UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
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ASTRIS ENERGI INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's Name into English)
ONTARIO
(Jurisdiction of incorporation or organization)
2175 DUNWIN DRIVE, UNIT 6
MISSISSAUGA, ONTARIO L5L 1X2 CANADA
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON SHARES
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NONE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
11,645,793 COMMON SHARES
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such reporting
requirements for the past 90 days.
Yes [ ] No [X]
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [X] Item 18 [ ]
(Applicable only to Issuers involved in Bankruptcy proceedings during the past
five years) Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes [ ] No [ ]
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
(A) HISTORY
Astris Energi Inc. ("AEI" or the "Company") has been engaged since 1995 in
the design, production and commercialization of alkaline fuel cell systems for
industrial, commercial, domestic and retail markets. The Company was
incorporated as Kayty Exploration Ltd. on March 18, 1981, pursuant to the
Companies Act of the Province of Alberta, to engage in oil and gas exploration
activities. The Company subsequently changed its name to Kayty Inc. in August
1987, changed the place of incorporation to the Province of Ontario and effected
a one-for-ten reverse split of its Common Shares. In December 1994, the Company
changed its name to WLD Inc. and effected a one-for-three reverse split of its
Common Shares, reducing the outstanding Common Shares to 5,000,000 shares. In
July 1995, the Company acquired Astris Inc., and upon the acquisition issued
1,500,000 Common Shares and granted warrants for the purchase of 3,500,000
Common Shares, which warrants were subsequently exercised, and changed its name
to Astris Energi Inc.
The Company has two subsidiaries - Astris Inc. ("AI") and Astris s.r.o. The
Company owns a 96.3% interest in AI, the remaining interests are held by
non-exchanging shareholders. AI was incorporated initially as Astris Science
Inc. on April 8, 1983, in the Province of Ontario, and changed its name to
Astris Inc. in 1986. The Company also owns a 30% minority interest in Astris
s.r.o., which was organized under the laws of the Czech Republic. The remaining
70% interest in Astris s.r.o. is owned by Macnor Corp., an Ontario corporation
which is wholly-owned by Jiri K. Nor, an executive officer, director and
principal shareholder of the Company. Unless otherwise indicated, all references
in this registration statement to the Company shall include AI and Astris s.r.o.
The Company's principal business office is located at 2175 Dunwin Drive,
Unit 6, Mississauga, Ontario, Canada L5L 1X2 and its telephone number is (905)
608-2000. The Company's e-mail address is [email protected].
(B) BUSINESS OF THE COMPANY
NATURE OF ALKALINE FUEL CELLS
An alkaline fuel cell ("AFC") system is an assembly comprised of fuel cell
"stack(s)", which generate electricity, together with ancillary components
which, together, in an integrated assembly, constitute a complete, operating
fuel cell system.
The Company's primary current project is the development and construction
of a one kilowatt alkaline fuel cell system to power a golf cart. The Company
believes that this project is the first stage toward the commercialization of
its alkaline fuel cell technology for larger systems, such as forklifts, yachts
and motor homes. This project is budgeted to cost US$250,000 and is expected to
be completed in March 2001.
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Fuel cells are electrochemical devices, similar in certain respects to
batteries, that supply electricity for a wide variety of `off-grid'
requirements, presently served by gasoline and diesel generators. Wherever a
generator is used today, a fuel cell is a potential substitute. Applications are
both mobile and stationary, for all kinds of vehicles and for homes, commercial
buildings, remote sites and other situations requiring electricity that are not
connected to distributed power supplies. Fuels cells can be environmentally
cleaner and more cost-effective than power generation sources using fossil
fuels. Fuel cells, which produce little sound and only water as a waste product,
offer great advantages over gasoline generators, as such generators are often
responsible for producing large amounts of air and noise pollution. In addition,
fuel cells are nominally about three times more energy efficient than current
gasoline generators.
The ancillary components to the AFC system supply, filter and re-circulate
hydrogen, air and liquid electrolyte to the stack(s), deliver electricity to the
end-use application, remove the aqueous by-product of the fuel cell operation,
and electrically and electronically control, coordinate and integrate all the
functions of the system into a single operating whole.
Prototypes of the Company's alkaline fuel cell systems are presently sold
as `one-off' prototype units, built to the specification of the customer. The
Company's systems, of one kilowatt output capacity, have been sold in Canada and
in the Czech Republic for test purposes. The largest and most recent fuel cell
system sold by the Company was a 4 kilowatt unit that was purchased by the
Technical University of Mines, Ostrava, Czech Republic, to conduct research on
the viability of fuel cells to supply electricity in private homes. Most
recently, on August 22, 2000, Astris s.r.o. delivered a portable fuel cell
generator to the Czech Ministry of National Defense for testing purposes.
RESEARCH AND DEVELOPMENT
Prior to its acquisition by the Company in July 1995, AI had been involved
in fuel cell research. As the Company was unable to obtain sufficient financing
as part of its acquisition of AI, the research and development activities in
Canada were curtailed. As a result, research and development has been carried
out through the Company's 30%-owned subsidiary, Astris s.r.o., in the Czech
Republic. In January 1995, AI entered into a Licence Agreement with Astris
s.r.o. whereby AI granted a non-exclusive license to Astris s.r.o. for the
production and sale of products embodying or utilizing AI's fuel cell
technology. The royalty fee is 2% of the net sale price of licensed products
sold by Astris s.r.o. to third parties. Astris s.r.o. is obligated to grant the
Company a free worldwide irrevocable licence on improvements of and additions to
the technology made by Astris s.r.o., and also to assign any patent rights
thereto to the Company. The Licence Agreement is to remain in effect until the
expiration of all Company patents related to the technology, subject to earlier
termination upon certain events.
The Company has also completed the initial research in the development of
an advanced fuel cell stack design for systems of up to 25kW or larger. Such
fuel cells will be developed initially as prototypes and will be later developed
as commercial products.
Astris s.r.o has been engaged in fuel cell research and development since
1992. Its current research and development efforts are primarily focused on
electrode technology to improve the electrochemical efficiency, durability and
economy of alkaline fuel cells. These research and development efforts have also
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been focused on methods to reduce production costs, to improve product quality
and consistency and on identifying new features and innovations for future
product development. Expenditures on research and development at Astris s.r.o.
exceeded US$80,000 in each of the past two years.
In October 1998, the Company entered into a Licence Agreement and an
Equipment Lease with Energy Ventures Inc. (Canada) ("EVI"). Pursuant to the
License Agreement, the Company granted to EVI a nonexclusive worldwide Licence
to use the Company's technology relating to alkaline fuel cells in
manufacturing, research and development, marketing and commercial production for
a royalty of CDN$25,000, and at a rate of 2.5% for the first four years and 2%
during the next six years, with a CDN$10,000 a year minimum royalty. The Company
leases certain machinery, equipment and other property to EVI for a period of
ten years at an annual rental of US$45,000. EVI prepaid the full rental by
issuing 200,000 EVI Common Shares to the Company. The Company also leased an
entire fuel cell laboratory to EVI which EVI can purchase for $1 after ten
years. EVI has not been actively employing the licence that it received from the
Company. The Company sold 85,900 of the 200,000 EVI Common Stock between
February 28 and April 10, 2000 and received net proceeds of US$250,217. As part
of the EVI Agreements, the Company granted to EVI options to purchase the
Company's Common Shares, see Item 12 herein.
The Company's recently leased premises in Mississauga, Ontario, which will
be used to facilitate implementation of the fuel cell powered golf car project.
The Company is undertaking the purchase of the equipment needed at these
premises. Assuming commercialization of its products, the Company would seek
strategic relationships with manufacturers which have suitable facilities and
access to the markets to produce the products.
INTELLECTUAL PROPERTY
The Company is the assignee of one U.S. patent granted in April 1991 for
QUICKCELL, a test cell structure for fuel cell technology. When appropriate the
Company will seek patent protection for other aspects of its fuel cell
technology. However, the Company's policy is to maintain the confidentiality of
its products, and any disclosure in patent applications could threaten the
security of such information.
The Company has unregistered trademarks on some of its products, including
LABCELL 50, LABCELL 200, QUICKELL QC200 and TESTMASTER.
ANCILLARY PRODUCTS
In addition to developing fuel cells to power a golf cart, the Company
presently sells small products, ancillary to fuel cell production, by mail
order. These products are described briefly, as follows:
LABCELL(TM)50 is a small alkaline fuel cell for laboratory demonstration
and experimentation. Stacks are supplied in nominal 0.75V (single cell),
1.5V, 3V and 6V ratings. With an active area of 50cm2, LABCELL(TM)50 cells
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can supply 2.5A current at room temperature and 5A at 70(degree)C
(158(degree) F ).
LABCELL(TM)200 is a medium size alkaline fuel cell for laboratory
experimentation and small power applications. Stacks are supplied in
nominal voltages of 0.75, 1.5, 3 and 12V rating. With an active area of 200
cm2, LABCELL(TM)200 cells can provide 10A current at room temperature and
20A current at 70(degree) C.
QUICKCELL(TM)QC200 is an electrochemical test cell designed for the testing
of gas diffusion or solid electrodes in a controlled laboratory environment
for fuel cell and battery research, development and quality control.
MODEL TL4 TEST LOAD is a monitor for fuel cells and batteries with a
built-in microprocessor. It functions to briefly interrupt the current and
take resistance-free cell readings up to 20V.
TESTMASTER(TM)is a powerful, integrated software package designed for
testing fuel cells and batteries. TESTMASTER(TM) performs all the tasks
required for short or long- term testing of fuel cells or batteries -
monitoring, control, data collection and storage, and graphical data
representation.
MARKETING
Currently, the prototypes of the Company's fuel cell systems are delivered
directly to the customer. It is expected that the future customers of the
Company's fuel cell systems will be manufacturers of all types of products which
will be adapted to utilize the Company's fuel cell technology. The Company
expects such fuel cell systems will be shipped directly from its facilities to
such manufacturers or through a network of distributors and agents to such
manufacturers.
The Company's small, ancillary products are presently sold by mail order
over an Internet web site maintained for the Company by Macnor Corp, for which
the Company is to receive a fee of 5% of the sales price. See Item 13. No change
in that arrangement is presently foreseen.
RAW MATERIALS AND SUPPLIES
The principal raw materials that the Company uses are common and widely
available from numerous suppliers. The Company's principal materials are largely
various plastics, carbons, metal oxides and conventional metallic components,
which are all relatively inexpensive to obtain and which do not, at the current
time, present supply problems.
COMPETITION
Fuel cells are a competitive business. There are five basic types of fuel
cell technologies; three are high temperature types, used primarily to produce
megawatts of power for utility type power generation or cogeneration, and are
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not competitors of the two smaller fuel cell types. The two smaller fuel cell
types, AFCs and Proton Exchange Membrane Fuel Cells ("PEM"), operate at ambient
temperatures, deliver kilowatts and are more suited to meet the needs of small,
off-grid applications. The Company constructs only AFCs. Its main competitor is
Ballard Power Systems ("Ballard"), located in Vancouver, Canada, which
concentrates on PEMs.
Ballard enjoys the most high-profile status of any fuel cell developer in
the world today. As a result of its market status, any developer of AFC or PEM
technology must compete directly or indirectly with Ballard. The Company's
method for approaching this challenge is simply to focus on different market
segments than Ballard currently does. For instance, Ballard is clearly
committed, for the foreseeable future, to developing fuel cells for use in buses
and private automobiles. The Company is focusing instead on light vehicles, such
as golf cars and retirement vehicles. In addition to mobile applications, the
Company is also focusing on the huge potential market in stationary applications
of small-capacity fuel cells, as are other fuel cell companies.
Apart from specific market competition, the Company believes that AFCs have
inherent advantages over PEMs, regardless of specific applications. AFCs have
been scientifically proven to be 10% more energy-efficient than PEMs and offer a
higher electricity yield from a given quantity of fuel. That is to say, while
PEMs might be 40-50% efficient, AFCs are 50-60% efficient. This is a significant
advantage in terms of raw energy consumption and cost savings. In addition, AFCs
are able to start instantly, without warm-up, and operate at all temperatures,
even below freezing.
Also, the capital cost required to produce AFCs is less than that required
to produce PEMs of a similar size and number. Unlike fuel cells based upon PEM
technology, AFCs do not require platinum in their electrodes and are the only
type which works with a broad range of noble and non-noble electrocatalysts
(metals and metal oxides). In addition, AFC components are made of plastics and
other relatively inexpensive materials while metallic components are required
for most products using PEMs technology.
GOVERNMENTAL REGULATION
No governmental license or approval known to the Company is required in
connection with the manufacture or sale of the Company's current products and
there are no extraordinary governmental regulations known to the company which
affect its ability to sell or produce its products.
One potential area of regulation for fuel cells concerns their use of
hydrogen, which is highly flammable and regarded as a hazardous gas. However,
since hydrogen is a commonplace industrial gas which is produced in enormous
quantities every day in numerous industrial facilities around the world and
regulations have been in place for decades regarding hydrogen which provide
routine specifications for manufacturers of hydrogen-using equipment, the
Company does not anticipate any new regulations regarding hydrogen.
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ENVIRONMENTAL COMPLIANCE
There are no environmental laws known to the Company which may affect any
of its operations as they are currently constituted. The Company is not involved
in a business which involves the use of materials which are likely to result in
a violation of any existing environmental laws, rules or regulations nor does it
own any real property which would lead to liability as a land owner.
EMPLOYEES
The Company presently has four officers and three other employees - a
full-time Executive Assistant and two part-time technical experts. The President
is also the General Manager of the current project on a full-time basis. Job
descriptions for employees in such small, entrepreneurial companies as ours tend
to be rather flexible, but clearly the principal role of the General Manager is
to oversee the progress of the current project to ensure it is completed
satisfactorily, on budget and on time. The Executive Assistant is responsible
for reception, bookeeping, and other details of general office administration,
including assisting the General Manager. As the development of its products
progresses, the Company believes that it will employ two additional
technologists/technicians in the near future.
(C) RISK FACTORS
An investment in the securities of the Company involves a high degree of
risk. The following risk factors should be considered carefully in evaluating
the Company and its business. If any of the risks described below occurs, the
business, results of operations and financial condition of the Company could be
adversely affected.
PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
The fuel cell industry is characterized by rapid technological change and
frequent new product introductions. Accordingly, the Company believes that its
future success depends in part upon its ability to enhance current products and
develop and introduce new product offerings at competitive prices. The Company's
inability, for technological or other reasons, to enhance, develop and introduce
its products in a timely manner in response to changing market conditions or
customer requirements could have a material adverse effect on the Company's
results of operations or could result in its products becoming obsolete. The
ability of the Company to compete successfully will depend in large measure on
its ability to maintain a technically competent research and development staff
and to adapt to technological changes and advances in the industry.
The Company does not know when or whether it will successfully complete
research and development of a commercially viable AFC system. The Company must
complete substantial additional research and development on its system before
the Company will have a commercially viable product.
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ABILITY TO MANAGE GROWTH
The Company's business plan contemplates significant growth in sales and
personnel which may place a strain upon its current management systems and
resources, as well as obtaining capital. As of August 2000, the Company had less
than 10 employees. In the future, the Company will be required to continue to
improve its financial and management controls, reporting systems and procedures.
In addition, the Company's business plans and anticipated increased product
sales will require the Company to hire, train and manage additional employees
and increase production capacity. If the Company is unable to hire the skilled
employees it needs or increase its production capacity in a timely manner, it
might be unable to fulfill orders for its products or meet its business plans.
There can be no assurance that the Company will be able to effectively manage
its anticipated growth.
CURRENT DEFICIT
The Company has a history of losses, expects future losses and may never
achieve or sustain profitability. To implement its business strategy, the
Company will have to incur a high level of fixed operating expenses and will
continue to incur considerable product development expenditures. Accordingly, if
the Company is unable to generate substantial revenues and positive cash flows
it will not achieve profitability.
At June 30, 2000, the Company had an aggregate deficit of CDN$1,721,591 and
CDN$28,015 in working capital. The ability of the Company to realize its
objective depends in large part upon obtaining additional capital. No assurance
can be given that the Company could obtain the necessary capital, and, if so, on
terms not dilutive to shareholders and onerous to the Company.
PRODUCT ACCEPTANCE
Market acceptance of the Company's fuel cell products may take longer to
develop than it anticipates or may never develop. The Company's AFC products
represent a new technology and its success will depend on this technology
achieving market acceptance. Because the Company designs its products to
capitalize on markets that presently utilize or are serviced by products from
traditional and well-established power generation sources, such as
engine-generators, it may face significant resistance from end-users to adopt a
new and alternative power source technology. Fuel cell products for portable and
mobile applications represent an emerging market and the Company does not know
whether its targeted distributors, resellers or end-users will purchase its
products.
The initial sales of the Company's products have been prototypes for
research and testing purposes. The Company still has not been able to determine
whether or not there is a sufficient level of acceptance of its products for the
Company to sell fuel cells in sufficient volume to become profitable.
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COMPETITION
The Company is engaged in a dynamic and evolving industry that is highly
competitive. The Company anticipates that the quality of its competitors'
products and range of product offerings may improve. The Company's competitors
have greater name recognition, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and other
resources than the Company. There can be no assurance that the Company will be
able to compete effectively with such companies. In addition, the Company
expects that additional competition will develop, from both existing businesses
in the energy industry and from new entrants. Competition could also result in
price reductions, fewer customer orders than expected and reduced gross margin.
As a result, the Company may not be able to compete successfully and competitive
pressures may harm the Company's business.
UNKNOWN DELAYS
The Company's product and technology development efforts are subject to
unanticipated and significant delays, expenses and technical or other problems,
as well as the possible lack of funding to complete this development. The
Company's success will depend upon its products and technologies meeting
acceptable cost and performance criteria, and upon their timely introduction
into the marketplace. None of its proposed products and technologies may ever be
successfully developed, and even if developed, they may not actually perform as
designed. Failure to develop or significant delays in the development of its
products and technology would have a material adverse effect on its business,
financial condition and ability to achieve profitability.
INABILITY TO GROW
There can be no assurance that the market for the Company's existing
products will grow or that the Company will be successful in independently
establishing markets for its new products. If the various markets in which the
Company's products compete fail to grow, or grow more slowly than the Company
currently anticipates, or if the Company is unable to establish markets for its
new products, the Company's revenue and net income growth may be lower than
expected.
PROTECTING PROPRIETARY TECHNOLOGY
The Company relies on a combination of patent and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products and product designs, or to obtain and use information that the Company
regards as proprietary. Policing unauthorized use of the Company's proprietary
technology, if required, may be difficult, time-consuming and costly. In
addition, the laws of certain countries in which the Company's products may be
sold or licensed do not protect its products and related intellectual property
rights to the same extent as the laws of Canada or the United States. There can
be no assurance that the Company will be successful in protecting its
proprietary rights.
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COMPATIBILITY
The Company's fuel cell system may not be compatible with the products of
third-party manufacturers or potential customers. The Company's success will
depend upon its ability to make its products compatible with the products of
third-party manufacturers. In addition, the Company's products will be
successful only if our potential customers redesign or modify their existing
products to fully incorporate the Company's products and technologies. The
Company's failure to make its products and technologies compatible with the
products of third-party manufacturers or the failure of potential customers to
redesign or make necessary modifications to their existing products to
accommodate the Company's products would significantly impair or preclude its
ability to sell its products.
RISK OF THIRD PARTY CLAIMS FOR INFRINGEMENT
The Company does not believe that any of its products infringe the
proprietary rights of any third parties. From time to time, however, third
parties may contest the Company's rights to its intellectual property. In those
circumstances, the Company will review such matters to determine what, if any,
actions may be required or should be taken. There can be no assurance that third
parties will not claim such infringement by the Company or its licensors with
respect to current or future products. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company.
PRODUCT DEFECTS AND PRODUCT LIABILITY
Although the Company's does not know of any existing design defects, the
Company's products may from time to time contain design defects that are
difficult to detect and correct. There can be no assurance that defects or flaws
will not be found in new products after commencement of commercial shipments or,
if discovered, that the Company will be able to successfully correct such
defects or flaws in a timely manner or at all. The occurrence of defects or
flaws in the Company's products could result in loss of or delay in market
acceptance of the Company's products, and correcting such defects or flaws could
require significant expenditure of capital by the Company. In addition, the
failure of the Company's products to perform to customer expectations could give
rise to warranty claims. The consequences of such defects and flaws could have a
material adverse effect on the Company's business, results of operations and
financial condition.
CONTROL OF PRODUCTION AND PRODUCT QUALITY
The Company may rely on third parties to produce its products. Anticipated
growth may require the Company to deliver substantial volumes of products
meeting stringent technical requirements of its customers. The failure by the
Company to successfully manage such production and supply of its products,
including the potential failure to meet scheduled production and delivery
deadlines, or the potential failure of products to meet the product quality
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requirements of its customers, could materially adversely affect the financial
position and future prospects of the Company.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is largely dependent on the performance of its
key employees, particularly its executive officers, Jiri K. Nor, Gerald Crawford
and Gordon Emerson. Loss of the services of these and other key employees or the
failure to attract and retain additional key employees with necessary skills
could have a material adverse impact upon the Company's growth and
profitability. Competition for highly skilled management, technical, research
and development and other employees is intense and the Company may not be able
to attract or retain highly qualified personnel in the future. The Company does
not currently maintain key person life insurance policies on any of its
employees.
CURRENCY RISK
A substantial portion of the Company's revenues are expected to be realized
in currencies other than Canadian dollars. The Company's operating expenses are
primarily paid in Canadian dollars. Fluctuations in the exchange rate between
the Canadian dollar and such other currencies may have a material effect on the
Company's results of operations. In particular, the Company may be adversely
affected by a significant strengthening of the Canadian dollar against the U.S.
dollar.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is an Ontario corporation with its principal place of business
in Canada. All of its directors and officers are residents of Canada and all or
a substantial portion of the assets of such persons and of the Company are
located outside the United States. Consequently, it may be difficult for United
States investors to effect service of process within the United States upon the
Company or its directors or officers, or to realize in the United States upon
judgments of courts of the United States predicated upon civil liabilities under
the United States Securities Act of 1933, as amended. Investors should not
assume that Canadian courts (i) would enforce judgments of United States courts
obtained in actions against the Company or such persons predicated upon the
civil liability provisions of the United States federal securities laws or the
securities or "blue sky" laws of any state within the United States or (ii)
would enforce, in original actions, liabilities against the Company or such
persons predicated upon the United States federal securities laws or any such
state securities or blue sky laws.
ITEM 2. DESCRIPTION OF PROPERTY
The Company has leased an 1,850 square foot industrial unit located at 2175
Dunwin Drive, Mississauga, Ontario, Canada for a period of three years ending
April 30, 2003, with an option to renew for an additional three years.
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Astris s.r.o. has leased premises in Benesov, Czech Republic. These
facilities include about 325 sq. ft. of office space and about 1100 sq. ft. of
laboratory space with a chemistry lab, electrode lab, test lab, mechanical shop
and assembly room. The lease is open-ended, requiring three months' notice to
terminate and annual review for cost adjustment.
The Company believes that these premises are suitable for its present
requirements.
ITEM 3. LEGAL PROCEEDINGS
On November 10, 1999, E. Roy Birkett, a former director and officer of the
Company, instituted an action against the Company in the Superior Court of
Justice (Ontario) (File No. 99-CV-179868) seeking recovery of some CDN$315,000
he had advanced on behalf of the Company. Mr. Birkett had been the President of
the Company in 1995 when it acquired Astris Inc. Included in a March 1995 Letter
of Intent was the binding obligation of Mr. Birkett and other then principals of
the Company to advance funds to keep Astris Inc. operating until such time as
they had raised or arranged a financing for the Company of a minimum of US$5
million dollars. The financing was never obtained. The Company maintains that
the monies advanced by Mr. Birkett are not repayable until such funds are
raised. This proceeding is in the pre-discovery stage.
ITEM 4. CONTROL OF REGISTRANT.
(a) Not applicable.
(b) The following table lists, as of July 31, 2000, the beneficial share
holdings in the Common Shares, which are the only outstanding voting securities
of the Company, of (i) all persons who are known to the Company to beneficially
own, directly or indirectly, ten percent or more of the issued and outstanding
Common Shares, (ii) each of the Company's executive officers and directors of
the Company; and (iii) all of the Company's executive officers and directors as
a group:
Amount and Nature Percent
Name of Beneficial Owner of Class
---- ------------------- --------
Jiri K. Nor (1) 1,857,618 15.9%
Gerald A. Crawford (1) 1,102,265 9.5%
Donald. A. Blenkarn 831,108 7.1%
Gordon T. Emerson (1) 200,000 1.7%
All executive officers and
directors as a group 3,990,991 34.3%
(1) All shares are directly owned by the reporting person and his spouse.
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(c) None.
ITEM 5. NATURE OF TRADING MARKET.
As of July 31, 2000, the Company had approximately 120 stockholders of
record for its Common Shares and 11,645,793 shares were issued and outstanding.
The Company believes that there are a considerable number of beneficial holders
of the Common Shares as a substantial number of Common Shares are held of record
by principal depositories in Canada and the United States. Previously, the
shares were traded in Canada on the Canadian Dealing Network (CDN). The Company
presently has an inactive listing on the CDN. The Company would seek to
reactivate such listing once it meets the initial listing requirements of the
CDN. The Common Shares are presently traded in the United States on the `pink
sheets' dealer network under the symbol ASRF. The quarterly highs and lows bid
prices for the past two fiscal years as reported in the "pink sheets" are
tabulated below:
Quarter High, US$/share Low, US$/share
--------------------------------------------------
1998
First $0.44 $ 0.03
Second 0.24 0.10
Third 0.21 0.07
Fourth 0.32 0.08
1999
First 0.20 0.08
Second 0.34 0.12
Third 0.20 0.01
Fourth 0.08 0.01
2000
First 2.75 0.03
Second 1.05 0.38
Third (through
August 29) 0.65 0.37
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.
There are no governmental laws, decrees or regulations in Canada relating
to restrictions on the import/export of capital affecting the remittance of
interest, dividends or other payments to non-residential holders of the
Company's Common Shares. Any such remittances to United States residents,
however, are subject to a 15% withholding tax pursuant to Article X of the
reciprocal tax treaty between Canada and the United States. See Item 7,
"Taxation".
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<PAGE>
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations under the laws of Canada, the Province of Ontario or in the charter
or any other constituent documents of the Company on the right of foreigners to
hold and/or vote the shares of the Company.
The Act requires a non-Canadian making an investment to acquire control of
a Canadian business, the gross assets of which exceed certain defined threshold
levels, to file an application for review with Investment Canada, the federal
agency created by the Act.
As a result of the Canada-U.S. Free Trade Agreement, the Act was amended in
January 1989 to provide distinct threshold levels for Americans who acquire
control of a Canadian business.
A Canadian business is defined in the Act as a business carried on in
Canada that has a place of business in Canada, an individual or individuals in
Canada who are employed or self-employed in connection with the business, and
assets in Canada used in carrying on the business.
An American, as defined in the Act, includes: an individual who is an
American national or a lawful permanent resident of the United States; a
government or government agency of the United States; an American-controlled
entity, corporation or limited partnership or trust which is not controlled in
fact through ownership of its voting interests of which two-thirds of its board
of directors, general partners or trustees, as the case may be, are any
combination of Canadians or Americans.
The following investments by a non-Canadian are subject to review by
Investment Canada:
(a) all direct acquisitions of control of Canadian businesses with assets
of $5 million or more;
(b) all indirect acquisitions of control of Canadian businesses with
assets of $50 million or more if such assets represent less than 50%
of the value of the assets of the entities, the control of which is
being acquired; and
(c) all indirect acquisitions of control of Canadian businesses with
assets of $5 million or more if such assets represent more than 50% of
the value of the assets of the entities, the control of which is being
acquired.
Review by Investment Canada is required when investments by Americans
exceed $150 million for direct acquisitions of control. For the purposes of the
Act, direct acquisition of control means:
a purchase of the voting interest on a corporation, partnership, joint
venture or trust carrying on a Canadian business, or any purchase of all or
substantially all of the assets used in carrying on a Canadian business;
and
indirect acquisition of control means:
14
<PAGE>
a purchase of the voting interest of a corporation, partnership, joint
venture or trust, whether a Canadian or foreign entity, which controls a
corporation, partnership, joint venture or trust carrying on a Canadian
business in Canada.
The acquisition of certain Canadian businesses is excluded from the higher
thresholds set out for Americans. These excluded businesses include oil, gas,
uranium, financial services (except insurance); transportation services and
cultural services (i.e. the publication, distribution or sale of books,
magazines, periodicals (other than printing or typesetting businesses), music in
print or machine readable form, radio, television, cable and satellite services;
the publication, distribution, sale or exhibitions of film or video recordings
or audio or video music recordings).
Direct or indirect acquisitions of control of these excluded businesses are
reviewable at the $5 and $50 million thresholds.
A non-Canadian shall not implement an investment reviewable under the Act
unless the investment has been reviewed and the Minister responsible for
Investment Canada is satisfied or is deemed to be satisfied that the investment
is likely to be of net benefit to Canada. If the Minister is not satisfied that
the investment is likely to be a net benefit to Canada, the non-Canadian shall
not implement the investment or, if the investment has been implemented, shall
divest himself of control of the business that is the subject of the investment.
A non-Canadian or American making the following investments:
(i) an investment to establish a new Canadian business; and
(ii) an investment to acquire control of a Canadian business which
investment is not subject to review under the Act,
must notify Investment Canada, within prescribed time limits, of such
investments.
ITEM 7. TAXATION.
Certain Canadian Income Tax Consequences
Management of the Company considers that the following discussion
respecting taxation fairly describes the principal and material Canadian federal
income tax consequences applicable to shareholders of the Company who are
residents of the United States and are not residents of Canada and do not hold,
and are deemed not to hold, Common Shares of the Company in connection with
carrying on a business in Canada (a "non-resident").
Generally, dividends paid by Canadian corporations to non-resident
shareholders are subject to a withholding tax of 25% of the gross amount of such
dividends. However, Article X of the reciprocal tax treaty between Canada and
the United States reduced to 15% the withholdings tax on the gross amount of
dividends paid to residents of the United States. A further 10% reduction in
1997 in the withholding tax rates on the gross amount of dividends is applicable
when a U.S. corporation owns at least 10% of the voting stock of the Canadian
corporation paying the dividends.
15
<PAGE>
A non-resident who holds Common Shares of the Company as capital property
will not subject to tax on capital gains realized on the disposition of such
Shares unless such Shares are "taxable Canadian property" within the meaning of
the Income Tax Act (Canada), and no relief is afforded under any applicable tax
treaty. The Common Shares would be taxable Canadian property of a non-resident
if, at any time during the five year period immediately preceding a disposition
by the non-resident of such Shares (a) not less than 25% of the issued shares of
any class of the Company belonged to the non-resident, (b) the person with whom
the non-resident deal did not deal at arm's length, or (c) the non-resident and
any person with whom the non-resident did not deal at arm's length.
Certain United States Federal Income Tax Consequences
The following discussion describes certain United States federal income tax
consequences of the ownership and disposition of Common Shares of the Company.
The discussion contained in this summary is based on the Internal Revenue Code
of 1986, as amended (the "Code"), existing and proposed Treasury Regulations,
judicial decisions and administrative pronouncements, all of which are subject
to change. Any such changes may be applied retroactively in a manner that could
result in federal income tax consequences different from those discussed below.
This summary discusses only Common Shares of the Company held by a U.S.
Holder (defined below) as a capital asset within the meaning of Section 1221 of
the Code, and does not deal with special situations, such as those of banks,
thrift institutions, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or commodities, tax-exempt
investors, holders whose functional currency is not the U.S. dollar, persons who
hold Common Shares of the Company as a position in a straddle, as part of a
synthetic security or hedge, as part of a conversion transaction or other
integrated investment, or persons who are not U.S. Holders (as defined below).
Further, the summary does not include any description of any alternative minimum
tax consequences or any state, local or foreign tax consequences that may be
applicable. This summary assumes that no U.S. Holder will own, directly or
indirectly, Common Shares of the Company representing 10% or more of the voting
power of the Company.
HOLDERS OF COMMON SHARES OF THE COMPANY ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND
DISPOSITION OF SUCH SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AND THE
POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
As used herein, a "U.S. Holder" means a beneficial owner of Common Shares
of the Company who is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any State thereof or the District of Columbia,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust the administration of which
is subject to the primary supervision of a court within the United States and
for which one or more U.S. persons have the authority to control all substantial
decisions.
16
<PAGE>
Dividends
Distributions with respect to the Common Shares (other than liquidating
distributions and certain distributions in redemption of the Common Shares)
which are paid out of current or accumulated earnings and profits, as calculated
for United States federal income tax purposes, generally will constitute
dividends taxable as ordinary income. To the extent the amount of any such
distribution paid with respect to the Common Shares exceeds current and
accumulated earnings and profits, as calculated for United States federal income
tax purposes, such excess distribution will not constitute a dividend for United
States federal income tax purposes, but will be treated first as a tax-free
return of capital to the extent of the holder's adjusted tax basis in his Common
Shares (with a corresponding reduction in such basis) and, to the extent the
distribution exceeds such basis, as a capital gain.
Foreign Tax Credit
A U.S. Holder who pays (or has had withheld from distributions) Canadian
income tax with respect to the ownership of Common Shares of the Company may be
entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. This election is made on a
year-by-year basis and applies to all foreign taxes paid by (or withheld from)
the U.S. Holder during that year. There are significant and complex limitations
that apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's United States Federal
income tax liability that the U.S. Holder's foreign source income bears to his
worldwide taxable income. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of Common Shares should consult their own tax advisors
regarding their individual circumstances.
Dispositions, Including Redemptions
Any sale, exchange, redemption (except as discussed below) or other
disposition of the Common Shares generally will result in taxable gain or loss
equal to the difference between the amount received upon the sale, exchange,
redemption or other disposition and the holder's adjusted tax basis in the
Common Shares. Such gain or loss generally will be capital gain or loss and will
be long-term capital gain or loss if the holding period for the Shares of the
Company exceeds one year.
In certain cases, a redemption of Common Shares may be treated as a
dividend, rather than as a payment in exchange for the Shares of the Company. In
such events, the redemption payment will be treated as ordinary dividend income
to the extent that such payment is made out of current or accumulated earnings
and profits, as calculated for United States federal income tax purposes. The
determination of whether the redemption will be treated as a dividend rather
than as payment in exchange for the Shares of the Company will depend upon
whether and to what extent the redemption reduces the holder's percentage stock
ownership interest in the Company. A redemption will be treated as an exchange
of stock that produces a capital gain if the redemption either (1) completely
terminates the holder's interest in the Company under Section 302(b)(3) of the
Code, (2) is "substantially disproportionate" with respect to the holder under
Section 302(b)(2) of the Code, or (3) is "not essentially equivalent to a
dividend" under Section 302(b)(1) of the Code.
17
<PAGE>
A redemption will completely terminate the holder's interest in the Company
as a result of the redemption if, as a result of the redemption, the holder no
longer has any stock interest in the Company, directly or constructively after
application of the attribution rules of Section 302(c) of the Code. A redemption
will be "substantially disproportionate" with respect to the holder if (1) the
ratio of the voting stock owned by the holder (including stock attributed to the
holder under Section 302(c) of the Code) immediately after the redemption to all
the voting stock of the Company is less than 80% of the same ratio for the
voting stock owned by the holder immediately before the redemption, (2) there is
a similar percentage reduction in the ownership by the holder of Common Shares
of the Company, and (3) the holder owns less than 50% of the voting stock of the
Company. Whether a redemption is "not essentially equivalent to a dividend" with
respect to a holder will depend upon the holder's particular circumstances. The
IRS has ruled that a minority shareholder in a publicly held corporation whose
relative stock interest is minimal and who exercises no control with respect to
corporate affairs is considered to have a "meaningful reduction" if such
shareholder has a reduction in his percentage stock ownership. In determining
whether any of the foregoing tests have been satisfied, the holder is deemed,
under the constructive ownership rules of Section 302(c) of the Code, to own any
Common Shares in the Company owned by certain related persons and entities and
any Common Shares which the holder or certain related persons and entities have
an option to acquire. However, because of the ambiguities in applying the
foregoing rules, holders should consult their tax advisors to determine whether
a redemption of Common Shares will be treated as a dividend or as a payment in
exchange for the Common Shares of the Company.
ITEM 8. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL INFORMATION
The following table sets forth, in Canadian dollars, selected historical
information concerning the Company presented in accordance with CDN GAAP and is
qualified by reference to the consolidated financial statements and notes
thereto. See "Financial Statements."
18
<PAGE>
<TABLE>
<CAPTION>
----------------- --------------- --------------- --------------- --------------- ---------------
As at six As at As at As at As at
months ended December 31, December 31, December 31, December 31,
June 30, 2000 1999 or the 1998 1997 1996
Year then
ended
----------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Income from $8,327 $1,669 $26,302 $23,315 $72,468
Continuing
Operations
----------------- --------------- --------------- --------------- --------------- ---------------
Income from N/A (.01) (.01) (.01) 0.16
Continuing
Operations per
Share
----------------- --------------- --------------- --------------- --------------- ---------------
Total Assets 306,025 147,662 165,379 136,550 172,136
----------------- --------------- --------------- --------------- --------------- ---------------
Long Term 412,288 452,491 452,491 450,491 703,948
Obligations
----------------- --------------- --------------- --------------- --------------- ---------------
Cash Dividends - - - - -
----------------- --------------- --------------- --------------- --------------- ---------------
</TABLE>
Exchange Rates
The following table sets out the exchange rates, based on the noon buying
rates in New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York, for the conversion
of Canadian dollars into United States dollars in effect at the end of the
following periods, and the average exchange rates (based on the average of the
exchange rates on the last day of each month in such periods) and the range of
high and low exchange rates for such periods.
Year ended June 30
<TABLE>
<CAPTION>
------------------- ------------ ------------- -------------- ------------ ------------
2000 1999 1998 1997 1996
------------------- ------------ ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
End of Period .67 .68 .68 .72 .73
------------------- ------------ ------------- -------------- ------------ ------------
Average for Period .68 .66 .71 .73 .73
------------------- ------------ ------------- -------------- ------------ ------------
High for Period .70 .69 .73 .75 .75
------------------- ------------ ------------- -------------- ------------ ------------
Low for Period .66 .63 .68 .71 .72
------------------- ------------ ------------- -------------- ------------ ------------
</TABLE>
On December 30, 1999, 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 $1.45 (CDN$1.00 = US$.68). As of June 30, 2000, 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 $1.48 (CDN$1.00 =
US$.68)
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<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT DISCUSSION OF RESULTS
This discussion and analysis of the operating results and the financial
position of the Company should be read in conjunction with the financial
statements and the notes thereto forming a part of this Registration Statement.
In addition to historical information, the following discussion contains
forward-looking statements that reflect the Company's plans, estimates,
intentions, expectations and beliefs. The Company's actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those set forth in the "Risk Factors" section of Item 1.
RESULTS OF OPERATIONS
In 1995, the Company acquired AI with the objective to commercialize the AI
AFC technology and to raise $5 million in financing. Unfortunately, such
financing did not materialize which caused the activities of the Company to be
seriously curtailed. However, as mentioned in Item 1, the research and
development on electrode formulations and other aspects of fuel cell technology
has been continued to be carried out at the Company's minority-owned subsidiary,
Astris s.r.o. in the Czech Republic.
In 1998, as a result of the non-exclusive licence of the Company to EVI,
however, the Company acquired 200,000 shares of EVI common stock. See "Research
and Development" in Item 1. The sale of over 85,000 of these EVI shares in the
spring of 2000 has provided the cash resources necessary to finance the
Company's current research and development project.
The Company has incurred operating losses during the last three fiscal year
periods ending December 31. The net loss for 1999 was US$55,172 and US$46,681
for 1998. Income from these periods have been derived from the sale of ancillary
products. As a result of the sale of EVI Common Stock, the Company had a net
income of US$150,933 for the six-month period ended June 30, 2000.
Operating expenses were approximately US$69,288 in 1999 and US$97,574 in
1998. Included in operating expenses are costs associated with subcontracts,
professional fees, and interest and depreciation.
LIQUIDITY AND CAPITAL RESOURCES
As the Company's current development project moves forward through 2000 and
into 2001, it is anticipated that the Company's successful progress could
stimulate interest in the Company that will be reflected by increasing market
activity and rising share prices. In the future, the Company will seek to enter
into private placements, strategic partnerships and joint ventures, on terms
acceptable to the Company, in order to raise capital to finance the on-going
development and commercialization of the Company's fuel cell technology. The
Company does not have any present plans to enter into any private placements,
strategic partnerships or joint ventures. In addition, there is no assurance
that the Company will be able to find or enter into any private placements,
20
<PAGE>
strategic partnerships or joint ventures on terms acceptable to the Company or
not dilutive to shareholders.
Assuming the successful demonstration of the Company's fuel cell-powered
golf car, the Company would then seek to obtain the necessary financing to
establish a pilot production facility for the manufacture of a total of 2000 kW
per year of fuel cell systems in various sizes up to 3 or 4 kW each, for testing
in a variety of both stationary and mobile applications. It is estimated this
stage will require $5-10 million over the next three years.
In anticipation and preparation for these developments, the Company is
identifying potential strategic partners who will be approached in due course,
as appropriate.
The Company continues to own 114,100 shares of EVI Common Stock of which
100,000 shares are "restricted securities" under Rule 144 of the Securities Act
of 1933. The net proceeds from the future sale of these shares would provide
additional liquidity.
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY.
The Board of Directors may consist of from three to ten members, and is
currently comprised of four members. Each director is elected by the
shareholders to serve until the next annual meeting or until a successor is
elected or appointed. The following table sets forth the name, address, age,
office held with the Company and the period during which such person has served
as a director and executive officer.
Name Age Office Held Director Since
---- --- ----------- --------------
Jiri K. Nor 60 President, Chief Executive 1996
Officer and Director
Gerald A. Crawford (1) 66 Executive Vice-President 1996
and Director
Donald A. Blenkarn (1) 69 Secretary and Director 1995
Gordon T. Emerson 62 Treasurer, Chief Financial 1999
Officer and Director
Notes:
(1) Members of the Company's Audit Committee.
Jiri K. Nor has been a Director and the President of the Company since March,
1996. He is a trained engineer, with particular expertise in mechanics,
aeronautics, electronics and electrochemistry. He is the principal developer of
the Company's fuel cell technology. For more than the past five years, Mr. Nor
21
<PAGE>
has also been President and CEO of the Company and Astris s.r.o., and also the
President and sole stockholder of Macnor Corp. For more than five years until
August 1997, he was Vice President, Research of Norvik Technologies and Norvik
Traction, companies in the business of developing fast battery chargers.
Gerald A. Crawford has been a Director and Executive Vice-President of the
Company since March, 1996, and has been associated with Astris Inc. since 1987
in marketing and public relations areas. He is a trained metallurgical engineer,
having been associated with various companies from 1960 to 1987, and since 1989
has been a self-employed consultant primarily in the area of metallurgical
engineering environmental matters to the nickel industry, providing services to
corporate clients, including Astris, for the past 10 years.
Donald A. Blenkarn has been a Director and Secretary of the Company since
October 1995. For over five years, he has been Managing Director of Timagami
Financial Services Ltd., located in Mississauga, Canada. From 1972 to 1993, he
was a Progressive Conservative Party Member of Parliament and from 1984-91 he
was the Chair of the House of Commons Finance Committee, and Vice-Chair from
1991-93. Mr. Blenkarn practiced law from 1952-83 with the firm of Blenkarn, Kerr
and Shadlock.
Gordon T. Emerson has been a Director of the Company since 1999 and its
Treasurer and Chief Financial Officer since April 2000. Mr. Emerson is a
Director of T.S.E., which is a member of the Toronto Stock Exchange and a money
marketing dealer. During his career, Mr. Emerson has raised capital for a number
of Canadian companies, including Spar Aerospace, Corona Mining and Morgan
Hydrocarbons. For more than the past five years he has been a consultant to
public companies in Canada with respect to capital structure and financing
transactions.
ITEM 11. COMPENSATION FOR DIRECTORS AND OFFICERS
(a) For the two fiscal years ended December 31, 1999, the Company did not
pay any cash compensation to its executive officers. However, in June 2000, the
Company issued an aggregate of 1,101,731 Common Shares to the four executive
officers for prior services from 1995 through 1999 which were accrued at
CDN$275,432.73.
Name Value Number of Common Shares
---- ----- -----------------------
Donald A. Blenkarn $ 81,777.00 327,108
Gerald A. Crawford 34,910.73 139,643
Jiri K. Nor 108,745.00 434,980
Gordon T. Emerson 50,000.00 200,000
---------- -------
$275,432.73 1,101,731
22
<PAGE>
For the present fiscal year, the Company will pay compensation of
CDN$102,000. Jiri Nor will receive CDN$72,000 and Gordon Emerson will receive
CDN$30,000. In addition, the Company may issue Common Shares at market value in
lieu of cash to its executive officers for services rendered to the Company. The
Company does not have any employment agreement with any executive officer.
There does not currently exist any compensation arrangement for any of the
directors.
(b) The Company does not have any pension, retirement or similar plan for
its executive officers or directors.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
In June 2000, the Company's stockholders adopted the 2000 Stock Option Plan
(the "Plan"), pursuant to which options may be granted to purchase 1,000,000
Common Shares. The purpose of the Plan is to advance the interests of the
Company by affording its officers, directors, employees and consultants the
opportunity of acquiring equity interests in the Company. The Company may grant
options for 1,000,000 Common Shares under the Plan. These Options will have an
exercise price of not less than the market price of the Common Shares at the
time or if there is not public market price at the fair market value as
determined by the Board of Directors on the day preceding the date of grant, and
will be exercisable over a number of years specified at the time of the grant,
which term will not exceed five years from the date of grant. At July 31, 2000,
no options had been granted under the Plan.
In October 1998, in connection with the entry into the Licence Agreement
with EVI, the Company granted an option to EVI for the purchase of 1,000,000
Common Shares at an exercise price of US$.30 per share, expiring in October
2003.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
As of September 13, 1999, the Company entered into a royalty arrangement
with Macnor Corporation, an Ontario corporation ("Macnor"), which is
wholly-owned by Jiri K. Nor, President, Chief Executive Officer and Director of
the Company. This arrangement calls for the sale by Macnor of certain fuel cell
products developed and manufactured by Astris s.r.o. (small fuel cells) through
a web site and mail order opened and operated by Macnor. Macnor is to pay an
annual royalty equal to five (5%) percent from all sales of such goods, based
upon gross revenues. No royalty was paid for fiscal 1999.
Macnor Corporation also owns 70% of Astris s.r.o, which presently conducts
a substantial portion of the research and development of the Company. The
Company owns the remaining 30% of Astris s.r.o.
As discussed in Item 1, the Company has licensed on a non-exclusive basis,
its fuel cell technology to Astris s.r.o and EVI.
23
<PAGE>
As at December 31, 1999, the Company owed CDN$37,204 in principal and
accrued interest of CDN$8,308 through December 31, 1998 to Timagami Financial
Services ("Timagami") as payment for an advance made by it to the Company. This
advance is unsecured and bore interest at 12% per annum until December 31, 1998,
and thereafter has been non-interest bearing. There are no specific repayment
terms and Timagami has orally agreed that these amounts will not be requested
for repayment prior to July 7, 2001. Donald A. Blenkarn, Director and Secretary
of the Company since October 1995, is Managing Director of Timagami.
As at December 31, 1999, the Company owed CDN$100,000 in principal and
accrued interest of CDN$28,141 to a group of three directors, including Donald
A. Blenkarn, Gerald A. Crawford and Jiri K. Nor, as payment for advances made by
them to the Company. The amount owed is secured and bears interest at 12% per
annum. Messrs. Blenkarn, Crawford and Nor have agreed that they will not demand
repayment of the principal and interest until after July 7, 2001. The amount
owed is collateralized by a lien on all of the assets and business of AI.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED. CAPITAL STOCK TO BE
REGISTERED.
The Company wishes to register common shares in the capital of the Company.
The Company has authorized 60,000,000 Common Shares and 10,000,000 Preferred
Shares. At July 31, 2000, there were outstanding 11,645,793 Common Shares and no
Preferred Shares.
The Common Shares carry a voting right on the basis of one vote per share,
and holders of Common Shares have the right to attend and vote at all meetings
except meetings at which only holders of a specified class of shares (other than
the Common Shares) are entitled to vote. The holders of the Common Shares would
receive dividends as declared by the Board of Directors, subject to any rights
of holders of the Preferred Shares, and subject to the rights of the holders of
any other class of shares of the Company would receive, pari passu, with the
holders of the other classes of shares, the remaining property of the Company on
dissolution. The Common Shares are not liable to further calls or to assessment
by the Company.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 16. CHANGE IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES.
Not Applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS.
See Item 19 below for Financial Statements filed as part of this
Application.
ITEM 18. FINANCIAL STATEMENTS.
Not Applicable.
24
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following documents are filed as Attachment A hereto and are
included as part of this Application on Form 20-F.
ASTRIS ENERGI INC. CONSOLIDATED FINANCIAL STATEMENTS
Description of Document
Auditors Report
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Changes in Financial Position
Notes to Consolidated Financial Statements
(b) The following exhibits are filed as Attachment B hereto and are
included as part of this Application on Form 20-F.
3.1 Memorandum of Association of Kayty Exploration Ltd., filed March 18, 1981
with the Province of Alberta Office of Consumer and Corporate Affairs.
3.2 Articles of Association of Kayty Exploration Ltd., filed March 18, 1981
with the Province of Alberta Office of Consumer and Corporate Affairs.
3.3 Certificate amending the Memorandum of Association of Kayty Exploration
Ltd., filed July 9, 1981 with the Province of Alberta Office of Consumer
and Corporate Affairs.
3.4 Certificate amending the Memorandum of Association of Kayty Exploration
Ltd., filed November 6, 1981 with the Province of Alberta Office of
Consumer and Corporate Affairs.
3.5 Certificate amending the Memorandum of Association of Kayty Exploration
Ltd., filed March 11, 1982 with the Province of Alberta Office of Consumer
and Corporate Affairs.
3.6 Certificate amending the Memorandum of Association of Kayty Exploration
Ltd., filed August 9, 1982 with the Province of Alberta Office of Consumer
and Corporate Affairs.
3.7 Articles of Continuance for Kayty Exploration Ltd., filed September 22,
1987 with the Ministry of Consumer and Commercial Relations, Province of
Ontario, Canada.
3.8 Articles of Amendment for Kayty Inc., filed December 7, 1994 with the
Ministry of Consumer and Commercial Relations, Province of Ontario, Canada.
3.9 Articles of Amendment for WLD Inc., filed July 4, 1995 with the Ministry of
Consumer and Commercial Relations, Province of Ontario, Canada.
3.10 By-Laws of Astris Energi Inc., dated April 12, 1996.
25
<PAGE>
4. Astris Energi Inc. Stock Option Plan, dated June 2000.
10.1 Licence Agreement between Astris Energi Inc. and Energy Ventures Inc.
(Canada) dated October 22, 1998.
10.2 Debenture by Astris Energi Inc and Astris Inc. to and in favor of Energy
Ventures Inc. (Canada) dated October 22, 1998.
10.3 Equipment Lease between Astris Energi Inc. and Astris Inc. and Energy
Ventures Inc. (Canada) dated October 22, 1998.
10.4 Licence Agreement with Macnor Corp. dated October 1, 1999.
10.5 Lease for property located at 2175 Dunwin Drive, Unit 6, Mississauga,
Ontario, between 789542 Ontario Limited and Astris Energi Inc., dated April
14, 2000.
10.6 Licence Agreement, between Astris Inc. and Astris s.r.o., dated January 30,
1995.
10.7 Grant of Options by Astris Energi Inc. to Energy Ventures Inc., dated
October 22, 1998.
21. Subsidiaries of the registrant.
23.1 Dennis A. Lugowy, C.P.A. of Lugowy Associates, regarding U.S. GAAP.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant 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.
ASTRIS ENERGI INC.
By: /s/ Jiri K. Nor
-------------------------------
Date: August 30, 2000
-----------------------------
27
<PAGE>
ATTACHMENT A
ASTRIS ENERGI INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
<PAGE>
CONTENTS
PAGE
----
Auditor's Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Loss and Deficit 3
Consolidated Statements of Cash Flows 4
Notes to the Consolidated Financial Statements 5-10
<PAGE>
AUDITOR'S REPORT
To the Directors of
Astris Energi Inc.
I have audited the consolidated balance sheets of Astris Energi Inc. as at
December 31, 1998 and 1997 and the consolidated statements of loss and deficit
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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 my opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its operations and cash flows for the years then
ended in accordance with generally accepted accounting principles.
My previous auditor's report dated June 11, 1999 has been withdrawn and the
value of the long term investment has been restated to conform to net realizable
value.
/s/ Charles Havill
Oakville, Canada -----------------------
June 11, 1999 Chartered Accountant
(Except for the long term investment which is as at March 14, 2000).
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED BALANCE SHEETS
December 31 1998 1997
--------------------------------------------------------------------------------
ASSETS
Current
Cash $ 17,710 $ 1,612
Receivables 47,671 34,940
----------------- ---------------
65,381 36,552
Long term investment (Note 3) 99,998
Capital assets (Note 3) 99,998
----------------- ---------------
$ 165,379 $ 136,550
----------------- ---------------
--------------------------------------------------------------------------------
LIABILITIES
Current
Payable and accruals (Note 5) $ 446,143 $ 348,575
GST payable 47,671
Notes payable (Note 4) 24,357 24,357
----------------- ---------------
518,171 372,932
Advances from related parties (Note 5) 452,491 450,491
----------------- ---------------
970,662 823,423
----------------- ---------------
SHAREHOLDERS' DEFICIENCY
Share capital (Note 7) 1,086,676 1,086,676
Deficit (1,891,959) (1,773,549)
----------------- ---------------
(805,283) (686,873)
----------------- ---------------
$ 165,379 $ 136,550
----------------- ---------------
--------------------------------------------------------------------------------
Basis of presentation (Note 1)
Contingent liability (Note 5)
Approve on behalf of the Board:
/s/ G. Crawford /s/ Gordon Emerson
---------------------------------- ----------------------------------
Director Director
See accompanying notes to the consolidated financial statements.
2
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
Years ended December 31 1998 1997
-------------------------------------------------------------------------------
Revenue
Sales $ 26,302 $ 23,315
----------------- ----------------
Expenses
Subcontract (Note 5) 79,534 36,000
General and administrative 35,511 15,760
Professional fees 9,895 9,019
Interest (Note 5) 19,772 18,700
Depreciation 33,404
----------------- ----------------
144,712 112,883
----------------- ----------------
Net loss for the year (118,410) (89,568)
Deficit, beginning of year (1,773,549) (1,683,981)
-----------------
Deficit, end of year $ (1,891,959) $(1,773,549)
----------------- ----------------
Loss per common share (Note 7) $ (0.01) $ (0.01)
================== =================
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
3
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 1998 1997
--------------------------------------------------------------------------------
OPERATING
Net loss for the year $ (118,410) $ (89,568)
Add charges to operation not
requiring a current cash payment
Depreciation of capital assets 32,619
----------- -----------
(118,410) (56,949)
Net change in non-cash operating
working capital balances related
to operations (Note 8) 132,508 (66,250)
----------- -----------
14,098 (123,199)
----------- -----------
FINANCING
Advances from related parties 2,000 (253,457)
Issuance of common shares and warrants 377,749
----------- -----------
2,000 124,292
----------- -----------
Net increase in cash during the year 16,098 1,093
Cash, beginning of year 1,612 519
----------- -----------
Cash, end of year $ 17,710 $ 1,612
----------- -----------
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
4
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1998 and 1997
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
These consolidated financial statements reflect the accounts of Astris Energi
Inc. (the "Company") and its wholly-owned subsidiary, Astris Inc., which was
acquired on December 31, 1995. The Company is dedicated to the research and
development of alternative energy sources. The Company has incurred several
years of losses and as at December 31, 1998 has a shareholders' deficiency of
approximately $805,000.
The consolidated 1998 and 1997 financial statements have been prepared in
accordance with accounting principles generally accepted in Canada on a going
concern basis which presumes the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future.
The Company's ability to continue as a going concern is in substantial doubt and
is dependent upon the success of the efforts of its directors and principal
shareholders in providing financial support in the short term, the success of
the Company in raising additional long-term financing either from their own
resources or from third parties, the successful commercialization of one or more
of the Company's research projects and the Company attaining profitable
operations.
The outcome of these matters cannot be predicted at this time. These
consolidated financial statements do not include any adjustments to the amounts
and classifications of assets and liabilities that might be necessary should the
Company be unable to continue in business.
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
CAPITAL ASSETS
Capital assets arising on the acquisition of Astris Inc. including equipment and
furniture and fixtures, have been recorded at values assigned on the acquisition
and subsequent additions are recorded at cost. Depreciation thereon is recorded
using the straight-line method at 20% per annum.
DEVELOPMENT COSTS AND SCIENTIFIC RESEARCH
All costs relating to scientific research, development and product evaluation
are expensed as incurred. Investment tax credits and government grants received
toward these costs are netted against the related expenses.
--------------------------------------------------------------------------------
5
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1998 and 1997
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
INCOME TAXES
The Company follows the deferral method of income tax allocation. Deferred
income taxes result from timing differences between amounts claimed for income
tax purposes and amounts charged in the accounts.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenue and expenses during the year. Actual amounts
could differ from those estimates.
FINANCIAL INSTRUMENTS
The fair value of financial instruments contained in these consolidated
financial statements approximates book value unless otherwise indicated.
INCOME PER SHARE
Basic loss per share is calculated on the weighted average number of shares
outstanding during the year.
--------------------------------------------------------------------------------
6
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1998 and 1997
--------------------------------------------------------------------------------
3. CAPITAL ASSETS
1998 1997
---- ----
Net Net
Book Book
Value Value
----------- ------------
Equipment Nil $ 81,998
Furniture Nil 18,000
----------- ------------
Nil $ 99,998
----------- ------------
During the year, all capital assets were sold in return for shares of a public
company. As there was not an active market for the shares of the public company,
the shares have been valued at an amount equivalent to the net book value of the
capital assets. Currently, the Company is not permitted to sell these shares.
The value of these shares has been corrected from the original valuation of
$694,485 on the previously issued financial statements. As a result, the gain
previously recorded at $594,487 has been corrected to nil.
--------------------------------------------------------------------------------
4. NOTES PAYABLE
Notes payable are held by three shareholders and are due on demand, unsecured
and interest free.
--------------------------------------------------------------------------------
7
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1998 and 1997
--------------------------------------------------------------------------------
5. ADVANCES FROM RELATED PARTIES AND CONTINGENT LIABILITY
The following amounts have been advanced from related parties:
1998 1997
--------- ---------
Due to a shareholder $ 315,287 $ 315,287
Due to Timagami Financial Services,
a company controlled by a director
and officer 37,204 35,204
Debenture due to shareholders 100,000 100,000
--------- ---------
$ 452,491 $ 450,491
--------- ---------
DUE TO A SHAREHOLDER
With respect to the amount due to a shareholder, the amount has arisen primarily
as a result of the recognition of amounts subject to reimbursement to the
shareholder for expenses incurred on behalf of the Company. In addition to the
$315,287 recorded as owing by the Company, the shareholder has claimed that the
Company owes him a further $1,627,301 for services that were claimed to have
been rendered on behalf of the Company. The Company takes the view that no
further amount is owing to this shareholder for the services that were alleged
to have been rendered. As at year end, no legal claim has been filed by the
shareholder.
DUE TO TIMAGAMI FINANCIAL SERVICES
These advances are unsecured and bear interest at 12% per annum. Unpaid interest
totalling approximately $12,400 is included in payables and accruals. Management
of the Company believes that it is not practicable to determine the fair value
of these long-term advances. These amounts are shown as long-term liabilities as
there are no specific terms or repayment and the holders of the debts have
indicated that these amounts will not be requested for repayment prior to July
7, 2001.
DEBENTURE DUE TO SHAREHOLDERS
The debenture due to shareholders is secured and bears interest at 12% per
annum. Unpaid interest totalling approximately $30,000 is included in payables
and accruals. Although the Company is in technical default of its debenture
agreement as a result of the interest payments being in arrears, there are no
specific terms of repayment and the debenture holders have indicated that they
will not demand repayment until after July 7, 2001. Accordingly, the amount
payable under the debenture has been classified as a long-term liability. The
debenture is collateralized by a fixed and floating charge on all of the assets
and business of Astris Inc.
--------------------------------------------------------------------------------
8
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1998 and 1997
--------------------------------------------------------------------------------
5. ADVANCES FROM RELATED PARTIES AND CONTINGENT LIABILITY (CONT'D)
PAYABLES AND ACCRUALS
Certain research services have been subcontracted resulting in $50,637 (1997 -
$50,637) being due to Astris S.R.O., a company in which the Company has a 30%
ownership interest; the remaining 70% is owned by a shareholder of the Company.
The Company's 30% interest in the loss of Astris S.R.O. has been applied to its
investment. This investment is being accounted for on the equity basis.
In addition, payables include the following amounts:
- $25,787 owing to Crawford Associates, owned by a shareholder for consulting
fees (1997 - $12,000).
- $90,000 owing to Jiri Nor, a shareholder, for consulting fees (1997 -
$24,000).
- $12,587 owing to Norvik Inc., a company owned by a shareholder, for
expenses and consulting fees (1997 - $18,952).
--------------------------------------------------------------------------------
6. INCOME TAXES
The Company has refundable investment tax credits of approximately $5,100
relating to expenditures on scientific research and tax loss carryforwards of
approximately $2,384,000. If unused, the tax losses will expire as follows:
2004 $ 34,000
2003 $ 1,856,000
2002 $ 494,000
The potential income tax benefits arising from these investment tax credits and
loss carryforwards have not been reflected in these consolidated financial
statements.
--------------------------------------------------------------------------------
9
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1998 and 1997
--------------------------------------------------------------------------------
7. SHARE CAPITAL AND WARRANTS
Share capital consists of the following:
AUTHORIZED:
60,000,000 common shares
10,000,000 preferred shares
ISSUED:
Common shares
-------------
# $
------------ ----------
Issued as at December 31, 1996 6,045,000 496,552
To be issued as at December 31, 1996 455,000 37,375
------------ ----------
6,500,000 533,927
June 30, 1997 - Issued for cash on
exercise of warrants 3,220,000 3,220
September 30, 1997 - Issued for cash on
exercise of warrants 174,850 175
Value of warrants exercised 175,000
October 14, 1997 - Issued in exchange for
outstanding liabilities 748,706 374 354
------------ ----------
10,643,556 1,086,676
============ ==========
As at December 31, 1996 the Company had issued 6,045,000 common shares. However,
455,000 common shares are to be issued to the shareholders of a predecessor
company. These shareholders will be issued common shares in the Company if and
when they present their share certificates in the predecessor company to the
registrar. The loss per share calculations for fiscal 1997 and 1998 have been
based on 8,310,000 issued and outstanding common shares from January 1, 1997 to
December 31, 1997, and 10,643,556 issued and outstanding common shares for 1998.
During the year, an option was granted to the public company which purchased the
capital assets (see Note 3), to purchase 1,000,000 common shares of the Company
at $.30 (U.S.) per share. The option will expire October 22, 2003.
No preferred shares have been issued.
--------------------------------------------------------------------------------
10
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1998 and 1997
--------------------------------------------------------------------------------
8. CONSOLIDATED STATEMENTS OF CASH FLOWS
The net change in non-cash operating working capital balances consists of the
following:
1998 1997
---- ----
(Increase) decrease in receivables $ (12,731) $ 4,060
--------------
Increase (decrease) in payables and accruals 97,568 (75,310)
Increase in GST payable 47,671
Increase in notes payable 5,000
-------------- --------------
$ 132,508 $ (66,250)
-------------- --------------
--------------------------------------------------------------------------------
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to customers, suppliers or other third parties, have been fully
resolved.
--------------------------------------------------------------------------------
11
<PAGE>
CHARTERED ACCOUNTANT
ASTRIS ENERGI INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
<PAGE>
CONTENTS
Page
----
Auditor's Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Loss and Deficit 3
Consolidated Statements of Cash Flows 4
Notes to the Consolidated Financial Statements 5-10
<PAGE>
CHARTERED ACCOUNTANT
Auditor's Report
To the Shareholders of
Astris Energi Inc.
I have audited the consolidated balance sheets of Astris Energi Inc. as at
December 31, 1999 and 1998 and the consolidated statements of loss and deficit
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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 my opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and 1998 and the results of its operations and cash flows for the years then
ended in accordance with generally accepted accounting principles.
/s/ Charles Havill
Oakville, Canada ------------------------
May 8, 2000 Chartered Accountant
CHARLES HAVILL
CHARTERED ACCOUNTANT
3
<PAGE>
ASTRIS ENERGI INC.
CONSOLIDATED BALANCE SHEETS
Years ended December 31 1999 1998
--------------------------------------------------------------------------------
ASSETS
Current
Cash $ 4,854 $ 17,710
Receivables 42,810 47,671
----------- -----------
47,664 65,381
Long term investment (Note 3) 99,998 99,998
----------- -----------
$147,662 $165,379
----------- -----------
--------------------------------------------------------------------------------
LIABILITIES
Current
Payables and accruals (Note 5) $ 494,203 $ 446,143
GST payable 42,810 47,671
Notes payable (Note 4) 24,357 24,357
----------- -----------
561,370 518,171
Advances from related parties (Note 5) 452,491 452,491
----------- -----------
1,013,861 970,662
SHAREHOLDERS' DEFICIENCY
Share capital (Note 7) 1,086,676 1,086,676
Deficit (1,952,875) (1,891,959)
----------- -----------
(866,199) (805,283)
$ 147,662 $ 165,379
----------- -----------
--------------------------------------------------------------------------------
Basis of presentation (Note 1)
Contingency (Note 9)
Approved on behalf of the Board:
---------------------------------- ----------------------------------
Director Director
See accompanying notes to the consolidated financial statements.
CHARLES HAVILL
CHARTERED ACCOUNTANT
4
<PAGE>
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
Years ended December 31 1999 1998
--------------------------------------------------------------------------------
REVENUE
Sales $ 1,669 $ 26,302
Investment tax credit 19,305
----------- -----------
20,974 26,302
----------- -----------
EXPENSES
Subcontract (Note 5) 52,087 79,534
General and administrative 7,343 35,511
Professional fees 10,325 9,895
Interest (Note 5) 12,135 19,772
----------- -----------
81,890 144,712
----------- -----------
Net loss for the year (60,916) (118,410)
Deficit, beginning of year (1,891,959) (1,773,549)
----------- -----------
Deficit, end of year $(1,952,875) $ (1,891,959)
----------- -----------
Loss per common share (Note 7) $ (0.006) $ (0.010)
----------- -----------
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CHARLES HAVILL
CHARTERED ACCOUNTANT
5
<PAGE>
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 1999 1998
--------------------------------------------------------------------------------
OPERATING
Net loss for the year $ (60,916) $ (118,410)
Net change in non-cash operating working capital
balances related to operations (Note 8) 48,060 132,508
------------ -------------
(12,856) 14,098
------------ -------------
FINANCING
Advances from related parties 2,000
------------ -------------
Net (decrease) increase in cash during the year (12,856) 16,098
Cash, beginning of year 17,710 1,612
------------ -------------
Cash, end of year $ 4,854 $ 17,710
------------ -------------
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
CHARLES HAVILL
CHARTERED ACCOUNTANT
6
<PAGE>
--------------------------------------------------------------------------------
Astris Energi Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
These consolidated financial statements reflect the accounts of Astris Energi
Inc. (the "Company") and its wholly-owned subsidiary, Astris Inc., which was
acquired on December 31, 1995. The Company is dedicated to the research and
development of alternative energy sources. The Company has incurred several
years of losses and as at December 31, 1999 has a shareholders' deficiency of
approximately $866,000.
The consolidated 1999 and 1998 financial statements have been prepared in
accordance with accounting principles generally accepted in Canada on a going
concern basis which presumes the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future.
The Company's ability to continue as a going concern is in substantial doubt and
is dependent upon the success of the efforts of its directors and principal
shareholders in providing financial support in the short term, the success of
the Company in raising additional long-term financing either from their own
resources or from third parties, the successful commercialization of one or more
of the Company's research projects and the Company attaining profitable
operations.
The outcome of these matters cannot be predicted at this time. These
consolidated financial statements do not include any adjustments to the amounts
and classifications of assets and liabilities that might be necessary should the
Company be unable to continue in business.
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT COSTS AND SCIENTIFIC RESEARCH
All costs relating to scientific research, development and product evaluation
are expensed as incurred. Investment tax credits and government grants received
toward these costs are netted against the related expenses.
INCOME TAXES
The Company follows the deferral method of income tax allocation. Deferred
income taxes result from timing differences between amounts claimed for income
tax purposes and amounts charged in the accounts.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenue and expenses during the year. Actual amounts
could differ from those estimates.
--------------------------------------------------------------------------------
CHARLES HAVILL
CHARTERED ACCOUNTANT
7
<PAGE>
--------------------------------------------------------------------------------
Astris Energi Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTD)
FINANCIAL INSTRUMENTS
The fair value of financial instruments contained in these consolidated
financial statements approximates book value unless otherwise indicated.
The financial risk is the risk to the Company's earnings that arises from
fluctuations in interest rates and the degree of volatility of these rates. The
Company does not use derivative instruments to reduce its exposure to interest
risk.
The Company is exposed to credit risk on the accounts receivable from its
customers. In order to reduce its credit risk, the Company has adopted credit
policies which include the analysis of the financial position of its customers
and the regular review of their credit limit.
LOSS PER SHARE
Basic loss per share is calculated on the weighted average number of shares
outstanding during the year.
3. LONG TERM INVESTMENT
During 1998, all capital assets were sold to a public company in return for
shares of that company. As there was not an active market for the shares of the
public company, the shares were valued at an amount equivalent to the net book
value of the capital assets. Currently, the Company is not permitted to sell
these shares without permission of the Securities and Exchange Commission.
The market value of these shares at year-end is approximately $750,000.
4. NOTES PAYABLE
Notes payable are held by three shareholders and are due on demand, unsecured
and interest free.
5. ADVANCES FROM RELATED PARTIES
The following amounts have been advanced from related parties:
1999 1998
---- ----
Due to shareholder $ 315,287 $ 315,287
Due to Timagami Financial Services, a company
controlled by a director and officer 37,204 37,204
Debentures due to shareholders 100,000 100,000
--------- ---------
$ 452,491 $ 452,491
--------- ---------
CHARLES HAVILL
CHARTERED ACCOUNTANT
8
<PAGE>
--------------------------------------------------------------------------------
Astris Energi Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
DUE TO SHAREHOLDER
With respect to the amount due to a shareholder, the amount has arisen primarily
as a result of the recognition of amounts subject to reimbursement to the
shareholder for expenses incurred on behalf of the Company. These amounts are to
be reimbursed only if external financing amounting to $5,000,000 (U.S.) has been
raised by the shareholder. (See Note 9)
DUE TO TIMAGAMI FINANCIAL SERVICES
These advances are unsecured and bear interest at 12% per annum to December 31,
1998 only. Unpaid interest is accrued to December 31, 1998, totalling
approximately $12,400 and is included in payables and accruals. These amounts
are shown as long-term liabilities as there are no specific terms or repayment
and the holder of the debts have indicated that these amounts will not be
requested for repayment prior to July 7, 2001.
DEBENTURES DUE TO SHAREHOLDERS
The debenture due to shareholders is secured and bears interest at 12% per
annum. Unpaid interest is accrued to December 31, 1999, totalling approximately
$42,000 and is included in payables and accruals. Although the Company is in
technical default of its debenture agreement as a result of the interest
payments being in arrears, there are no specific terms of repayment and the
debenture holders have indicated that they will not demand repayment until after
July 7, 2001. Accordingly, the amount payable under the debenture has been
classified as a long-term liability. The debenture is collateralized by a fixed
and floating charge on all of the assets and business of Astris Inc.
- $90,000 owing to Jiri Nor, a shareholder, for consulting fees (1998 -
$90,000).
- $ Nil owing to Norvik Inc., a company owned by a shareholder, for expenses
and consulting fees (1998 - $ 12,587).
PAYABLES AND ACCRUALS
During 1998, certain research services had been subcontracted resulting in
$50,637 being due to Astris S.R.O., a company in which the Company has a 30%
ownership interest; the remaining 70% is owned by a shareholder of the Company.
The Company's 30% interest in the loss of Astris S.R.O. has been applied to its
investment. This investment is being accounted for on the equity basis.
In addition, payables include the following amounts:
- $25,787 owing to Crawford Associates, owned by a shareholder for consulting
fees (1998 - $25,787).
CHARLES HAVILL
CHARTERED ACCOUNTANT
9
<PAGE>
--------------------------------------------------------------------------------
Astris Energi Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
6. INCOME TAXES
The Company has refundable investment tax credits of approximately $5,100
relating to expenditures on scientific research and tax loss carryforwards of
approximately $2,018,000. If unused, the tax losses will expire as follows:
2006 $61,000
2004 $34,000
2003 $1,856,000
2002 $67,000
The potential income tax benefits arising from these investment tax credits and
loss carryforwards have not been reflected in these consolidated financial
statements.
7. SHARE CAPITAL
Share capital consists of the following:
AUTHORIZED:
60,000,000 common shares
10,000,000 preferred shares
ISSUED:
From January 1, 1998 through December 31, 1999 the Company had issued 10,188,556
common shares. However, 455,000 common shares are to be issued to the
shareholders of a predecessor company. These shareholders will be issued common
shares in the Company if and when they present their share certificates in the
predecessor company to the registrar.
During 1998, an option was granted to the public company which purchased the
capital assets (see Note 3), to purchase 1,000,000 common shares of the Company
at $.30 (U.S.) per share.
The option will expire October 22, 2003.
No preferred shares have been issued.
CHARLES HAVILL
CHARTERED ACCOUNTANT
10
<PAGE>
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Astris Energi Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
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8. CONSOLIDATED STATEMENTS OF CASH FLOWS
The net change in non-cash operating working capital balances consists of the
following:
1999 1998
Decrease (increase) in receivables $ 4,861 $ (12,731)
Increase in payables and accruals 48,060 97,568
(Decrease) increase in GST payable (4,861) 47,671
---------- -----------
$ 48,060 $ 132,508
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9. CONTINGENCY
During the year a shareholder initiated legal claim against the company for
repayment of advances and expenses in the amount of $315,287. Management feels
this loan is not repayable unless certain external financing is raised. Since
this has not been achieved, management feels there is no requirement to repay
the loan. No further costs beyond the potential repayment of the loan and legal
fees are anticipated.
10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to customers, suppliers or other third parties, have been fully
resolved.
CHARLES HAVILL
CHARTERED ACCOUNTANT
11
<PAGE>
ASTRIS ENERGI INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - See Notice to Reader)
March 31, 2000
<PAGE>
NOTICE TO READER
I have complied the consolidated balance sheet of Astris Energi Inc. as at March
31, 2000 and the consolidated statements of earnings and deficit for the three
months then ended from information provided by management. I have not audited,
reviewed or otherwise attempted to verify the accuracy or completeness of such
information. Readers are cautioned that these statements may not be appropriate
for their purposes.
Oakvill, Canada Charles Havill
May 26, 2000 Chartered Accountant
<PAGE>
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
(Unaudited - See Notice to Reader)
<PAGE>
Astris Energi Inc.
Consolidated Statements of Earnings and Deficit
(Unaudited - See Notice to Reader)
Three months ended March 31 2000
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Revenues
Sundry $ 1,020
Gain on sale of tong term investment 334,249
----------
335,269
-----------
Expenses
General and administrative 980
Professional fees 8,536
----------
9,516
----------
Net earnings $ 325,753
----------
-------------------------------------------------------------------------------
Deficit, beginning of period $(1,952,875)
Net earnings 325,753
-----------
Deficit, end of period $(1,627,122)
-----------
------------------------------------------------------------------------------
CHARLES HAVILL
CHARTERED ACCOUNTANT
<PAGE>
Astris Energi Inc.
Consolidated Statements of Earnings and Deficit
(Unaudited - See Notice to Reader)
March 31 2000
-------------------------------------------------------------------------------
ASSETS
Current
Cash $ 364,372
Receivables 41,594
-----------
405,966
Long term investment 58,100
-----------
464,066
-----------
Liabilities
Current
Payables and accruals $ 486,070
GST payable 41,594
Notes payable 24,357
-----------
Advances from related parties 452,491
-----------
1,004,512
-----------
SHAREHOLDERS' DEFICIT
Share capital 1,086,676
Deficit (1,627,122)
-----------
(540,446)
-----------
$ 464,066
-----------
CHARLES HAVILL
CHARTERED ACCOUNTANT
<PAGE>
ASTRIS ENERGI INC.
CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
June 30, 2000
<PAGE>
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ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
(Unaudited)
Six months ended June 30 2000
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Revenues
Sundry $ 8,327
Gain on sale of long investment 341,260
-------------
349,587
-------------
Expenses 101,589
General and administrative 16,714
-------------
Professional fees 118,303
-------------
Net earnings $ 231,284
-------------
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Deficit, beginning of period $ (1,952,875)
Net earnings 231,284
-------------
Deficit, end of period $ (1,721,591)
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2
<PAGE>
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ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
(Unaudited)
Six months ended June 30 2000
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ASSETS
Current $ 252,128
Cash 40,379
Receivables 13,518
-------------
Prepaids 306,025
57,050
Long term investments
6,469
-------------
Property and equipment, net
$ 369,544
-------------
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LIABILITIES
Current
Payables and accruals $ 226,824
GST payable 37,725
-------------
264,549
Advances from related parties 412,288
-------------
676,837
-------------
SHAREHOLDERS' DEFICIT
Share capital 1,414,298
Deficit (1,721,591)
-------------
- (307,293)
-------------
$ 369,544
-------------
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