UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
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.
10,643,556 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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TABLE OF CONTENTS
Page No.
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Part I
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Item 1. Description of Business 3
Item 2. Description of Property 17
Item 3. Legal Proceedings 18
Item 4. Control of Registrant 18
Item 5. Nature of the Trading Market 19
Item 6. Exchange Controls and Other Limitations Affecting
Security Holders 20
Item 7. Taxation 22
Item 8. Selected Financial Data 25
Item 9. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 26
Item 10. Directors and Officers of the Company 29
Item 11. Compensation for Directors and Officers 31
Item 12. Options to Purchase Securities from Registrant or
Subsidiaries 32
Item 13. Interest of Management in Certain Transactions 33
Part II
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Item 14. Description of Securities to be Registered. Capital
Stock to be Registered 34
Part III
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Item 15. Defaults upon Senior Securities 34
Item 16. Change in Securities and Changes in Security for
Registered Securities 34
Part IV
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Item 17. Financial Statements 34
Item 18. Financial Statements 34
Item 19. Financial Statements and Exhibits 34
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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 and retail markets. Fuel cells are devices which generate
electricity efficiently and cleanly from the electrochemical reaction of
hydrogen and oxygen. Hydrogen is typically derived from conventional fuels such
as natural gas or propane, while oxygen is drawn from the air. The Company is
seeking to develop and market a one kilowatt Alkaline fuel cell (AFC) system,
which could be used to power golf carts, in-plant material movers and similar
small vehicles. In the future the Company will seek to develop and market AFC
systems up to ten or more kilowatts for other uses, such as powering small
vehicles, power supplies in individual homes and emergency, uninteruptible power
supplies for hospital emergency rooms and computers.
The Company was incorporated as Kayty Exploration Ltd. on March 18, 1981,
pursuant to the Companies Act of the Province of Alberta, Canada to engage in
oil and gas exploration activities. The Company subsequently changed its name to
Kayty Inc. in August 1987, changed the place of incorporation to the Province of
Ontario, Canada, and effected a one-for-ten reverse split of its Common Shares.
In December 1994, the Company changed its name to WLD Inc. ("WLD") and effected
a one-for-three reverse split of its Common Shares, reducing the outstanding
Common Shares to 5,000,000 shares. By 1995, WLD had ceased exploration
activities and sought other business activities. In December 1995, the Company
acquired Astris Inc. in exchange for 1,500,000 Common Shares and warrants for
the purchase of 3,500,000 Common Shares, which warrants were subsequently
exercised in 1997 at an exercise price of CDN$0.05 per warrant, and changed its
name to Astris Energi Inc. The purpose of the acquisition was that the Company
was seeking a potentially promising business activity and Astris Inc. was
seeking to be part of a public company which might facilitate the raising of
working capital to further the development of its fuel cell research.
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 or outside the
context of the disclosure, 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]. The Company
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maintains a website at astrisfuelcell.com. The Company is not incorporating by
reference in this Form 20-F the information on its website.
(b) BUSINESS OF THE COMPANY
THE COMPANY'S PURPOSE
The Company's mission is to develop affordable fuel cells, fuel cell power
generators, and small products for industrial, commercial, educational,
scientific, transportation and similar applications. The Company intends to
penetrate existing portable and other small generator markets with quiet,
odorless, non-polluting and highly efficient fuel cell generators which can
compete both technically and economically with traditional energy sources.
DESCRIPTION OF FUEL CELLS
-- GENERAL
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. Fuel cells
enable chemical energy of fuels to be converted directly into electricity,
thereby avoiding the fundamental loss of efficiency and emission of pollutants
associated with the combustion process. In many instances where a generator or
gasoline powered engine 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. The Company
intends to focus its efforts initially on developing fuel cells capable of
producing one to four kilowatts.
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.
There are currently five basic types of fuel cell technologies: Alkaline
("AFCs"), Proton Exchange Membrane ("PEMs"), Phosporic Acid ("PAFCs"), Molten
Carbonate ("MCFCs"), and Solid Oxide ("SOFCs"). In addition to AFCs, the other
fuel cell systems -PEMs, PAFCs, MCFCs and SOFCs are generally all considered to
have viable commercial applications. However, these fuel cells differ in regard
to cell materials and operating temperature. PAFCs, MCFCs and SOFCs operate at
high temperatures and are used primarily to produce megawatts of power for
utility-type power generation or co-generation. These three types are not
considered competitors of the two smaller fuel cell types, namely AFCs and PEMs.
The Company believes that AFCs and PEMs are the only fuel cells that are
presently of competitive relevance for relatively small power, stationary and
portable applications because AFCs and PEMs operate at ambient temperatures (0
to 100 degrees Celsius) and deliver kilowatts which are more suited to meet the
needs of small, off-grid applications. The Company only deals with AFCs.
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While both AFCs and PEM fuel cells have potential environmental and
efficiency advantages over traditional power sources, the Company believes that
AFCs can be manufactured less expensively, operated more efficiently and are
more practical in small-scale applications. See "Competition."
It should be noted that fuel cells are still a young technology and many
technical and engineering challenges remain. In the past, attempts to build fuel
cells that could produce electricity continued to fail because of a lack of
understanding of electrode kinetics and the materials used. As a result,
technologies that were better understood and which produced larger quantities of
power, such as the internal combustion engine, gained greater public acceptance.
This public perception and lack of a proven track record of fuel cells further
hampered their development by limiting investment funds for fuel cell research.
Perhaps the biggest problem with fuel cell production today is that fuel
cells are still very expensive to produce. One key reason for the high cost of
manufacturing fuel cells is that not enough are being made to allow for
economies of scale. The Company believes that fuel cells utilizing its present
technology can be constructed for approximately CDN$700 per kilowatt, with the
per kilowatt cost reduced to approximately CDN$250 per kilowatt upon increasing
the quantity of production. A cost of CDN$250 per kilowatt is competitive with
the cost of devices in the energy field as a whole but is more than the cost of
producing kilowatts for automobile use, i.e. the internal combustion engine
(CDN$50 per kilowatt). As demand for fuel cells increases and research and
development continues the cost of manufacturing should be reduced to make
alkaline fuel cells more competitive with traditional energy sources.
In addition, while fuel cells can produce energy more efficiently and are
environmentally cleaner than traditional sources of power, other energy sources
are more entrenched in the world economy. For instance, all golf carts currently
being manufactured are designed to be powered from batteries or internal
combustion engines. In order for fuel cells to be used in such products,
manufacturers must make adjustments to their current designs to allow them to be
capable of being powered by fuel cells.
However, due to new government pollution regulations and a growing demand
for "off-grid" power supplies, demand for fuel cells is increasing. The Company
believes that this demand will increase as fuel cells become better known to the
public and more cost competitive with other energy sources.
-- ALKALINE FUEL CELLS
An AFC system is an assembly comprised of fuel cell "stack(s)", which
generate electricity, together with ancillary components which, in an integrated
assembly, constitute a complete, operating fuel cell system.
The Company believes that all principal material developmental issues in
alkaline fuel cell technology have been resolved by both the Company and the
industry at large. However, the Company believes that continued research and
development will allow for improvements in alkaline fuel cell catalysts and
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electrode materials which should improve the cost/performance ratio of alkaline
fuel cells to more traditional energy sources.
The ancillary components to the AFC system supply, filter and re-circulate
hydrogen, air and liquid electrolyte to the stack(s), deliver electricity to the
end-use application, remove the aqueous by-product of the fuel cell operation,
and electrically and electronically control, coordinate and integrate all the
functions of the system into a single operating whole.
THE COMPANY'S PRODUCTS
The Company presently offers commercial products ranging from demonstration
and educational fuel cells and accessories to scientific products such as
electrochemical test cells to associated electronic and computer based test
equipment - useful in research and development and the testing of electrodes,
fuel cells and batteries, and sub-kilowatt fuel cells and stacks. The Company's
principal fuel cell product is a prototype system supplied in sizes up to four
kilowatts of electrical output. These prototypes are pre-commercial products
provided on a one-off basis to individual customers and assembled by hand to the
specification of the customer. Prototypes are in contrast to "pilot production"
systems which are systems manufactured in a pilot production facility not on a
full commercial basis and to commercial systems which are manufactured by volume
production methods.
The Company's systems of one kilowatt output capacity have been sold in
Canada and in the Czech Republic for test purposes. The largest fuel cell system
sold by the Company was a four 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. In August 2000,
Astris s.r.o. delivered a portable fuel cell generator to the Czech Ministry of
National Defense for testing purposes.
The Company's primary current project is the development and construction
of a one kilowatt AFC system to power a golf cart. The Company believes that
this project is the first stage toward the commercialization of its AFC
technology for larger systems, capable of powering forklifts, yachts and motor
homes. This project is budgeted to cost US$250,000 and is expected to be
completed in March 2001.
The Company is primarily targeting markets in North America and Europe for
the sale of small stationary and mobile applications including light vehicles
and emergency power supplies.
The Company is also developing a new, larger proprietary electrode that
will be used for fuel cell systems larger than five kilowatts and up to 10
kilowatts or more for use in small vehicles such as forklifts. The Company
anticipates that such a fuel cell will be ready for commercial application
within the next 1 to 5 years.
The Company has also completed the initial research in the development of
an advanced fuel cell stack design for systems of up to 25 kilowatts or larger
for use in commercial buildings and automobiles. Such fuel cells will be
developed initially as prototypes and will be later developed as commercial
products.
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The Company does not presently have any development, manufacturing, joint
development or marketing agreements in place for the development, construction
and sale of its fuel cells.
In addition to the Company's fuel cell systems, the Company has several
small fuel cells and products for sale through its website.
RESEARCH AND DEVELOPMENT
AI has been involved in fuel cell research since its formation in 1983.
More than CDN$12 million has been expended on research activities, which amount
includes approximately CDN$6 million expended by the Institute of Hydrogen
Studies at the University of Toronto, whose rights AI acquired in 1986, funds
from stock placements and funds internally generated. AI had entered into the
1995 acquisition with WLD to be in better position to raise capital for
additional research and development. As sufficient financing was not obtained as
part of the AI acquisition, the research and development activities in Canada
were curtailed. Because labor costs are significantly lower in the Czech
Republic than Canada and the capital needs of Astris s.r.o. for research and
development activities are less than what would have been required in Canada,
the Company's research and development has primarily been carried out through
the Company's 30%-owned subsidiary, Astris s.r.o., in the Czech Republic. In
January 1995, pursuant to a Licence Agreement, AI granted a non-exclusive
licence 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.
Astris s.r.o has been engaged in fuel cell research and development since
1992. Its current research and development efforts are primarily focused on
electrode technology to improve the electrochemical efficiency, durability and
economy of alkaline fuel cells. These research and development efforts have also
been focused on 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.
were approximately US$81,000 for 1998 and 1999. For the nine months ended
September 30, 2000, the Company expended CDN$127,000 on research and
development. The research and development budget for 2001 is contingent upon the
Company's ability to raise capital.
In October 1998, the Company entered into a Licence Agreement and an
Equipment Lease with Energy Ventures Inc. (Canada), a subsidiary of Energy
Ventures Inc., a Delaware corporation ("EVI"). EVI is a portable power
technology developer and integrator with activities in fuel cell and
rechargeable battery technology. Pursuant to the Licence 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,
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marketing and commercial production for an initial royalty of CDN$25,000, and at
a rate of 2.5% for the first four years and 2% during the next six years of
gross sales of EVI products containing the Company's technology, with a
CDN$10,000 a year minimum royalty commencing in 2001. EVI is not actively using
the licence that it received from the Company.
The Company also leases certain machinery, equipment and other property to
EVI for a period of ten years at an annual rental of US$45,000. In 1998, EVI
prepaid the full rental by issuing 200,000 shares of its Common Stock to the
Company valued at $2.25 per share. The EVI Common Stock trades on the OTC
Bulletin Board under the ticker symbol EGYV-L. The Company sold 85,900 of the
200,000 shares of EVI Common Stock between February 28 and April 10, 2000 and
received net proceeds of US$250,217. The Company is using the net proceeds to
complete the current development of the golf cart program. The Company also
leased an entire fuel cell laboratory to EVI which EVI can purchase for CDN$1
after ten years. As part of the EVI Agreements, at the request of EVI, the
Company granted to EVI options to purchase the Company's Common Shares to give
EVI the opportunity to benefit form the possible future success of the Company
in addition to receiving marketing revenues. See Item 12 herein.
The Company's projected research and development budget for 2001 is US$1
million subject to financing. Such amount will be used to commence development
and production of a 2 kilowatt bipolar fuel cell power module. If less than US$1
million is obtained from financing, the Company will reduce its research and
development budget and the development and production of the bipolar fuel cell
power module will continue, albeit at a slower pace . If adequate funding is not
secured, the Company's research and development of its fuel cell products will
have to be deferred until such financing is in place.
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
In 1986, Josef V. Soltys of Mississauga, Canada (a shareholder and former
director of the Company), assigned to AI a Canadian patent application for
QUICKCELL, a test cell structure for fuel cell technology. The patent, Canadian
Patent #1,295,679, issued February 11, 1992, expires February 11, 2009. The
Company also holds a United States patent, #5,0008,162, which was issued on
April 16, 1991, and expires on April 16, 2008, for the same product. A former
employee of AI, who was a co-inventor of such technology, did not assign any
right in such patents to the Company prior to his departure. Management does not
believe that these patents are material to the development of the intended
business goal. 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.
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The Company has unregistered trademarks on some of its products, including
LABCELL 50, LABCELL 200, QUICKELL QC200 and TESTMASTER.
SMALL FUEL CELLS AND RELATED PRODUCTS
In addition to developing fuel cells, the Company presently sells by mail
order small fuel cells, test cells and electronic test equipment. These products
were initially developed by Mr. Nor for use in the development of the Artris
fuel cell technology. They are described briefly, as follows:
LABCELL(TM)50 is a 50 square centimeter, small alkaline fuel cell for
laboratory demonstration and experimentation which produces 1.5 to 6 volts.
LABCELL(TM)200 is a 200 square centimeter, medium size alkaline fuel cell
for laboratory experimentation and small power applications which produces
.75 to 12 volts.
QUICKCELL(TM)QC200 is an electrochemical test cell designed for the testing
of gas diffusion or solid electrodes in a controlled laboratory environment
for fuel cell and battery research, development and quality control.
MODEL 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 20 volts.
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.
Astris s.r.o. produces and ships the small products on behalf of the
Company. The Company does not presently have any insurance on these products.
Insurance is obtained at the customer's request and expense. Astris s.r.o. does
not maintain a substantial inventory of the small products.
The Company currently derives minor amounts of revenues from the sale of
the small products. However, it remains unknown whether the Company will be able
to further develop a market for these products. The Company is not aware of any
other entity which markets products similar to its small products.
MARKETING
The Company's small products are presently sold by mail order over an
Internet website maintained for the Company by Macnor Corp. Macnor Corp. pays
the Company a fee of 5% of the sales price. See Item 13. No change in that
arrangement is presently foreseen.
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In October 2000, the Company entered into an agreement with
FuelCellStore.com, Inc. for the inclusion of the Company's products on the
FuelCellStore.com internet website on a non-exclusive basis for sales anywhere
in the world. FuelCellStore.com, Inc. would receive a 10% commission based upon
sales of the Company's products over its internet website.
Currently, the prototypes of the Company's fuel cell systems are shipped
directly to the customer from the Czech Republic. Earlier shipments were from
both the Czech Republic and Canada. It is expected that the future customers of
the Company's fuel cell systems will be manufacturers of all types of products
which will be adapted to utilize the Company's fuel cell technology. The Company
expects such fuel cell systems will be shipped directly from its facilities to
such manufacturers or through a network of distributors and agents to such
manufacturers.
RAW MATERIALS AND SUPPLIES
The principal raw materials that the Company uses are common and widely
available from numerous suppliers. The Company's principal materials are largely
various 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. Competition arises from other fuel
cell companies and from entities engaged in offering other more conventional
energy services. The Company competes with companies that are developing all
types of fuel cells. While there are currently five basic types of fuel cell
technologies (see "Description of Fuel Cells" above), the Company believes that
AFCs and PEMs are the only fuel cells that are presently of competitive
relevance for the relatively small power, stationary and portable applications
that the Company intends to focus upon. This is because AFCs and PEMs operate at
ambient temperatures (above 0 degrees Celsius to 100 degrees Celsius) and
deliver kilowatts, which are more suited to meet the needs of small, off-grid
applications. The Company constructs only AFCs. While both AFC and PEM fuel
cells have potential environmental and efficiency advantages over traditional
power sources, the Company believes that AFCs can be manufactured less
expensively, more efficiently and more practically than PEMs in small-scale
applications.
The Company believes that its main competitors are Ballard Power Systems
("Ballard"), located in Vancouver, Canada, which concentrates on PEMs and ZeTek
Power PLC ("ZeTek"), based in London, England, which develops AFCs. 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 competitive challenge is simply
to focus on different market segments from those which Ballard or ZeTek
currently focus. For instance, Ballard appears committed, for the foreseeable
future, to developing fuel cells for use in buses and private automobiles.
ZeTek, according to its website, intends to construct fuel cells ranging from
2.5 to 250 killowatts and has focused its efforts on constructing fuel cells to
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power commercial vehicles, such as buses, taxis and utility vehicles, boat
motors, and entire residential and commercial buildings. The Company is focusing
instead on fuel cells for light vehicles, such as golf cars and retirement
vehicles. However, there are no barriers to Ballard, ZeTek or any other known or
unknown competitor of the Company entering the market covering light weight
vehicles. In addition to mobile applications, the Company is also focusing on
the potential market in stationary applications of small-capacity fuel cells, as
are other fuel cell companies. There are several competitors in this market.
Apart from specific market competition, the Company believes that AFCs have
inherent advantages over PEMs, regardless of specific applications. AFCs use
potassium hydroxide electrolyte, a chemically basic substance, while PEMs are
chemically acidic, requiring platinum as a catalyst. They also use an expensive
semi-permeable membrane as an electrolyte. In addition, 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 low temperatures,
even below freezing (to minus 50 degrees Celsius) while PEMs can only operate
above freezing (from 0 degrees Celsius to 100 degrees Celsius).
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 or machined graphite in their
electrodes or expensive membranes for electrolyte. AFCs are the only type which
work with a broad range of non-noble electrocatalysts (metals and metal oxides).
In addition, AFCs use common industrial chemicals for their electrolyte and AFC
components are made of plastics, metal oxides, activated carbon and other
relatively inexpensive materials while more exotic materials are required for
most products using PEMs technology.
GOVERNMENTAL REGULATION
No governmental licence 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
affects its ability to sell or produce its products. The Company does not
believe that it will be subject to existing regulations governing traditional
electric utilities.
The Company anticipates that its products and their installation may be
subject to oversight and regulation related to their safety due to their use of
hydrogen, which is 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 or any
difficulties in complying with existing regulations.
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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
AEI and AI presently have 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 the
Company 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. None of the present employees is represented by a
labor union. The Company considers its relationship with its employees to be
satisfactory.
(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.
HISTORY OF LOSSES SINCE INCEPTION, EXPECTATION OF LOSSES IN THE IMMEDIATE
FUTURE, AND POSSIBILITY THAT THE COMPANY MAY NEVER ACHIEVE OR SUSTAIN
PROFITABILITY. The Company has incurred net losses each year since inception.
The accumulated deficit of the Company was CDN$1,840,528 as of September 30,
2000. It expects to continue to incur net losses at least through fiscal year
2004 and these losses may be substantial. To implement the current business
strategy, the Company will have to incur a high level of fixed operating
expenses and will continue to incur considerable research and development
expenses and capital expenditures. Accordingly, if substantial revenues and
positive cash flows cannot be generated to which no assurance can be given, the
Company will not achieve profitability. Even if profitability is achieved, it
may not be sustained or increased on a quarterly or annual basis.
THE REPORT OF THE COMPANY'S INDEPENDENT ACCOUNTANT STATES THAT THE ABILITY
OF THE COMPANY TO CONTINUE AS A GOING CONCERN IS IN SUBSTANTIAL DOUBT. Whether
the Company continues as a going concern is dependent upon the Company's ability
to raise additional capital, the successful commercialization of one or more of
the Company's research projects and the attainment of profitable operations. The
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ability to generate future revenues will depend on a number of factors, many of
which are beyond control of the Company. These factors include the rate of
market acceptance of its fuel cell products, competitive activities, regulatory
developments and general economic trends.
ABILITY TO OBTAIN ADDITIONAL CAPITAL, THEREBY RESULTING IN CURTAILMENT OR
CESSATION OF OPERATIONS. At September 30, 2000, the Company had CDN$46,451 in
working capital. The ability of the Company to realize its objective depends in
large part upon obtaining additional capital. The Company has a present need for
capital in connection with its fuel cell development activities and transition
to commercial operations. The Company believes that it will require up to CDN$10
million over the next three to five years to establish a pilot program facility
for the manufacture of an aggregate of 2,000 kilowatts per year of Astris fuel
cells in various sizes. There is no assurance that any additional financing will
be available on commercially attractive terms, in a timely fashion, in
sufficient amounts, not substantial dilutive to shareholders, or at all. If
adequate funds are not available, the Company would have to scale back its
operations, including its product development, manufacturing and marketing
activities, all of which could lead ultimately to cessation of operations.
LACK OF EXPERIENCE IN MANUFACTURING AND MARKETING PRODUCTS. To date, the
Company has derived revenues principally from sales, of prototypes or small
ancillary products, contract research and government grants. Sales have been
limited to demonstration and prototype models. The Company's prototypes are
pre-commercial production products assembled on a one-off basis, by hand. The
Company is not yet adequately financed to produce commercial products. The
Company has not produced any prototypes on an automated basis and has not
designed an automated assembly facility. In addition, the Company still has not
been able to determine whether or not its prototypes can be assembled through
automation or whether there is a sufficient level of acceptance of its products
for the Company to sell fuel cells in sufficient volume to become profitable.
The Company does not have the manufacturing experience to handle large
commercial requirements. It would have to rely on third-party manufacturers
until it can develop its own capacity. The Company may not be able to produce or
commercialize any of its products in a cost-effective manner, and, if produced,
it may not be able to successfully market these products. Production costs of
the initial commercial units may be higher than their sales price and there can
be no assurance that higher production levels will occur or that sales prices
will ever exceed production costs.
MARKET ACCEPTANCE OF THE FUEL CELL PRODUCTS MAY TAKE LONGER TO ACHIEVE OR
MAY NEVER BE ACHIEVED. The Company's AFC fuel cell products represent a new
technology and any success will depend on this technology achieving market
acceptance. Because the Company's products are designed to capitalize on markets
that presently utilize or are serviced by products from traditional and
well-established power generation sources, such as engine-generators, the
Company may face significant resistance from end-users to adopt a new and
alternative power source technology. Fuel cell products for portable and mobile
applications represent an emerging market. The Company does not know whether its
targeted customers will purchase such products.
ABILITY TO MEET PROJECTED DEMAND FOR THE COMPANY'S PRODUCTS. Locating and
establishing new manufacturing facilities, if required, will place significant
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demands on the Company's managerial, technical, financial and other resources.
The Company's business plan contemplates significant growth in sales and
personnel which may place a strain upon its current management systems and
resources, as well as obtaining capital. As of October 2000, the Company had
fewer than 10 employees. In addition, the Company's business plan and
anticipated product sales will require the Company to hire, train and manage
additional employees and to establish or contract for production capacity. If
the Company is unable to hire the skilled employees it needs or to establish its
production capacity in a timely manner, it might be unable to fulfill orders for
its products or meet its business plans. There can be no assurance that the
Company will be able to effectively manage its anticipated growth.
ABILITY TO COMPETE SUCCESSFULLY IN A HIGHLY COMPETITIVE MARKET. The
development and marketing of fuel cells and fuel cell systems is extremely
competitive. A number of firms throughout the world have established PEM and AFC
fuel cell development programs. The Company competes directly with alternative
energy and entrenched power-generation and power-storage technologies.
Competitors range from development stage companies to major domestic and
international companies. These or other companies may succeed in developing and
bringing to market products or technologies that are more cost-effective than
those being developed by the Company or that would render its products and
technology obsolete or non-competitive in the marketplace. The Company's
competitors have greater name recognition, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than the Company. There can be no assurance
that the Company will be able to compete effectively with such companies. In
addition, the Company expects that additional competition will develop, from
both existing businesses in the energy industry and from new entrants.
DEPENDENCE ON THIRD-PARTY MANUFACTURERS. Until such time as the Company has
adequate capital resources and there is sufficient demand for its products, the
Company will depend on third parties for the manufacture of its products. If
manufacturers or suppliers are unable or unwilling to provide the materials and
components to manufacture the Company's products on commercially reasonable
terms, or at all, delays in identifying and contracting for alternative sources
of manufacture or supply would adversely affect the ability to market the
products.
POSSIBLE FAILURE OF FIELD TESTS. The Company is currently field testing a
golf cart product and plans to conduct additional field tests in the future.
Problems and delays could be encountered during these field tests for a number
of reasons, including the failure of the Company's technology or the technology
of third parties, as well as the failure to maintain and service the prototypes
properly. Any problem or perceived problem with the field tests or delays in the
timely introduction of the products could materially harm the future reputation
and impair market acceptance of, and demand for, the Company's products.
THE COMPANY MAY BE FOUND LIABLE TO PAY A LARGE AMOUNT TO A FORMER DIRECTOR.
The Company is currently a defendant in a litigation with a former director. See
Item 3 "Legal Proceedings" below. Plaintiff seeks in excess of CDN$315,000, plus
costs. While the Company intends to vigorously defend such action, there can be
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no assurance that the Company will be found not liable for such damages. If
found liable, there is no assurance that the Company could pay such an award.
POSSIBLE LIABILITY FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS AND DIFFICULTIES IN PROTECTING THE COMPANY'S INTELLECTUAL PROPERTY.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products and product
designs, or to obtain and use information that the Company regards as
proprietary. 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. The Company does not believe
that any of its products infringe the proprietary rights of any third parties.
From time to time, however, third parties may contest the Company's rights to
use its intellectual property. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company.
NEED FOR COMPATIBILITY WITH THE PRODUCTS OF THIRD-PARTY MANUFACTURERS OR
POTENTIAL CUSTOMERS. The Company's success will depend in large part upon its
ability to make its products compatible with the products of third-party
manufacturers. The Company's products will be successful only if manufacturers
redesign or modify their existing products to fully incorporate the Company's
products and technologies. The Company's failure to make its products and
technologies compatible with the products of third-party manufacturers or the
failure of potential customers to redesign or make necessary modifications to
their existing products to accommodate the Company's products would
significantly impair or preclude its ability to sell its products.
ACCIDENTS INVOLVING THE FLAMMABLE FUELS USED WITH THE PRODUCTS COULD IMPAIR
THEIR MARKET ACCEPTANCE. The fuel cell products use hydrogen which is typically
generated from gaseous and liquid fuels, such as propane, natural gas or
methanol in a process known as reforming. While the Company's fuel cell products
do not use these fuels in a combustion process, natural gas, propane and
hydrogen are flammable fuels that could leak into a residence or commercial
location and combust if ignited by another source. Since the Company's products
have not yet gained widespread market acceptance, any accidents involving the
Company's systems or other fuel cell-based products could materially impede
demand for the products. At present, the Company does not carry insurance to
cover such accidents.
THE COMPANY'S PRODUCTS MAY FROM TIME TO TIME CONTAIN DESIGN DEFECTS THAT
ARE DIFFICULT TO DETECT AND CORRECT. Although the Company does not know of any
existing design defects, there can be no assurance that defects or flaws will
not be found in new products after commencement of commercial shipments or, if
discovered, that the Company will be able to successfully correct such defects
or flaws in a timely manner or at all. The occurrence of defects or flaws in the
Company's products could result in loss of or delay in market acceptance of the
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Company's products, and correcting such defects or flaws could require
significant expenditures by the Company. In addition, the failure of the
Company's products to perform to customer expectations could give rise to
warranty claims.
DEPENDENCE ON ATTRACTING AND RETAINING KEY PERSONNEL. The success of the
Company is largely dependent on the performance of its key employees,
particularly Jiri K. Nor. Mr. Nor started Astris in 1983 and is the principal
developer of Astris' AFC technology. Additionally, the Company is dependent on a
small number of employees who have been with Astris for numerous years and who
actually construct Astris' technological components and are familiar with its
proprietary designs. Loss of the services of Mr. Nor or the failure to attract
and retain additional key employees with necessary skills could have a material
adverse impact upon the Company's growth and profitability. Competition for
highly skilled management, technical, research and development and other
employees is intense and the Company may not be able to 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.
RISKS INHERENT IN INTERNATIONAL OPERATIONS INCLUDING CURRENCY EXCHANGE RATE
FLUCTUATIONS AND TARIFF REGULATIONS. 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 and the Czech Republic koruna. In
addition, the Company does intend to enter into any hedging or other similar
agreements or arrangements to protect it against any of these currency risks.
The Company may also be subject to tariff regulations and requirements for
export licences, particularly with respect to certain technologies, unexpected
changes in regulatory requirements, longer accounts receivable requirements and
collections, difficulties in managing international operations, potentially
adverse tax consequences, restrictions on repatriation of earnings and the
burdens of complying with a wide variety of foreign laws.
POSSIBLE DIFFICULTIES BY UNITED STATES PERSONS TO EFFECT SERVICE OF PROCESS
WITHIN THE UNITED STATES UPON THE COMPANY OR ITS DIRECTORS OF OFFICERS, OR TO
REALIZE IN THE UNITED STATES UPON JUDGMENTS. The Company is an Ontario
corporation with its principal place of business in Canada. All of its directors
and officers are residents of Canada and all of the assets of such persons and
of the Company are located outside the United States. US Persons should not
assume that Canadian courts (i) would enforce judgments of United States courts
obtained in actions against the Company or its officers and directors predicated
upon the civil liability provisions of the United States federal securities laws
or the securities or "blue sky" laws of any state within the United States or
(ii) would enforce, in original actions, liabilities against the Company or its
officers and directors predicated upon the United States federal securities laws
or any such state securities or blue sky laws.
THE COMPANY HAS NEVER PAID DIVIDENDS AND IT DOES NOT ANTICIPATE PAYING
DIVIDENDS IN THE FUTURE. The Company has never declared any cash dividends on
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its Common Shares, and if the Company were to become profitable, it would be
expected that all of such earnings would be retained to support the business. As
a result, shareholders must rely on stock appreciation for any return on their
investment in the Common Shares.
VOLATILE AND LIMITED MARKET FOR THE COMPANY'S COMMON SHARES. The Company's
Common Shares are not actively traded. The bid and asked prices for the Common
Shares in the pink sheets has fluctuated significantly. In the past two fiscal
years, the Common Shares traded from a high of US$2.75 to a low of US$0.03 per
share. The Common Shares are not presently publicly traded in Canada. While the
Company anticipates that the Common Shares will become traded on the OTC
Bulletin Board, no assurance can be given that broker-dealers will include the
Common Shares for trading thereon or even if traded thereon that the activity
and investor recognition will increase.
APPLICATION OF THE SEC PENNY STOCK REGULATIONS AND RESTRICTIONS. The
Securities and Exchange Commission has adopted regulations which generally
define Penny Stocks to be an equity security that has a market price less than
$5.00 per share or an exercise price of less than US$5.00 per share, subject to
certain exemptions based upon minimum assets or revenues. As of November 1,
2000, the closing bid and asked prices for the Common Shares were US$.71 and
US$.74 per share. As a Penny Stock, the Company's Common Shares may become
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended, or
the Penny Stock Rule. This Rule imposes additional sales practice requirements
on broker-dealers that sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with a net worth in
excess of US$1,000,000 or annual incomes exceeding US$200,000, or US$300,000
together with their spouses). For transactions covered by Rule 15g-9, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. As a result, this Rule may affect the ability of broker-dealers to sell
the Company's securities and may affect the ability of purchasers to sell any of
the Company's securities in the secondary market.
For any transaction involving a Penny Stock, unless exempt, the Rule
requires delivery, prior to any transaction in a Penny Stock, of a disclosure
schedule prepared by the SEC relating to the Penny Stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the Penny Stock held in the account and information
on the limited market in penny stock.
ITEM 2. DESCRIPTION OF PROPERTY.
AEI 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 1,100 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 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 for the acquisition 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. They never obtained the financing. Plaintiff
seeks actual damages in excess of CDN$315,000, plus costs. The Company believes
that Mr. Birkett's claim is without merit as the repayment obligation was linked
to the obtaining of the financing, and the Company intends to continue to defend
the action vigorously. Discovery has been substantially completed. Plaintiff has
not requested a trial date. A final decision in favor of the plaintiff would
have a material adverse affect on the Company's financial position. The Company
has accrued CDN$315,000 in advances from related parties in the liabilities
section of the Company's Balance Sheet included in the Consolidated Financial
Statements.
ITEM 4. CONTROL OF REGISTRANT.
(a) Not applicable.
(b) The following table lists, as of October 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:
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Amount and Nature Percent
Name of Beneficial Owner of Class
---- ------------------- --------
Jiri K. Nor (1) 1,797,618 15.4%
Gerald A. Crawford (2) 1,038,765 8.9%
Donald. A. Blenkarn 789,828 6.7%
Gordon Emerson (3) 200,000 1.7%
All executive officers and
directors as a group 3,826,211 32.8%
(1) Includes (i) 1,588,949 Common Shares held by Jiri K. Nor and (ii) 208,669
Common Shares held by his wife, Jana Nor. Does not include options for
250,000 Common Shares which are not presently exercisable, see
Item 12.
(2) Includes (i) 689,679 Common Shares held by Gerald A. Crawford and (ii)
349,086 Common Shares held by his wife, Gail Crawford.
(3) Includes (i) 25,000 Common Shares by Gordon T. Emerson, (ii) 125,000 Common
Shares by his wife, Barbara Emerson, and (iii) 50,000 Common Shares by
Mr. Emerson's children. Does not include options for 250,000 Common
Shares held by Mr. Emerson which are not presently exercisable, see
Item 12.
(c) None.
ITEM 5. NATURE OF TRADING MARKET.
As of October 6, 2000, the Company had approximately 120 stockholders of
record for its Common Shares and 12,137,784 Common Shares were issued and
outstanding. The Company believes that there is a considerable number of
beneficial holders of the Common Shares as a substantial number of Common Shares
is held of record by principal depositories in Canada and the United States. As
at October 6, 2000, the shareholder list showed 17 registered shareholders in
the United States holding a total of 267,250 Common Shares, plus 3,927,686
Common Shares in the name of Cede & Co. The Company estimates that the holdings
in Cede & Co. represented approximately 700 beneficial shareholders. Thus,
United States residents hold approximately 4,194,936 Common Shares, or 35.9%
of the Company's outstanding Common Shares. Depositories in Canada held Common
Shares for 519 persons.
The Common Shares were previously traded in Canada on the Canadian Dealing
Network (CDNX), but presently has an inactive listing on the CDNX. The Company
would seek to reactivate such listing once it meets the initial listing
requirements of the CDNX. The Company does not presently meet the following
requirements to qualify to list on the CDNX: net tangible assets of CDN$750,000,
unallocated funds of CDN$100,000 and the required amount of working capital to
cover the Company's administrative expenses for 12 months. The Common Shares are
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presently traded in the United States on the `pink sheets' dealer network under
the symbol ASRF. The Company intends to seek to have the Common Shares traded on
the OTC Bulletin Board. The quarterly highs and lows bid prices for the past two
fiscal years as reported in the "pink sheets" are tabulated below:
Quarter High, US$/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 1.25 0.35
Fourth 1.03 0.35
2001
----
First (through
Jan 15, 2001) 0.95 0.60
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".
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations under the laws of Canada, the Province of Ontario or in the charter
or any other constituent documents of the Company on the right of foreigners to
hold and/or vote the Common Shares of the Company.
The Act requires a non-Canadian making an investment to acquire control of
a Canadian business, the gross assets of which exceed certain defined threshold
levels, to file an application for review with Investment Canada, the federal
agency created by the Act.
As a result of the Canada-U.S. Free Trade Agreement, the Act was amended in
January 1989 to provide distinct threshold levels for Americans who acquire
control of a Canadian business.
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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 CDN$5 million or more;
(b) all indirect acquisitions of control of Canadian businesses with
assets of CDN$50 million or more if such assets represent less
than 50% of the value of the assets of the entities, the control
of which is being acquired; and
(c) all indirect acquisitions of control of Canadian businesses with
assets of CDN$5 million or more if such assets represent more
than 50% of the value of the assets of the entities, the control
of which is being acquired.
Review by Investment Canada is required when investments by Americans
exceed CDN$150 million for direct acquisitions of control. For the purposes of
the Act, direct acquisition of control means: a purchase of the voting interest
on a corporation, partnership, joint venture or trust carrying on a Canadian
business, or any purchase of all or substantially all of the assets used in
carrying on a Canadian business; and indirect acquisition of control means a
purchase of the voting interest of a corporation, partnership, joint venture or
trust, whether a Canadian or foreign entity, which controls a corporation,
partnership, joint venture or trust carrying on a Canadian business in Canada.
The acquisition of certain Canadian businesses is excluded from the higher
thresholds set out for Americans. These excluded businesses include oil, gas,
uranium, financial services (except insurance); transportation services and
cultural services (i.e. the publication, distribution or sale of books,
magazines, periodicals (other than printing or typesetting businesses), music in
print or machine readable form, radio, television, cable and satellite services;
the publication, distribution, sale or exhibitions of film or video recordings
or audio or video music recordings).
Direct or indirect acquisitions of control of these excluded businesses are
reviewable at the CDN$5 and CDN$50 million thresholds.
A non-Canadian shall not implement an investment reviewable under the Act
unless the investment has been reviewed and the Minister responsible for
Investment Canada is satisfied or is deemed to be satisfied that the investment
is likely to be of net benefit to Canada. If the Minister is not satisfied that
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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.
CANADIAN INCOME TAX CONSEQUENCES
Management of the Company considers that the following discussion
respecting taxation fairly describes the principal and material Canadian federal
income tax consequences applicable to shareholders of the Company who are
residents of the United States and are not residents of Canada and do not hold,
and are deemed not to hold, Common Shares of the Company in connection with
carrying on a business in Canada (a "non-resident").
Generally, dividends paid by Canadian corporations to non-resident
shareholders are subject to a withholding tax of 25% of the gross amount of such
dividends. However, Article X of the reciprocal tax treaty between Canada and
the United States reduced to 15% the withholdings tax on the gross amount of
dividends paid to residents of the United States. A further 10% reduction in
1997 in the withholding tax rates on the gross amount of dividends is applicable
when a U.S. corporation owns at least 10% of the voting stock of the Canadian
corporation paying the dividends.
A non-resident who holds Common Shares 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.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the United States federal income tax
consequences of the ownership and disposition of Common Shares of the Company.
The discussion contained in this summary is based on the Internal Revenue Code
of 1986, as amended (the "Code"), existing and proposed Treasury Regulations,
judicial decisions and administrative pronouncements, all of which are subject
to change. Any such changes may be applied retroactively in a manner that could
result in federal income tax consequences different from those discussed below.
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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.
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
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<PAGE>
that apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's United States Federal
income tax liability that the U.S. Holder's foreign source income bears to his
worldwide taxable income. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of Common Shares should consult their own tax advisors
regarding their individual circumstances.
Dispositions, Including Redemptions
-----------------------------------
Any sale, exchange, redemption (except as discussed below) or other
disposition of the Common Shares generally will result in taxable gain or loss
equal to the difference between the amount received upon the sale, exchange,
redemption or other disposition and the holder's adjusted tax basis in the
Common Shares. Such gain or loss generally will be capital gain or loss and will
be long-term capital gain or loss if the holding period for the Shares of the
Company exceeds one year.
In certain cases, a redemption of Common Shares may be treated as a
dividend, rather than as a payment in exchange for the Shares of the Company. In
such events, the redemption payment will be treated as ordinary dividend income
to the extent that such payment is made out of current or accumulated earnings
and profits, as calculated for United States federal income tax purposes. The
determination of whether the redemption will be treated as a dividend rather
than as payment in exchange for the Common Shares of the Company will depend
upon whether and to what extent the redemption reduces the holder's percentage
stock ownership interest in the Company. A redemption will be treated as an
exchange of stock that produces a capital gain if the redemption either (1)
completely terminates the holder's interest in the Company under Section
302(b)(3) of the Code, (2) is "substantially disproportionate" with respect to
the holder under Section 302(b)(2) of the Code, or (3) is "not essentially
equivalent to a dividend" under Section 302(b)(1) of the Code.
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
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<PAGE>
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."
<TABLE>
<CAPTION>
--------------------- ------------- ------------- -------------- ------------ ----------- ----------- ------------
As at nine As at nine December 31, As at As at As at As at
months months 1999 or the December December December December
ended ended Year then 31, 1998 31, 1997 31, 1996 31, 1995
September September ended
30, 2000 30, 1999
--------------------- ------------- ------------- -------------- ------------ ----------- ----------- ------------
UNAUDITED UNAUDITED RESTATED
--------------------- ------------- ------------- -------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $19,613 $20,453 $1,669 $26,302 $23,315 $72,468 $0
--------------------- ------------- ------------- -------------- ------------ ----------- ----------- ------------
Net Income (Loss) 112,347 (46,545) (60,916) (118,410) (89,568) (1,055,819) (216,286)
for Period
--------------------- ------------- ------------- -------------- ------------ ----------- ----------- ------------
Net Income (Loss) .009 (.004) (.006) (.010) (.010) (.162) (.033)
per Share
--------------------- ------------- ------------- -------------- ------------ ----------- ----------- ------------
Total Assets 263,807 151,550 147,662 165,379 136,550 172,136 799,980
--------------------- ------------- ------------- -------------- ------------ ----------- ----------- ------------
Long Term 417,339 199,329 452,491 452,491 450,491 703,948 474,710
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.
25
<PAGE>
<TABLE>
<CAPTION>
----------------Year ended December 31, -------------------------
--------------------- -------------- ------------ ------------ ------------ ------------ ------------
Nine months 1999 1998 1997 1996 1995
to September
30, 2000
--------------------- -------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
End of Period .67 .68 .68 .72 .73 .73
--------------------- -------------- ------------ ------------ ------------ ------------ ------------
Average for Period .68 .66 .71 .73 .73 .73
--------------------- -------------- ------------ ------------ ------------ ------------ ------------
High for Period .70 .69 .73 .75 .75 .74
--------------------- -------------- ------------ ------------ ------------ ------------ ------------
Low for Period .66 .63 .68 .71 .72 .71
--------------------- -------------- ------------ ------------ ------------ ------------ ------------
</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 November 9, 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 $1.55 (CDN$1.00 =
US$.65)
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.
The accountant's report to the Company's audited financial statements notes
that 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.
From the Company's acquisition of Astris Inc. in 1995 and the change of the
business to the development and possible commercialization of certain fuel cell
technology, the Company has been greatly limited by a lack of funds to pursue
fully the necessary research and development activities. Most of the research
and development has been conducted in the Czech Republic by Astris s.r.o, a 30%
owned subsidiary. Recently, the Company has obtained a minor amount of funds
which is it using to recommence the research and development activities in
Canada and also to market certain ancillary products. As noted under "Liquidity
and Capital Resources" herein, the future of the Company is dependent upon its
ability to raise additional capital to fund the completion of the research and
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<PAGE>
the development and the commencement of the commercialization of products based
upon the fuel cell technology. Management is of the opinion that the Company
should continue to exist and grow, based upon encouraging results of research
and development to date and recent world-wide interest in fuel cell technology.
With the advancement of this research and development program, the Company
should be in a better position to pursue financing in the form of private
placements of its Common Shares. Further funding could also be derived from sale
of the balance of the EVI common stock.
RESULTS OF OPERATIONS
In 1995, the Company acquired AI with the objective to commercialize the AI
AFC technology and to raise US$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
is continuing to be carried out at the Company's minority-owned subsidiary,
Astris s.r.o. in the Czech Republic, albeit at reduced levels of activity as the
Company was largely inactive from 1996 until October 1998. The Company has only
recently produced and sold a limited number of prototype fuel cell products.
Even should the products be well received commercially and additional financing
is retained, the realization of significant revenues would take several years.
In 1996, CDN$100,000 was received by the Company from three directors, Jiri
K. Nor (CDN$40,000), Donald Blenkarn (CDN$40,000) and Gerald T. Crawford
(CDN$20,000). See "Interest of Management in Certain Transactions."
During 1997, proceeds on the issuance of 3,394,850 common shares of the
Company from the exercise of warrants issued in 1995 amounted to CDN$3,395. A
further 748,706 common shares were issued in settlement of outstanding
liabilities of CDN$374,354. There was no funding from related parties during
1997.
The Company had revenue in 1997 of CDN$23,315. This amount was comprised of
CDN$17,811 from Canadian investment tax credits, CDN$3,871 from interest derived
from the investment tax credits and CDN$1,633 from the sales of small fuel
cells. No one customer accounted for a majority of the sales of the small fuel
cells and related products.
In 1998, an advance of CDN$2,000 was received from Timagami Financial
Services, a company controlled by a shareholder. See "Interest of Management in
Certain Transactions."
In 1998, as a result of the non-exclusive licence of the Company to EVI,
the Company acquired 200,000 shares of EVI common stock. See "Business of the
Company--Research and Development" in Item 1. The sale of more than 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.
There was no financing activity during 1999.
27
<PAGE>
The Company had small, insignificant sales of its small fuel cell products
during 1999-2000. The agreement with the Macnor has not resulted in any sales
revenue to date.
The financial statements included in this application are stated in
Canadian dollars.
During the nine months to September 30, 2000, 1,494,228 common shares of
the Company were issued in settlement of outstanding liabilities of CDN$348,622.
The Company has incurred operating losses during the last three fiscal
years ended December 31. The net loss for 1999 was CDN$60,916 on revenues of
CDN$1,669 and for 1998 was CDN$118,410 on revenues of CDN$26,302, which included
the initial royalty payment of CDN$25,000 from EVI. Income from these periods
has been derived from the Company's interest in the sale of small fuel cells and
related products, which amounted to $1,669 in 1999 and 1,032 in 1998. No one
customer accounted for a majority of the sales of the small fuel cells and
related products. Throughout its history, the Company's expenses have varied
based upon the amount of funds available to the Company. During this period
Astris s.r.o. has basically self-funded through the sale of ancillary products
and government and technical university contracts which did not result in
licence fees to the Company.
Operating expenses were approximately CDN$81,890 in 1999 and CDN$144,712 in
1998. The 1998 operating expenses included payment of rent and salaries which
was no longer required in 1999 as the property in question was vacated and the
employees were no longer with the Company. Also included in operating expenses
are costs associated with subcontracts of CDN$52,087 in 1999 and CDN$79,534 in
1998, most of which was to Astris s.r.o. for performance of research services
for the Company. The amount expended for subcontracts varied according to the
amount of service which was provided to the Company.
The 1998 financial statements were restated to record the value of the EVI
common stock received upon the sale and licensing arrangement at the book value
of the assets transferred to EVI, and not at the market price of the EVI shares
as there were restrictions on the sale of such shares by the Company.
The Company's net earnings were CDN$112,347 for the nine-months ended
September 30, 2000 as compared to a net loss of CDN$46,545 for the same period
in 1999. The rise in earnings can be directly attributed to a gain of
CDN$373,336 on the sale of shares of EVI held by the Company. Revenue from the
sale of the Company's products decreased over the same period, from CDN$20,453
at September 30, 1999 to CDN$19,613 at September 30, 2000. Due to a rise in
available capital, expenditures for the Company also rose, to CDN$280,602, as
compared to CDN$66,998 for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been hindered by a lack of capital. Its recent source of
capital has been the sale of EVI Common Stock. Between February 2000 and April
2000, the Company sold 85,900 shares and received net proceeds of US$250,217.
28
<PAGE>
As the Company's current development project moves forward through the year
2000 and into 2001, it is anticipated that the Company's progress should
stimulate interest in the Company that will be reflected in increased market
activity and rising share prices, dependent upon general market conditions. The
Company will seek to enter into private placements, strategic partnerships and
joint ventures, in order to raise capital to finance the on-going development
and commercialization of its fuel cell technology. The Company does not have any
present agreement 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, strategic partnerships or
joint ventures on terms acceptable to the Company or not highly 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 2,000
kilowatt per year of fuel cell systems in various sizes up to three or four
kilowatts each, for testing in a variety of both stationary and mobile
applications. It is estimated this stage will require approximately CDN$10
million over the next three years.
In anticipation and preparation for these developments, the Company is
attempting to identify potential strategic partners who can be approached.
Factors to be considered in selecting strategic partners are:
- natural linking of each-other's products (e.g. golf cart manufacturers,
cart motor manufacturers, etc.)
- adequate funding capabilities
- ability to understand the Company's research and development activities
- compatible business philosophies
The Company currently owns 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 will provide
additional liquidity.
The Company has been approached by major financial institutions that are
active in arranging private and public financing for the fuel cell industry. The
Company also is in the early stages of establishing a strategic partnership with
a manufacturer of related products.
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,
29
<PAGE>
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 Director 1996
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
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 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 to 1991,
he was the Chair of the House of Commons Finance Committee, and Vice-Chair from
1991 to 1993. Mr. Blenkarn practiced law from 1952 to 1983 with the firm of
Blenkarn, Kerr and Shadlock, Mississauga, Ontario
Gordon T. Emerson has been a Director of the Company since 1999 and its
Treasurer and Chief Financial Officer since April 2000. 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
30
<PAGE>
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, although for 1998 and 1999,
CDN$90,000 was expensed for Jiri K. Nor and CDN$36,000 for Gerald A. Crawford
for consulting fees. In June 2000, the Company issued Common Shares for these
accrued consulting fees at the rate of CDN$0.25 per Common Share.
Number of
Officer/Director Common Shares Liabilities
--------------- ------------- -----------
J. Nor 434,980 CDN$108,745 (1)
D. Blenkarn 327,108 81,777 (2)
G. Emerson 200,000 50,000 (3)
G. Crawford 139,643 34,910 (4)
--------- -------
1,101,731 (5) CDN$275,432
(1) For Consulting (CDN$90,000 - 360,000 shares), cash advances (CDN$5,500
- 22,000 shares) and expense reimbursement (CDN$13,245 - 52,980 shares).
(2) For Consulting (CDN$30,215 - 120,863 shares), cash advances (CDN$30,357
- 121,429) and expense reimbursement (CDN$21,204 - 84,816 shares).
(3) For Consulting (CDN$50,000).
(4) For Consulting (CDN$25,787 - 103,148), cash advances (CDN$2,500 -
10,000 shares) and expense reimbursement (CDN$6,623 - 26,495).
(5) An additional payment was made to Richard S. Clewes, a former director
who is now deceased (208,347 shares).
For the 2000 fiscal year, the Company will pay compensation of CDN$102,000.
Mr. Nor will receive CDN$72,000 and Mr. 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. See Item 12 for information regarding options granted to two executive
officers.
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.
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<PAGE>
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. 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 November 1, 2000, options for the purchase of an aggregate of 675,000
Common Shares had been granted under the Plan to employees of the Company,
including options for 500,000 Common Shares to two executive officers, at
exercise prices ranging from CDN$0.25 to CDN$0.50 per share.
On March 8, 2000, Jiri K. Nor and Gordon T. Emerson, both directors and
executive officers, were each granted options to purchase 250,000 Common Shares
exercisable for five years at an exercise price CDN$0.25 per Share. The options
to Mr. Nor are conditioned upon him completing the current golf cart project by
March 31, 2001 and the options to Mr. Emerson are conditioned on arranging a
private placement for the Company to net the treasury US$1,000,000 by April 1,
2001.
In October 1998, in connection with the entry into the Licence Agreement
with EVI, the Company granted an option to EVI for the purchase of 1,000,000
Common Shares at an exercise price of US$.30 per share, expiring in October
2003.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
As of June 2000, the Company has issued a total of 784,011 shares of its
Common Stock to the current officers and directors of the Company related to
compensation. See Item 11.
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 website 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 and the agreement with
the Macnor has not resulted in any sales revenue to date.
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.
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<PAGE>
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.
As at December 31, 1999 and 1998, the Company owed CDN$37,204 in principal
and CDN$12,400 in accrued interest only up to December 31, 1998 to Timagami
Financial Services ("Timagami") as per an agreement. This advance is unsecured
and bore interest at 12% per annum until December 31, 1998, and thereafter, per
the term of the party's agreement, 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, a
Director and Secretary of the Company, is Managing Director of Timagami.
As at December 31, 1999, 1998 and 1997, the Company owed CDN$100,000 in
principal and CDN$42,000 of accrued interest to Mr. Blenkarn (CDN$40,000), Mr.
Crawford (CDN$20,000) and Mr. Nor (CDN$40,000), 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.
At December 31, 1999 and 1998, CDN$50,637 was owed to Astris s.r.o., a
company in which the Company has a 30% interest, for sub-contracted research
services. This liability was settled by the payment of cash in the year 2000.
The management of the Company believes that each of the aforementioned
transactions was on terms as fair to the Company as any which could have been
made with unaffiliated parties.
33
<PAGE>
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 October 31, 2000, there were outstanding 12,133,784 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.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following documents are filed as Attachment A hereto and are
included as part of this Amendment Number 1 to Form 20-F.
34
<PAGE>
ASTRIS ENERGI INC. CONSOLIDATED FINANCIAL STATEMENTS
Description of Document
Auditors Report
Consolidated Balance Sheets for nine month period ended September 30, 2000 and
for the years ended December 31, 1997, 1998 and 1999.
Consolidated Statement of Earning and Loss for nine month period ended
September 30, 2000 and for the years ended December 31, 1997, 1998 and 1999.
Consolidated Statement of Cash Flow for nine month period ended September 30,
2000 and for the years ended December 31, 1997, 1998 and 1999.
Notes to Consolidated Financial Statements
(b) The following exhibits are filed as Attachment B hereto and are
included as part of this Amendment Number 1 to 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.
4.* Astris Energi Inc. Stock Option Plan, dated June 2000.
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<PAGE>
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.
10.8* Agreement between Astris Energi Inc. and Fuelcellstore.com, Inc., dated
October 12, 2000.
10.9* Assignment Agreement between Josef Soltys and Astris Inc. for Canadian
Patent #1,295,679, for QUICKCELL, dated November 15, 1995.
21.* Subsidiaries of the registrant.
---------
* Previously filed
** Filed with this Amendment
36
<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 Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
ASTRIS ENERGI INC.
By: /s/ Jiri K. Nor
----------------
President and Chief Executive Officer
Date: January 15, 2001
-----------------
37
<PAGE>
ASTRIS ENERGI INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Dollars)
December 31, 1999, 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 5-11
<PAGE>
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, 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 Canadian 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.
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.
In my opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1999, 1998 and 1997 and the results of its operations and cash flows for the
years then ended in accordance with Canadian generally accepted accounting
principles.
My previous auditor's report for 1999 and 1998 dated May 8, 2000 has been
withdrawn and the balance sheet and notes have been restated to reflect
Securities and Exchange Commission requirements.
My previous auditor's report for 1998 and 1997 dated June 11, 1999 has been
withdrawn and the value of the long term investment has been restated to conform
to net realizable value and the statement of cash flows and the notes have been
restated to reflect Securities and Exchange Commission requirements.
All figures are in Canadian dollars.
"CHARLES HAVILL"
Oakville, Canada /s/ Charles Havill
May 8, 2000 ------------------
(Except for the balance sheet, cash flows statement Chartered Accountant
and notes to the financial statements which are as at
October 20, 2000).
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED BALANCE SHEETS
(Canadian dollars) Restated
December 31 1999 1998 1997
--------------------------------------------------------------------------------
ASSETS
Current
Cash $ 4,854 $ 17,710 $ 1,612
Receivables 42,810 47,671 34,940
Marketable security (Note 3) 49,999
----------- ------------ -----------
97,663 65,381 36,552
Long term investment (Note 3) 49,999 99,998
Capital assets (Note 4) 9,998
----------- ------------ -----------
$ 147,662 $ 165,379 $ 136,550
----------- ------------ -----------
--------------------------------------------------------------------------------
LIABILITIES
Current
Payables and accruals (Note 6) $ 494,203 $ 446,143 $ 348,575
Goods and Services Tax payable 42,810 47,671
Notes payable (Note 5) 24,357 24,357 24,357
----------- ------------ -----------
561,370 518,171 372,932
Advances from related parties (Note 6) 452,491 452,491 450,491
----------- ------------ -----------
1,013,861 970,662 823,423
----------- ------------ -----------
SHAREHOLDERS' DEFICIENCY
Share capital (Note 8) 1,086,676 1,086,676 1,086,676
Deficit (1,952,875) (1,891,959) (1,773,549)
----------- ------------ -----------
(866,199) (805,283) (686,873)
----------- ------------ -----------
$ 147,662 $ 165,379 $ 136,550
=========== ============ ===========
--------------------------------------------------------------------------------
Basis of presentation (Note 1)
Contingency (Note 10)
Approved on behalf of the Board:
/s/ Jiri K. Nor /s/ Gordon T. Emerson
------------------------------- ---------------------
Director Director
See accompanying notes to the consolidated financial statements.
2
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(Canadian dollars) Restated
Years ended December 31 1999 1998 1997
--------------------------------------------------------------------------------
REVENUE
Sales $ 1,669 $ 26,302 $ 5,504
Investment tax credit (Note 7) 19,305 17,811
----------- ------------ -----------
20,974 26,302 23,315
----------- ------------ -----------
EXPENSES
Subcontract (Note 6) 52,087 79,534 36,000
General and administrative 7,343 35,511 15,760
Professional fees 10,325 9,895 9,019
Interest (Note 6) 12,135 19,772 18,700
Depreciation 33,404
----------- ------------ -----------
81,890 144,712 112,883
----------- ------------ -----------
Net loss for the year (60,916) (118,410) (89,568)
Deficit, beginning of year (1,891,959) (1,773,549) (1,683,981)
----------- ------------ -----------
Deficit, end of year $(1,952,875) $ (1,891,959) $(1,773,549)
=========== ============ ===========
Loss per common share (Note 8) $ (0.006) $ (0.010) $ (0.008)
=========== ============ ===========
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
3
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars) Restated Restated
Years ended December 31 1999 1998 1997
--------------------------------------------------------------------------------
OPERATING
Net loss for the year $ (60,916) $ (118,410) $ (89,568)
Depreciation 32,619
Net change in non-cash operating
working capital balances related
to operations (Note 9) 48,060 132,508 308,104
----------- ------------ -----------
(12,856) 14,098 251,155
----------- ------------ -----------
FINANCING
Advances from related parties 2,000 (253,457)
Issuance of common shares 3,395
----------- ------------ -----------
2,000 (250,062)
----------- ------------ -----------
Net (decrease) increase in cash
during the year (12,856) 16,098 1,093
Cash, beginning of year 17,710 1,612 519
----------- ------------ -----------
Cash, end of year $ 4,854 $ 17,710 $ 1,612
=========== ============ ===========
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
4
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
December 31, 1999, 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, 1999 has a shareholders' deficiency of
approximately $866,000.
The consolidated 1999, 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.
The financial statements also conform to U.S. generally accepted accounting
principles and no reconciliation between Canadian and U.S. generally accepted
accounting principles is required.
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is recognized at point of sale when goods are shipped and title passes.
In cases where consulting services are provided, revenue is recognized upon
completion of the service provision.
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.
TAXES PAYABLE
The Company follows the liability method of accounting for income taxes. Under
this method, income taxes are recognized for the future income tax consequences
attributable to differences between the carrying value of tax - bases of assets
and liabilities.
Goods and Services Tax is an amount payable in respect of federal commodity tax
which was instituted in Canada in 1991. The amount became payable upon the sale
of the Company's assets (see Note 3).
--------------------------------------------------------------------------------
5
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
December 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
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.
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 (Energy Ventures
Canada Inc.) in return for 200,000 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. There is a legend
on the share certificates restricting sale of the share for a period of one year
from October 1998 and one-half the shares for a further year from October 1999,
by reason of Rule 144 under the Securities Act. The shares which can be sold are
disclosed as a marketable security. The market value of these shares at December
31, 1999 and December 31, 1998 is not readily determinable as the shares are not
regularly traded.
The value of the shares was corrected from the original valuation of $694,485 on
previously issued financial statements. As a result, the gain previously
recorded at $594,487 has been reduced to nil.
The per share effect of this writedown is $0.056 per share.
--------------------------------------------------------------------------------
6
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
December 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------
4. CAPITAL ASSETS
Accumulated Net Book
Cost Depreciation Value
---------- ------------ ----------
Equipment $ 133,096 $ 51,098 $ 81,998
Furniture and fixtures 30,000 12,000 18,000
---------- ---------- ----------
$ 163,096 $ 63,098 $ 99,998
========== ========== ==========
--------------------------------------------------------------------------------
5. NOTES PAYABLE
Notes payable are held by three shareholders and are due on demand, unsecured
and interest free.
--------------------------------------------------------------------------------
6. ADVANCES FROM RELATED PARTIES
The following amounts have been advanced from related parties:
1999 1998 1997
---- ---- ----
Due to a shareholder $ 315,287 $ 315,287 $ 315,287
Due to Timagami Financial Services,
a company controlled by a director
and officer 37,204 37,204 35,204
Debenture due to shareholders 100,000 100,000 100,000
---------- ---------- ----------
$ 452,491 $ 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. 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 10).
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 acruals. 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.
--------------------------------------------------------------------------------
7
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
December 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------
6. ADVANCES FROM RELATED PARTIES (CONT'D)
DEBENTURE 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 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.
PAYABLES AND ACCRUALS
In prior years certain research services had been subcontracted resulting in a
total of $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 company owned by a
shareholder of the Company (Macnor Inc.). 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. As the Company's share of losses are in
excess of the original investment, the investment has been previously written
off to nil.
In addition, payables include the following amounts:
- $25,787 owing to Crawford Associates, owned by a shareholder for consulting
fees (1998 - $25,787; 1997 - $12,000).
- $90,000 owing to Jiri Nor, a shareholder, for consulting fees (1998 - $90,000;
1997 - $24,000)
- $ Nil owing to Norvik Inc., a company owned by a shareholder, for expenses and
consulting fees (1998 - $12,587; 1997 - $18,592).
During 1999, the following amounts were expensed as consulting fees to
shareholders:
J. Nor $ Nil (1998 - $66,000; 1997 - $24,000)
G. Crawford $ Nil (1998 - $12,000; 1997 - $12,000)
D. Clewes $ 52,087 (1998 - Nil; 1997 - Nil)
During 1999, the following amounts were expensed as interest to shareholders:
J. Nor $ 4,800 (1998 - $4,800; 1997 - $5,100)
D. Blenkarn $ 4,800 (1998 - $4,800; 1997 - $5,100)
G. Crawford $ 2,400 (1998 - $2,400; 1997 - $2,500)
Timagami Financial Services $ Nil (1998 - $6,400; 1997 - $6,000)
During the year the Company signed an agreement with a company owned by one of
the shareholders (Macnor Inc.) under which Macnor would open a website for
Astris and market some of Astris' products. Astris will receive 5% of any
recorded sales. As no such sales have occurred in years ended December 31, 1997,
1998 and 1999, there has been no recording of these revenues and related costs
in the Company's accounts.
--------------------------------------------------------------------------------
8
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
December 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------
6. ADVANCES FROM RELATED PARTIES (CONT'D)
The following transactions were accounted for in the applicable years with
related parties:
Consulting Cash Reimbursement
Interest Fees Advances of expenses Total
-------- ---- -------- ----------- -----
1996 $ 6,000 $ 19,357 $ 25,357
1997 18,700 $ 36,840 17,000 $ 21,303 93,843
1998 19,445 78,947 2,000 5,840 106,232
--------- --------- --------- --------- ----------
$ 44,145 $ 115,787 $ 38,357 $ 27,143 $ 225,432
========= ========= ========= ========= ==========
--------------------------------------------------------------------------------
7. 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. The Company will determine its income tax on the liability method
when it is in a taxable position.
During 1999 and 1997, the Company received investment tax credit refunds which
are included in revenue and are related to the expenditures on scientific
research.
--------------------------------------------------------------------------------
9
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
December 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------
8. SHARE CAPITAL
Share capital consists of the following:
AUTHORIZED:
60,000,000 common shares
10,000,000 preferred shares
ISSUED AND OUTSTANDING: 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
============ ============
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.
The loss per share calculations have been based on 8,310,000 issued and
outstanding common shares for 1997 and 10,643,556 issued and outstanding common
shares for 1998 and 1999.
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.
--------------------------------------------------------------------------------
10
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
December 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------
9. CONSOLIDATED STATEMENTS OF CASH FLOWS
The net change in non-cash operating working capital balances consists of the
following:
1999 1998 1997
---- ---- ----
Decrease (increase) in receivables $ 4,861 $ (12,731) $ 4,060
Increase in payables and accruals 48,060 97,568 299,044
(Decrease) increase in Goods and Services
Tax payable (4,861) 47,671
Increase in notes payable 5,000
--------- ---------- ---------
$ 48,060 $ 132,508 $ 308,104
========= ========== =========
--------------------------------------------------------------------------------
10. CONTINGENCY
During 1999 a shareholder initiated legal claim against the Company for
repayment of advances and expenses in the amount of $315,287. Management feels
this advance is not repayable unless certain external financing is raised. Since
this has not been achieved, management feels there is no requirement to repay
the advance. No further cash payments are anticipated beyond the possible
repayment of these advances and related legal fees.
--------------------------------------------------------------------------------
11. 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.
The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure, which
could affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers or other
third parties, will be fully resolved.
--------------------------------------------------------------------------------
11
<PAGE>
ASTRIS ENERGI INC.
CONSOLIDATED
FINANCIAL
STATEMENTS
(Unaudited)
September 30, 2000 and 1999
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED BALANCE SHEET
(Canadian dollars)
(Unaudited)
September 30, 2000 1999
--------------------------------------------------------------------------------
ASSETS
Current
Cash $ 143,952 $ 7,527
Receivables 40,379 44,025
Prepaids 20,916
Marketable security 52,000 49,999
------------ -----------
257,247 101,551
Long term investments 49,999
Property and equipment, net 6,560
------------ -----------
$ 263,807 $ 151,550
------------ -----------
--------------------------------------------------------------------------------
LIABILITIES
CURRENT
Payables and accruals $ 219,974 $ 526,531
Federal Goods and Services Tax payable 31,724
Notes payable (note 2) 24,357 24,357
------------ -----------
276,055 550,888
Advances from related parties (note 3) 392,982 452,491
------------ -----------
669,037 1,003,379
------------ -----------
SHAREHOLDERS' DEFICIT
Share capital (notes 4 and 5) 1,435,298 1,086,676
Deficit (1,840,528) (1,938,505)
------------ -----------
(405,230) (851,829)
------------ -----------
$ 263,807 $ 151,550
------------ -----------
--------------------------------------------------------------------------------
1
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(Canadian dollars)
(Unaudited)
Nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Revenues
Literature sales $ 251 $
------------ -----------
Expenses
Research and development 127,467
General and administrative 108,314 13,583
Professional fees 44,821 53,415
------------ -----------
280,602 66,998
------------ -----------
NET LOSS BEFORE OTHER INCOME (280,351) (66,998)
------------ -----------
OTHER INCOME
Gain on sale of marketable security (note 6) 373,336
Investment tax credit 19,305
Compensation on collection of federal Goods
and Services Tax 1,563 1,042
Interest income 4,967 106
Gain on U.S. exchange 12,832
------------ -----------
392,698 20,453
------------ -----------
NET EARNINGS (LOSS) $ 112,347 $ (46,545)
------------ -----------
NET EARNINGS (LOSS) PER COMMON SHARE $ 0.009 $ (0.004)
------------ -----------
--------------------------------------------------------------------------------
Deficit, beginning of period $ (1,952,875) $(1,891,960)
Net earnings (loss) 112,347 (46,545)
------------ -----------
Deficit, end of period $ (1,840,528) $(1,938,505)
------------ -----------
--------------------------------------------------------------------------------
2
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Canadian dollars)
(Unaudited)
Nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Operating
Net earnings (loss) for the period $ 133,347 $ (46,545)
Gain on sale of marketable security (373,336)
Net change in non-cash operating
working capital (see below) (303,802) 36,362
------------ -----------
(543,791) (10,183)
------------ -----------
INVESTING
Proceeds from sale of marketable security
(note 6) 421,336
Purchase of property and equipment (6,560)
------------ -----------
414,776
------------ -----------
Financing
Issuance of capital stock 103
Increase in amounts due to related parties 268,010
------------ -----------
268,113
------------ -----------
Net increase (decrease) in cash during the period 139,098 (10,183)
Cash, beginning of period 4,854 17,710
------------ -----------
Cash, end of period $ 143,952 $ 7,527
------------ -----------
NET CHANGE IN NON-CASH OPERATING WORKING CAPITAL
Receivables $ 2,431 $ 3,646
Prepaids (20,916)
Payables and accruals (285,317) 32,716
------------ -----------
$ (303,802) $ 36,362
------------ -----------
--------------------------------------------------------------------------------
3
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
(Unaudited)
Nine months ended September 30, 2000
--------------------------------------------------------------------------------
1. These consolidated interim financial statements reflect all adjustments
which are necessary to a fair statement of the results and that all such
adjustments are of a normal recurring nature.
2. Notes payable are held by three shareholders and are due on demand,
unsecured and interest free.
3. These advances from related parties are shown as long-term liabilities as
there are no specific terms of repayment and the holders of the debt have
indicated that these amounts will not be requested for repayment prior to
April 7, 2002.
Activity in this account is shown below:
Balance at December 31, 1999 $ 452,491
Advanced during the period 218,010
Consulting fees in the period 50,000
------------------
720,501
Payment of debt by issue of common
shares (327,519)
------------------
Balance at September 30, 2000 $ 392,982
===================
4. Share capital consists of the following:
Authorized:
60,000,000 common shares
10,000,000 preferred shares
Issued and outstanding: Common Shares
# $
----------- -----------
Balance at December 31, 1999 10,643,556 1,086,676
Exercise of warrants for cash 102,900 103
Issued in settlement of debt with
related parties 1,310,078 327,519
Issued in settlement of debt with
a consulting company 81,250 21,000
----------- -----------
Balance at September 30, 2000 12,137,784 1,435,298
=========== ===========
No preferred shares have been issued.
4
<PAGE>
--------------------------------------------------------------------------------
ASTRIS ENERGI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
(Unaudited)
Nine months ended September 30, 2000
--------------------------------------------------------------------------------
4. Share capital (CONTINUED)
During 1998, an option was granted to the public company, which had
purchased the capital assets of the Company, to purchase 1,000,000 common
shares of the Company at $.30 (U.S.) per share. The option will expire on
October 22, 2003.
On March 8, 2000, the Board of Directors passed a resolution authorizing a
stock option plan. The plan was adopted by the Company's shareholders at
its Annual General Meeting in June 2000. The plan consists of 1,000,000
common shares for granting to its officers, directors, employees and
consultants. The exercise price shall not be less than the market price
prevailing at date of grant and, if market price is not available, the
Board will determine a fair market value on the day preceding the date of
grant. The term of the option will be determined by the Board at time of
grant, but may not exceed five years.
At September 30, 2000, options for purchase of 675,000 common shares had
been granted under the plan to employees, 500,000 of which were to two
executive officers at prices ranging from $.25 to $.50 (Cdn,), expiring
March 8, 2005. The options to the executive officers may only be exercised
upon the officers satisfying the conditions of completing the current golf
cart project and arranging a private placement netting $1,000,000 (U.S.),
by March 31, 2001 and April 1, 2001, respectively.
5. During the period, the Company issued 102,900 common shares for $103 cash
upon exercise of warrants that were originally issued as part of the
acquisition agreement of the Company.
Also during the period, the Company issued 1,310,078 common shares in
settlement of certain liabilities to its directors/officers totaling
$327,519. $50,000 thereof was incurred in the period as consulting fees.
Further, during the period, the Company issued 81,250 common shares to a
consulting company as part of its remuneration, for an amount of $21,000.
6. 96,000 of the 100,000 shares of Energy Ventures Inc. (Canada), held by the
Company as marketable security at December 31, 1999, were sold during the
period for proceeds of $421,336 and, with a cost base thereof of $48,000,
yielded a gain on sale of $373,336.
The gain on sale is recognized in the accounts of the Company at the point
at which the shares are sold.
5
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ASTRIS ENERGI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars)
(Unaudited)
Nine months ended September 30, 2000
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7. During 1999, a shareholder initiated legal claim against the Company for
repayment of advances and expenses in an amount of $315,287. Management
feels that this debt is not repayable unless certain external financing is
raised. Since this has not been achieved, management feels that there is no
requirement to repay the debt. No further costs beyond the potential
repayment of the debt and legal fees are anticipated.
6
