                       |   |             |  |   |           | 



As
at December 31, 2003, the Company has non-capital loss carryforwards of
$2,400,000 available to reduce taxable income otherwise calculated in future
years.  These losses will expire as follows:



|Non-capital losses |  |   |           | 
|------------------ |  | - | --------- | 
|                   |  |   |           | 
|                   |  |   |           | 
|2004               |  | $ | 700,000   | 
|2005               |  |   | 400,000   | 
|2006               |  |   | 200,000   | 
|2007               |  |   | 200,000   | 
|2008               |  |   | 200,000   | 
|2009               |  |   | 300,000   | 
|2010               |  |   | 400,000   | 
|                   |  |   |           | 
|                   |  |   |           | 
|                   |  | $ | 2,400,000 | 
|                   |  |   |           | 





83





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





8.

Bank
loan:

The
Company, through CTI, has a credit facility with the Royal Bank of Canada, which
includes a demand operating loan to a maximum of $750,000 (2002 - $300,000) at
prime plus 0.75% (2002 - 1.25%).  This credit facility is secured by a
general security agreement, and guarantee and postponement of claim by CTC.

9.

Long-term
debt:

|                                                            |                                                        |        | 2003   |   |        | 2002   | 
|----------------------------------------------------------- | ------------------------------------------------------ | ------ | ------ | - | ------ | ------ | 
|                                                            |                                                        |        |        |   |        |        | 
|                                                            |                                                        |        |        |   |        |        | 
|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 |        | $ | 70,350 |       
|                                                            |                                                        |        |        |   |        |        | 
|City of
      Victoria, payable in monthly instalments of   |                                                        |        |        |   |        |       
|$                                                           | 170 including annual
      interest at 7.92%, maturing |        |        |   |        |        | 
|August 1,
      2006                                        |                                                        | 4,889  |        |   | 6,473  |       
|                                                            |                                                        |        |        |   |        |       
|                                                            |                                                        |        | 55,139 |   |        | 76,823 | 
|Less
      current portion of long-term debt                |                                                        | 21,814 |        |   | 21,684 |       
|                                                            |                                                        |        |        |   |        |       
|                                                            |                                                        |        |        |   |        |        | 
|                                                            |                                                        | $      | 33,325 |   | $      | 55,139 | 
|                                                            |                                                        |        |        |   |        |        | 
|                                                            |                                                        |        |        |   |        |        | 
|                                                            |                                                        |        |        |   |        |        | 
|Scheduled
      debt repayments to maturity are as follows: |                                                        |        |        |   |        |       
|                                                            |                                                        |        |        |   |        |        | 
|                                                            | 2004                                                   | $      | 21,814 |   |        |        | 
|                                                            | 2005                                                   |        | 23,275 |   |        |        | 
|                                                            | 2006                                                   |        | 10,050 |   |        |        | 
|                                                            |                                                        |        |        |   |        |        | 
|                                                            |                                                        | $      | 55,139 |   |        |        | 
|                                                            |                                                        |        |        |   |        |        | 





84





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





10.

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:



|                                                                                                                       |                                                           |          | 2003            |   |          | 2002      | 
|---------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | -------- | --------------- | - | -------- | --------- | 
|                                                                                                                       |                                                           |          |                 |   |          |           | 
|                                                                                                                       |                                                           |          |                 |   |          |           | 
|2003                                                                                                                   | $                                                         | -        |                 | $ | 59,130   |          
|2004                                                                                                                   |                                                           | 69,555   |                 |   | 38,548   |          
|2005                                                                                                                   |                                                           | 47,320   |                 |   | 17,493   |          
|2006                                                                                                                   |                                                           | 31,247   |                 |   | -        |          
|2007                                                                                                                   |                                                           | 6,352    |                 |   | -        |          
|                                                                                                                       |                                                           |          |                 |   |          |          
|                                                                                                                       |                                                           |          | 154,474         |   |          | 115,171   | 
|Less
      amounts representing interest at 7.75% to 10.75%                                                            |                                                           | (27,383) |                 |   | (17,590) |          
|                                                                                                                       |                                                           |          |                 |   |          |          
|Present
      value of capital lease obligations                                                                       |                                                           | 127,091  |                 |   | 97,581   |          
|Less
      current portion                                                                                             |                                                           | 55,435   |                 |   | 48,015   |          
|                                                                                                                       |                                                           |          |                 |   |          |          
|                                                                                                                       |                                                           |          |                 |   |          |           | 
|                                                                                                                       |                                                           | $        | 71,656          |   | $        | 49,566    | 
|                                                                                                                       |                                                           |          |                 |   |          |           | 
|                                                                                                                       |                                                           |          |                 |   |          |           | 
|Interest expense
      incurred during 2003 on capital leases amounted to $6,152 (2002 - $7,692;
      2001 - $5,521). |                                                          
|                                                                                                                      
|                                                                                                                       |                                                           |          |                 |   |          |           | 
|11.                                                                                                                    | 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         |   |          | 364,625   | 
|                                                                                                                       | 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      |   | $        | 8,831,345 | 
|                                                                                                                       |                                                           |          |                 |   |          |           | 



85





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





11.

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.

(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          |  | average              |       
|                                     | shares          |  | exercise
      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  
|                                     |                 |  |                      |       





86





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





11.

Share
capital (continued):

(c)

Stock
options (continued):

The
following table summarizes the stock options outstanding and exercisable at
December 31, 2003:

|                     |      |             | Number
      outstanding
      at
      December
      31, 2003 |                        | Number
      exercisable
      at
      December
      31, 2003 | 
|-------------------- | ---- | ----------- | --------------------------------------------------------------- | ---------------------- | --------------------------------------------------------------- | 
|                     |      |             |                                                                 |                       
|Exercise
      price |      | Expiry date |                                                                
|                     |      |             |                                                                 |                        |                                                                
|                     |      |             |                                                                 |                        |                                                                 | 
|$                    | 0.60 |             | 222,666                                                         | February
      3, 2005 | 222,666                                                         | 
|$                    | 0.75 |             | 2,316,332                                                       | June 20,
      2006    | 2,316,332                                                       | 
|$                    | 0.75 |             | 166,664                                                         | June 13,
      2007    | 147,943                                                         | 
|$                    | 0.75 |             | 163,000                                                         | January
      13, 2008 | 163,000                                                         | 
|$                    | 0.75 |             | 100,000                                                         | April 1,
      2005    | 100,000                                                         | 
|$                    | 0.80 |             | 82,813                                                          | November
      3, 2005 | 82,813                                                          | 
|$                    | 0.80 |             | 11,250                                                          | June 30,
      2008    | 11,250                                                          | 
|$                    | 0.90 |             | 134,375                                                         | June 30,
      2008    | 134,375                                                         | 
|$                    | 0.95 |             | 50,000                                                          | August
      25, 2008  | 8,767                                                           | 
|$                    | 0.95 |             | 60,000                                                          | October
      31, 2008 | 60,000                                                          | 
|$                    | 0.96 |             | 18,750                                                          | March
      31, 2005   | 18,750                                                          | 
|$                    | 0.96 |             | 43,125                                                          | August
      22, 2006  | 43,125                                                          | 
|$                    | 1.17 |             | 140,000                                                         | October
      1, 2008  | -                                                               | 
|                     |      |             |                                                                 |                        |                                                                 | 
|                     |      |             |                                                                 |                        |                                                                 | 
|                     |      |             | 3,508,975                                                       |                        | 3,309,021                                                       | 
|                     |      |             |                                                                 |                        |                                                                 | 



During
the year ended December 31, 2003, no compensation costs were recorded in the
statements of operations and deficit for the options granted to employees.

Had
compensation costs been determined for employee awards granted after December
31, 2001 using the fair value based method at their respective grant dates, the
Company's pro forma net earnings and pro forma basic and diluted earnings
(loss) per share would have been as follows:



|                                                 |   | 2003      |  |   | 2002     | 
|------------------------------------------------ | - | --------- |  | - | -------- | 
|                                                 |   |           |  |   |          | 
|                                                 |   |           |  |   |          | 
|Net earnings, as
      reported                  | $ | 22,843    |  | $ | 36,393   | 
|Compensation expense
      related to fair value |   |           |  |   |          | 
|of
      stock options                           |   | (149,237) |  |   | (24,465) | 
|                                                 |   |           |  |   |          | 
|                                                 |   |           |  |   |          | 
|Pro forma net earnings
      (loss)              | $ | (126,394) |  | $ | 11,928   | 
|                                                 |   |           |  |   |          | 
|                                                 |   |           |  |   |          | 
|Earnings (loss) per
      share, as reported:    |   |           |  |   |          | 
|Basic
      and diluted                          |   | 0.00      |  |   | 0.00     | 
|Pro forma earnings per
      share:              |   |           |  |   |          | 
|Pro
      forma basic and diluted                |   | (0.00)    |  |   | 0.00     | 



87





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





11.

Share
capital (continued):

(c)

Stock
options (continued):

The
compensation costs reflected in these pro forma amounts were calculated using
the Black-Scholes option pricing model using the following weighted average
assumptions:



|                               | 2003    |  | 2002    | 
|------------------------------ | ------- |  | ------- | 
|                               |         |  |         | 
|                               |         |  |         | 
|Risk free interest
      rate  | 3.33%   |  | 4.19%   | 
|Expected dividend
      yield  | 0%      |  | 0%      | 
|Stock price volatility         | 58%     |  | 61%     | 
|Expected life of
      options | 2 years |  | 3 years | 
|                               |         |  |         | 





The
weighted average fair value of options granted during the year ended December
31, 2003 is $0.41 (2002 - $0.23) each.

(d)

Shares
held in escrow:

As
at December 31, 2003, the Company held 1,366,206 (2002 - 4,339,883) common
shares in escrow subject to time-based or performance-based release criteria.

The
time-based escrow shares are eligible for release at 15% semi-annually until
July 2004.  As at December 31, 2003, 6,466,808 shares have been released
from the time-based escrow and 1,141,205 shares remain in a time-based escrow.

Performance
escrow shares are 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 are limited to
30% of total escrow securities.  As at December 31, 2003, 1,275,010 shares
were released from performance escrow and 225,001 remain in performance-based
escrow.

All
shares are estimated to be released from escrow by July 6, 2004.

(e)

Warrants:

Each
warrant entitles the holder to purchase one common share of the Company.

During
the year, the Company granted 116,797 warrants at an exercise price of $0.95 per
common share in conjunction with the acquisition of AVVA, 68,720 of the warrants
were exercised for gross proceeds of $65,284, leaving a balance of 48,077
warrants outstanding at December 31, 2003, expiring April 12, 2004.

During
the year, 220,160 brokers' warrants were exercised at a price of $0.75 per
common share for gross proceeds of $165,120.  During the year, 1,167,467
warrants at an exercise price of $1.25 each expired and the 13,333 brokers'
warrants at an exercise price of $0.75 each expired.  No brokers'
warrants are outstanding at December 31, 2003.





88



---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





11.

Share
capital (continued):

(f)

Contributed
surplus:



|Year ended December
      31,                                                                               |            |  |            | 2003    |            |   | 2002  
|----------------------------------------------------------------------------------------------------------- | ---------- |  | ---------- | ------- | ---------- | - | ------
|                                                                                                            |            |  |            |         |            |   |       
|                                                                                                            |            |  |            |         |            |   |       
|Balance, beginning of
      year                                                                            |            |  | $          | 26,188  |            | $ | 26,188
|                                                                                                            |            |  |            |         |            |   |       
|Stock compensation                                                                                          |            |  |            | 65,486  |            |   | -     
|Stock options issued
      on AVVA acquisition                                                              |            |  |            | 160,587 |            |   | -     
|Warrants issued on
      AVVA acquisition                                                                   |            |  |            | 45,936  |            |   | -     
|                                                                                                            |            |  |            |         |            |   |       
|                                                                                                            |            |  |            |         |            |   |       
|Balance, end of year                                                                                        |            |  | $          | 298,197 |            | $ | 26,188
|                                                                                                            |            |  |            |         |            |   |       
|                                                                                                            |            |  |            |         |            |   |       
|                                                                                                            |            |  |            |         |            |   |       
|12. Earnings per
      share:                                                                               |            |  |            |         |            |   |       
|                                                                                                            |            |  |            |         |            |   |       
|The
      weighted average number of common shares used in the computation of
      earnings is as follows:
|                                                                                                           
|                                                                                                            |            |  |            |         |            |   |       
|Year ended December
      31,                                                                               | 2003       |  |            | 2002    |            |   | 2001  
|                                                                                                            |            |  |            |         |            |   |       
|                                                                                                            |            |  |            |         |            |   |       
|Weighted average
      common shares used                                                                   |            |  |            |         |            |   |       
|in the computation of
      basic income                                                                    |            |  |            |         |            |   |       
|per share                                                                                                   | 22,826,155 |  | 19,650,884 |         | 15,460,951
|                                                                                                            |            |  |            |         |            |   |       
|Weighted average
      common shares from                                                                   |            |  |            |         |            |   |       
|assumed conversion of
      dilutive                                                                        |            |  |            |         |            |   |       
|stock options                                                                                               | 913,088    |  |            | 911,395 |            |   | -     
|                                                                                                            |            |  |            |         |            |   |       
|Weighted average
      common shares from                                                                   |            |  |            |         |            |   |       
|assumed conversion of
      dilutive warrants                                                               | 4,161      |  |            | -       |            |   | -     
|                                                                                                            |            |  |            |         |            |   |       
|                                                                                                            |            |  |            |         |            |   |       
|                                                                                                            | 23,743,404 |  | 20,562,279 |         | 15,460,951
|                                                                                                            |            |  |            |         |           

13.

Contribution
agreement:

During
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, 2003, eligible research and
development expenses of $286,038 (2002 - $142,734) have been offset by
contributions received and receivable under this Agreement.





89





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





14.

Related
party transactions:

During
the year ended December 31, 2003, the Company paid $80,000 (2002 - $74,083; 2001
- $80,000) for research and development services to a director of the Company.
 During the year ended December 31, 2003, the Company paid contract fees of
$297,550 (2002 - $297,220; 2001 - $368,373) to a company partly owned by a
director and officer of the Company.  This company provides 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 2004.  During the year ended December 31, 2003, the Company paid
management fees of $120,000 (2002 - $120,000; 2001 - $60,000) under this
agreement.

During
the year ended December 31, 2003, the Company completed a common share private
placement.  Certain directors and officers participated in this private
placement for a total of 1,312,000 shares (2002 - 440,000) and gross proceeds of
$970,880 (2002 - $237,600).

These
transactions are measured at the exchange amount of consideration established
and agreed by the related parties.

15.

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.

(b)

Currency
risk:

The
Company's major sales contracts are concluded in U.S. dollars and, as such,
the Company is exposed to exchange rate fluctuations in this currency.
 Foreign exchange losses (gains) recognized in the determination of net
earnings (loss) for the year were $290,456 (2002 - $(26,710)).  The Company
has not entered into any foreign exchange contracts to hedge this risk.

(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.

90





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





16.

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: |  |   |         | 
|------------------------------ |  | - | ------- | 
|                               |  |   |         | 
|2004                           |  | $ | 243,861 | 
|2005                           |  |   | 240,978 | 
|2006                           |  |   | 167,500 | 
|2007                           |  |   | 2,010   | 
|                               |  |   |         | 
|                               |  |   |         | 
|                               |  | $ | 654,349 | 
|                               |  |   |         | 



17.

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, 2003 and
2002 that represented more than 10% of sales for the period.  During the
year ended 2001, the Company had sales of $424,049 to a customer, representing
more than 10% of the sales for that year.

As
at December 31, 2003 and 2002, 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) |   | 2003  |  |   | 2002  |  |   | 2001  | 
|---------------------- | - | ----- |  | - | ----- |  | - | ----- | 
|                       |   |       |  |   |       |  |   |       | 
|                       |   |       |  |   |       |  |   |       | 
|North America          | $ | 6,509 |  | $ | 3,997 |  | $ | 1,857 | 
|South Amercia          |   | 173   |  |   | 205   |  |   | 150   | 
|Europe                 |   | 1,852 |  |   | 1,688 |  |   | 822   | 
|Middle East            |   | 330   |  |   | 97    |  |   | 150   | 
|Asia                   |   | 222   |  |   | 348   |  |   | 275   | 
|South Pacific          |   | 134   |  |   | 133   |  |   | 119   | 
|                       |   |       |  |   |       |  |   |       | 
|                       |   |       |  |   |       |  |   |       | 
|                       | $ | 9,220 |  | $ | 6,468 |  | $ | 3,373 | 
|                       |   |       |  |   |       |  |   |       | 









91





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





18.

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").  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, the Company does 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 statement encourages entities to adopt a fair value methodology
of accounting for employee stock-based compensation.  As permitted by the
statement, 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 $81,168 for the year ended December 31, 2003
(2002 - $302,802; 2001 - $10,276).







92





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





18.

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.

(c)

Deferred
development costs expenditures:

Costs
of product development that are capitalized as technology and amortized under
Canadian GAAP is required to be expensed in the period incurred under U.S. GAAP.

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 difference.  The adjustments shown are gross of the estimated deferred
tax impact under U.S. GAAP with the deferred tax impact presented separately.

(d)

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.

(e)

Product
warranties:

Product
warranties included in accounts payable and accrued liabilities are as follows:



|                                 |   | 2003     |  |   | 2002     | 
|-------------------------------- | - | -------- |  | - | -------- | 
|                                 |   |          |  |   |          | 
|                                 |   |          |  |   |          | 
|Balance, beginning of
      year | $ | 67,851   |  | $ | 38,183   | 
|Warranty accruals                |   | 147,228  |  |   | 61,993   | 
|Warranty charges                 |   | (89,861) |  |   | (32,325) | 
|                                 |   |          |  |   |          | 
|                                 |   |          |  |   |          | 
|Balance, end of year             | $ | 125,218  |  | $ | 67,851   | 
|                                 |   |          |  |   |          | 





93





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





18.

Reconciliation
to United States generally accepted accounting principles (continued):

(f)

Recent
accounting pronouncements:

In
November 2002, the Financial Accounting Standards Board ("FASB") issued
Emerging Issues Task Force 00-21, "Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21").  EITF 00-21 addresses certain
aspects of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities.  In some arrangements, the
different revenue-generating activities are sufficiently separable, and there
may be sufficient evidence of their fair values to separately account for some
or all of the deliverables.  In other arrangements, some or all of the
deliverables are not independently functional, or there is not sufficient
evidence of their fair values to account for them separately.  EITF 00-21
is effective for revenue arrangements entered into fiscal periods beginning
after June 15, 2003.

In
January 2003, FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which addresses the
consolidation by business enterprises of variable interest entities.  FIN
46 will apply to variable interest entities created after January 31, 2003, and
to variable interest entities in which an enterprise obtains an interest in
after that date.

In
April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("FAS No. 149"), which
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under FAS No. 133.  FAS No. 149 is to
be applied prospectively for certain contracts entered into or modified after
June 30, 2003.

In
May 2003, the FASB issued Statement of Financial Accounting Standards ("FAS")
No. 150, "Accounting for Certain Financial Instruments with Characteristics
for both Liabilities and Equity" ("FAS No. 150"), which establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.  FAS No.
150 is effective for financial instruments entered into or modified after May
31, 2003.

There
were no material reconciling items with respect to these recent accounting
pronouncements.



94





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





18.

Reconciliation
to United States generally accepted accounting principles (continued):

(g)

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:                                                     |   |            |  |   |           | 
|----- | ----------------------------------------------------------- | - | ---------- |  | - | --------- | 
|      |                                                             |   | 2003       |  |   | 2002      | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      | Assets, under Canadian
      GAAP                           | $ | 10,673,668 |  | $ | 3,790,636 | 
|      | Adjustment for
      deferred development costs             |   |            |  |   |           | 
|      | expensed under U.S.
      GAAP (note 18(d))                 |   | (77,569)   |  |   | (15,692)  | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      | Assets, under U.S.
      GAAP                               | $ | 10,596,099 |  | $ | 3,774,944 | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|(ii)  | Liabilities:                                                |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   | 2003       |  |   | 2002      | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      | Liabilities, under
      Canadian and US GAAP               | $ | 2,285,631  |  | $ | 1,272,460 | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|(iii) | Share capital:                                              |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   | 2003       |  |   | 2002      | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      | Share capital, under
      Canadian GAAP                    | $ | 8,831,345  |  | $ | 3,256,336 | 
|      | Adjustment for
      stock-based compensation relating      |   |            |  |   |           | 
|      | to stock options
      issued to non-employees (note 18(b)) |   | 394,246    |  |   | 313,078   | 
|      | Adjustment for
      stock-based compensation relating      |   |            |  |   |           | 
|      | to stock options and
      escrowed shares allotted to      |   |            |  |   |           | 
|      | employees and
      directors (note 18(b))                  |   | 1,872,910  |  |   | 1,109,076 | 
|      |                                                             |   |            |  |   |           | 
|      |                                                             |   |            |  |   |           | 
|      | Share capital, under
      U.S. GAAP                        | $ | 11,098,501 |  | $ | 4,678,490 | 
|      |                                                             |   |            |  |   |           | 





95





---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





18.

Reconciliation
to United States generally accepted accounting principles (continued):

(a)

Reconciliation
(continued):

(iv)

Deficit:

|                                 |                                                               |            |        |           |            | 2003        |           |            | 2002        | 
|-------------------------------- | ------------------------------------------------------------- | ---------- | ------ | --------- | ---------- | ----------- | --------- | ---------- | ----------- | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 | Deficit, under
      Canadian GAAP                            |            |        |           | $          | (741,505)   |           | $          | (764,348)   | 
|                                 | Expense
      for stock-based compensation relating to        |            |        |           |            |             |           |           
|                                 | stock
      options issued to non-employees (note 18(b))      |            |        | (394,246) |            |             | (313,078) |           
|                                 | Expense
      for stock-based compensation relating           |            |        |           |            |             |           |           
|                                 | to stock
      options and escrowed shares allotted to        |            |        |           |            |             |           |           
|                                 | employees and
      directors (note 18(b))                    |            |        |           |            | (1,872,910) |           |            | (1,109,076) | 
|                                 | Adjustment
      for research equipment expensed              |            |        |           |            |             |           |           
|                                 | under U.S. GAAP (note
      18(d))                            |            |        |           |            | (77,569)    |           |            | (15,692)    | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 | Deficit, determined
      under U.S. GAAP                     |            |        |           | $          | (3,086,230) |           | $          | (2,202,194) | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|(v)                              | Income
      (loss) and income (loss) per share for the year: |            |        |           |            |             |           |           
|                                 |                                                               |            |        |           |            |             |           |           
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 |                                                               |            | 2003   |           |            | 2002        |           |            | 2001        | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 | Income (loss), under
      Canadian GAAP                      | $          | 22,843 |           | $          | 36,393      |           | $          | (676,498)   | 
|                                 | Expense
      for stock-based compensation                    |            |        |           |            |             |           |            |            
|                                 | relating
      to stock options issued to                     |            |        |           |            |             |           |            |            
|                                 | non-employees
      (note 18(b))                              | (81,168)   |        |           | (302,802)  |             |           | (10,276)   |            
|                                 | Expense
      for stock-based compensation                    |            |        |           |            |             |           |            |            
|                                 | relating
      to stock options and escrowed                  |            |        |           |            |             |           |            |            
|                                 | shares
      allocated to employees and                       |            |        |           |            |             |           |            |            
|                                 | directors
      (note 18(b))                                  | (763,834)  |        |           | (859,050)  |             |           | (250,026)  |            
|                                 | Adjustment
      for deferred development                     |            |        |           |            |             |           |            |            
|                                 | costs
      expensed under U.S. GAAP                          |            |        |           |            |             |           |            |            
|                                 | (note
      18(c))                                            | -          |        |           | 216,895    |             |           | (13,614)   |            
|                                 | Adjustment
      for research equipment                       |            |        |           |            |             |           |            |            
|                                 | expensed
      under U.S. GAAP (note 18(d))                   | (61,877)   |        |           | 3,923      |             |           | 3,296      |            
|                                 | Deferred
      income taxes on U.S. GAAP                      |            |        |           |            |             |           |            |            
|                                 | adjustments                                                   |            | -      |           |            | (18,000)    |           |            | -           | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|Loss, determined under U.S. GAAP |                                                               | $(884,036) |        |           | $(922,641) |             |           | $(947,118) |            
|                                 |                                                               |            |        |           |           
|                                 |                                                               |            |        |           |            |             |           |            |             | 
|                                 | Weighted average
      number of common                       |            |        |           |            |             |           |            |             | 
|                                 | shares outstanding
      under Canadian                       |            |        |           |            |             |           |            |             | 
|                                 | GAAP and U.S GAAP:                                            |            |        |           |            |             |           |            |             | 
|                                 | Basic                                                         | 22,826,155 |        |           | 19,650,884 |             |           | 15,460,951 |            
|                                 | Diluted                                                       | 23,743,404 |        |           | 20,562,279 |             |           | 15,460,951 |            
|                                 |                                                               |            |        |           |            |             |           |            |            



96



---





CARMANAH
TECHNOLOGIES CORPORATION

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



Years
ended December 31, 2003, 2002 and 2001





19.

Subsequent
event:

On
February 20, 2004, the Company closed a private placement financing for gross
proceeds of $5,750,000.  A total of 3,484,848 units were issued at a price
of $1.65 per unit.  Each unit consists of one common share and one half
(1/2) of one common share purchase warrant.  Each full common share
purchase warrant entitles the holder to acquire one additional common share at
an exercise price of $2.15 per share for a period of 18 months from the date of
closing of the financing.  The underwriter 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 18 months from the date of
closing.





97