UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**FORM
      10-QSB**





**x**
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**




For
      the
      quarterly period ended March 31, 2007





o
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**




For
      the
      transition period from _______ to _______




COMMISSION
      FILE NUMBER 000-28015




**ALTERNATE
      ENERGY CORP.**


(Exact
      name of small business issuer as specified in its charter)





Nevada
            86-0884116(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)




3325
      North Service Rd, Suite 105


Burlington,
      Ontario


Canada
      L7N 3G2


(Address
      of principal executive offices )




905.332.3110


(Issuer’s
      telephone number)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports) and (2) has been subject
      to such filing requirements for the past 90 days. Yes x  No o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o  No x




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: 135,069,019 shares as of May 7,
      2007.





Transitional
      Small Business Disclosure Format (Check one): Yes o  No x










**ALTERNATE
      ENERGY CORP.**


**(A
      Development Stage Company)**




**QUARTERLY
      REPORT ON FORM 10-QSB**


**FOR
      THE FISCAL QUARTER ENDED MARCH 31, 2007**




**INDEX**




**PART
      I**




**FINANCIAL
      INFORMATION**




Item
                1 - Consolidated Balance Sheets as of March 31, 2007
                (Unaudited)
            F1Consolidated
                Statements of Operations for the Three Months Ended March 31, 2007
                and
                2006 (Unaudited)
            F2Consolidated
                Statements of Cash Flows for the Three Months Ended March 31, 2007
                and
                2006 (Unaudited)
            F3Notes
                to the Unaudited Consolidated Financial Statements
            F4
                - F6Item
                2 - Management’s Discussion and Analysis or Plan of
                Operation
            1-11Item
                3 - Controls and Procedures
            11**PART
                II - OTHER INFORMATION**Item
                1 - Legal Proceedings
            11-12Item
                2 - Unregistered Sales of Equity Securities and Use of
                Proceeds
            12-13Item
                3 - Defaults Upon Senior Securities
            13Item
                4 - Submission of Matters to a Vote of Security Holders
            13Item
                5 - Other Information
            13Item
                6 - Exhibits
            14-15





INDEX




**PART
      I**


**FINANCIAL
      INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS.**





**ALTERNATE
                ENERGY CORP.****(A
                Development Stage Company)****Consolidated
                Balance Sheets**




**March
                31 , 2007**
            
            **December
                31, 2006****ASSETS**
            
            ***unaudited*****Current**Cash
            
            
            
            
            $
            39,450
            
            $
            97,443Prepaid
                expenses and sundry assets
            
            
            
            
            
            109,808
            
            
            62,245Marketable
                securities
            
            
            
            
            
            76,048
            
            
            114,934225,306
            
            
            274,622**Other**Property
                and equipment, net
            
            
            
            
            
            199,308
            
            
            210,343Patents
                and technology
            
            
            
            
            
            -
            
            
            -$
            424,614
            
            $
            484,965**LIABILITIES****Current**Accounts
                payable
            
            
            
            
            $
            247,185
            
            $
            174,842Accrued
                liabilities
            
            
            
            
            
            212,305
            
            
            168,591Warrant
                Liability
            
            
            
            
            
            -
            
            
            -Convertible
                debt
            
            
            
            
            
            -
            
            
            -Due
                to directors and officers
            
            
            
            
            
            464,246
            
            
            399,162923,736
            
            
            742,595**SHAREHOLDERS'
                DEFICIT****Capital
                stock**
            
            
            
            
            
            137,306
            
            
            133,949**Additional
                paid in capital**
            
            
            
            
            
            29,384,576
            
            
            29,119,777**Prepaid
                expenses paid with common stock**
            
            
            
            
            
            (143,043
            )
            
            (101,606
            )**Accumulated
                other comprehensive income**
            
            
            
            
            
            (222,725
            )
            
            (271,344
            )**(Deficit)
                Accumulated during development stage**
            
            
            
            
            
            (29,655,236
            )
            
            (29,138,406
            )(499,122
            )
            
            (257,630
            )$
            424,614
            
            $
            484,965




{See
                accompanying notes to the financial
                statements.}





F1





**ALTERNATE
                ENERGY CORP.****(A
                Development Stage Company)****Consolidated
                Statements of Operations****Unaudited**




Three
                months ending March 31
            
            **2007**
            
            **2006**
            
            **Inception
                To Date****REVENUE**
            
            $
            -
            
            $
            -
            
            $
            -**EXPENSES**Administrative
            
            
            98,044
            
            
            42,112
            
            
            1,563,906Consulting
                fees
            
            
            196,682
            
            
            956,335
            
            
            13,921,949Professional
                fees
            
            
            147,699
            
            
            58,241
            
            
            1,468,978Research
                and development
            
            
            63,550
            
            
            37,380
            
            
            405,511Financing
                expense
            
            
            -
            
            
            50,386
            
            
            559,714Impairment
                of intangible assets
            
            
            -
            
            
            -
            
            
            2,165,458Management
                fee
            
            
            -
            
            
            -
            
            
            240,000Recovery
                of loan
            
            
            -
            
            
            -
            
            
            (202,000
            )Depreciation
            
            
            12,804
            
            
            17,068
            
            
            203,082**NET
                (LOSS) FROM OPERATIONS**
            
            
            (518,779
            )
            
            (1,161,522
            )
            
            (20,326,598
            )**OTHER
                INCOME (EXPENSES)**Other
                income
            
            
            1,949
            
            
            -
            
            
            464,857Gain
                on settlement
            
            
            -
            
            
            -
            
            
            461,909Gain
                on adjustment on derivative / warrant liability to fair value of
                underlying securities
            
            
            -
            
            
            167,427
            
            
            1,075,339**NET
                (LOSS) FOR THE PERIOD**
            
            $
            (516,830
            )
            $
            (994,095
            )
            $
            (18,783,184
            )**NET
                (LOSS) PER SHARE, BASIC AND DILUTED**
            
            $
            (0.00
            )
            $
            (0.01
            )**WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES OUTSTANDING**
            
            
            135,467,642
            
            
            117,101,306





F2




**ALTERNATE
                ENERGY CORP.****(A
                Development Stage Company)****Consolidated
                Statements of Cash Flows*****Unaudited***




Three
                months Ending March 31
            
            **2007**
            
            **2006**
            
            **Inception
                To Date****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                (loss)
            
            $
            (516,830
            )
            $
            (994,095
            )
            $
            (18,783,184
            )Adjustments
                to reconcile net loss from operations to net cash used in operating
                activities:Stock-based
                expenses
            
            
            169,995
            
            
            960,753
            
            
            13,168,505Impairment
                of intangible assets
            
            
            -
            
            
            -
            
            
            2,165,458Depreciation
                and amortization
            
            
            11,035
            
            
            18,462
            
            
            201,313Accretion
                of principal related to convertible debt
            
            
            -
            
            
            50,386
            
            
            494,715(Gain)
                loss on derivatives related to warrants
            
            
            -
            
            
            (167,427
            )
            
            (1,075,339
            )(Gain)
                Loss on sale of marketable securities
            
            
            9,877
            
            
            (6,099
            )
            
            168,035(Gain)
                Loss on settlement
            
            
            -
            
            
            -
            
            
            (376,909
            )Changes
                in operating assets and liabilitiesDecrease
                (increase) in prepaid expenses and sundry assets
            
            
            9,161
            
            
            39,444
            
            
            (189,993
            )Decrease
                (increase) in deferred consulting expense
            
            
            -
            
            
            -
            
            
            -Increase
                (decrease) accounts payable and accrued liabilities
            
            
            116,057
            
            
            34,008
            
            
            239,701Increase
                (decrease) in due to directors and officers
            
            
            -
            
            
            -
            
            
            264,000Net
                cash (used in ) operating activities
            
            
            (200,705
            )
            
            (64,568
            )
            
            (3,723,698
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of property and equipment
            
            
            -
            
            
            -
            
            
            (428,615
            )Purchase
                of patents and technology
            
            
            -
            
            
            -
            
            
            (154,373
            )Proceeds
                from (investment in) marketable securities
            
            
            -
            
            
            17,349
            
            
            (152,840
            )Net
                cash provided by (used in) investing activities
            
            
            -
            
            
            (17,349
            )
            
            (735,828
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Issue
                of common shares for cash
            
            
            -
            
            
            -
            
            
            3,456,875Principal
                received from notes payable
            
            
            -
            
            
            -
            
            
            500,000Advances
                from directors and officers
            
            
            65,084
            
            
            16,871
            
            
            604,645Net
                cash provided by (used in) financing activities
            
            
            65,084
            
            
            16,871
            
            
            4,457,121**EFFECT
                OF FOREIGN EXCHANGE RATES**
            
            
            77,628
            
            
            -
            
            
            41,855**NET
                INCREASE (DECREASE) IN CASH DURING PERIOD**
            
            
            (57,993
            )
            
            (30,348
            )
            
            39,450**CASH,
                BEGINNING OF THE PERIOD**
            
            
            97,443
            
            
            135,881
            
            
            -**CASH,
                END OF THE PERIOD**
            
            $
            39,450
            
            $
            105,53
            
            $
            39,450Non-cash
                activitiesCommon
                shares issued for patents and technology (net)
            
            
            -
            
            
            -
            
            
            1,970,000Issuance
                of common stock for note conversion
            
            
            -
            
            
            500
            
            
            500Issuance
                of common stock for satisfaction of accrued liabilities due to related
                parties
            
            
            -
            
            
            200,000
            
            
            200,000Recovery
                of debt
            
            $
            56,724Issuance
                of common stock for prepaid expenses
            
            
            -
            
            
            -
            
            
            60,253




{See
                accompanying notes to the financial
                statements.}





F3




**ALTERNATE
      ENERGY CORP.**


**(A
      Development Stage Company)**


**NOTES
      TO THE (UNAUDITED) CONDENSED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED March 31, 2007**





1.
      GENERAL




The
      unaudited condensed financial statements have been prepared on the same basis
      as
      the audited financial statements and, in the opinion of management, include
      all
      adjustments (consisting of normal recurring adjustments) necessary for a fair
      presentation for each of the periods presented and to make the financial
      statements not misleading. The results of operations for interim statements
      are
      not necessarily indicative of results to be achieved for full fiscal years.




As
      contemplated by the Securities and Exchange Commission (the “SEC”) under Rule
      10-01 of Regulation S-X, the accompanying financial statements and related
      footnotes have been condensed and do not contain certain information that is
      included in the Company’s annual financial statements and footnotes thereto. For
      further information, refer to the financial statements and related footnotes
      for
      the year ended December 31, 2006 included in the Company’s Annual Report on Form
      10-KSB.




2.
      BACKGROUND INFORMATION




Alternate
      Energy Corporation (the “Company”), formerly known as COI Solutions, Inc., was
      incorporated in the State of Nevada on August 1, 1997. The Company commenced
      active business operations on June 1, 2003 and is considered to be a development
      stage company under SFAS 7. Since 2003, the Company has had the objective of
      producing a clean, on demand hydrogen technology that would have global,
      multiple market applications on both a small and large scale. The Company’s
      hydrogen production system leverages a non-toxic proprietary chemical reaction
      that yields high quality hydrogen along with a number of globally valuable
      chemical compounds. The Company’s process is entirely chemical, not requiring
      electrolysis or any external source of electrical power.




In
      February 2004, the Company incorporated a wholly-owned subsidiary, 2040412
      Ontario, Inc. located in the Province of Ontario, Canada. The subsidiary holds
      title to certain property and equipment reflected in the Company’s
      accounts.




3.  LIQUIDITY




During
      the three months ended March 31, 2007 and 2006, the Company incurred losses
      of
      $516,830 and $994,095, respectively and cash used in operations was $200,705
      and
      $64,568, respectively. The Company financed its operations using sales of its
      common stock, the exercise of common stock purchase warrants, vendor credit,
      debt financing and convertible notes.




While
      the
      Company believes that it will have sufficient cash to meet its short-term
      capital requirements through the second quarter of 2007, there are no assurances
      that the Company will be able to raise sufficient funds to meet its long-term
      capital needs. The Company may also seek alternative sources of financing,
      including more conventional sources such as bank loans and credit lines,
      although no assurances in this regard can be made. Further, the availability
      of
      any future financing may not be on terms that are satisfactory to the Company.
      Accordingly, the Company will continue to seek additional financing through
      issuance of debt and/or equity securities.




4.
      MARKETABLE SECURITIES




As
      of
      March 31, 2007, the Company holds 800,000 restricted shares of common stock
      of
      Astris Energi Inc. and warrants to purchase 1,500,000 shares of common stock
      at
      a price of $0.19 per share, for a period of three years with an unrealized
      loss
      of $300,861. On the Over The Counter Bulletin Board, the reported sale price
      of
      Astris Energi’s common stock was $0.03 as of May 2, 2007.




F4


5.
      PROPERTY AND EQUIPMENT


**Accumulated**
              
              **March
                  31,****Cost**
              
              **Amortization**
              
              **2007**Automobile
              
              $
              90,465
              
              $
              46,375
              
              $
              44,090Computer
                  hardware
              
              
              36,652
              
              
              20,159
              
              
              16,493Computer
                  software
              
              
              6,945
              
              
              6,945
              
              
              0Equipment
              
              
              242,043
              
              
              109,597
              
              
              132,446Telephone
              
              
              2,402
              
              
              1,532
              
              
              870Office
                  equipment
              
              
              4,385
              
              
              1,385
              
              
              3,000Office
                  furniture
              
              
              245
              
              
              31
              
              
              214VOIP
                  system
              
              
              1,814
              
              
              363
              
              
              1,452Software
                  other
              
              
              2,234
              
              
              1,489
              
              
              745$
              387,184
              
              $
              187,876
              
              $
              199,308





6.
      RELATED PARTY TRANSACTIONS




As
      of
      March 31, 2007, the Company was indebted $464,246 (as of December 31, 2006
      -
      $399,162) to a director, Blaine Froats. The amount of $399,162 is pursuant
      to a
      non-interest bearing demand note. The agreement was put in writing and executed
      on January 1, 2005 and amended on January 1, 2006 and January 2, 2007 to reflect
      the outstanding amount owed. The amount of $464,246 does not represent a
      one-time lump sum but rather a series of transactions between January 2003
      and
      March 2007.




The
      Company is indebted to Marilyn Froats, spouse of Blaine Froats, $115,392 (as
      of
      December 31, 2006 - $99,802) in consulting fees for the services rendered during
      the period between July 1, 2005 to March 31, 2007.




During
      the three month period ended March 31, 2006, an amount totaling $65,836 was
      paid
      as consulting expenses to members of
      the
      Froats family who are not directors (December 31, 2006 - $192,292).




7.
      CAPITAL STOCK




The
      Company is authorized under its charter to issue 250,000,000 shares of common
      stock, par value $0.001 per share.




The
      Company issued 3,356,714 shares of common stock during the three months ending
      March 31, 2006. The amount issued consisted of 84,912 shares of common stock
      for
      expenses totaling $4,416 or $0.05 per share (weighted average price), 2,000,000
      shares of common stock for the exercise of options and 3,271,802 shares were
      issued to consultants for services performed for the Company totaling $187,416
      or $0.06 per share (weighted average price).




At
      March
      31, 2007 and December 31, 2006, there were 137,305,591, and 133,948,877 shares
      of common stock issued and outstanding, respectively.




8.
      DEFERRED CONSULTING COSTS




The
      Company issued shares to service providers and consultants over the terms of
      their contracts which range from three months to three years. The Company
      recorded shares at the fair value at date issued and the expense is recorded
      as
      services are rendered.




F5


All
      deferred assets are recorded at fair market value at the time of share issuance
      and are systematically reduced based on the terms of each agreement. Each party
      providing services had either positive working references or had previously
      provided services to the Company and had performed their duties as per their
      contractual terms. The following is a chart of the current deferred consulting as
      of the
      period ending March 31, 2007, with accompanying notes:




NAME
            
            DESCRIPTION
            
            $
                VALUE OF SHARES REMAININGOperations
                (1)
            
            
            Up
                to June 15, 2006
            
            
            92,141Administration
                (2)
            
            
            Up
                to May 30, 2006
            
            
            9,773Research
                & Development (3)
            
            
            Up
                to May 30, 2006
            
            
            6,390







(1)
            Shares
                issued to consultants involving the management, marketing, product
                development and operations of the Company.


(2)
            Includes
                $814 to****consultants
                and employees****for
                general office duties, and $7,251 for bookkeeping and general
                administrational duties.


(3)
            Shares
                issued****to
                consultants and employees****and
                deferred for lab, engineering, research and technical support.




9.
      STOCK
      OPTIONS AND WARRANTS




On
      May
      22, 2003 the Company adopted a stock option plan that is accounted for based
      on
      SFAS No. 123 (R) and related interpretations. The plan allows the Company to
      grant options to persons employed or associated with the Company, including,
      without limitation, any employee, director, general partner, officer, attorney,
      accountant, consultant or advisor up to an aggregate of 5,000,000 common
      shares.




The
      options have a term of expiration to be set by the Compensation Committee of
      the
      Board of Directors but will not exceed ten (10) years after the grant date.
      The
      options vest immediately. The exercise price for each option is chosen at the
      discretion of the Compensation Committee. On February 24, 2004, the Company
      increased the number of shares to be issued under the plan to 15,000,000.




In
      December 2006, 2,000,000 options were exercised. These common shares were issued
      in January 2007 as reflected in the Company’s financial statements.




At
      March
      31, 2007 and December 31, 2006, there were options to purchase 7,780,000 and
      7,780,000 shares of common stock, respectively. There were no other exercised,
      expired or issued options during the three month period.




The
      total
      amount of warrants outstanding at March 31, 2007 was 10,166,676. There were
      no
      issued warrants and 3,720,556 warrants expired during the three month
      period.




F6





10.
      NET
      INCOME (LOSS) PER COMMON SHARE




The
      Company computes net income (loss) per common share in accordance with SFAS
      No.
      128, “Earnings per Share”, SEC Staff Accounting Bulletin No. 98 (“SAB 98”) and
      Emerging Issues Task Force No. 04-8 “The Effect of Contingently Convertible
      Instruments on Diluted EPS”. Under the provisions of SFAS 128 and SAB 98, basic
      net income (loss) per common share (“Basic EPS”) is computed dividing net income
      (loss) available to common stockholders by the weighted average number of common
      shares outstanding. Diluted net income (loss) per common share (“Diluted EPS”)
      is computed by dividing net income (loss) adjusted for interest expense and
      amortization of debt issuance costs associated with the Convertible Debentures,
      by the weighted average number of common shares and dilutive potential common
      share equivalents then outstanding. Potential common shares consist of shares
      issuable upon the exercise of stock options and convertible securities such
      as
      Convertible Debentures. The calculation of diluted net loss per share does
      not
      include potential shares of common stock equivalents for the years ended
      December 31, 2006 and 2005 respectively, as their impact on net loss per share
      would be antidilutive.




F7


**ITEM.
        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION.**
  The
        following Management’s Discussion and Analysis and Plan of Operation should be
        read in conjunction with the financial statements, and the notes thereto
        included herein.
  Cautionary
        Statement Concerning Forward-Looking Statements
  This
        report contains forward-looking statements that involve risks and uncertainties.
        We generally use words such as “believe,” “may,” “could,” “will,” “intend,”
“expect,” “anticipate,” “plan,” and similar expressions to identify
        forward-looking statements, including statements regarding our expansion
        plans.
        You should not place undue reliance on these forward-looking statements.
        Our
        actual results could differ materially from those anticipated in the
        forward-looking statements for many reasons, including the risks described
        in
        our “Risk Factor” section in our 10-KSB, other filings with the SEC and
        elsewhere in this report. Although we believe the expectations reflected
        in the
        forward-looking statements are reasonable, they relate only to events as
        of the
        date on which the statements are made, and our future results, levels of
        activity, performance or achievements may not meet these expectations. We
        do not
        intend to update any of the forward-looking statements after the date of
        this
        document to conform these statements to actual results or to changes in our
        expectations, except as required by law.
 
 Background
  We
        are a
        development stage company. We have not earned revenues from our technology
        through March 31, 2007. We are currently developing our core technology which
        is
        focused on production of on-demand, pure, safe hydrogen. Hydrogen has numerous
        applications, such as a fuel to power internal combustion engines and fuel
        cells, and in bulk form, as a process ingredient in the food, pharmaceutical,
        oil refining, glass production and several other major manufacturing industries.
        Our hydrogen production process is designed to overcome three major industry
        obstacles: affordability, storage and safety. Our hydrogen production system
        leverages a chemical process that yields fuel-cell quality hydrogen with
        no
        known harmful by-products. Our hydrogen-maker can be scaled according to
        application and designed to directly supply almost any application on an
        as-needed basis, eliminating the need to store hydrogen in a compressed state.
  Since
        2003, our objective has been to create a clean, on-demand hydrogen technology
        that has multiple market applications. Our hydrogen production system leverages
        a non-toxic proprietary chemical reaction that yields high quality hydrogen
        and
        potentially valuable chemical compounds as by-products. Our unique production
        method yields no waste or emissions and does not require the use of fossil
        fuels
        or electricity. It is also environmentally friendly because it produces hydrogen
        without utilizing any toxic ingredients or producing harmful emissions.
  The
        process of making hydrogen produces a number of chemical by-products. These
        chemicals have many applications. If we can produce these by-products in
        significant volume, we believe we could generate revenues from their sales
        which
        could subsidize the cost of producing the hydrogen gas. We believe this
‘subsidized model’ approach to producing bulk hydrogen is unique in the
        alternate energy industry and we believe it will make us more competitive
        because we can offer hydrogen at a lower cost than our competitors.
  Our
        hydrogen production process is designed to overcome three major industry
        obstacles: affordability, storage and safety. Our hydrogen-maker can be scaled
        according to application and designed to directly supply almost any application
        on an as-needed basis, eliminating the need to store hydrogen in a compressed
        state.
  We
        are
        currently negotiating with Brasil Óleo de Mamona Ltda, known as BOM, a world
        leader in castor oil production, to build a pilot plant supplying their company
        with hydrogen to fuel their hydrogenation process. We believe completion
        of this
        plant would achieve a number of objectives including testing and refining
        of BOM
        Brazil’s process technology, selling its hydrogen and requisite chemicals
        through BOM related sales channels and revenue generation by 2008. We are
        currently seeking private investment to complete the first steps required
        for
        the pilot plant operations in Brazil.
  1
  We
        believe our hydrogen production technology could have immediate application
        in
        the areas of existing hydrogen industries such as hydrogenation of food oils
        and
        petro-chemicals, as well as emergent power uses including: back-up and, in
        some
        cases, primary power for commercial, industrial and military purposes;
        stationary and portable fuel cell power applications, in fuel cell-driven
        and
        internal combustion engine vehicles; and residential and commercial applications
        for users wishing to gain independence from the existing electrical grid.
        The
        chemical by-products produced by our hydrogen production process, via any
        one of
        the aforementioned hydrogen applications, are environmentally safe, meet
        applicable industry standards and possess wide, established global markets
        in
        the food products and pharmaceutical industries.
  Basis
        of Presentation
  These
        consolidated financial statements present the accounts of Alternate Energy
        and
        its wholly-owned subsidiary, 2040412 Ontario, Inc. All significant intercompany
        accounts and transactions have been eliminated.
  **CRITICAL
        ACCOUNTING POLICIES, ESTIMATES AND NEW ACCOUNTING PRONOUNCEMENTS**
  Management’s
        discussion and analysis of its financial condition and plan of operations
        is
        based upon our consolidated financial statements, which have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        of
        America. The preparation of these financial statements requires that we make
        estimates and judgments that affect the reported amounts of assets, liabilities,
        revenues and expenses, and related disclosure of contingent assets and
        liabilities. At each balance sheet date, management evaluates its estimates.
        We
        base our estimates on historical experience and on various other assumptions
        that are believed to be reasonable under the circumstances. Actual results
        may
        differ from these estimates under different assumptions or conditions. The
        estimates and critical accounting policies that are most important in fully
        understanding and evaluating our financial condition and results of operations
        include those stated in our financial statements and those listed below:
  Going
        Concern
  These
        financial statements have been prepared on a going concern basis and do not
        include any adjustments to the measurement and classification of the recorded
        asset amounts and classification of liabilities that might be necessary should
        we be unable to continue as a going concern. We have experienced losses in
        the
        period and there is negative working capital. Our ability to realize our
        assets
        and discharge our liabilities in the normal course of business is dependent
        upon
        continued support. We are currently attempting to obtain additional financing
        from our existing shareholders and other strategic investors to continue
        operations. However, there can be no assurance that we will obtain sufficient
        additional funds from these sources.
  These
        conditions cause substantial doubt about our ability to continue as a going
        concern. A failure to continue as a going concern would require that stated
        amounts of assets and liabilities be reflected on a liquidation basis that
        could
        differ from the going concern basis.
  Accounting
        Principles
  Our
        accounting and reporting policies conform to generally accepted accounting
        principles and industry practice in the United States. The financial statements
        are prepared in United States dollars.
  *Risks
        and Uncertainties*
  We
        operate in an emerging industry that is subject to market acceptance and
        technological change. Our operations are subject to significant risks and
        uncertainties, including financial, operational, technological and other
        risks
        associated with operating an emerging business, including the potential risk
        of
        business failure.
  *Financial
        Instruments and Risk Concentrations*
  Our
        estimate of the fair value of cash, accounts payable and accrued liabilities,
        warrant liability, convertible notes and due to directors and officers
        approximates carrying value due to the short-term nature of these instruments.
        Marketable securities are stated at fair value.
  2
  Our
        operations are in Canada and virtually all of our assets and liabilities
        give
        rise to significant exposure to market risks from changes in foreign currency
        rates arising from fluctuations in foreign exchange rates and the degree
        of
        volatility of these rates. Currently, we do not use derivative instruments
        to
        reduce our exposure to foreign currency risk. We may not be able to effectively
        protect our intellectual property rights, which form the foundation of the
        business. The business exposes us to potential product liability claims that
        are
        inherent in hydrogen and products that use hydrogen. We have not obtained
        insurance coverage on acceptable terms.
  *Deferred
        Consulting Costs*
  We
        have
        issued shares of our common stock to service providers and consultants over
        the
        terms of their contracts which range from three months to three years. We
        recorded these shares at the fair value at date issued and the expense is
        recorded as services are rendered.
  All
        deferred assets are recorded at fair market value at the time of share issuance
        and are systematically reduced based on the terms of each agreement. Each
        party
        providing services had either positive working references or had previously
        provided services to us and had performed their duties as per their contractual
        terms.
  *Marketable
        Securities*
  Marketable
        securities are classified as current, are available for sale and are stated
        at
        fair value. Unrealized gains and losses, net of tax, are included in Accumulated
        Other Comprehensive Income (Loss) on the Balance Sheet.
  *Patents
        and Technology*
  In
        accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” which was
        adopted in its entirety on May 22, 2003, we evaluate the carrying value of
        other
        intangible assets annually as of December 31 and between annual evaluations
        if
        events occur or circumstances change that would more likely than not reduce
        the
        fair value of the reporting unit below its carrying amount. When evaluating
        whether or not an asset is impaired, we compare the fair value of the reporting
        unit to which the asset is assigned to its carrying amount. If the carrying
        amount of a reporting unit exceeds its fair value, the amount of the impairment
        loss must be measured. The impairment loss is calculated by comparing the
        implied fair value of the reporting unit to its carrying amount.
  We
        performed our periodic review of our intangible assets for impairment as
        of
        December 31, 2005 and identified asset impairment as a result of the review
        of
        $1,906,373.
  We
        purchased technology during the 2004 fiscal year for $218,000 and had filed
        for
        provisional patents covering the newly acquired technology. This technology
        showed no impairment during the fiscal year ended December 31, 2005.
  As
        a
        result of change in technology in the third quarter ending September 30,
        2006,
        we concluded that the technology is no longer functional, deemed inadequate
        to
        the needs of the business at that time, and did not fit into our business
        plan
        as set out in relation to the requirements for a competitive margin needed
        for
        our targeted markets. We performed our periodic review of our intangible
        assets
        for impairment as of December 31, 2006 and identified asset impairment as
        a
        result of the review of approximately $218,000.
  3
  As
        a
        result, we withdrew two provisional patents through our patent attorneys,
        and
        recorded the impairment as shown in the chart below. The impairments to
        intangible assets are reflected in our financial statements for the first
        quarter ending March 31, 2007 and the fiscal years ending December 31, 2006
        and
        2005.
  Balance,
                  December 31, 2005
              
              
              218,000Patents
                  and technology adjusted for impairment during the year
              
              
              (218,000
              )Balance,
                  December 31, 2006
              
              $
              0Balance,
                  March 31, 2007
              
              $
              0
  Through
        our extensive research and development, we have developed our own proprietary
        process for producing hydrogen. We believe this process has improved hydrogen
        production significantly, with the added creation of valuable by-products.
        Since
        these by-products have a much higher value to weight ratio than the hydrogen
        itself, subsidization of the hydrogen’s selling price via the sale of this
        product will allow for this process to be more price competitive with current
        gasoline, diesel and hydrogen prices.
  It
        is
        with this newly developed technology that we will continue our business strategy
        which may allow for the realization of better revenue opportunities to arise
        in
        the future. We will continue in the development and refinement of our hydrogen
        production systems.
  *Income
        Taxes*
  We
        account for our income taxes under the asset and liability method specified
        by
        SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities
        are determined based on the difference between the financial statement and
        tax
        bases of assets and liabilities as measured by the effective tax rates which
        will be in effect when these differences are expected to reverse. Deferred
        tax
        assets are reduced by a valuation allowance when, in the opinion of management,
        it is more than likely than not that some portion or all of the deferred
        tax
        assets will not be realized.
  *Property
        and Equipment*
  Property
        and equipment are recorded at cost less accumulated depreciation. Depreciation
        is provided annually on a declining-basis over the estimated useful lives
        of the
        assets, except for current year additions on which 1⁄2 of the rates are
        applicable. The declining balance rates are as follows:
  Automobile
              30%
                  declining balanceComputer
                  hardware
              30%
                  declining balanceComputer
                  software
              100%
                  declining balanceEquipment
              20%
                  declining balanceTelephone
              30%
                  declining balanceOffice
                  equipment
              30%
                  declining balance
  4
  *Comprehensive
        Income*
  We
        adopted SFAS No. 130, “Reporting Comprehensive Income”, which establishes
        standards for the reporting of comprehensive income, its components and
        accumulated balances. Comprehensive income is defined to include all changes
        in
        equity except those resulting from investments by owners or distributions
        to
        owners. Among other disclosures, SFAS No. 130 requires that all items that
        are
        required to be recognized under the current accounting standards as a component
        of comprehensive income be reported in a financial statement that is displayed
        with the same prominence as other financial statements. Comprehensive income
        is
        displayed in the statement of shareholders’ equity and in the balance sheet as a
        component of shareholders’ equity.
  *Use
        of Estimates*
  The
        preparation of financial statements in conformity with United States generally
        accepted accounting principles requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting periods. Actual results could differ from those
        estimates.
  *Stock
        Option Plans and Stock-Based Compensation*
  We
        apply
        the fair-value-based method of accounting prescribed by SFAS No. 123 (R),
        “Accounting for Stock-Based Compensation,” ** in
        accounting for our stock options granted to employees and stock granted to
        non-employees. As such, compensation expense for employees is recorded on
        the
        date of the grant, which vests immediately based on the fair market value
        of the
        stock and is expensed in the period in which the option was granted.
        Compensation cost for non-employees is recognized when services are received
        using the fair value of our equity instruments at those dates.
  *Earnings
        per Share*
  We
        compute net income (loss) per common share in accordance with SFAS No. 128,
        “Earnings per Share,” SEC Staff Accounting Bulletin No. 98 (“SAB 98”) and
        Emerging Issues Task Force No. 04-8 “The Effect of Contingently Convertible
        Instruments on Diluted EPS.” Under the provisions of SFAS 128 and SAB 98, basic
        net income (loss) per common share (“Basic EPS”) is computed by dividing net
        income (loss) available to common stockholders by the weighted average number
        of
        common shares outstanding. Diluted net income (loss) per common share (“Diluted
        EPS”) is computed by dividing net income (loss) adjusted for interest expense
        and amortization of debt issuance costs associated with our Convertible
        Debentures by the weighted average number of common shares and dilutive
        potential common share equivalents then outstanding. Potential common shares
        comprise shares issuable upon the exercise of stock options and convertible
        securities such as Convertible Debentures.
  *Foreign
        Currency Translation*
  We
        consider the functional currency to be the Canadian dollar and, accordingly,
        financial information is translated into U.S. dollars using exchange rates
        in
        effect at year-end for assets and liabilities and average exchange rates
        during
        each reporting period for the results of operations.
  *Revenue
        Recognition*
  Revenues
        are recognized when all of the following criteria have been met: persuasive
        evidence for an arrangement exists; delivery has occurred; the fee is fixed
        or
        determinable; and, collection is reasonably assured. Upfront contract payments
        received from the sale of services not yet earned are initially recorded
        as
        deferred revenue on the balance sheet.
  Revenue
        from time and material service contracts is recognized as the services are
        provided. Revenue from fixed price, long-term service or development contracts
        is recognized over the contract term based on the percentage of services
        that
        are provided during the reporting period compared with the total estimated
        services to be provided over the entire contract. Losses on fixed price
        contracts are recognized during the reporting period in which the loss first
        becomes apparent. Payment terms vary by contract.
  5
  *Advertising*
  We
        expense the cost of advertising when incurred. Advertising expenses are included
        in general and administrative expenses in the consolidated statements of
        operations.
  *Recently
        Adopted Accounting Standards*
  In
        September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
        Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
        No. 87, 88, 106 and 132(R).” (SFAS 158”) SFAS 158 requires an employer that
        sponsors one or more single-employer defined benefit plans to (a) recognize
        the
        overfunded or underfunded status of a benefit plan in its statement of financial
        position, (b) recognize as a component of other comprehensive income, net
        of
        tax, the gains or losses and prior service costs or credits that arise during
        the year but are not recognized as components of net periodic benefit cost
        pursuant to SFAS 87, “Employers’ Accounting for Pensions”, or SFAS 106,
“Employers’ Accounting for Postretirement Benefits Other Than Pensions”, (c)
        measure defined benefit plan assets and obligations as of the date of the
        employer’s fiscal year-end, and (d) disclose in the notes to financial
        statements additional information about certain effects on net periodic benefit
        cost for the next fiscal year that arise from delayed recognition of the
        gains
        or losses, prior service costs or credits, and transition asset or obligation.
        SFAS 158 is effective for our fiscal year ending December 31, 2007. We do
        not
        expect the adoption of SFAS 158 to have a material impact on our financial
        position, results of operation or cash flows.
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement.” (“SFAS
        157”). The Statement provides guidance for using fair value to measure assets
        and liabilities. The Statement also expands disclosures about the extent
        to
        which companies measure assets and liabilities at fair value, the information
        used to measure fair value, and the effect of fair value measurement on
        earnings. This Statement applies under other accounting pronouncements that
        require or permit fair value measurements. This Statement does not expand
        the
        use of fair value measurements in any new circumstances. Under this Statement,
        fair value refers to the price that would be received to sell an asset or
        paid
        to transfer a liability in an orderly transaction between market participants
        in
        the market in which the entity transacts. SFAS 157 is effective for fair
        value
        measurements and disclosures made by us in our fiscal year beginning on October
        1, 2008. We do not expect the adoption of SFAS 157 to have a material impact
        on
        our financial position, results of operation or cash flows.
  In
        July
        2006, the FASB issued FIN. 48, Accounting for Uncertainty in Income Taxes
        (an
        interpretation of FASB Statement No. 109), *(* “FIN
        48”), which is effective for fiscal years beginning after December 15, 2006.
        This interpretation was issued to clarify the accounting for uncertainty
        in
        income taxes recognized in the financial statements by prescribing a recognition
        threshold and measurement attribute for the financial statement recognition
        and
        measurement of a tax position taken or expected to be taken in a tax return.
        We
        are currently evaluating the potential impact of FIN 48, but it is not expected
        to have a material impact on our financial position, results of operations
        or
        cash flows.
  In
        March
        2006, the FASB issued Statement of Financial Accounting Standards No. 156,
        Accounting for Servicing of Financial Assets (“SFAS No. 156”), which amends FASB
        Statement No. 140 (“SFAS No. 140”). SFAS 156 may be adopted as early as January
        1, 2006, for calendar year-end entities, provided that no interim financial
        statements have been issued. Those not choosing to early adopt are required
        to
        apply the provisions as of the beginning of the first fiscal year that begins
        after September 15, 2006 (e.g., January 1, 2007, for calendar year-end
        entities). The intention of the new statement is to simplify accounting for
        separately recognized servicing assets and liabilities, such as those common
        with mortgage securitization activities, as well as to simplify efforts to
        obtain hedge-like accounting. Specifically, the FASB said FAS No. 156 permits
        a
        servicer using derivative financial instruments to report both the derivative
        financial instrument and related servicing asset or liability by using a
        consistent measurement attribute, or fair value. We do not expect the adoption
        of SFAS 156 to have a material impact on our financial position, results of
        operations or cash flows.
  6
  **RESULTS
        OF OPERATIONS**
  **FOR
        FISCAL QUARTER ENDED MARCH 31, 2007,**
 **COMPARED
        TO THE FISCAL QUARTER ENDED MARCH 31, 2006**
  **REVENUES**
  For
        the
        fiscal quarter ended March 31, 2007 and for the fiscal quarter ended March
        31,
        2006 we had no revenues. As a development stage company we are working
        diligently to progress our technology into realized revenue. We are continuing
        with our exploration of our dual phase business strategy that may allow for
        the
        realization of revenue opportunities sooner as we continue the development
        and
        refinement of our hydrogen production systems as well as our sales and marketing
        strategies.
  **OTHER
        INCOME**
  For
        the
        fiscal quarter ended March 31, 2007, we received $1,241 in payments satisfying
        a
        lease agreement and $708 in payments towards the reclaiming of
        debt.
  **EXPENSES**
  We
        had
        total expenses of $518,779 and $1,161,522 in the fiscal quarter ended March
        31,
        2007 and March 31, 2006, respectively. Our expenses for the fiscal quarter
        ended
        March 31, 2007 and March 31, 2006 consisted of $98,044 and $42,112 in
        administrative expenses, respectively, $196,682 and $956,335 in consulting
        fees,
        respectively, $147,699 and $58,241 in professional fees, respectively, $63,550
        and $37,380 for research and development, respectively, $0 and $50,386 for
        financing expense, respectively, and $12,804 and $17,068 in depreciation,
        respectively. During the fiscal quarter ended March 31, 2007, our expenses
        were
        45% lower than in fiscal quarter ended March 31, 2006, mostly due to financing
        expenses associated
        with a previous debenture and a decrease in consulting fees.
  There
        was
        an increase of $55,932 in administrative expenses in the fiscal quarter ending
        March 31, 2007 as compared to the fiscal quarter ending March 31, 2006. This
        increase is attributed to expenditures to overall administrative needs over
        a
        multitude of areas, including travel, insurance and communications requirements.
  There
        was
        a decrease in consulting fee expenses of $759,653 in the fiscal quarter ending
        March 31, 2007 as compared to the fiscal quarter ending March 31, 2006. The
        decrease is mainly attributed the non issuance of stock options and to our
        utilization of core consultants with the issuance of common stock. By issuing
        common stock to these core consultants as payment, the use of cash is conserved,
        not only by an incentive for lowering of payments in regards to total cash
        fees
        due, but also for the reduction of the overall potential cash flow needed
        to
        satisfy these cash payments.
  Professional
        fees increased by $89,458 in the fiscal quarter ending March 31, 2007 as
        compared to the fiscal quarter ending March 31, 2006. This increase is largely
        attributed to accounting expenses in connection with general operational
        activity.
  There
        was
        an increase in research and development expenses of $26,170 in the fiscal
        quarter ending March 31, 2007 as compared to the fiscal quarter ending March
        31,
        2006 as we continue on our course of action with testing and development
        of our
        hydrogen production systems as well as our valuable byproducts.
  There
        was
        a decrease of $4,264 **** in
        depreciation expenses relative to our fixed assets as per our scheduled
        depreciation table.
  7
  Over
        the
        next 12 months, we anticipate that our expenses will not increase substantially
        over our expenses in the period ending March 31, 2007, unless additional
        financing is obtained. In the event significant financing is obtained, we
        would
        expect that expenses will only increase in proportion with the amount of
        funds
        received as a result of any such financing. We will continue as planned in
        the
        goals set for the continued development, sales and marketing of our hydrogen
        production system and sale of by-products.
  **NET
        LOSS**
 
 We
        had a
        net loss of $516,830 in the fiscal quarter ended March 31, 2007, compared
        with a
        net loss of $994,095 in the fiscal quarter ended March 31, 2006. The decrease
        of
        $477,265 in the net loss in the 2007 fiscal quarter compared to the 2006
        fiscal
        quarter relates primarily to the administrational expenses along with the
        non
        issuance of stock options reflecting no additional expenses associated with
        the
        valuation of said options in the fiscal quarter ended March 31, 2007 period.
        We
        believe that, for the fiscal year ending December 31, 2007, we will continue
        to
        incur losses at the rate experienced during the first quarter. In 2007, we
        believe we would only be able to slow our losses if we can create and sustain
        significant revenues from our hydrogen production system and
        by-products.
  **LIQUIDITY
        AND CAPITAL RESOURCES**
  Our
        financial statements have been prepared on a going concern basis that
        contemplates the realization of assets and the settlement of liabilities
        and
        commitments in the normal course of business. We incurred a net loss of $516,830
        and $994,095 for the quarters ended March
        31,
        2007 and March
        31,
        2006 ,
        respectively, and have an accumulated deficit of $29,655,236 at March
        31,
        2007 .
        We had
        $39,450 in cash on hand as of March
        31,
        2007 .
        Management may obtain additional capital principally through the sale of
        equity
        securities. The realization of assets and satisfaction of liabilities in
        the
        normal course of business is dependent upon our ultimately obtaining profitable
        operations. We may not be successful in these activities. Should any of these
        events not occur, the accompanying financial statements will be materially
        affected.
  Due
        to no
        cash generated from operations, we currently do not have internally generated
        cash sufficient to pay all of our incurred expenses and other liabilities.
        As a
        result, we are dependent on investor capital and loans to meet our expenses
        and
        obligations. Although investor funds have allowed us to meet our obligations
        in
        the recent past, there can be no assurances that our present methods of
        generating cash flow will be sufficient to meet future obligations.
        Historically, we have, from time to time, been able to raise additional capital,
        but there can be no assurances that we will be able to raise additional capital
        in this manner.
  Net
        cash
        used in operating activities was $200,705 for the three month period ended March
        31,
        2007 ,
        compared with $64,568 for the three month period ended March
        31,
        2006 .
        The net
        cash used for this period resulted mainly from consulting fees and liabilities
        to continue the ongoing movement towards our development, marketing and
        operations. The consulting fees were paid in shares of our common
        stock.
  Net
        cash
        obtained from financing activities was $65,084 for the three month period
        ended March
        31,
        2007 ,
        compared with $16,871 for the three month period ended March
        31,
        2006 .
        In the
        three month period ended March
        31,
        2007 ,
        we
        received advances from one of our directors.
  Net
        cash
        provided by investing activities for the three month period ended March
        31,
        2007 was
        $0,
        compared with $17,349 for the three month period ended March
        31,
        2006 .
  On
        April
        28, 2006, we sold 1,600,000 shares of common stock at a price of $0.10 per
        share, for a total of $160,000, to certain accredited investors.
  On
        April
        1, 2006 we entered into a lease agreement with Astris Energi, Inc. We will
        lease
        certain equipment to Astris over a 48 month period.
  8
  In
        March
        2005, we entered into a convertible debenture agreement which is described
        below. The initial closing for $500,000 and its conversion features triggered
        the anti-dilution clause included in our private placement agreements with
        certain accredited investors. As such, an additional 2,811,429 shares of
        our
        common stock will need to be issued to these investors. As of March 31, 2007,
        324,857 **** shares
        of
        common stock have been issued with 2,486,572 shares remaining to be issued.
 
 On
        March
        2, 2005, we entered into a private placement with certain institutional
        accredited investors whereby these investors agreed to purchase up to $1,500,000
        in Convertible Notes, with Class A Warrants to purchase a number of shares
        equal
        to the number of shares to which the Notes are convertible, at a price of
        $0.40
        per share expiring in 3 years, Class B Warrants to purchase up to three times
        the amount of Notes purchased at the initial closing at an exercise price
        equal
        to 70% of the volume weighted average price for the five days preceding the
        closing, or $0.2875 per share, exercisable until 90 days after a resale
        registration statement is declared effective by the Securities and Exchange
        Commission, and Class C Warrants to purchase 400,000 shares at $0.40 per
        share
        and 600,000 shares at $1.00 per share, exercisable for 3 years from the date
        of
        the closing. The Notes were initially convertible into shares of our common
        stock at 70% of the average closing bid price for the 5 days preceding the
        notice to convert with an initial ceiling of $0.35 per share and floor of
        $0.15
        per share. Under the terms of the Notes, the floor is no longer effective.
        The
        Notes carry an interest rate of 6%, payable quarterly in arrears in either
        cash
        or our stock, at our discretion.
  **** As
        of
        June 30, 2006, we have received $500,000 **** in
        proceeds from the investors and have issued warrants to purchase a total
        of
        8,054,674 shares of common stock. Of this total there were 2,563,668 Class
        A
        warrants, 5,291,005 Class B warrants and 200,000 Class C warrants issued,
        all of
        which have been converted to shares of common stock. No
        other proceeds have been received from this debenture.
  We
        held
        1,000,000 shares of Astris Energi Inc. as of December 31, 2004, which comprised
        an ownership interest in Astris Energi of 2.65%. We purchased these shares
        for a
        total of $300,000 at the value of $0.30 per share and adjusted as per market
        value for that period. We sold all 1,000,000 shares of the Astris Energi
        securities between September 1, 2005 and March 31, 2006, incurring a loss
        on the
        investment, which is reflected in the consolidated statements of cash flows.
  During
        the fiscal quarter ended June 30, 2006, our contract with Astris Energi was
        amended and we received 800,000 restricted shares of common stock of Astris
        Energi Inc, $85,000 in cash and the rights to purchase 1,500,000 warrants
        at
        $0.19 for a period of three years. On the Over-The Counter Bulletin Board,
        the
        last reported sale price of Astris Energi’s common stock was $0.071 as of
        November 9, 2006.
  While
        we
        believe that we will have sufficient cash to meet our short-term capital
        requirements, we may not be able to raise sufficient funds to meet long-term
        capital needs as management estimates that we will require several million
        dollars towards the end of fiscal quarter ended June 30, 2007 to continue
        towards the goals set forth in our business strategy as stated in our annual
        report on form 10-KSB for the fiscal year ended December 31, 2006. We may
        also
        seek alternative sources of financing, including from more conventional sources
        such as bank loans and credit lines, although no assurances in this regard
        can
        be made. Further, the availability of any future financing may not be on
        terms
        that are satisfactory to us.
  From
        time
        to time, we may evaluate potential acquisitions involving complementary
        businesses, content, products or technologies. We have no present agreements
        or
        understanding with respect to any such acquisition. Our future capital
        requirements will depend on many factors, including growth of our business,
        the
        success of our operations, economic conditions and other factors including
        the
        results of future operations.
  **PLAN
        OF OPERATION**
  Over
        the
        next twelve months we will be working on the following initiatives:
  Revenue
        Generation
  We
        are
        currently in negotiations with BOM Brasil, a world-leader in castor oil
        production, to build a pilot plant supplying their company with hydrogen
        to fuel
        their hydrogenation process. Completion of a plant is expected to achieve
        a
        number of our objectives including testing and refining of our process
        technology, selling our hydrogen and requisite chemicals through BOM-related
        sales channels and/or through other possible distributors, and revenue
        generation by 2008. Upon the successful completion and operation of the BOM
        pilot plant, we plan to build fully-operational hydrogen and chemical plants
        at
        appropriate sites worldwide.
  9
  We
        are
        now working towards securing a five-year contract to supply BOM with on-site
        hydrogen at an extremely competitive price to what BOM is presently paying.
        We
        believe this will save BOM considerable expenses related to its cost of
        hydrogen, since it is currently trucked-in on a daily basis. We intend to
        design
        and build a hydrogen production facility on their site in Salvador, Brazil,
        which will produce a pre-determined volume of hydrogen, as mutually agreed
        upon
        by the contract. We expect to retain all rights to the by-product.
  Contingent
        on securing a signed contract, we anticipate a contract with a reputable
        engineering firm in the designing and project management relating to the
        construction of this turn-key operation. We believe that the financing of
        the
        facility and equipment, together with the related capital requirements can
        be
        found on a project financing basis, and therefore we do not expect to be
        required to provide this funding. Assuming the completion of contractual
        requirements and project financing by August 1, 2007, we estimates a turn-key
        plant could be completed by June 1, 2008. We would expect revenues of hydrogen
        and by-product to commence thereafter.
  Other
        revenue opportunities are being considered to supply hydrogen and by-products
        to
        a variety of industries and applications in traditional and emerging
        markets.
  Research
        and Development
  In
        addition to refining the hydrogen production process and developing new
        by-products, we expect to continue process optimization of current by-products
        with our principal technical team and external Labs. New research has been
        initiated by the University of Waterloo Co-op chemical engineering students
        to
        minimize raw material costs for the by-product processes, as well to identify
        the future development of innovative, hydrogen-yielding chemical
        reactions.
  Over
        the
        next 12 months, we intend to continue with this business strategy which may
        allow for the realization of better revenue opportunities to arise in the
        future.
  In
        order
        to accomplish and continue with these steps, management estimates that we
        will
        require up to seven million dollars towards the end of fiscal year ended
        2007.
        As we do not have any current revenue, we believe these funds will come from
        loans from officers and private placements of our common stock.
  **Changes
        In and Disagreements with Accountants on Accounting and Financial Disclosure**
  None.
  **ITEM
        3. CONTROLS AND PROCEDURES.**
  Our
        management evaluated, with the participation of our Chief Executive Officer
        and
        our Principal Financial Officer, the effectiveness of our disclosure controls
        and procedures as of the end of the period covered by this Quarterly Report
        on
        Form 10-QSB. Based on this evaluation, our Chief Executive Officer and our
        Principal Financial Officer have concluded that our disclosure controls and
        procedures are effective to ensure that information we are required to disclose
        in reports that we file or submit under the Securities Exchange Act of 1934
        (i)
        is recorded, processed, summarized and reported within the time periods
        specified in Securities and Exchange Commission rules and forms, and (ii)
        is
        accumulated and communicated to our management, including our Chief Executive
        Officer, as appropriate to allow timely decisions regarding required disclosure.
        Our disclosure controls and procedures are designed to provide reasonable
        assurance that such information is accumulated and communicated to our
        management. Our disclosure controls and procedures include components of
        our
        internal control over financial reporting. Management’s assessment of the
        effectiveness of our internal control over financial reporting is expressed
        at
        the level of reasonable assurance that the control system, no matter how
        well
        designed and operated, can provide only reasonable, but not absolute, assurance
        that the control system’s objectives will be met. There was no change in our
        internal control over financial reporting that occurred during the last fiscal
        quarter that materially affected, or is reasonably likely to affect, our
        internal control over financial reporting.
  10
  **PART
        II**
 **OTHER
        INFORMATION**
  **ITEM
        1. LEGAL PROCEEDINGS.**
  On
        October 22, 2004, we instituted proceedings against Russell Rothman in the
        Ontario Superior Court of Justice (Case No. 04-CV-277760CM2). We are seeking
        the
        rescission of agreements between us and Mr. Rothman, return of shares paid
        to
        him, and the return of money paid. We had entered into an agreement with
        Mr.
        Rothman for the purchase of certain technology related to the production
        of
        hydrogen gas, for which he represented that he owned all right and title.
        On
        January 4, 2005 Rothman filed a countersuit against us in the Ontario Supreme
        Court of Justice for breach of contract in the amount of $2 billion and is
        asking for punitive damages in the amount of $10 million. On December 9,
        2005,
        the Ontario Supreme Court of Justice ordered that Mr. Rothman’s pleadings be
        struck, that he issue new pleadings by January 9, 2006 and that he appear
        in
        court on February 9, 2006.
  On
        January 9, 2006, Mr. Rothman substantially amended his claim, and is now
        seeking
        $12 million for breach of contract and punitive damages in the amount of
        $250,000. We continue to believe that the counterclaim has no merit and while
        it
        is too early to determine the outcome of such allegations, we intend to
        vigorously defend against Mr. Rothman’s counterclaim. This litigation has not
        progressed beyond the pleading stage and is ongoing as of May 7,
        2007.
  We
        may be
        involved from time to time in ordinary litigation, negotiation and settlement
        matters that will not have a material effect on our operations or finances.
        Other than the litigation described above, we are not aware of any pending
        or
        threatened litigation against us or our officers and directors in their capacity
        as such that could have a material impact on our operations or
        finances.
  **ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**
 
 On
        January 3, 2007, we issued 10,000 common shares as consideration for prepaid
        consulting by L&J Consulting. The shares were valued at a total of
        $800.
 
 On
        January 3, 2007, we issued 200,000 common shares as consideration for prepaid
        consulting by Osprey Partners. The shares were valued at a total of
        $19,800.
 
 On
        January 3, 2007, we issued 55,000 common shares as consideration for prepaid
        consulting by DT Consulting. The shares were valued at a total of
        $4,400.
 
 On
        January 3, 2007, we issued 100,000 common shares as consideration for prepaid
        consulting by Hayward Consulting. The shares were valued at a total of
        $8,000.
 
 On
        January 3, 2007, we issued 150,000 common shares as consideration for prepaid
        consulting by Develpro, Inc. The shares were valued at a total of
        $12,000.
 
 On
        January 3, 2007, we issued 150,000 common shares as consideration for prepaid
        consulting by JF Consulting. The shares were valued at a total of
        $12,000.
 
 On
        January 3, 2007, we issued 100,000 common shares as consideration for prepaid
        consulting by Osprey Partners. The shares were valued at a total of
        $8,000.
 
 On
        January 23, 2007, we issued 48,714 common shares as consideration for prepaid
        consulting by Francis Cadeau. The shares were valued at a total of
        $3,064.
 
 On
        January 26, 2007, we issued 50,000 common shares as consideration for prepaid
        consulting by Don Wilkinson. The shares were valued at a total of
        $3,000.
 
 On
        January 29, 2007, we issued 200,000 common shares as consideration for prepaid
        consulting by JF Consulting. The shares were valued at a total of
        $11,600.
 
 On
        January 29, 2007, we issued 200,000 common shares as consideration for prepaid
        consulting by Develpro Inc. The shares were valued at a total of
        $11,600.
  11
 
 On
        January 29, 2007, we issued 50,000 common shares as consideration for prepaid
        consulting by RE Consulting. The shares were valued at a total of
        $2,900.
 
 On
        February 7, 2007, we issued 50,000 common shares as consideration for prepaid
        consulting by L&J Consulting. The shares were valued at a total of
        $3,250.
 
 On
        February 7, 2007, we issued 60,000 common shares as consideration for prepaid
        consulting by DT Consulting. The shares were valued at a total of
        $3,900.
 
 On
        February 7, 2007, we issued 100,000 common shares as consideration for prepaid
        consulting by Hayward Consulting. The shares were valued at a total of
        $6,500.
 
 On
        February 7, 2007, we issued 70,000 common shares as consideration for prepaid
        consulting by RE Consulting. The shares were valued at a total of
        $4,550.
 
 On
        February 27, 2007, we issued 75,000 common shares as consideration for prepaid
        consulting by L&J Consulting. The shares were valued at a total of
        $3,938.
 
 On
        February 27, 2007, we issued 120,000 common shares as consideration for prepaid
        consulting by Hayward Consulting. The shares were valued at a total of
        $6,300.
 
 On
        February 27, 2007, we issued 80,000 common shares as consideration for prepaid
        consulting by DT Consulting. The shares were valued at a total of
        $4,200.
 
 On
        March
        1, 2007, we issued 100,000 common shares as consideration for prepaid consulting
        by Osprey Partners. The shares were valued at a total of $5,000.
 
 On
        March
        1, 2007, we issued 28,000 common shares as consideration for prepaid consulting
        by Don Wilkinson. The shares were valued at a total of $1,540.
 
 On
        March
        2, 2007, we issued 490,000 common shares as consideration for prepaid consulting
        by Hewitt Consulting. The shares were valued at a total of $24,990.
 
 On
        March
        7, 2007, we issued 120,000 common shares as consideration for prepaid consulting
        by JF Consulting. The shares were valued at a total of $6,600.
 
 On
        March
        13, 2007, we issued 150,000 common shares as consideration for prepaid
        consulting by Develpro, Inc. The shares were valued at a total of
        $8,100.
 
 On
        March
        28, 2007, we issued 200,000 common shares as consideration for prepaid
        consulting by JF Consulting. The shares were valued at a total of
        $11,800.
 
 On
        March
        28, 2007, we issued 150,000 common shares as consideration for prepaid
        consulting by Develpro, Inc. The shares were valued at a total of
        $8,850.
 
 On
        March
        29, 2007, we issued 150,000 common shares as consideration for prepaid
        consulting by Hayward Consulting. The shares were valued at a total of
        $8,850.
 
 On
        March
        29, 2007, we issued 80,000 common shares as consideration for prepaid consulting
        by DT Consulting. The shares were valued at a total of $4,720.
 
 On
        March
        29, 2007, we issued 20,000 common shares as consideration for prepaid consulting
        by Don Wilkinson. The shares were valued at a total of $1,180.
  We
        issued
        the securities in the referenced transactions in reliance on the exemption
        contained in Section 4(2) of the Securities Act of 1933, as amended. There
        were
        no underwriters or placement agents employed in connection with the transactions
        described in this Item 2. The shares were issued to accredited investors
        in all
        of the above-referenced transactions.
  **ITEM
        3. DEFAULTS UPON SENIOR SECURITIES.**
  None.
  **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
  None.
  **ITEM
        5. OTHER INFORMATION.**
  None.
  12
  **ITEM
        6. EXHIBITS.**
  Exhibit
                  No.
              
              Description
                  of Exhibit3.1
              
              Articles
                  of Incorporation, as filed August 1, 1997 (included as Exhibit
                  3.1 to the
                  Form 10-SB12G filed November 10, 1999, and incorporated herein
                  by
                  reference).3.2
              
              Bylaws
                  (included as Exhibit 3.2 to the Form 10-SB12G filed November 10,
                  1999, and
                  incorporated herein by reference).3.3
              
              Articles
                  of Amendment to the Articles of Incorporation, as filed August
                  23, 1997
                  (included as Exhibit 3.3 to the Form 10-SB12G filed November 10, 1999, and
                  incorporated herein by reference).3.4
              
              Articles
                  of Amendment to the Articles of Incorporation, as filed November
                  20, 1998
                  (included as Exhibit 3.4 to the Form 10-SB12G filed November 10,
                  1999, and
                  incorporated herein by reference).3.5
              
              Articles
                  of Amendment to the Articles of Incorporation, as filed May 16,
                  2003
                  (included as Exhibit 3.5 to the Form 10-SB12G filed November 10,
                  1999, and
                  incorporated herein by reference).4.1
              
              2003
                  Stock Benefit Plan, dated July, 1, 2003 (included as Exhibit 4.1
                  to the
                  Form S-8 filed July 23, 2003, and incorporated herein by reference).4.2
              
              Form
                  of Class A Warrant (included as Exhibit 4 to the Form 8-K filed
                  March 15,
                  2005, and incorporated herein by reference).4.3
              
              Form
                  of Class B Warrant(included
                  as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated
                  herein
                  by reference).4.4
              
              Form
                  of Class C Warrant(included
                  as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated
                  herein
                  by reference).4.5
              
              Subscription
                  Agreement between the Company and various subscribers (included
                  as Exhibit
                  10.1 to the Form SB-2/A filed September 14, 2005, and incorporated
                  herein
                  by reference).4.6
              
              Subscription
                  Agreement between the Company and various subscribers (included
                  as Exhibit
                  4 to the Form 8-K filed March 15, 2005, and incorporated herein
                  by
                  reference).10.1
              
              Asset
                  Purchase Agreement between the Company and AEC1, Inc., formerly
                  known as
                  Alternate Energy Corporation, dated February 20, 2003 (included
                  as Exhibit
                  10.1 to the Form 8-K filed June 5, 2003, and incorporated herein
                  by
                  reference).10.2
              
              Form
                  of Securities Purchase Agreement between the Company and various
                  purchasers (included as Exhibit 10.1 to the Form 10-KSB filed March
                  16,
                  2004, and incorporated herein by reference).10.3
              
              Form
                  of Registration Rights Agreement between the Company and various
                  purchasers (included as Exhibit 10.2 to the Form 10-KSB filed March
                  16,
                  2004, and incorporated herein by reference).10.4
              
              Form
                  of Common Stock Purchase Warrant between the Company and various
                  purchasers (included as Exhibit 10.3 to the Form 10-KSB filed March
                  16,
                  2004, and incorporated herein by reference).10.5
              
              Securities
                  Purchase Agreement between the Company and Feldman Weinstein, LLP
                  (included as Exhibit 10.4 to the Form 10-KSB filed March 16, 2004,
                  and
                  incorporated herein by reference).10.6
              
              Form
                  of Common Stock Purchase Warrant between the Company and various
                  purchasers (included as Exhibit 10.5 to the Form 10-KSB filed March
                  16,
                  2004, and incorporated herein by reference).10.7
              
              Addendum
                  to Securities Purchase Agreement between the Company and various
                  purchasers (included as Exhibit 10.6 to the Form 10-KSB filed March
                  16,
                  2004, and incorporated herein by reference).10.8
              
              Addendum
                  to Registration Rights Agreement between the Company and various
                  purchasers (included as Exhibit 10.7 to the Form 10-KSB filed March
                  16,
                  2004, and incorporated herein by reference).10.9
              
              Letter
                  of Engagement for Marketing Communications and Manufacturing Consulting
                  Management Services between the Company and Velocity Product Solutions
                  Inc., dated September 25, 2003 (included as Exhibit 10.8 to the
                  Form
                  10-KSB filed March 16, 2004, and incorporated herein by
                  reference).10.10
              
              Letter
                  of Engagement for Expanded Executive Management Services among
                  the
                  Company, Corbee Dutchburn and Lyle Goodis, dated October 30, 2003
                  (included as Exhibit 10.9 to the Form 10-KSB filed March 16, 2004,
                  and
                  incorporated herein by reference).
  13
  10.11
              
              Addendum
                  to October 30, 2003 Letter of Engagement for Expanded Executive
                  Management
                  Services among the Company, Corbee Dutchburn, and Lyle Goodis,
                  dated
                  December 5, 2003 (included as Exhibit 10.10 to the Form 10-KSB
                  filed March
                  16, 2004, and incorporated herein by reference).10.12
              
              Funds
                  Escrow Agreement between the Company and various subscribers (included
                  as
                  Exhibit 10.10 to the Form SB-2/A filed September 14, 2005, and
                  incorporated herein by reference).10.13
              
              Security
                  Agreement between the Company and Blaine Froats, dated January
                  1, 2005
                  (included as Exhibit 10.12 to the Form SB/2-A filed January 19,
                  2006, and
                  incorporated herein by reference).14.1
              
              Corporate
                  Code of Ethics (included as Exhibit 14 to From 10-KSB filed March
                  16,
                  2004, and incorporated herein by reference).31.1
              
              Certification
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.2
              
              Certification
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.32.1
              
              Certification
                  of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                  to
                  Section 906 of the Sarbanes-Oxley Act of
                  2002.
  **SIGNATURES**
  In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly authorized.
  **Alternate
                  Energy Corp.**Date:
                  May 21, 2007
              By:
              */s/
                  Blaine Froats*Blaine
                  Froats
                Chief
                    Executive Officer
  **Alternate
                    Energy Corp.**Date:
                  May 21, 2007
              By:
              */s/
                    Jack Wasserman*Jack
                    Wasserman
                    Treasurer
                      and Principal Accounting
                      Officer
  14