`UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 20-F/A

(Mark One)
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________

[_] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission file number 0-31481

                               ASTRIS ENERGI INC.
             (Exact name of Registrant as specified in its charter)
                                 Not Applicable
                 (Translation of Registrant's Name into English)
                                     ONTARIO
                 (Jurisdiction of incorporation or organization)
                            2175 DUNWIN DRIVE, UNIT 6
                       MISSISSAUGA, ONTARIO L5L 1X2 CANADA
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.
                                      NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act.
                                  COMMON SHARES
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
                                      NONE
                                (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
                            48,131,669 COMMON SHARES

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
                                 Yes [ ] No [X]


                                       1


If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
                                 Yes [_] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such reporting
requirements for the past 90 days.
                                 Yes [x] No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

Indicate by check mark which financial statement item the registrant has elected
to follow.
                            Item 17 [X] Item 18 [_]

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
                                 Yes [ ] No [X]


(Applicable only to Issuers involved in Bankruptcy proceedings during the past
five years) Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
                                 Yes [_] No [_]


                                TABLE OF CONTENTS

Part I

   Item 1.   Identity of Directors, Senior Management and Advisers

   Item 2.   Offer Statistics and Expected Timetable

   Item 3.   Key Information

   Item 4.   Information on the Company

   Item 4A.   Unresolved Staff Comments

   Item 5.   Operating and Financial Review and Prospects

   Item 6.   Directors, Senior Management and Employees

   Item 7.   Major Shareholders and Related Party Transactions


                                       2


   Item 8.   Financial Information

   Item 9.   The Offer and Listing

   Item 10.  Additional Information

   Item 11.  Quantitative and Qualitative Disclosures About Market Risk

   Item 12.  Description of Securities Other than Equity Securities

Part II

   Item 13.  Defaults, Dividend Arrearages and Delinquencies

   Item 14.  Material Modifications to the Rights of Security Holders
             and Use of Proceeds

   Item 15.  Controls and Procedures

   Item 16.  [Reserved]

   Item 16A. Audit Committee Financial Expert

   Item 16B. Code of Ethics

   Item 16C. Principal Accountant Fees and Services

   Item 16D. Exemptions from listing the Standards for Audit Committees

   Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
             Purchasers

Part III

   Item 17.  Financial Statements

   Item 18.  Financial Statements

   Item 19.  Exhibits


FORWARD LOOKING STATEMENTS Certain statements in this annual report are based
upon the beliefs of management of Astris Energi Inc., as well as assumptions
made by and information currently available to management, and such statements
may constitute "forward-looking statements" within the meaning of the U. S.
Private Securities Litigation Reform Act of 1995. Investors should note that
many factors, some of which are discussed elsewhere in this Report, could affect
the future operations and the future financial results of the Company and could
cause future operations and future financial results to differ materially from
those expressed in such forward-looking statements.


                                       3


PART I.

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
     Not Applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.
     Not Applicable.

ITEM 3.  KEY INFORMATION.

A. SELECTED FINANCIAL DATA.

     The following table sets forth, in Canadian dollars, selected historical
information concerning the Company presented in accordance with Canadian GAAP
and is qualified by reference to the consolidated financial statements and notes
thereto. See "Item 17. Financial Statements".

                                                                                         As at
                        As at            As at           As at          As at        December 31,
                     December 31,    December 31,    December 31,    December 31,        2002
                         2006            2005            2004            2003         (RESTATED)

Revenue              $     85,915    $    291,512    $     88,798    $     67,870    $    180,168

Net Loss from
 Operations            (2,120,422)     (5,330,864)     (3,462,257)     (2,206,969)       (620,654)

Net Loss               (2,120,422)     (5,330,864)     (3,462,257)     (2,206,969)       (743,472)

Basic and
 Diluted Loss from
operations
 per Share                  (0.05)          (0.16)          (0.26)          (0.12)          (0.05)

Total Assets            1,766,218         982,494         509,124         435,235         676,500

Net Assets                (53,221)       (228,456)        253,294        (135,975)        135,620

Long Term
 Obligations                   --              --              --         100,000         120,400

Share Capital          11,205,002      10,030,096       6,227,074       3,343,853       2,525,239

Number of Shares       48,131,669      37,906,596      26,316,551      19,230,425      16,106,403

Cash Dividends                 --              --              --              --              --


                                       4


EXCHANGE RATES

     The following table sets out the exchange rates for the conversion of
 Canadian dollars into United States dollars. The exchange rates used are the
 closing rates provided by The Bank of Canada. The table lists the rate in
 effect at the
end of the following periods, the average exchange rates (based on the average
of the exchange rates for the closing date of each month in such periods), and
the range of high and low exchange rates for such periods.

     Year ended December 31,    2006      2005      2004      2003      2002

     End of Period              .86       .86       .83       .77       .63
     Average for Period         .882      .825      .77       .71       .63
     High for Period            .91       .875      .85       .78       .65
     Low for Period             .853      .785      .70       .64       .63

     The following table sets out the range of high and low exchange rates, for
the conversion of Canadian dollars into United States dollars for each of the
corresponding months during 2006 and 2007. The exchange rates used are the
closing rates as provided by the Bank of Canada.

          Month                 High              Low

          November 2006         .886              .876
          December 2006         .877              .861
          January 2007          .859              .846
          February 2007         .863              .844
          March 2007            .866              .847
          April 2007            .901              .862
          May 2007              .935              .902

     The exchange rate on December 31, 2006 for the conversion of United States
dollars into Canadian dollars was $1.1654 (CDN$1.00 = US$.86). As of May 30,
2007 the close rate of exchange for the conversion of United States dollars into
Canadian dollars was 1.0754(CDN$1.00 = US$.9299). The exchange rates used are
the closing rates as provided by the Bank of Canada.

B.   CAPITALIZATION AND INDEBTEDNESS. Not Applicable.

C.   REASON FOR THE OFFER AND USE OF PROCEEDS. Not Applicable.

D.   RISK FACTORS. An investment in the securities of the Company involves a
     high degree of risk. The following risk factors should be considered
     carefully in evaluating the Company and its business. If any of the risks
     described below occurs, the business, results of operations and financial
     condition of the Company could be adversely affected.

     HISTORY OF LOSSES SINCE INCEPTION, EXPECTATION OF LOSSES IN THE IMMEDIATE
FUTURE, AND POSSIBILITY THAT THE COMPANY MAY NEVER ACHIEVE OR SUSTAIN
PROFITABILITY. The Company has incurred net losses each year since inception.
The accumulated deficit of the Company was CDN$16,441,713 as of December 31,
2006. The Company expects to continue to incur net losses at least through
fiscal year 2007, and these losses may be substantial. To implement the current
business strategy, the Company will have to incur a high level of fixed
operating expenses and will continue to incur considerable research and
development expenses and capital expenditures. Accordingly, if additional
capital, revenues and positive cash flows cannot be generated, to which no
assurance can be given, the Company will not achieve profitability. Even if
profitability is achieved, it may not be sustained or increased on a quarterly
or annual basis.


                                       5


     THE AUDITED ANNUAL REPORT OF THE COMPANY STATES THAT THE ABILITY OF THE
COMPANY TO CONTINUE AS A GOING CONCERN IS IN SUBSTANTIAL DOUBT. Whether the
Company continues as a going concern is dependent upon the Company's ability to
raise additional capital, the successful commercialization of one or more of the
Company's research projects, and the attainment of profitable operations. The
ability to generate future revenues will depend on a number of factors, many of
which are beyond control of the Company. These factors include the rate of
market acceptance of its fuel cell products, competitive activities, regulatory
developments and general economic trends.

     THE ABILITY TO OBTAIN ADDITIONAL CAPITAL, THEREBY RESULTING IN CURTAILMENT
OR CESSATION OF OPERATIONS. The ability of the Company to realize its objectives
depends in large part upon obtaining additional capital. The Company has a
present need for capital in connection with its fuel cell development activities
and transition to commercial operations. The Company believes that it will
require at least US$10 million over the next three to five years to establish
production and subsequently market the fuel cells and fuel cell products
developed by the Company. There is no assurance that any additional financing
will be available on commercially attractive terms, in a timely fashion, in
sufficient amounts, not substantially dilutive to shareholders, or at all. If
adequate funds are not available, the Company would have to scale back its
operations, including its product development, manufacturing and marketing
activities, all of which could lead ultimately to cessation of operations.

     LACK OF EXPERIENCE IN MANUFACTURING AND MARKETING PRODUCTS. To date, the
Company has derived revenues principally from sales of demonstrators or small
ancillary products, contract research and government grants. Sales have been
limited to demonstration products and prototype models. The Company's prototypes
are pre-commercial production products assembled on a one-off basis, by hand.
The Company is not yet adequately financed to produce commercial products. The
Company has produced its fuel cells on a semi- automated basis but has not
designed a proven automated assembly facility. In addition, the Company still
has not been able to determine whether or not its prototypes can be assembled
through automation or if there is a sufficient level of product acceptance for
the Company to sell fuel cells in sufficient volume to become profitable.

     The Company may not be able to produce or commercialize any of its products
in a cost-effective manner and it may not be able to successfully market these
products. Production costs of the initial commercial units may be higher than
their sales price. There can be no assurance that higher production levels will
occur or that sales prices will ever exceed production costs.


                                       6


     MARKET ACCEPTANCE OF THE FUEL CELL PRODUCTS MAY TAKE LONGER TO ACHIEVE OR
MAY NEVER BE ACHIEVED. The Company's alkaline fuel cell products represent a new
technology and any success will depend on this technology achieving market
acceptance. Because the Company's products are designed to capitalize on markets
that presently utilize or are serviced by products from traditional and
well-established power generation sources, such as engine-generators or
batteries, the Company may face significant resistance from end-users to adopt a
new and alternative power source technology. Fuel cell products for portable and
mobile applications represent an emerging market. The Company does not know
whether its targeted customers will purchase such products.

     ABILITY TO MEET PROJECTED DEMAND FOR THE COMPANY'S PRODUCTS. Locating and
establishing new manufacturing facilities, if required, will place significant
demands on the Company's managerial, technical, financial and other resources.

     The Company's business plan contemplates significant growth in sales and
personnel which may place a strain upon its current management systems and
resources, as well as its ability to obtain capital. As of May 30, 2007, the
Company had fewer than 25 employees. The Company's business plan and anticipated
product sales will require the Company to hire, train and manage additional
employees and to establish or contract for production capacity. If the Company
is unable to hire the skilled employees it needs or to establish its production
capacity in a timely manner, it might be unable to fulfill orders for its
products or meet its business plans. There can be no assurance that the Company
will be able to effectively manage its anticipated growth.

     ABILITY TO COMPETE SUCCESSFULLY IN A HIGHLY COMPETITIVE MARKET. The
development and marketing of fuel cells and fuel cell systems is extremely
competitive. A number of firms throughout the world have established fuel cell
development programs. The Company competes directly with alternative energy and
entrenched power-generation and power-storage technologies. Competitors range
from development stage companies to major domestic and international companies.
Other companies may succeed in developing and bringing to market products or
technologies that are more cost-effective than those being developed by the
Company, or that would render its products and technology obsolete or
non-competitive in the marketplace. The Company's competitors have greater name
recognition, larger customer bases and significantly greater financial,
technical, marketing, public relations, sales, distribution and other resources
than the Company. There can be no assurance that the Company will be able to
compete effectively with such companies. In addition, the Company expects that
additional competition will develop, from both existing businesses in the energy
industry and from new entrants.

     DEPENDENCE ON THIRD-PARTY MANUFACTURERS. The Company will depend on third
parties for the manufacture of its products and for parts necessary to
manufacture its products. If manufacturers or suppliers are unable or unwilling
to manufacture or provide the materials and components to manufacture the
Company's products on commercially reasonable terms, or at all, delays in
identifying and contracting for alternative manufacturing and supply sources
could adversely affect the ability to market the products.


                                       7


     POSSIBLE LIABILITY FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS AND DIFFICULTIES IN PROTECTING THE COMPANY'S INTELLECTUAL PROPERTY.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products and product
designs, or to obtain and use information that the Company regards as
proprietary. If required, policing unauthorized use of the Company's proprietary
technology may be difficult, time-consuming and costly. In addition, the laws of
certain countries in which the Company's products may be sold or licensed do not
protect its products and related intellectual property rights to the same extent
as the laws of Canada or the United States. The Company does not believe that
any of its products infringe the proprietary rights of any third parties. From
time to time, however, third parties may contest the Company's rights to use its
intellectual property. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company.

     ASTRIS' PRODUCTS MAY NOT MEET PERFORMANCE EXPECTATIONS IN FIELD TESTS,
WHICH COULD NEGATIVELY AFFECT ITS CUSTOMER RELATIONSHIPS AND INCREASE ITS
MANUFACTURING COSTS. The components of its fuel cell products may contain
defects or errors that could negatively affect its customer relationships and
increase its manufacturing and warranty costs. In internal bench tests, the
POWERSTACK(TM) MC250 has performed at up to 60% over the original design
specification and the E8 Portable AFC power generator has operated at an
electrical efficiency in excess of 50%. These results do not guarantee similar
or greater performance in future independent field tests.

     ASTRIS MAY NOT BE ABLE TO MANAGE SUCCESSFULLY THE EXPANSION OF ITS
OPERATIONS. Astris will need to recruit, train and retain key management and
other qualified personnel to successfully expand its business. Astris has been
gradually expanding its management and technical team to meet customer demand
and pilot production requirements. Transition to pilot production is a critical
one to meet demand for its products, and validate its ability to produce the
POWERSTACK(TM) MC250 in volume leading to commercialization.

     NEED FOR COMPATIBILITY WITH THE PRODUCTS OF THIRD-PARTY MANUFACTURERS OR
POTENTIAL CUSTOMERS. The Company's success will depend in large part upon its
ability to make its products compatible with the products of third-party
manufacturers. The Company's products will be successful only if manufacturers
redesign or modify their existing products to fully incorporate the Company's
products and technologies. The Company's failure to make its products and
technologies compatible with the products of third-party manufacturers, or the
failure of potential customers to redesign or make necessary modifications to
their existing products to accommodate the Company's products would
significantly impair or preclude the Company's ability to sell its products.

     ACCIDENTS INVOLVING THE FLAMMABLE FUELS USED WITH THE PRODUCTS COULD IMPAIR
THEIR MARKET ACCEPTANCE. The fuel cell products use hydrogen, which typically is
generated from gaseous and liquid fuels such as propane, natural gas or
methanol, in a process known as reforming. While the Company's fuel cell
products do not use these fuels in a combustion process, natural gas, propane
and hydrogen are flammable fuels that could leak into a residence or commercial
location and combust, if ignited by another source. Since the Company's products
have not yet gained widespread market acceptance, any accidents involving the
Company's systems, or other fuel cell-based products, could materially impede
demand for the products. At present, the Company does not carry insurance to
cover such accidents.


                                       8


     THE COMPANY'S PRODUCTS MAY FROM TIME TO TIME CONTAIN DESIGN DEFECTS THAT
ARE DIFFICULT TO DETECT AND CORRECT. Although the Company does not know of any
existing design defects, there can be no assurance that defects or flaws will
not be found in new products after commencement of commercial shipments or, if
discovered, that the Company will be able to successfully correct such defects
or flaws in a timely manner or at all. The occurrence of defects or flaws in the
Company's products could result in loss of, or delay in, market acceptance of
the Company's products. Correcting such defects or flaws could require
significant expenditures by the Company.

     DEPENDENCE ON ATTRACTING AND RETAINING KEY PERSONNEL. The success of the
Company is largely dependent on the performance of its key employees,
particularly Jiri K. Nor. Mr. Nor founded Astris and is the principal developer
of Astris' alkaline fuel cell technology. Additionally, the Company is dependent
on a small number of employees who have been with Astris for numerous years and
who actually construct Astris' technological components and are familiar with
its proprietary designs. Loss of the services of Mr. Nor or the failure to
attract and retain additional key employees with necessary skills could have a
material adverse impact upon the Company's growth and profitability. Competition
for highly skilled management, technical, research and development and other
employees is intense and the Company may not be able to obtain key person life
insurance policies on any of its employees.

     RISKS INHERENT IN INTERNATIONAL OPERATIONS INCLUDING CURRENCY EXCHANGE RATE
FLUCTUATIONS AND TARIFF REGULATIONS. A substantial portion of the Company's
revenues is expected to be realized in currencies other than Canadian dollars.
The Company's operating expenses are primarily paid in Canadian dollars.
Fluctuations in the exchange rate between the Canadian dollar and such other
currencies may have a material effect on the Company's results of operations. In
particular, the Company may be adversely affected by a significant strengthening
of the Canadian dollar against the U.S. dollar because the Company sells its
products and services and receives investment in U.S. dollars. In addition, the
Company does not intend to enter into any hedging or other similar agreements or
arrangements to protect it against any of these currency risks. The Company may
also be subject to tariff regulations and requirements for export licenses,
particularly with respect to certain technologies, unexpected changes in
regulatory requirements, difficulties in managing international operations,
potentially adverse tax consequences, restrictions on repatriation of earnings
and the burdens of complying with a wide variety of foreign laws.

     POSSIBLE DIFFICULTIES BY UNITED STATES PERSONS TO EFFECT SERVICE OF PROCESS
WITHIN THE UNITED STATES UPON THE COMPANY OR ITS DIRECTORS OR OFFICERS, OR TO
REALIZE IN THE UNITED STATES UPON JUDGMENTS. The Company is an Ontario
corporation with its principal place of business in Canada. Most of its
Directors and Officers are residents of Canada and most of the assets of such
persons and of the Company are located outside the United States. US Persons
should not assume that Canadian courts (i) would enforce judgments of United
States courts obtained in actions against the Company or its Officers and
Directors predicated upon the civil liability provisions of the United States
federal securities laws or the securities or "blue sky" laws of any state within
the United States or (ii) would enforce, in original actions, liabilities
against the Company or its Officers and Directors predicated upon the United
States federal securities laws or any such state securities or blue sky laws.
Canadian courts can enforce such judgments but are not required to give "full
faith and credit" to such judgments as would courts lying in separate United
States jurisdictions. For instance, a Florida court would have to enforce a New
York judgment, but a Canadian court can decide not to enforce a US judgment in
Canada.


                                       9


     THE COMPANY HAS NEVER PAID DIVIDENDS AND IT DOES NOT ANTICIPATE PAYING
DIVIDENDS IN THE FORESEEABLE FUTURE. The Company has never declared any cash
dividends on its Common Shares, and if the Company were to become profitable, it
would be expected that most or all of such earnings would be retained to support
the business. As a result, shareholders must rely on stock appreciation for any
return on their investment in the Common Shares.

     THE COMPANY HAS AUTHORIZED AN UNLIMITED NUMBER OF COMMON SHARES AND UP TO
10,000,000 PREFERRED SHARES OF SHARE CAPITAL. Under Canadian law the Company is
able to issue an unlimited number of its common shares and up to 10 million
preferred shares. The Company does not need the consent of its shareholders to
issue these additional shares. Therefore, there is a high likelihood of dilution
from the issuance of additional shares. The additional shares can be used to
thwart a takeover attempt that the Board of Directors does not deem in the
Company's best interest, however the Company has not made any provision for
issuing shares in that manner. The Company has not issued any preferred shares.

     VOLATILE AND LIMITED MARKET FOR THE COMPANY'S COMMON SHARES. The Company's
Common Shares are not actively traded. The Company's Common Shares began trading
on the Over The Counter Bulletin Board Exchange ("OTC.BB") on June 20, 2001. The
Common Shares traded in 2006 from a high of US$0.25 to a low of US$0.03 per
share. The Common Shares are not presently publicly traded in Canada. There can
be no assurance given that trading activity will increase investor recognition.

     APPLICATION OF THE SEC PENNY STOCK REGULATIONS AND RESTRICTIONS. The
Securities and Exchange Commission has adopted regulations which generally
define Penny Stocks to be an equity security that has a market price less than
US$5.00 per share or an exercise price of less than US$5.00 per share. This is
subject to certain exemptions based upon minimum assets or revenues. As of May
30, 2007, the closing bid and asked prices for the Common Shares were US$.0261
and US$.03 per share. As a Penny Stock, the Company's Common Shares may become
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended, or
the Penny Stock Rule. This Rule imposes additional sales practice requirements
on broker-dealers that sell such securities to persons other than established
customers and "accredited investors" (generally defined as individuals with a
net worth in excess of US$1,000,000 or annual incomes exceeding US$200,000, or
combined annual income with spouse of US$300,000). For transactions covered by
Rule 15g-9, a broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to the
transaction prior to sale. As a result, this Rule may affect the ability of
broker-dealers to sell the Company's securities and may affect the ability of
purchasers to sell any of the Company's securities in the secondary market.


                                       10


     For any transaction involving a Penny Stock, unless exempt, the Rule
requires that prior to any transaction in a Penny Stock, a disclosure schedule
prepared by the SEC relating to the Penny Stock market is delivered. Disclosures
about sales commissions payable to both the broker-dealer and the registered
representative and about current quotations for the securities are also
required. Finally, monthly statements are required to be sent disclosing recent
price information for the Penny Stock held in the account and information on the
limited market in penny stock.

     IF AN EVENT OF DEFAULT OCCURS UNDER THE CONVERTIBLE DEBENTURE ISSUED TO
CORNELL, IT COULD SERIOUSLY HARM OUR OPERATIONS. On April 10, 2006 we issued a
secured convertible debenture to Cornell Capital LP. The debenture and related
agreements contain numerous events of default which include:

o    failure to pay interest, principal payments or other fees when due;

o    breach by us of any material covenant or term or condition of the debenture
     or any agreements made in connection therewith;

o    breach by us of any material representation or warranty made in the
     debenture or in any agreements made in connection therewith;

o    default on any indebtedness exceeding, in the aggregate, $100,000, to which
     we or our subsidiaries are a party;

o    assignment for the benefit of our creditors, or a receiver or trustee is
     appointed for us;

o    bankruptcy or insolvency proceeding instituted by or against us and not
     dismissed within 30 days;

     o    common stock suspension for 5 consecutive trading days from a
          principal market; and

     If we default on the debenture and the holder demands all payments due and
payable, the cash required to pay such amounts would most likely come out of
working capital, which may not be sufficient to repay the amounts due. In
addition, since we rely on our working capital for our day to day operations,
such a default on the note could materially adversely affect our business,
operating results or financial condition to such extent that we are forced to
restructure, file for bankruptcy, sell assets or cease operations. Further, our
obligations under the debenture are secured by substantially all of our assets.
Failure to fulfill our obligations under the debenture and related agreements
could lead to loss of these assets, which would be detrimental to our
operations.

     THE RESTRICTIONS ON OUR ACTIVITIES CONTAINED IN THE CORNELL FINANCING
DOCUMENTS COULD NEGATIVELY IMPACT OUR ABILITY TO OBTAIN FINANCING FROM OTHER
SOURCES. For a period of 18 months after the date of issuance of the Cornell
debenture, the Cornell financing documents restrict us from obtaining additional
equity financing (including securities convertible or exchangeable into equity)
without Cornell's approval and subject to certain specified exceptions. To the
extent that Cornell declined to approve a financing that does not otherwise
qualify for an exception to the consent requirement, we would be unable to
obtain such financing. Cornell's right of first refusal could act as a deterrent
to third parties which may be interested in providing us with financing or
purchasing our equity securities. To the extent that such a financing is
required for us to conduct our operations, these restrictions could materially
adversely impact our ability to achieve our operational objectives.


                                       11


     THE CONVERSION OF THE SECURED CONVERTIBLE DEBENTURE AND THE EXERCISE OF
WARRANTS WILL BE DILUTIVE TO OUR EXISTING STOCKHOLDERS. As of May 30, 2007, we
had outstanding warrants to purchase a total of 15,905,030 shares of our common
stock with exercise prices ranging from US$0.19 to US$1.08 per share. In
addition, as of May 30, 2007 we had:

          o    55,118,431 shares of common stock issued and outstanding, and

          o    4,933,548 shares of our common stock issuable upon the conversion
               of the outstanding principal balance due on a secured convertible
               debenture in the remaining principal amount of $1,225,000 which
               was issued to Cornell Capital as of April 10 2006 based upon a
               fixed conversion price of $0.2483 share.

     The conversion prices of the secured convertible debenture and the common
stock purchase warrants to purchase an aggregate of 8,133,548 of our common
stock issued or sold in connection with those transactions are all subject to
adjustment in the event of stock splits and combinations, dividends or
distributions, reclassifications or reorganizations, or in the event we issue or
sell any additional shares of common stock or other securities which are
convertible into common stock or common stock equivalents at a price less than
the then current conversion price. In addition, remaining common stock purchase
warrants currently outstanding to purchase an aggregate of 3,200,000 shares of
our common stock are also subject to adjustment in the event of stock splits and
combinations, dividends or distributions, reclassifications or reorganizations.
As a result, the number of shares of our common stock into which the secured
convertible debenture or the outstanding warrants are convertible may
substantially increase based upon future events. We cannot predict with any
certainty at this time, however, if any of these anti-dilution provisions will
ever apply in the future to any of these securities and therefore we are unable
to estimate the ultimate number of shares of our common stock which may be
issuable upon the conversion of either the secured convertible debenture or the
warrants. The conversion of the secured convertible debenture and the exercise
of outstanding warrants may materially adversely affect the market price of our
common stock and will have a dilutive effect on our existing stockholders.

     If our secured convertible debenture and warrants are converted into common
stock, these converting stockholders will have significant voting power and they
will have the ability to exert substantial influence over matters requiring
stockholder approval. Our secured convertible debenture and warrants are
convertible into shares of our common stock. If all such securities are
converted into common stock, the shares issued upon this conversion will total
approximately 15% of our outstanding common stock, and will have the ability to
exert substantial influence over all matters requiring approval of our
stockholders, including the election and removal of directors, the approval of
mergers or other business combinations, and other significant corporate actions.
This ability to influence our affairs might be disadvantageous to our other
stockholders.


                                       12


     RISKS FOR CLOSING THE ASSET PURCHASE AGREEMENT, DATED JUNE 5, 2007. The
risks to MKU Canada Inc. of the sale of assets not being completed include a
material adverse change in the business of Astris Energi since the date of the
Letter of Intent, key personnel deciding not to sign employment agreements with
MKU Canada Inc., the shareholders of Astris Energi voting not to approve the
sale. Key supplier relationships with Astris may not continue with MKU Canada
Inc. The Astris products may not perform consistently to established test
results. If the agreement is terminated, the promissory note becomes immediately
due and payable and the company does not have the funds available to make such a
payment.

FORWARD LOOKING INFORMATION

     The following discussion, as well as other sections within this annual
report, contains forward-looking information which is based on current
expectations and entails various risks and uncertainties. These risks and
uncertainties could cause or contribute to actual results that are materially
different from those expressed or implied. The forward-looking information
contained in this document is current only as of the date of the document. There
should not be an expectation that such information will in all circumstances be
updated, supplemented or revised whether as a result of new information,
changing circumstances, future events or otherwise.

ITEM 4. INFORMATION ON THE COMPANY.

A. HISTORY AND DEVELOPMENT OF THE COMPANY.

     Astris Energi Inc. ("AEI" or the "Company") was incorporated as Kayty
Exploration Ltd. on March 18, 1981, pursuant to the Companies Act of the
Province of Alberta, Canada to engage in oil and gas exploration activities. The
Company subsequently changed its name to Kayty Inc. in August 1987, changed the
place of incorporation to the Province of Ontario, Canada, and effected a
one-for-ten reverse split of its Common Shares. In December 1994, the Company
changed its name to WLD Inc. ("WLD") and effected a one-for-three reverse split
of its Common Shares, reducing the outstanding Common Shares to 5,000,000
shares. By 1995, WLD had ceased exploration activities and sought other business
activities. In February 1996, the Company acquired Astris Inc. in exchange for
1,500,000 Common Shares and warrants for the purchase of 3,500,000 Common
Shares, which warrants were subsequently exercised in 1997 at an exercise price
of CDN$0.05 per warrant. Additionally, in June 1995, the Company changed its
name to Astris Energi Inc. The purpose of the acquisition was for the Company to
obtain a potentially promising business activity, and Astris Inc. was seeking to
be part of a public company to facilitate raising working capital to further the
development of its fuel cell research. AEI began trading on the OTC.BB under the
trading symbol "ASRNF" on June 20, 2001.

     The Company's principal business office is located at 2175 Dunwin Drive,
Unit 6, Mississauga, Ontario, Canada L5L 1X2 and its telephone number is
(905)608-2000. The Company's e-mail address is astris@astris.ca. The Company
maintains a website at www.astris.ca. The Company is not incorporating, by
reference in this Form 20-F, the information on its website.


                                       13


     The Company's U.S. agent is CT Corporation System, 111 Eighth Avenue, 13th
Floor, New York City, New York, U.S.A. 10011.

B. BUSINESS OVERVIEW.

THE COMPANY'S PURPOSE

     The Company's mission is to become the leading provider of affordable fuel
cells and fuel cell power generators. The Company's near term priority is to
achieve the required business partnerships and financing to successfully achieve
manufacturing capability leading to commercialization. The Company's business
plan calls for commercialization within three years provided that adequate
funding can be secured.

DESCRIPTION OF THE COMPANY'S BUSINESS ACTIVITIES

     Astris Energi Inc. is a Canadian (Mississauga, Ontario) company that since
1983 has been pioneering the development of alkaline fuel cells ("AFCs") and AFC
generators and now has a series of such power systems tested and ready for
commercialization. While most fuel cell companies are targeting the eventual
car-truck-bus market or large utility type generating stations, Astris has
specialized, in one-to-ten kilowatt systems which we believe have tremendous
global market potential and anticipated earlier adoption then the markets
previously discussed. The company also anticipates linking modules together in
larger units for larger applications.

     Since 1995, the Company has been engaged in the design, production and
commercialization of alkaline fuel cell systems for industrial, commercial and
retail markets. Specifically, the Company's main focus has been to develop and
market an AFC system which could be used to provide backup or off-grid power,
portable power for small niche vehicles.

    Working closely with the company's development and manufacturing subsidiary
in the Czech Republic, the Company has completed a series of prototype alkaline
fuel cell generators including:

     A 1-kilowatt portable system for extensive testing by the Czech military

     A 1-kilowatt fuel cell power generator capable of powering golf cars,
in-plant delivery vehicles and other small vehicles required at airports,
warehouses, retirement communities among others. This system was further
integrated into the AFC Powered Golf Car. A second version of the AFC Powered
Golf Car with 1.8 kilowatt of fuel cell power was completed in 2005.

     A 4-kilowatt power unit capable of providing electricity, heat and hot
water for individual homes, motor homes and boats.

         A 2.4-kilowatt portable power unit that can deliver backup power or
portable power for a variety of applications.


                                       14


     The Company continues to demonstrate the world's first alkaline fuel
cell-powered golf car fueled by hydrogen. To realize the full potential of these
markets, Astris intends to partner with or license to major manufacturers in
each field.

     In addition, assuming success with the current fuel cell projects, in the
future the Company will also seek to develop and market AFC systems up to ten or
more kilowatts for other uses, such as powering small vehicles, power supplies
in individual homes and emergency, uninterruptible power supplies for larger
telecommunication needs, hospital emergency rooms and computers.

     The past three years have yielded progress for Astris in alkaline fuel cell
technology. With prospects targeted, Astris has a series of systems ready for
independent field tests.

     Improvements towards automated manufacturing are required to both reduce
costs and allow volume production. We expect to be able to commercially sell
products within 36 months, as long as the necessary financing is available.
There are no specific requirements for certification for the sale of fuel cells
at this time. However, Astris participates in the workings of the CSC/IEC TC 105
(Canadian Sub-Committee to the International Electrotechnical Commission,
Technical Committee 105) which has been set up to create such future standards.
Astris will comply with all the relevant standards as they come into force. For
specific applications standards that apply to certain fuel cell systems are of
some interest such as: ANSI/CSA America FC 1-2004 American National Standard/CSA
America Standard for Stationary Fuel Cell Power Systems, and ANSI/CSA America FC
3-2004 American National Standard/CSA America Standard for Portable Fuel Cell
Power Systems.

     Astris' facilities comply with the NFPA 55 (National Fire Protection
Association - U.S.) standard for handling gases (hydrogen). No part of this
standard pertains to usage of hydrogen in the quantities used in Astris' fuel
cell products.

DESCRIPTION OF FUEL CELLS

     Fuel cells are electrochemical devices that supply electricity directly
from hydrogen without combustion and the associated noise and pollution.
Applications are numerous and include three broad categories including portable,
stationary and mobile. Astris fuel cells have excellent potential in all three
market segments and current development is focused on those market segments that
are expected to have earliest adoption. These early markets include stationary,
portable and select mobile applications. Currently, many portable and stationary
applications are served by a combination of batteries and gasoline or diesel
generators. Since fuel cells generate electricity in an efficient and clean
manner from the electrochemical reaction of hydrogen and oxygen, many early
applications are available where existing technologies are otherwise eliminated.
The fuel cell is a potential substitute for both mobile and stationary
applications currently using a battery backup or internal combustion engine
today. Examples of these applications included all kinds of vehicles, home
energy requirements, commercial buildings, remote sites and situations requiring
electricity that are not connected to distributed power supplies. Hydrogen can
be derived from a variety of sources including conventional fuels such as
natural gas or propane, through chemical reactions and through electrolysis of
water. Oxygen for Astris fuel cells is drawn from the air.


                                       15


     Astris fuel cells are environmentally cleaner and designed to be more
cost-effective than power generation using fossil fuels. Fuel cells produce
little noise, some heat and water as a waste product. These benefits offer great
advantages over gasoline generators, as such generators are often responsible
for producing large amounts of air and noise pollution. In addition, fuel cells
are nominally at least two times more energy efficient than current gasoline
generators and perform at high efficiency over a wide range of power
requirements.

     All Astris fuel cells and related products have been offered for sale and
have been selling for years on a demonstration basis only, from cells to
complete generators and golf cars. They have not been sold commercially because
they have not been certified for commercial sales as of yet and improvements are
still being made to the products so that they can be sold on a commercial basis.
The products have been tested over a number of years.

     Currently, Astris Energi products fall into three categories. These
categories are:

1.   Fuel Cell Modules such as the LABCELL(TM) LC50, LABCELL(TM) LC200 and
     POWERSTACK(TM) MC250

2.   Fuel Cell Systems such as models E1, E2, E3, E4B, E5, E6, E7 and E8

3.   Test Equipment such as TL5 Test Load, TL6 Test Load, TESTMASTER(TM) Data
     Acquisition and Control Software Suite and the QUICKCELL(TM) QC200

     The state of commercialization is slightly different between the three
different groups although products in all three categories have been sold to a
variety of customers on a demonstration basis. Specifically sales from the three
categories are summarized as follows:

1.   Fuel Cell Modules are available through a number of sales channels that
     include our direct channel (through our website at www.astris.ca under
     "ONLINE SALES") and through a select number of resellers including the Fuel
     Cell Store. Current sales volumes of fuel cells are small.

2.   Fuel Cell Systems prior to the E7 and E8 are based on our earlier fuel cell
     stacks and were delivered to a small number of end-users including academic
     institutions and the military. The feedback provided through these
     interactions allowed Astris to better understand the requirements of a
     commercial system and lead to the development of the POWERSTACK(TM) MC250
     and generators based on this stack technology including the E7 and E8. The
     current systems (E7 and E8) are available on a demonstration basis to a
     variety of selected organizations that are seen as potential partners in
     bringing our technology to commercial success. As described elsewhere the
     strategy of Astris is to partner with organizations that have specific
     knowledge of manufacturing, certification and customer requirements in a
     variety of end-user applications. Complete fuel cell systems are made
     available to these potential partners in order to allow them to evaluate
     and validate the technology.


                                       16


3.   Test Equipment is available through the same sales channels as our Fuel
     Cell Modules. Sales are immaterial but with a ready product we are
     currently planning a targeted advertising campaign for September.

     There are currently five basic types of fuel cell technologies: Alkaline
("AFCs"), Proton Exchange Membrane ("PEMFCs"), Phosporic Acid ("PAFCs"), Molten
Carbonate ("MCFCs"), and Solid Oxide ("SOFCs"). All of these fuel cell
chemistries are considered to have a variety of viable commercial applications.
The five fuel cell types are divided into two groups; Low temperature (AFC,
PEMFC) and High temperature (PAFC, MCFC, SOFC). The Company believes that low
temperature fuel cells are the only fuel cells that currently have relevance for
applications that require quick start-up and smaller size. This premise is based
on the fact that AFCs and PEMFCs operate at temperatures of 0 to 100 degrees
Celsius and deliver power that is suited for smaller to mid-size applications.

     The largest issue hindering fuel cell production today is that fuel cells
are still relatively expensive to produce. The high cost of manufacturing fuel
cells is primarily due to the low volume of production that does not allow for
economies of scale. Direct material costs are currently higher than incumbent
technologies. As demand for fuel cells increases and research and development
continues, the cost of the fuel cell and manufacturing should be reduced to make
them more competitive with traditional energy sources.

     In addition, while fuel cells can produce energy more efficiently and are
environmentally cleaner than traditional sources of power, other energy sources
are more entrenched in the world economy. For instance, all golf cars currently
being manufactured are designed to be powered from batteries or internal
combustion engines. In order for fuel cells to be used in such products,
manufacturers must adjust their current designs to be compatible with the fuel
cell design.

     However, due to new government pollution regulations, increased energy
costs and a growing demand for "off-grid" power supplies, demand for fuel cells
is increasing at a fast pace. As fuel cells become better known to the public
and more cost competitive with other energy sources, this demand is expected to
increase.

AFCs vs. PEMFCs

     Astris engineers have been engaged in development of AFCs since 1983,
deciding early that this technology had both technical and economic advantages
over the PEMFC technology that was being pursued by most other companies in the
field. Both NASA and the Russian space program had chosen AFCs over PEMFCs to
provide electricity, heat and pure water for all manned space vehicles. This
certainly supported the Astris choice as a credible option. Additionally,
developers in nearly all foreign countries have pursued alkaline technology.

     Originally, critics said only governments with deep pockets could afford
AFCs, that they could never be "brought down to earth" and be commercially
competitive. In fact, AFCs are inherently more economical to produce and operate
than PEMFCs. AFCs also provide the highest electrochemical conversion
efficiency. Their advantage of instant start, wide temperature range, even in
sub-freezing weather gives AFC technology great credibility. Broad range of
low-cost electrocatalysts (not platinum that PEMFCs require) can be built from
inexpensive materials - plastics, carbon, base metals and metal oxides, etc. As
well, AFCs allow for easier heat and water management.


                                       17


ASTRIS FUEL CELL SYSTEM

     Fuel cells are like batteries that can be connected to a fuel source and
therefore will not run down as long as fuel is supplied. They generate electric
power in a chemical reaction between hydrogen and oxygen from the air. They are
odorless, noiseless and produce no polluting emissions - their only by-products
are water and heat. The fuel cells designed and built by the Company are AFCs.
While both AFC and PEMFC fuel cells have potential environmental and efficiency
advantages over traditional power sources, the Company believes that AFCs can be
manufactured less expensively, operated more efficiently and therefore are more
practical in small and medium sized applications.

     This alkaline system will start and operate at temperatures under 0 degrees
centigrade. This ability to work in extreme temperatures is one of several
advantages AFCs have over the competing PEMFC fuel cells being developed by
others.

ALKALINE FUEL CELLS

     An AFC system is an assembly comprised of fuel cell "stack(s)", which
generate electricity, together with ancillary components. In an integrated
assembly, these "stack(s)" constitute a complete, operating fuel cell system.

     The Company believes that all principal material developmental issues in
alkaline fuel cell technology have been resolved by both the Company and the
industry at large. However, the Company believes that continued research and
development will improve alkaline fuel cell catalysts and electrode materials.
This should improve the cost/performance ratio of alkaline fuel cells relative
to more traditional energy sources.

     The ancillary components to the AFC system supply, filter and re-circulate
hydrogen, air and liquid electrolyte to the stack(s), deliver electricity to the
end-use application, remove the aqueous by-product of the fuel cell operation,
and electrically and electronically control, coordinate and integrate all the
functions of the system into a single operating whole.

     The following comments are supported by information from the following
published books and papers, although it appears in numerous other sources:

     1.   P. Gouerec, L. Poletto, J. Denizot, E. Sanchez-Cortezon, J.H. Miners,
          The evolution of the performance of alkaline fuel cells with
          circulating electrolyte Journal of Power Sources: Volume 129, 2004, pp
          193-204, Elsevier Publishers


                                       18


2.   Erich Gulzow,
     Alkaline fuel cells: a critical view
     Journal of Power Sources: Volume 61, 1996, pp 99-104, Elsevier Publishers

3.   Eddy De Geeter, Michael Mangan, Staf Spaepen, William Stinissen,
     Georges Vennekens, Alkaline fuel cells for road traction Journal of
     Power Sources: Volume 80, 1999, pp 207-212, Elsevier Publishers

4.   K. Kordesch, M. Cifrain,
     Handbook of Fuel Cells - Fundamentals, Technology and Applications
     Pp 789-793, 2003, John Wiley & Sons, Ltd, Chichester

5.   G.F. McLean, T. Niet, S. Prince-Richard, N. Djilali, An assessment of
     alkaline fuel cell technology
     International Journal of Hydrogen Energy: Volume 27, 2002, pp 507-526,
     Pergamon Press

6.   K. Kordesch in Comprehensive Treatise of Electrochemistry, Vol. 3,
     editor J. O'M. Bockris, Plenum Press, New York - London, 1985.

7.   T.G.Benjamin, E.H.Camara,
     The Fuel Cell: Key to Practically Unlimited Energy
     Foote Prints Vol. 48, No. 2, Foote Mineral Co., Exton, PA 19341.

8.   Fuel Cells: A Handbook
     U.S. Department of Energy, Morgantown Energy Technology Center,
     Morgantown, West Virginia.

     The current E8 Generator has an electrical efficiency of ~55-60% based on
the LHV (depending on power output being considered). This number is slightly
better than the 51% (LHV) value that was recently published by Eident Energy in
reference #1. References #7 and #8 give the efficiency range of gasoline
electric generators (1 - 100 kW) as 7 - 22 %; for 1 - 10 kW generators as 7 - 18
%. Comparing these numbers it is clear that the statement of "...at least two
times..." is in fact conservative. The real value when comparing the low-end
range of the Astris system with the high range of an internal combustion
generator is in the range of 55% / 15% = 3.7 times.

     The basis of the statement that AFCs are inherently more economical to
produce than PEMFCs is based on three major cost items required for PEMFCs;
platinum catalyst, expensive membrane (eg Nafion) and expensive graphite flow
field plates that must be machined. Comparatively, the AFC system developed by
Astris requires no platinum, replaces the membrane with a very inexpensive
solution of potassium hydroxide and replaces graphite plates with inexpensive
epoxy or plastic frames. All of the references listed above (among others) make
statements to support the cost advantages of AFCs. Some of these statements are
included here as supporting material (important items highlighted):

i)   "The inherent performance and cost advantages of a fuel cell with an
     alkaline electrolyte may be ascribed to two key factors. The higher
     kinetics for the oxygen reduction reaction (ORR) in alkaline over acidic
     media permits the use of a lower quantity of precious metals for a given
     overpotential. This results in a greater efficiency for the AFC when
     compared to the PEM as well as a large margin for the cost reduction.
     Secondly the alkaline media (i.e. KOH) is less aggressive/corrosive to
     metal and carbon than acid. The less-corrosive nature of an alkaline
     environment ensures a potential greater longevity and allows the
     implementation of non-noble catalysts, both for the cathode and the anode
     [6,7]. Low cost structural materials such as nickel current collectors and
     plastic composite frames are also stable in contact with KOH." Reference
     #1, pp 193


                                       19


ii)  "In practice, the alkaline cell is very well developed, simple to operate
     with a built-in cooling system, has excellent reliability, and is
     inexpensive to manufacture, even in small quantities." Reference #3, pp 207

iii) "Alkaline fuel cells are excellent and efficient performers with an
     excellent pedigree of reliability and life. While the AFC s used in space
     applications are complex and costly, the terrestrial versions, operating as
     hybrid systems with buffer battery, are not. Furthermore, the AFC does not
     rely on high volume manufacture to reduce the cost to an affordable level
     since the materials are inexpensive and the processing is straightforward."
     Reference #3, pp 212

     The lower operating cost of AFCs when compared to PEMFCs are based on three
     facts; 1- The higher electrochemical efficiency described above results
     directly in lower consumption of hydrogen, 2- Balance of plant for the AFC
     system is simple and does not include components that have a consume
     considerable energy (humidifier and compressor) required for a PEMFC system
     and 3- having eliminated the Platinum catalyst the systems is not
     susceptible to carbon-monoxide (CO) poisoning and therefore can run on
     lower grade, hence less expensive hydrogen. Commercially available hydrogen
     for Astris AFCs (99.9%) costs ~$80 CAD per cylinder and a cylinder of same
     size, containing the same quantity of hydrogen required for platinum
     catalyzed fuel cells costs ~$360 CAD. Combining the lower fuel cost with
     higher efficiency the end result is a very substantial difference in fuel
     costs during operational life.

iv)  For the PEMFC systems air must be supplied at high pressures to ensure
     sufficient partial pressure of Oxygen. Therefore "Air supplied by a
     controlled compressor can only solve such problems at a considerable
     over-all system efficiency loss and a high cost increase. The alkaline
     system produces the reaction water at the hydrogen anode, the acidic
     membrane system at the air-cathode. Hydrogen can be efficiently circulated
     in a closed system with a simple condenser arrangement." Reference #4, pp
     791

v)   From the Department of Energy Website: "The platinum catalyst is also
     extremely sensitive to CO poisoning, making it necessary to employ an
     additional reactor to reduce CO in the fuel gas if the hydrogen is derived
     from an alcohol or hydrocarbon fuel. This also adds cost."
     http://www.eere.energy.gov/hydrogenandfuelcells/fuelcells/fc_types.html

     In a hydrogen-oxygen fuel cell the theoretical limit of cell voltage is
     1.23 V. Therefore a cell that produces a voltage of 1.23 V would be
     considered 100% efficient. In practice this voltage limit cannot be reached
     due to the peroxide reaction on the oxygen electrode. Reduction of oxygen
     takes place in two steps, via peroxide, in which some of the energy is
     irreversibly converted into heat. In reference #6 Kordesch shows the
     "Pourbaix Diagram" (after M. Pourbaix) for hydrogen-oxygen that
     characterizes the electrode voltages as a function of pH. The voltage
     differential between hydrogen and peroxide is constant in the range of pH 0
     - 10, acidic (this includes PEMFC) to mild basic. At about pH = 10 the
     effect of the peroxide reaction begins to be less pronounced, and by the
     time we reached pH = 15, the operation point of alkaline fuel cell, some
     100 mV have been gained. Everything else being equal, alkaline cell will
     exhibit higher voltage. If the typical cell voltage is 0.6 - 0.7 V, the
     difference of 100 mV represents 14 - 16 % advantage. This is purely a gift
     from mother nature, not a man's doing. In addition to the aforesaid
     reference #6, this fact is supported by a number of publications including
     the two presented here:


                                       20


1.   "Alkaline hydrogen/air fuel cells have an operating voltage of about 0.8V
     at 300mAcm-2. Assuming that PEM fuel cells deliver 600mAcm-2 at 0.7V, this
     is a loss of 10-15% in efficiency." Reference #4, pp 791

2.   "The higher kinetics for the oxygen reduction reaction (ORR) in alkaline
     over acidic media permits the use of a lower quantity of precious metals
     for a given overpotential. This results in a greater efficiency for the AFC
     when compared to the PEM as well as a large margin for the cost reduction."
     Reference #1, pp 193

In addition to the advantages that have been described thus far including;
higher electrochemical efficiency, lower cost to manufacture and lower cost to
operate which are critical to the widespread acceptance the AFC has a number of
distinct advantages over the PEMFC:

o    Quick start-up and shutdown even in subfreezing temperatures (due to the
     fact that the electrolyte (KOH) freezes at below -40(0)C at concentrations
     used in the Astris system versus the need for water (freezes at 0(0)C) for
     membrane hydration in the PEMFC

o    Better reaction dynamics and therefore better performance and easier start
     at low temperatures and pressures, noticeable already at room temperature
     and even more pronounced at still lower temperatures

o    Wide range of humidity tolerance which again is related to the membrane
     hydration requirement of the PEMFC.

"Furthermore, the circulating electrolyte used in an AFC results in a simple and
rapid start-up and shutdown procedures [4] and has the additional advantage of
simplifying the water and the heat management [8]." Reference # 1, pp 195

Glossary of terms

LHV - lower heating value, amount of energy of oxidation of fuel, excluding the
heat of condensation of product water (this is a correct basis of comparison as
the engines in question such as fuel cell systems and internal combustion
engines do not recover the heat of condensing the product water)

HHV - higher heating value, amount of energy of oxidation of fuel, including the
heat of condensation of the product water

KOH- potassium hydroxide


                                       21


CO- carbon monoxide

pH- measure of acidity/alkalinity. pH=7 denotes a neutral solution; pH less than
seven denotes acidic solutions, pH greater than seven denotes basic (alkaline)
solutions

THE COMPANY'S PRODUCTS

     The Company presently offers products ranging from demonstration and
educational fuel cells and accessories, to scientific products such as
electrochemical test cells, associated electronic and computer based test
equipment. This test equipment is useful in research and development and the
testing of electrodes, fuel cells and batteries, and sub-kilowatt fuel cells and
stacks.

     The Company believes the POWERSTACK(TM) MC250 can be used for fuel cell
systems up to 10 kilowatts or more for use in uninterrupted power supplies,
portable generators and small vehicles such as forklifts. The Company
anticipates that such a fuel cell will be ready for commercial application
within the next one to three years depending on funding.

     The Company's principal fuel cell products are the POWERSTACK(TM) MC250, E8
generator and Astris II golf car. These demonstrator units are pre-commercial
products provided on a limited basis to individual customers and assembled by
hand. These demonstration units are in contrast to "pilot production" systems,
which are systems manufactured in a pilot production facility not on a full
commercial basis, and to commercial systems, which are manufactured by volume
production methods. The Company has begun test runs of its pilot production line
to produce the POWERSTACK(TM) MC250.


     POWERSTACK(TM) MC250 is a 250 square centimeter, medium size alkaline fuel
cell. In early test results the POWERSTACK MC250 performed 60% over the original
design specification. The POWERSTACK MC250 makes a large step in increasing
power density and overall performance when compared to its predecessor the
LABCELL.

MODEL E8 PORTABLE AFC GENERATOR

     MODEL E8 Portable Power Generator is an advanced touch start fuel cell
system that offers up to 2.4kW of power primarily targeted for back up power
requirements. The E8 fuel cell generator was partially developed by the
Company's Czech Republic subsidiary in a joint project partially funded by the
Czech Ministry of Industry and Trade.

ASTRIS II GOLF CAR

         The Astris II is the Company's second-generation golf car. The new,
faster golf car is powered by Astris' recently completed 1.8kW, Model E7 AFC
Generator, which gives Astris II double the power and double the acceleration of
the original model which was the world's first alkaline fuel cell powered golf
car using hydrogen. The intellectual property of the actual golf car belongs to
the supplier from whom AEI bought the golf car, E-Z-Go. AEI simply bought the
golf car and added its E8 generator to replace the existing battery engine.


                                       22


     In addition to the Company's principal fuel cell products, the Company has
several small fuel cells and products, primarily for educational purposes and
testing, for sale through its website.

SMALL FUEL CELLS AND RELATED PRODUCTS

     In addition to developing fuel cells, the Company presently sells by mail
order small fuel cells, test cells and electronic test equipment. They are
described briefly, as follows:

     LABCELL(TM) LC50 is a 50 square centimeter, small alkaline fuel cell for
laboratory demonstration and experimentation which produces 1.5 to 6 volts.

     LABCELL(TM) LC200 is a 200 square centimeter, medium size alkaline fuel
cell for laboratory experimentation and small power applications which produces
..75 to 12 volts.

     QUICKCELL(TM) QC200 is an electrochemical test cell designed for the
testing of gas diffusion or solid electrodes in a controlled laboratory
environment for fuel cell and battery research, development and quality control.

     MODEL TL5 TEST LOAD is a monitor for fuel cells and batteries with a
built-in microprocessor. It functions to briefly interrupt the current and take
resistance-free cell readings up to 40 volts. TL5 has a maximum power
dissipation of 100 watts.

     MODEL TL6 TEST LOAD is a monitor for fuel cells and batteries with a
built-in microprocessor. It functions to briefly interrupt the current and take
resistance-free cell readings up to 40 volts. TL6 has a maximum power
dissipation of ten times more than the TL5, up to 1,000 watts.

     TESTMASTER(TM) is a powerful, integrated software package designed for
testing fuel cells and batteries. TESTMASTER performs all the tasks required for
short-term or long-term testing of fuel cells or batteries, monitoring, control,
data collection and storage, and graphical data representation.

     Astris s.r.o. produces and ships electrodes on behalf of the Company. The
Company does not presently have any insurance on these products. Shipping
insurance is obtained at the customer's request and expense. Astris s.r.o. does
not maintain a substantial inventory of electrodes or fuel cells.

     The Company currently derives minor amounts of revenues from the sale of
small products. It remains unknown whether the Company will be able to further
develop a market for these products. The Company is not aware of any other
entity, which markets products similar to its small products.

     The Company is primarily targeting markets in North America and Europe for
the sale of small stationary, portable and select mobile applications including
light vehicles and emergency power supplies.


                                       23


RESEARCH AND DEVELOPMENT

     AEI has been involved in fuel cell research since its formation in 1995.
Over CDN$18 million has been expended since then. AEI had entered into the 1995
acquisition with WLD to be in a better position to raise capital for additional
research and development. As sufficient financing was not obtained as part of
the AEI acquisition, some of the research and development activities in Canada
were curtailed. Because labor costs are significantly lower in the Czech
Republic than in Canada, and the capital needs of Astris s.r.o. for research and
development activities are less than what would have been required in Canada,
the Company's research and development on fuel cells had primarily been carried
out in the Czech Republic, through the Company's wholly owned subsidiary, Astris
s.r.o.

     Astris s.r.o. has been engaged in fuel cell research and development since
1992. Its current research and development efforts are primarily focused on
electrode technology to improve the electrochemical efficiency, durability and
economy of alkaline fuel cells. These research and development efforts have also
been focused on reduction of production costs, improving product quality and
consistency, and on identifying new features and innovations for future product
development. Funds advanced from the Company for expenditures on manufacturing
and research and development at Astris s.r.o. were approximately CDN$367,000 for
2006. For the years ended December 31, 2005, the Company expended a total of
approximately CDN$ 909,873 on research and development. The research and
development budget for 2007 is contingent upon the Company's ability to raise
capital.

     The Company's research and development activities have been performed both
at the Mississauga, Ontario headquarters and at the Astris s.r.o. facility in
the Czech Republic. Of the research and development completed in Canada during
2006 the Company received or received notification of investment tax credit
refunds $NIL. The 2005 refunds of $283,900 were received in March 2007.

     The Company has also completed the initial research in the development of
an advanced fuel cell stack design for systems of up to 25 kilowatts or larger
for use in commercial buildings and automobiles. Such fuel cells will be
developed initially as prototypes and will later be developed as commercial
products.

     The Company's projected initial manufacturing and research and development
budget for 2007 is CDN$1.8 million subject to financing. Such amount will be
used to continue development and production of the POWERSTACK MC250 fuel cell
power module. If less than CDN$2.5 million is obtained from financing, the
Company will reduce its research and development budget and the development and
production of the fuel cell power module will continue, albeit at a slower pace.
If no adequate funding is secured, the research and development of the Company's
fuel cell products will have to be deferred until such financing is in place.

INTELLECTUAL PROPERTY

     In 1986, Josef V. Soltys of Mississauga, Canada (a shareholder and former
director of the Company), assigned to AI a Canadian patent application for
QUICKCELL, a test cell structure for fuel cell technology. The patent, Canadian
Patent #1,295,679, issued February 11, 1992, expires February 11, 2009. The
Company also holds a United States patent, #5,0008,162, which was issued on
April 16, 1991, and expires on April 16, 2008, for the same product. A former
employee of AI, who was a co-inventor of such technology, did not assign any
right in such patents to the Company prior to his departure. Management does not
believe that these patents are material to the development of the intended
business goal and the Company ceased maintaining the patent. The following are
current patents and patent applications:


                                       24


|X|  Electrode Structure for Stacked Alkaline Fuel Cells - Patent

     o    Applications:

          |X|  11/004988

               |X|  PCT PCT/CA2005/001857

               |X|  PCT PCT/CA2006/000331

               |X|  11/567420

     o    Patent:

          |X|  7166383 US - expires Dec 7, 2024

          |X|  Alkaline Fuel Cell System - Patent Pending

     o    Applications:

          |X|  10/905148

          |X|  PCT/CA2005/001927

     The Company's policy is still to maintain the confidentiality of its
products through trade secrecy.

     The Company has unregistered trademarks on some of its products, including
LABCELL(TM) LC50, LABCELL(TM) LC200, QUICKCELL(TM) QC200, POWERSTACK(TM) MC250
and TESTMASTER(TM).

     The Company has copyright protection on its TL6 Testload, TL5 Testload and
TESTMASTER(TM) software.

     The alkaline fuel cell electrode technology which has been developed by the
Company's subsidiary, Astris s.r.o., is solely owned by Astris s.r.o. No other
party has rights to the electrode technology developed by Astris s.r.o. The
Company, which had 30% beneficial ownership of Astris s.r.o. prior to the
acquisition effective January 2, 2005, has full ownership of Astris s.r.o and
its technology.

MARKETING

     The Company has a limited production capacity for its demonstration and
scientific products. While direct sales efforts will continue through the
Internet, Astris' principal strategy is to form joint ventures with leading
manufacturers of the products that can use fuel cell power. Manufacturers in the
back up power and UPS industries are believed to be the primary targets.
Manufacturers in the golf car, NEV and/or recreational vehicle industries are
believed to be secondary targets. As an alternative, the Company is also
considering licensing such manufacturers to both produce and market the Astris
power sources on an O.E.M. basis, with Astris collecting both license fees and
royalties based on sales.


                                       25


     Such established industry specific companies already have manufacturing
facilities and marketing organizations in place and provide an intimate
knowledge of their respective markets. These types of strategic business
relationships will allow Astris to continue specializing in its business
expertise, which is the development of new products for the burgeoning
international fuel cell field.

     In October 2000, the Company entered into an agreement with
FuelCellStore.com, Inc. for the inclusion of the Company's products on the
FuelCellStore.com internet website on a non-exclusive basis for sales anywhere
in the world. FuelCellStore.com, Inc. receives a ten percent (10%) commission
based upon sales of the Company's products over its internet website.

     Currently, the Company's fuel cell products are shipped to the customer
from Canada. It is expected that the future customers of the Company's fuel cell
systems will be manufacturers of all types of products which will be adapted to
utilize the Company's fuel cell technology. The Company expects such fuel cell
systems will be shipped directly from its facilities to such manufacturers or
through a network of distributors and agents to such manufacturers.

RAW MATERIALS AND SUPPLIES

     The principal raw materials that the Company uses are common and widely
available from numerous suppliers. The Company's principal materials are largely
various types of plastics, carbons, metals and their compounds and conventional
components, which are all relatively inexpensive to obtain and which currently
do not present supply problems.

COMPETITION

     Fuel cells are a competitive business. Competition arises from other fuel
cell companies and from entities engaged in offering existing conventional
energy services. The Company competes with companies that are developing all
types of fuel cells. While there are currently five basic types of fuel cell
technologies (see "Description of Fuel Cells" above), the Company believes that
AFCs and PEMFCs are the only fuel cells that are presently of competitive
relevance for the relatively small power, stationary and portable applications
that the Company intends to focus upon. This is because AFCs and PEMFCs normally
operate at ambient temperatures (above 0 degrees Celsius to 100 degrees Celsius)
and deliver kilowatts, which are more suited to meet the needs of small,
off-grid applications. The Company constructs only AFCs. While both AFC and
PEMFC fuel cells have potential environmental and efficiency advantages over
traditional power sources, the Company believes that AFCs can be manufactured
less expensively, more efficiently and more practically than PEMFCs in
small-scale applications.

     Astris has essentially no competition in any application area using
alkaline fuel cells where its 1 kilowatt to 10 kilowatt power systems are
targeted. Other AFC companies in the early R&D stages include Apollo Energy
Systems and Ovonic Fuel Cell Company. The Company is focusing on the potential
market in back up and UPS applications of small-capacity fuel cells, as are
other PEMFC fuel cell companies. There are several competitors in this market
including Ballard Power Systems, Hydrogenics, Plug Power, Ida Tech and Nuvera
Fuel Cells. There are no barriers to Ballard, or any other known or unknown
competitor of the Company, entering the market covering the industries that the
Company is focusing on.


                                       26


     Apart from specific market competition, the Company believes that AFCs have
inherent advantages over PEMFCs, regardless of specific applications. AFCs use
potassium hydroxide electrolyte, a chemically basic substance, while PEMFCs are
chemically acidic, requiring platinum as a catalyst. They also use an expensive
membrane as an electrolyte. In addition, AFCs have been scientifically proven to
be 10% more energy-efficient than PEMFCs and offer a higher electricity yield
from a given quantity of fuel. That is to say, while PEMFCs might be 40-50%
efficient, AFCs are 50-60% efficient. This provides a significant advantage in
terms of raw energy consumption and cost savings. In addition, AFCs are able to
start instantly, without warm-up, even below freezing, to minus 30-40 degrees
Celsius. PEMFCs can only operate above freezing from 0 degrees Celsius to 80
degrees Celsius unless a heating mechanism is added, causing significant loss of
efficiency and extra cost.

LEGAL PROCEEDINGS

     On June 30, 2004 the Quebec Superior Court ruled in Astris' favour and
supported its application to immediately wind up and liquidate Astris
Transportation Systems Inc. ("ATSI"), a corporation that was formed jointly with
Care Automotive Inc.("Care"). A liquidator was selected to dissolve ATSI. On
January 26, 2007 the Quebec Superior Court granted the motion to the Company to
dissolve ATSI and discharged the liquidator.

There are no current legal proceedings.

GOVERNMENTAL REGULATION

     The Company knows of no governmental license or approval required in
connection with the manufacture or sale of the Company's current products. There
are no extraordinary governmental regulations known to the Company that affects
its ability to sell or produce its products. The Company does not believe that
it will be subject to existing regulations governing traditional electric
utilities.

The Company knows that its products must comply, where applicable, with the
existing rules and regulations for electrical and electronic products, and is
prepared to meet such requirements.

     The Company anticipates that its products and their installation may be
subject to oversight and regulation related to their safety due to their use of
hydrogen, which is flammable and regarded as a hazardous gas. However, hydrogen
is a commonplace industrial gas, which is produced in enormous quantities every
day in numerous industrial facilities around the world. Regulations have been in
place for decades regarding hydrogen, which provide routine specifications for
manufacturers of hydrogen-using equipment. Therefore, the Company does not
anticipate any new regulations regarding hydrogen, or any difficulties in
complying with existing regulations.


                                       27


ENVIRONMENTAL COMPLIANCE

     There are no environmental laws known to the Company, which may affect any
of its operations as they are currently constituted. The Company is not involved
in a business which involves the use of materials which are likely to result in
a violation of any existing environmental laws, rules or regulations, nor does
it own any real property which would lead to liability as a land owner.

C. ORGANIZATIONAL STRUCTURE.

     The Company had a subsidiary, Astris Inc. ("AI") which was amalgamated with
Astris Energi Inc. ("AEI") effective January 1, 2005. AI was incorporated
initially as Astris Science Inc. on April 8, 1983, in the Province of Ontario,
and changed its name to Astris Inc. in 1986. AEI also owns 100% of holding
company 2062540 Ontario Inc.("Holdco"), incorporated in the Province of Ontario
on January 12, 2005. Holdco owns 100% of Astris s.r.o., which was organized
under the laws of the Czech Republic. The Company, up until January 27, 2005
owned a 30% minority interest in Astris s.r.o. The Company transferred its 30%
ownership to Holdco as part of the acquisition of the remaining 70% of Astris
s.r.o. The remaining 70% interest in Astris s.r.o. was owned by Macnor Corp., an
Ontario corporation that is wholly owned by Jiri K. Nor, an Executive Officer,
Director and principal shareholder of the Company. Unless otherwise indicated or
outside the context of the disclosure, all references to the Company shall
include AI, 2062540 Ontario Inc. and Astris s.r.o.

D. PROPERTY, PLANT AND EQUIPMENT (FIXED ASSETS).

     AEI has leased a 3,750 square foot industrial unit located at 2175 Dunwin
Drive, Mississauga, Ontario, Canada on a month to month basis. The minimum
annual lease payments under the terms of the existing lease are CDN$43,980 or
$3,655 per month, inclusive of proportionate share of common costs.

     Astris s.r.o. purchased an industrial building in the town of Vlasim, Czech
Republic with approximately 8,000 square feet of manufacturing and office space
on two floors. The building is situated on a 1.5 acre lot, allowing for future
expansion, if necessary. The net book value of the building is CDN$229,676 and
the property is CDN$128,940.

     The Company believes that the present premises are suitable for its present
requirements.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

     The following is a discussion of the results of operations and financial
condition of the Company for the fiscal years ended December 31, 2006, 2005 and
2004. The financial statements are prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") and are presented in Canadian
dollars. Differences between Canadian GAAP and United States GAAP can be found
in Note 15 of Item 17 of this filing. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto forming
a part of this annual report.


                                       28


     In 2003, the Company began expensing all employee stock-based compensation.

     The auditors' report attached to the Company's audited financial statements
note that the Company's ability to continue as a going concern is in substantial
doubt. It is dependent on the ability of the Company to raise additional
long-term financing, either from its own resources or from third parties, the
successful commercialization of one or more of the Company's research projects,
and attaining profitable operations.

     As noted under "Liquidity and Capital Resources" herein, the future of the
Company is dependent upon its ability to raise additional capital to fund the
commencement of the commercialization of products based upon the Company's fuel
cell technology. Management is of the opinion that the Company should continue
to exist and grow, based upon encouraging results of research and development to
date, recent world-wide interest in fuel cell technology and the completion of
the golf car program. With the advancement of this research and development
program, and the completion of the Company's POWERSTACK MC250 program, the
Company is in a better position to pursue financing in the form of private
placements of its Common Shares.

     The following discussion, as well as other sections within this annual
report, contain forward-looking information which is based on current
expectations and entails various risks and uncertainties. These risks and
uncertainties could cause or contribute to actual results that are materially
different from those expressed or implied. The forward-looking information
contained in this document is current only as of the date of the document. There
should not be an expectation that such information will in all circumstances be
updated, supplemented or revised whether as a result of new information,
changing circumstances, future events or otherwise.

     The only critical accounting policy is income taxes. Because there is
uncertainty when the Company will make sufficient profits in future years to
absorb the losses before they expire, the Company takes a valuation allowance
which results in no tax being recovered.

A. OPERATING RESULTS.

The financial statements included in this report are stated in Canadian dollars.

REVENUE

     For the year ended December 31, 2006, revenue from the sale of fuel cells
and related products and contract work was $85,915 compared with $291,512 for
the same period in 2005 and $88,798 for the same period in 2004. The decrease in
sales in 2006 reflect the lack of a major order as it had from El.Ma in 2005.
The 328% increase in sales in 2005 over 2004 was attributable to the sale of its
first Astris II golf car in the first quarter, the E8 Generator, fuel cells and
supporting test equipment and services to El.Ma in the fourth quarter. Sales of
fuel cells and related products to unrelated parties in 2006 amounted to $17,220
to Canada, $763 to the Czech Republic and $67,932 to the rest of the World; in
2005 amounted to $53,019 to Canada, $10,381 to the Czech Republic and $228,112
to the rest of the world; in 2004 amounted to $7,508 to Canada, $4,310 to the
Czech Republic and $76,980 to the rest of the world. The main source of revenue
in 2004 was from the sale of fuel cells and an E8 generator.


                                       29


EXPENSES

     For the year ended December 31, 2006, expenses totaled $2,206,337 compared
with $5,622,376 for the same period in 2005, compared with $3,551,055 for the
same period in 2004. The main variance in 2006 was due to the recognition under
US GAAP of the unrealized gain on derivatives, the reduction of General and
Administrative expenses due to lack of funds and the one time accounting write
off of $1,500,000 of the technology acquired by the Company on the purchase of
Astris sro in 2005. Under US GAAP, the acquisition of this significant
technology cannot be recognized as an asset. General and Administrative expenses
were $1,326,539 in 2006 as compared to $2,537,127 in 2005 compared with
$1,943,799 in 2004 due to an decrease of approximately $575,000 in Business
development and Marketing costs, a decrease of approximately $230,000 in
Promotion, bonuses and Directors compensation and a one time anti-dilution
payment of $249,000.

     Professional fees were $264,742 as compared to $333,555 in 2005 and
$243,076 in 2004, reflecting the Company's continued corporate activity, legal
activity, accounting and compliance activity in conjunction with the debenture
financing and the increased costs due to being a public company in the United
States.

NET LOSS FOR THE YEAR ENDED DECEMBER 31, 2006

     The Company reported a net loss of $2,120,422 (a loss of $0.05 per share
basic and diluted) for the year ended December 31, 2006, compared with a loss of
$5,330,864 (a loss of $0.16 per share basic and diluted) in 2005. The decrease
in the loss primarily reflect the 2005 write off of the intangible technology
asset and the write off of Astris sro acquisition costs, the unrealized gain on
derivatives and the reduction in General and Administrative costs.

     The Company reported a net loss of $5,330,864 (a loss of $0.16 per share
basic and diluted) for the year ended December 31, 2005, compared with a loss of
$3,462,257 ($0.26 per share basic and diluted) in 2004. The increase in the loss
primarily reflects the increased expenses due to the write off of the intangible
technology asset, write off of Astris sro acquisition costs, increased
compensation to consultants and additional warrant and option expense.

     As at December 31, 2006, the Company has non-capital loss carry forwards of
approximately $9,503,000. If unused, the tax losses will expire as follows:

                       2007           $    188,000
                       2008           $    294,000
                       2009           $    323,000
                       2010           $  1,734,000
                       2014           $  2,882,000
                       2015           $  3,030,000
                       2016           $  1,052,000


                                       30


     In addition, the company has non-deductible scientific research and
development expenditures amounting to $1,759,000, which have no expiry date.

B. LIQUIDITY AND CAPITAL RESOURCES.

     The Company had a operating cash flow deficit of $1,636,435 in 2006,
compared with a restated operating cash flow deficit of $702,281 in 2005,
compared with an operating cash flow deficit of $2,102,906 in 2004,. The
decrease is a result of the Company having raised only $1,006,136 of capital
stock in 2006 as compared to $2,566,765 in 2005. This forced the Company to
raise capital with the issuance of the convertible Debentures.

     At 2006 year end, the Company had $1,766,218 of assets and a shareholders'
deficiency of $53,221 compared to a shareholders' deficiency of $228,456 in
2005.

     The Company's cash position and working capital requirements mean that the
company will require continuing external financing until it becomes cash flow
positive through commercialization of one or more of its products.

     The Company does not have any off-balance sheet arrangements.

     During 2006, the Company raised $1,856,750 through the convertible
debentures below and the leasing of $28,360 of capital equipment. During 2005,
the Company raised $493,350 through the convertible debenture described below
and the issuance of shares for options exercised. During 2004, the Company
raised $2,076,041 through private placements of shares and warrants.

     On March 28, 2005, the Company announced that it had closed a convertible
debenture financing for gross proceeds of CDN$420,000. The debenture was
available for subscription to "Canadian accredited investors" only and included
a coupon for 6%, payable in common shares upon conversion or maturity. Each
debenture is convertible into Common Shares at a conversion rate that in no case
shall be less than USD$0.20 or more than USD$0.70. Warrants may be issued to the
debenture holders depending on the terms of a second larger equity financing.
The debentures mature on December 10, 2005, 270 days from the date of issuance.
Total net proceeds were CDN$378,000. Fraser Mackenzie Limited, for facilitating
the funding, also received 156,000 broker warrants exercisable at CDN$0.27 until
March 24, 2007. These debenture holders agreed to amend this debenture to the
same terms of the Cornell Capital debenture described below.

     On April 12, 2006, the Company issued a press release announcing the
completion of a One Million Five Hundred Thousand Dollars ($1,500,000) million
financing (the "Financing"). The Company entered into a Securities Purchase
Agreement (the "Agreement") on April 10, 2006 with Cornell Capital Partners, LP,
an institutional investor (the "Investor"), relating to the sale of One Million
Five Hundred Thousand Dollars ($1,500,000) of secured convertible debentures
(the "Convertible Debentures"), which will be convertible into shares (the
"Conversion Shares") of the Company's common stock (the "Common Stock") of which
Seven Hundred Fifty Thousand Dollars ($750,000) was funded on April 18, 2006
(the "First Closing") and Seven Hundred Fifty Thousand Dollars ($750,000) was
funded on June 9, 2006, for a total purchase price of up to One Million Five
Hundred Thousand Dollars ($1,500,000), (the "Purchase Price"). Pursuant to the
Agreement, the Investor also received common stock purchase warrants (the
"Warrants") to purchase (i) 1,000,000 shares of the Company's common stock at an
exercise price of $.30 per share (ii) 600,000 shares of the Company's common
stock at an exercise price of $.20 per share and (iii) 1,600,000 shares of the
Company's common stock at an exercise price of $.19 per share. The Company
received net proceeds from the First Closing Six Hundred Seventeen Thousand Five
Hundred Dollars ($617,500) and Six Hundred and Fifty-Two Thousand Dollars
($652,000) in the second closing, which are to be used primarily for working
capital purposes.


                                       31


     The Convertible Debentures have an initial conversion price of the lesser
of (i) a price equal to $.2483 (the "Fixed Conversion Price") or (ii) ninety
percent (90%) of the lowest daily Volume Weighted Average Price of the Common
Stock during the ten (10) trading days immediately preceding the Conversion Date
as quoted by Bloomberg, LP per share and provides for anti-dilution protection
(in certain circumstances). At the Fixed Conversion Price, the Convertible
Debentures will be convertible into an aggregate of 6,041,079 shares of common
stock. The Convertible Debentures bear interest at 10% per annum. Interest is
payable in cash or, at the Company's option, in shares of common stock (the
"Interest Shares") provided certain conditions are satisfied. At any time after
their respective issuance dates and prior to April 9, 2009, the Convertible
Debentures may be redeemed at the election of the Company at the principal
amount plus a redemption premium equal to 20% of the principal amount being
redeemed, plus accrued but unpaid interest, subject to the satisfaction of
certain conditions.

     The Investor was granted a security interest in the assets of the Company
and the assets of the Company's subsidiary, 2062540 ONTARIO INC.

     The Warrants may be exercised for cash, as indicated above, and also
contain a cashless exercise provision, which may be exercised in certain
circumstances. The Warrants provide for anti-dilution protection in certain
circumstances. The Warrants are exercisable for 1,000,000, 600,000 and 1,600,000
shares of Common Stock (the "Warrant Shares"), respectively, and if fully
exercised for cash at the initial exercise price, the Warrant would yield
approximately $724,000 of additional proceeds to the Company.

     The Company filed a registration statement (the "Registration Statement")
with the SEC in order to register the resale of the shares issuable upon
conversion of the Convertible Debentures and the shares issuable upon exercise
of the Warrants. The registration was declared effective on July 21, 2006.

     Pursuant to the Securities Purchase Agreement, the Investor has certain
rights to participate in future financings of the Company. In addition, subject
to certain exceptions, so long as any of the Convertible Debentures are
outstanding, the Company may not, without the prior written consent of the
investor, issue shares of common stock or common stock equivalents.

     Pursuant to the Securities Purchase Agreement, the Company and the Investor
entered into a Share Escrow Agreement and an Irrevocable Letter of Instructions
to the Company's transfer agent (the "Transfer Agent"). Pursuant to the Share
Escrow Agreement, the Irrevocable Letter of Instructions is being held by an
escrow agent ("Escrow Agent") and upon the occurrence of an "Event of Default"
(as that term is defined in the Convertible Debentures) may be delivered to the
Transfer Agent by the Escrow Agent directing the Transfer Agent to issue
34,500,000 shares of Common Stock to the Investor without any further action by
the Company.


                                       32


     The Investor may not convert the Convertible Debentures or exercise the
Warrant to the extent that, after giving effect to such conversion or exercise,
as the case may be, the Investor would beneficially own in excess of 4.99% of
the number of shares of common stock of the Company outstanding immediately
after giving effect to such conversion or exercise, calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder. Such limitation with respect to
such conversion or exercise may be waived by the Investor upon not less than 65
days prior notice to the Company.

     The offering, sale and issuance of the Convertible Debentures and the
Warrants were effected pursuant to the exemption from registration provided by
Rule 506 promulgated under the Securities Act of 1933, as amended. The
Convertible Debentures and Warrants have not been registered under the
Securities Act of 1933, as amended, and confirmed the Company has been notified
that all existing convertible debentures are now owned by ACME Global Inc., a
Delaware corporation and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.

     The Company will continue to seek to enter into private placements,
strategic partnerships and joint ventures in order to further finance the
on-going development and commercialization of its fuel cell technology. There is
no assurance that the Company will be able to find or enter into any private
placements, strategic partnerships or finalize the proposed joint venture, on
terms acceptable to the Company or not highly dilutive to shareholders.

     As with most technology companies, Astris needs to conserve as much cash as
practical while maintaining its operations for the core R&D work. It does have a
need for other functions such as raising financing, office expenses, rent, legal
and audit fees, investor relations etc. As noted in our Statement of Cash Flow,
we use equity to pay non related parties who bring financial expertise,
consulting and certain professional fees. The company uses cash to pay its
engineers, which are the heart of the company's research and development
activities; also its daily administrative staff such as the administrative
assistants and the bookkeepers; also certain operating expenses for which shares
are not usually accepted such as rent, office supplies, travel, etc.

     We use options to pay non employees who provide services to us. Also all of
our senior management have been willing to support the company through accepting
part cash and part equity for their services provided.

PROSPECTS

     Currently management is in discussions with a number of parties that are
interested in becoming customers and/or joint venture partners.

     On October 19, 2004, the company announced that it signed a Cooperation
Agreement with Italy's Electronic Machining s.r.l. (El.Ma.). El.Ma. is a
privately held company with offices and technical development facilities in
Rovereto, Trento, Italy. El.Ma. has particular interest in the development of
alkaline fuel cells for stationary and distributed generation of electrical
power. Their fuel cell and hydrogen usage R&D is funded by the Provincia
Autonoma di Trento, which is committed to the development of these technologies
with an eye to early market opportunities in Europe. As well, El.Ma. specializes
in research and advancement of manufacturing processes, an expertise applicable
to Astris' current AFC production line initiative. Under the terms of the
agreement, Astris will licence the use of its AFC technology and market its
products and consulting services to El.Ma. All goods and services provided by
Astris will be purchased by El.Ma. El.Ma will apply its research and
manufacturing expertise to the development of Astris technology in the areas of
production. Any intellectual property resulting from the execution of the
agreement will be owned exclusively by Astris. The agreement has an initial term
of 3 years, extension upon mutual consent. Either party can terminate upon
60-day written notification to the other party. Astris may terminate immediately
if El.Ma is in breach of the agreement and does not remedy within 15-days.
Compensation in the amount of 50,000 stock options in the Company was issued to
Energie Rinnovabili Italia srl for assisting in co-ordinating the agreement with
El.Ma. Astris earned approx. $200,000 in revenue from El.Ma to date.


                                       33


     On February 24, 2005, the Company announced that it signed a non-exclusive
Teaming Agreement with Plasma Environmental Technologies Inc. (PET) (TSXV: PE)
of Burlington, Ontario for the development of a real-world installation
utilizing PET's hydrogen-producing waste processing system and Astris' AFC
technology. There was no compensation paid to any party for this agreement. The
agreement has an initial term of 5 years with the potential for an additional 5
years upon mutual consent. The agreement may be terminated upon 30-day written
notification by either party.

     The first of three phases outlined in the agreement will be to determine
the suitability of the hydrogen gas produced in the PAG waste destruction
process for use in Astris' hydrogen AFC systems and for PET to make adjustments,
if necessary to their current PAG.

     Upon completion of Stage 1, Stage 2 of the Agreement calls for PAG
installations that will be developed to demonstrate the practical application of
the PAG process in conjunction with Astris' AFC-powered generators. It is
anticipated that this Stage will be financed by appropriate stakeholders such as
local, provincial or federal governments, or special interest groups.

     In addition, PET has agreed to introduce Astris to any of its current or
future clients who might desire to purchase or use Astris' services or products.
For this, PET will be paid a mutually agreed to commission.

     On August 4, 2005, the Company announced that Astris s.r.o., the wholly
owned European subsidiary of Astris Energi Inc., received a grant from the
Ministry of Industry and Trade (MPO) of the Czech Republic. The funding will be
used to subsidize Astris' fuel cell development efforts at its Czech based
subsidiary.

     The amount of funding is approx. 8,750,000 Czech Korunas (CZK) or approx.
USD $0.4 million against anticipated program spending of 17,500,000 CZK or
approx. USD$0.8 million over the next 2 1/2 years. The company believes that
every USD $1 spent in the Czech Republic is comparable to at least USD $5 spent
in North America due to the lower working and living costs in the Czech
Republic.


                                       34


     Currently it is the largest fuel cell grant ever awarded by the MPO in the
Czech Republic, it is indicative of the growing global government support for
fuel cells. The work will be carried out by the Astris scientific team in
cooperation with several leading academic and industrial institutions, including
the Institute of Macromolecular Chemistry of the Academy of Sciences of Czech
Republic, and the Department of Chemical Technology of University of Pardubice.

     On November 23, 2005, the Company signed an agreement with Tropical S.A. in
Greece, whereby Tropical becomes a reseller for Astris' alkaline fuel cell power
generator products, fuel cells and test equipment.

     The purpose of this Reseller arrangement is to enable Tropical to
demonstrate and make available Astris products primarily within the Greek
market. Tropical S.A., Athens, Greece, is a leading organization in Renewable
Energy and Hydrogen Technologies markets. The agreement may be terminated by
either party with 30 day notice for any reason.

     On October 26, 2005, the Company hired Ardour Capital Investments LLC
("Ardour") as its exclusive financial advisor. For a 24 month engagement, Ardour
will receive 1,250,000 common shares of Astris stock. Ardour is also entitled to
7% commission on any funds raised through them.

     On June 5, 2007, the company executed a binding asset purchase agreement
with MKU Canada Inc., a corporation incorporated under the laws of Ontario,
Canada, a wholly-owned subsidiary of Green Shelters Innovations Ltd. ("GSI"), a
wholly-owned subsidiary of Green Shelters (India) Private Ltd, to sell
substantially all of its assets to MKU Canada Inc.

     This transaction, which was negotiated by the Special Committee of the
Board of Directors of Astris, includes the sale of substantially all of the
assets of the Company, including its fuel cell and test load technology assets
for consideration of: (i) approximately US$3.1 Million in cash; (ii) forgiveness
of US$1.6 Million of face value secured convertible debentures held by ACME
Global Inc. (a subsidiary of GSI) and accrued interest of US$175,000; (iii) an
option for Astris to redeem, for nominal consideration and then cancel 4,248,750
shares recently acquired by ACME Global Inc. for US$0.08 per share; and (iv) a
secured convertible promissory note funding commitment of a minimum of
US$150,000 per month to finance operations to closing and to be forgivable
thereafter.

     Immediately after closing, existing management will resign both as officers
and directors of the Company. It is the intention of the Board of the Company to
appoint a new CEO with a mandate to utilize the remaining cash and residual tax
losses to seek new business opportunities.

     The obligation of the parties to consummate this transaction will be
subject to the following primary conditions: 1) no material adverse change to
Astris' business; 2) execution of employment agreements between GSI and key
personnel of Astris; 3) completion prior to July 31, 2007; 4) approval by at
least two thirds of the votes cast at a Special Meeting of Astris shareholders
on July 10, 2007; 5) closing terms typical of an asset purchase; 6) receipt of
all necessary government approvals; and 7) exclusivity to MKU for the period to
closing. As such, the Company has agreed to a non-refundable break-up fee equal
to the greater of any advances under the secured convertible promissory note
operating facility described above or $500,000, at the time of any breach. Upon
termination, the promissory note would immediately become due and payable.


                                       35


C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

     See "Research and Development" in Section 4.

D. TREND INFORMATION.

     Independent researchers forecast that fuel cells will prove to be a
transformational technology, once remaining cost, technical and public
acceptance hurdles are overcome.

     The fuel cell industry is evolving gradually, with the pace of demand
determined by a number of factors including:

     o    Capital available to fund further development of technology

     o    The level of government commitment to develop a clean energy economy,
          which currently is greater in Europe, Japan and Canada than in the
          U.S.

     o    The price, availability and long-term security of conventional power
          sources, which affect the demand for fuel cells as an alternative
          energy source

     There are a number of factors contributing to growing demand for fuel
cells, including:

     o    Increasing demand for reliable power accentuated by power blackouts of
          recent years

     o    Deregulation of power markets and introduction of competition

     o    Environmental/political concerns

     o    Developing regions without power grids

     o    Geographic considerations/remote power

     o    Distributed power generation

     o    Increasing price of oil;

E. OFF BALANCE SHEET ARRANGEMENTS

     None

F. CONTRACTUAL OBLIGATIONS

     There are no contractual obligations to be disclosed.


                                       36


ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A. DIRECTORS AND SENIOR MANAGEMENT.

     The following table sets forth the name, age and office held with the
Company as of May 30, 2007 and the period during which such person has served as
a Director, Executive Officer and/or senior management.

-----------------------------------------------------------------------------------------------------------
Name                             Age    Office Held                                   Director Since
----                             ---    -----------                                   --------------
Jiri K. Nor                      67     President, Chief Executive Officer and        1996
                                        Director

Arthur Laudenslager (1)          80     Director                                      2003

Anthony Durkacz                  31     Vice President Finance, Secretary and         2003
                                        Director

Brian Clewes (1) (2)             48     Director                                      2004

Michael Liik (2)                 47     Director                                      2004

Peter Nor                        36     Vice President Marketing                      Not a Director

Notes:

(1) Members of the Company's Audit Committee.

(2) Members of the Company's Compensation Committee.

     Jiri K. Nor has been a Director and the President of the Company since
March 1996. He is a trained engineer, with particular expertise in mechanics,
aeronautics, electronics and electrochemistry. He is the principal
inventor/developer of the Company's AFC fuel cell technology. Mr. Nor is also an
entrepreneur with extensive business experience and the President and sole
stockholder of Macnor Corp. He was the founder of Sonotek, an electronics
company, inventor of the Minitcharger " fast battery charging technology and
founder of the Norvik group of companies. For more than five years until August
1997, he was Vice President of Research for Norvik Technologies and Norvik
Traction, companies in the business of developing fast battery chargers.

     Arthur E. Laudenslager was formerly a senior officer and director of
several public and private corporations, is currently Vice President, First
Energy Advisors Inc., and a business consultant who brings to the Astris Energi
Board a great deal of experience and knowledge in corporate structure and
financing.

     Anthony Durkacz, Vice President Finance, is a graduate of Brock University
in Business Administration, and joined the Astris team in summer 2002. He served
previously as Manager of Foreign Exchange on the capital market trading floor
with TD Securities in Toronto, and as President of Fortius Research and Trading
("Fortius"), an investment company servicing high net worth clients.


                                       37


     Brian D. Clewes is a twenty-year veteran of the insurance industry, he is
currently a principal since 1983 in Clewes & Associates Life Insurance
Consultancy Inc., the largest supplier of benefits consulting services to
Ontario Chartered Accounting firms. Mr. Clewes is an outstanding entrepreneur
with solid connections in the angel financing community.

     Michael Liik, P. Eng, MBA is currently President of Liikfam Holdings Inc.,
an investment/venture capital company. He has a record of investing in and
leading both early-stage and high-growth Canadian public companies including
Cymat Corp. and Slater Steel. He brings to the Board extensive merchant banking
skills to assist in raising investment financing for Astris' next stage of
development.

     Peter K. Nor, P.Eng, MBA, is the son of Jiri Nor and is a professional
engineer with experience in both technical marketing and research and
development. He has professional experience as a Network and Business Planner
for Nortel Networks and as a Research Council Officer at the Institute for
Aerospace Research of the National Research Council-Canada. Mr. Nor joined
Astris in 2004.

     There are no other family relationships between any of the persons above,
nor are there any arrangements or understandings with major shareholders,
customers, suppliers or others, pursuant to which any person referred to above
was selected as a Director or member of senior management.

B. COMPENSATION

     Under the current financial circumstances, executives and directors or
     their affiliate companies often elect to take all or part of their
     compensation in the form of restricted common stock. An individual or
     entity that receives common stock of the Company in lieu of cash is still
     responsible to pay tax on the income earned in the current fiscal year even
     though the shares issued are restricted from trading for a minimum of one
     year or longer. In Canada, the personal income tax rate is higher in most
     cases than the corporate tax rate. This benefit does not limit the
     Company's ability to deduct the compensation in any way.

(1)  Paid in Cash

                                     2006      2005     2004
                                   -------   -------   -------
      Macnor Corp (Note 1)         135,997    66,665   115,279

      Fortius Research & Trading    55,225    15,000    47,500
      (Note 2)
                                   -------   -------   -------
      Total                        191,222    81,665   162,779
                                   -------   -------   -------

     Note 1. Macnor Corp is an Ontario Corporation owned and controlled by Jiri
     Nor, the CEO and Director of Astris. Macnor also provides research and
     development services by Jiri Nor and marketing services by his son Peter
     Nor, who is an Officer of Astris.

     Note 2. Fortius Research & Trading Corporation is an Ontario Corporation
     owned and controlled by Anthony Durkacz, an Officer and Director of Astris.


                                       38


2)   Paid in Shares

     In 2004, we issued to related parties 586,592 common shares for a value of
$332,360 for consulting services rendered and 293,751 shares for $128,000 to pay
down debt and accrued interest on that debt for a total of 880,343 shares for a
total of $473,060. These shares and amounts were issued to the following
entities or individuals:

     Individual or Entity                     # of Shares          $ Value
     ---------------------------------------------------------------------
     Jiri Nor as an individual                   117,500            51,200
     Macnor Corp. (Note 1)                       266,263           144,455
     Fortius Research & Trading (Note 2)          95,880            52,500
     Director - David Ramm                        57,445            34,422
     Director - Gordon Emerson                   118,032            81,443
     Director - Gerald Crawford                   89,793            46,435
     Director - Donald Blenkarn                  117,500            51,200
     Director - Arthur Laudenslager               17,930            11,405
                                                 -------           -------
     Total                                       880,343           473,060
                                                 -------           -------

     Note 1. Macnor Corp is an Ontario Corporation owned and controlled by Jiri
     Nor, the CEO and Director of the Company. Macnor also provides research and
     development services by Jiri Nor and marketing services by his son Peter
     Nor, who is an Officer of Astris.

     Note 2. Fortius Research & Trading Corporation is an Ontario Corporation
     owned and controlled by Anthony Durkacz, an Officer and Director of Astris.

     In 2005, we issued to related parties, 5,000,000 shares for the purchase of
2062540 Ontario Inc. for a value of $1,955,000; 1,160,803 shares for
professional services for a value of $284,666; 125,000 shares to repay a
liability worth $26,150; 719,873 shares for consulting services for a value of
$168,437; and 3,415 shares for expense recovery for a value of $1,205. These
shares and amounts were issued to the following entities or individuals:

      Individual or Entity                    # of Shares          $ Value
      Macnor Corp       (Note 1)               6,285,803         2,265,816
      Fortius Research and Trading(Note 2)       327,269            72,500
      Liikfam Holdings(Note 3)                   392,604            95,937
      Director - A. Laudenslager                   3,415             1,205
                                              ----------         ---------
      Total                                    7,009,091         2,435,458
                                              ----------         ---------

     Note 1. Macnor Corp is an Ontario Corporation owned and controlled by Jiri
     Nor, the CEO and Director of the Company. Macnor also provides research and
     development services by Jiri Nor and marketing services by his son Peter
     Nor, who is an Officer of Astris.


                                       39


     Note 2. Fortius Research & Trading Corporation is an Ontario Corporation
     owned and controlled by Anthony Durkacz, an Officer and Director of Astris.

     Note 3. Liikfam Holdings is an Ontario Corporation owned and controlled by
     Michael Liik, a Director of Astris.

     In 2006, we issued to related parties, 2,616,313 shares for professional
services for a value of $374,533. These shares and amounts were issued to the
following entities or individuals:

         Individual or Entity                  # of Shares         $ Value
         Macnor Corp       (Note 1)               792,899          12,000
         Fortius Research and Trading(Note 2)     178,291           7,500
         Liikfam Holdings(Note 3)                 808,968          00,000
         Director - A. Laudenslager               160,106          24,359
         Director - Brian Clewew                  191,476          29,465
         Director - David Ramm                     78,952          12,000
         Director - Gary Brandt                    88,476          12,698
         Director - Anthony Durkacz                96,476          14,000
         Director - Juri Nor                       96,476          14,000
                                               ----------        --------
         Total                                  2,616,310         374,534
                                               ----------        --------

     Note 1. Macnor Corp is an Ontario Corporation owned and controlled by Jiri
     Nor, the CEO and Director of the Company. Macnor also provides research and
     development services by Jiri Nor and marketing services by his son Peter
     Nor, who is an Officer of Astris.

     Note 2. Fortius Research & Trading Corporation is an Ontario Corporation
     owned and controlled by Anthony Durkacz, an Officer and Director of Astris.

     Note 3. Liikfam Holdings is an Ontario Corporation owned and controlled by
     Michael Liik, a Director of Astris.

     Directors

(2)  Currently, the compensation arrangement for the Directors is as follows:

I.   Attendance for each Board Meeting attended $1,000

II.  Chairman of the audit committee 35,000 shares

III. Member of the audit committee 20,000 shares IV. Member of the Compensation
     committee 20,000 shares

     The Company does not have any pension plan, retirement or similar plan for
its Executive Officers or Directors. Michael Liik is compensated $8,333 per
month billed through Liikfam Holdings Inc., an Ontario Corporation, for
financial consulting services.

(3)  Governance


                                       40


     An executive compensation committee was appointed in January 2005 to study
and determine appropriate levels of compensation and to structure employment
agreements for officers.

(4)  Stock Option Plan

     The Company has stock option plans for its employees and consultants who
are regarded as integral to the benefit and progress of the Company and its
operations. Options are normally issued as a bonus of employment or are tied
into performance related compensation. Performance related compensation includes
completion of research and development projects within specific timeframes and
budget, achieving financial targets on behalf of the Company or
introduction/referral/ completion of business agreements or arrangements. In
general, the minimum vesting requirement of options issued is one year. The
maximum term of options is five years from the grant date. Normally the exercise
price of the option is determined using the five-day closing average of the
shares prior to the grant date.

     On October 22, 2004, the Board of Directors passed a resolution authorizing
an amendment to a stock option plan dated September 25, 2001 and amended October
30, 2002 increasing the number of shares available in the plan by 2,600,000
shares, to a total of 5,100,000 shares. The amendment was adopted by the
Company's shareholders at its annual and special meeting of shareholders held on
October 22, 2004. On Oct 12, 2005, the Board of Directors received approval from
shareholders at the Annual General Meeting to increase the common shares
available for the Company's Stock Option Plan by 2,000,000. All features of the
plan remain unchanged.

(5)  Options and Warrants outstanding as at May 30, 2007

     The following table outlines the options and warrants that are outstanding
as of May 30, 2007 of the directors and senior management or their affiliates of
the Company:

Name                             Number of Shares           Exercise Price                Expiry
----                             ----------------           --------------                ------
Jiri Nor (3)                              200,000                 US$ 0.15              07/19/10
Macnor Corp.                            5,000,000                 CDN$1.06              01/27/08

Michael Liik (1)                          500,000                  US$0.36              12/11/09
Michael Liik (3)                          200,000                  US$ .15              07/19/10
Liikfam Holdings Inc. (2)                 500,000                  US$0.37              12/09/07

Peter Nor                                 100,000                  US$0.36              12/06/09
Peter Nor (3)                             200,000                  US$ .15              07/19/10

Brian Clewes (3)                          200,000                  US$0.15              07/19/10

Anthony Durkacz                           250,000                  US$0.20              07/22/07
Anthony Durkacz (3)                       200,000                  US$ .15              07/19/10
Arthur Landenslager  (3)
                                          200,000                  US$0.15              07/19/10


                                       41


Options to M. Liik of 500,000 at $U.S. 0.36 will become vested as follows:

1.   (i) 200,000 upon raising a minimum of $U.S. 1 million in equity

     (ii) 300,000 upon raising additional minimum of $US 5 million in equity

2.   Warrants to Liikfam Holdings Inc. of 500,000 at $U.S. 0.37 will become
     vested as follows:

     (i)  200,000 upon raising a minimum of $U.S. 1 million in equity

     (ii) 300,000 upon raising additional minimum of $US 5 million in equity

3.   Option to vest upon completion of a successful raise of $3 million in
equity financing for the Corporation.

C. BOARD PRACTICES.

     The Board of Directors may consist of from three to ten members, and
currently consists of six members. Each Director is elected by the shareholders
to serve until the next annual meeting or until a successor is elected or
appointed. The next annual meeting has been called for July 10, 2007 in Toronto,
Canada.

     For a list of the Directors and the period during which the current
Directors have served in that office, please see Section 6A above.

     The Directors of the Company do not currently have any service contracts
with the Company providing for benefits upon termination of employment. There
does not currently exist any compensation arrangement for any of the Directors.
The Company does not have any pension, retirement or similar plan for its
Directors.

     Arthur Laudenslager and Brian Clewes are members of the Company's Audit
Committee. Michael Liik and Brian Clewes are members of the Company's
Compensation Committee. There are no additional committees of the Board.

D. EMPLOYEES.

     AEI presently has three officers and seventeen other employees, including
one general manager, six technical experts, four lab technicians, one
accountant, one bookkeeper, one office administrator, one office assistant and
two labourers. Job descriptions for employees in small, entrepreneurial
companies such as the Company tend to be rather flexible, but clearly the
principal role of the General Manager is to oversee the progress of the current
projects to ensure they are completed satisfactorily, on budget and on time. The
present employees are not represented by a labor union. The Company considers
its relationship with its employees to be satisfactory.


                                       42


E. SHARE OWNERSHIP.

     The following table lists, as of May 30, 2007, the beneficial share
holdings (see (4)) in the Common Shares, which are the only outstanding voting
securities of the Company, of (i) each of the Company's Executive Officers and
Directors of the Company; and (ii) all of the Company's Executive Officers and
Directors as a group:

                             Options, Warrants or                   Total Owned included    Percent
Name                            Agreements Vested   Directly Owned     Vested Amounts       of Class
--------------------------- ---------------------- ---------------- --------------------- -------------
Jiri K. Nor (1)                      5,000,000(6)        9,603,493            14,603,493        26.50%
Brian Clewes                                               711,887               711,887         1.29%
Arthur Laudenslager (2)                                    655,796               655,796         1.19%
Michael Liik (4)                       400,000(6)        1,361,900             1,361,900         3.20%
Anthony Durkacz (3)                    250,000(6)          943,137               918,367         2.16%
Peter Nor                              100,000(6)                0               100,000           *

                            -------------------------------------------------------------
All Executive Officers
and Directors
as a group (5)                          5,750,000       13,276,213            19,026,213        34.52%
                            -------------------------------------------------------------

* Denotes less than 1%

(1)  Includes (i) 2,224,386 Common Shares held by Jiri K. Nor and (ii) 7,379,107
     Common Shares held by Macnor Corp. (iii) 5,000,000 warrants held by Macnor
     Corp.

(2)  Includes (i) 655,796 Common Shares held by Arthur Laudenslager

(3)  Includes (i) 256,007 Common Shares by Anthony Durkacz and (ii) 687,130
     Common Shares by Fortius Research and Trading Corp.

(4)  Includes (i) 489,163 Common shares held by Michael Liik and (ii)872,737
     Common shares by Liikfam Holdings inc. (iii) 200,000 options held by
     Michael Liik (iv) 200,000 warrants held by Liikfam Holdings Inc.

     All the individuals included in the table above are beneficial owners as
     defined in General Instruction F to this form 20-F. Each person in the
     above table either owns or has the right to acquire the common shares
     within 60 days by options, warrants or other agreement.

(3) Options and Warrants vested as at May 30, 2007


                                       43


The following table outlines the options and warrants exercisable into common
shares of the Company that are outstanding as of May 30, 2007 of the directors
and senior management or their affiliates:

Name                      Number of Shares      Exercise Price         Expiry
----                      ----------------      --------------         ------

Macnor Corp.                     5,000,000            CDN$1.06       01/27/08

Peter Nor                          100,000             US$0.36       12/06/09

Michael Liik                       200,000             US$0.36       12/11/09
Liikfam Holdings Inc.              200,000             US$0.37       12/09/07

Anthony Durkacz                    250,000             US$0.20       07/22/07

ITEM 7.

     MAJOR SHAREHOLDERS AND RELATED AND NON-RELATED PARTY TRANSACTIONS.

A. MAJOR SHAREHOLDERS.

     The following table lists, as of May 30, 2007, the beneficial share
holdings in the Common Shares, which are the only outstanding voting securities
of the Company, of all persons who are known to the Company to beneficially own,
directly or indirectly, five percent or more of the issued and outstanding
Common Shares:

Name of                          Amount and Nature                 Percent
Beneficial Owner                 of Class

Jiri K. Nor (1)                     14,603,493                       26.50%

Acme Global Inc.                     4,248,750 common shares          7.71%

(1) Includes (i) 2,224,386 Common Shares held by Jiri K. Nor and (ii) 7,379,107
Common Shares held by Macnor Corp. (iii) 5,000,000 warrants held by Macnor Corp.

     There has been significant change in the percentage ownership held by both
major shareholders during the past three years due to dilution incurred by
private placements, the issuance of Common Shares to reduce debt and the
issuance of common shares for the acquisition of Astris s.r.o.

     The Company's major shareholder does not have any different voting rights
than other holders of the Common Shares.

     For a discussion of the number of shares of Common Stock held in Canada,
please see Item 9 below.

     To the Company's knowledge, it is not directly or indirectly owned or
controlled by another corporation(s), by any foreign government or by any other
natural or legal person(s). The Company does not know of any arrangement that
may, at a subsequent date, result in a change in control of the Company.



                                       44


B. RELATED PARTY TRANSACTIONS.

     (1) Astris s.r.o.

     The Company acquired 100% of the ownership (increased from 30% ownership)
in Astris s.r.o., a Czech Republic company on January 27, 2005. The results of
its operations from the effective date of January 2, 2005 are fully consolidated
with the results of the parent company. In prior years, this investment in
Astris s.r.o. was accounted for on the equity basis. As the Company's share of
losses was in excess of the original investment, the investment was written down
to nil in a prior year.

     The Company regularly subcontracts portions of its research and development
activities to s.r.o. To facilitate these activities, the Company advances funds
to them. In addition, the Company sells its products to s.r.o., as required. As
at December 31, 2005, any funds advanced to Astris s.r.o. since acquisition and
any trade receivables and payables have been eliminated on consolidation

     The funds advanced to s.r.o. were for operating expenses, the purchase of
land and a building as well as equipment for the new electrode production
facility.

     (2) Amounts owing to Directors and Officers:

     Payables and accruals as at December 31, 2006 include the following
amounts:

                            Position in        Amount          Amount     Amount
      Entity                  Company            2006            2005       2004

Anthony Durkacz         Director & Officer     $ 2,141       $34,596     $17,441
Arthur Laudenslager     Director                 2,397        20,358           -
Brian Clewes            Director                 2,000        25,465           -
David Ramm              Director                     -        10,000           -
Fortius Research and    Controlled by A.D.       5,300        31,125       1,043
    Trading
Gary Brandt             Director                     -         8,698           -
Jiri Nor                Director & Officer       3,011        61,915           -
Liikfam Holdings Inc.   Controlled by M.L.      26,500        26,750           -
Macnor Corp.            Controlled by J.N.      21,333       102,720      13,826
Michael Liik            Director                 2,000        14,512           -
Peter Nor               Officer                  1,971         6,971           -
                                              --------    ----------     -------
                                              $ 66,653    $  343,110     $32,310
                                              ========    ==========     =======

     (3) Compensation Expensed to Directors and Officers


                                       45


     The following amounts were expensed as consulting and other compensation to
directors and officers:

                            Position in             Amount    Amount    Amount
      Entity                  Company                 2006      2005      2004

Gary Brandt                Director                $ 4,000    $ 8,698   $      -
Brian Clewes               Director                  6,000     25,465          -
Anthony Durkacz            Director & Officer        6,000     10,000          -
Fortius Research and       Director
    Trading                Controlled by A.D.       92,725    112,500    100,000
Arthur Laudenslager        Director                  6,100     19,768          -
Liikfam Holdings Inc.      Controlled by M.L.      100,000    118,750          -
Macnor Corp. re Jiri Nor   Controlled by J.N.      149,997    315,998    166,279
Macnor Corp re Peter Nor   Controlled by J.N.       98,000    120,000     93,455
Michael Liik               Director                  6,000     14,511          -
Jiri Nor                   Director & Officer        6,000     10,000          -
David Ramm                 Director                   2000     10,000          -
                                                  --------   --------   --------
                                                  $476,822   $765,690   $359,734
                                                  ========   ========   ========

     (4) Agreements with Macnor Corp

     Macnor has a verbal agreement with Astris. Macnor bills Astris Energi Inc.
monthly for services provided at the rates approved by the Astris Board or its
Compensation Committee from time to time. Macnor is presently paid by Astris CDN
$13,333 per month plus expenses at cost for the services of Jiri Nor and CDN
$8,000 per month for the services of Peter Nor. Payment is in the form of both
cash and common shares depending on the financial condition of the Company as
determined by the Board . The proportions are stated in the above table. The
services of Jiri Nor include acting as CEO and to perform any duties necessary
by the Company related to the position, as well as, Chief Technology Officer and
any duties necessary by the Company related to the position. All technology has
been assigned to Astris Energi Inc. by Macnor as shown in Exhibit 10.17. The
services of Peter Nor include acting as Vice President of Marketing and Business
Development and to perform any duties necessary by the Company related to the
position.

     (5) Agreement with Fortius Research and Trading

     Fortius Research and Trading Corp. has a verbal agreement with Astris.
Fortius bills Astris Energi Inc. quarterly for services provided at the rates
approved by the Astris Board or its Compensation Committee from time to time.
Fortius is presently paid CDN $8,333 per month plus automobile expenses at cost
by Astris for the services of Anthony Durkacz. Payment is in the form of both
cash and common shares depending on the financial condition of the Company as
determined by the Board. The services of Anthony Durkacz include acting as CFO,
Vice President of Finance and the principal accounting officer and to perform
any duties necessary by the Company related to the positions.

     (6) Agreement with Liikfam Holdings Inc.

     Liikfam Holdings Inc. has a written agreement with Astris. Liikfam bills
Astris Energi Inc. quarterly for services provided at the rates approved by the
Astris Board or its Compensation Committee from time to time. Liikfam is
presently paid CDN $8,333 per month plus expenses at cost by Astris for the
services of Michael Liik. Payment is in the form of common shares and could
change depending on the success of his efforts to raise financing for the
Company. The agreement may be terminated by either party with a 30-day notice.


                                       46


C. NON-RELATED PARTY COMMON STOCK TRANSACTIONS.

During the four quarters of 2004, the company issued shares of common stock to
settle obligations owing by the Company to certain individuals and companies as
follows:

                             First      Second     Third     Fourth
                            Quarter    Quarter    Quarter    Quarter     Annual

Total Non-Related Parties    306,040    136,092    565,535   721,205   1,728,872

During the four quarters of 2005, the company issued shares of common stock to
settle obligations owing by the Company to certain individuals and companies as
follows:


                             First       Second    Third     Fourth
                            Quarter     Quarter   Quarter    Quarter     Annual

Total Non-Related Parties    261,350   1,113,757  2,373,045  557,775   4,305,927

During the four quarters of 2006, the company issued shares of common stock to
settle obligations owing by the Company to certain individuals and companies as
follows:

                             First       Second    Third     Fourth
                            Quarter     Quarter   Quarter    Quarter     Annual

Total Non-Related Parties    954,039   1,565,637   296,772   105,667   2,925,115

D. INTERESTS OF EXPERTS AND COUNSEL.

     Not Applicable.

ITEM 8. FINANCIAL INFORMATION.

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.

     Reference is made to Item 17 for a list of all financial statements and
notes related thereto filed as part of this Annual Report.

EXPORT SALE DISCLOSURE

     In 2006, the Company had export sales in the amount of $68,695. In 2005,
     the Company had export sales in the amount of $238,493. In 2004, the
     Company had export sales in the amount of $81,290

SIGNIFICANT CHANGES.

     On June 5, 2007, the company executed a binding asset purchase agreement
with MKU Canada Inc., a corporation incorporated under the laws of Ontario,
Canada, a wholly-owned subsidiary of Green Shelters Innovations Ltd., a
wholly-owned subsidiary of Green Shelters (India) Private Ltd, to sell
substantially all of its assets to MKU Canada Inc.


                                       47


     This transaction, which was negotiated by the Special Committee of the
Board of Directors of Astris, includes the sale of substantially all of the
assets of the Company, including its fuel cell and test load technology assets
for consideration of: (i) approximately US$3.1 Million in cash; (ii) forgiveness
of US$1.6 Million of face value secured convertible debentures held by ACME
Global Inc. (a subsidiary of GSI) and accrued interest of US$175,000; (iii) an
option for Astris to redeem, for nominal consideration and then cancel 4,248,750
shares recently acquired by ACME Global Inc. for US$0.08 per share; and (iv) a
secured convertible promissory note funding commitment of a minimum of
US$150,000 per month to finance operations to closing and to be forgivable
thereafter.

     Immediately after closing, existing management will resign both as officers
and directors of the Company. It is the intention of the Board of the Company to
appoint a new CEO with a mandate to utilize the remaining cash and residual tax
losses to seek new business opportunities.

     The obligation of the parties to consummate this transaction will be
subject to the following primary conditions: 1) no material adverse change to
Astris' business; 2) execution of employment agreements between GSI and key
personnel of Astris; 3) completion prior to July 31, 2007; 4) approval by at
least two thirds of the votes cast at a Special Meeting of Astris shareholders
on July 10, 2007; 5) closing terms typical of an asset purchase; 6) receipt of
all necessary government approvals; and 7) exclusivity to MKU for the period to
closing. As such, the Company has agreed to a non-refundable break-up fee equal
to the greater of any advances under the secured convertible promissory note
operating facility described above or $500,000, at the time of any breach. Upon
termination, the promissory note would immediately become due and payable.

DIVIDEND POLICY.

     The Company has not paid dividends within the last five fiscal years. For a
description of the ability of the Board of Directors to distribute dividends,
please see Item 10B below.

ITEM 9. THE OFFER AND LISTING.

MARKETS AND PRICE HISTORY OF THE COMPANY'S STOCK.

     As of June 4, 2007, the Company had 270 stockholders of record for its
Common Shares and 55,118,431 Common Shares were issued and outstanding. The
Company believes that there are a considerable number of beneficial holders of
the Common Shares, as a substantial number of Common Shares are held of record
by principal depositories in Canada and the United States. As at June 4, 2007,
the shareholder list showed 270 registered shareholders holding a total of
18,114,507 Common Shares, 14,280,921 Common Shares in the name of Cede & Co and
22,723,003 Common shares in the name of CDS & Co (the depository in Canada).


                                       48


     The Common Shares were previously traded in Canada on the Canadian Dealing
Network (CDNX), but presently has an inactive listing on the CDNX. Since June
20, 2001, the Company's Common Shares have been posted for trading on the O.T.C.
Bulletin Board under the symbol ASRNF. The quarterly high and low prices for the
past two fiscal years are tabulated below:



     ------------------------------------- -------------- ----------------------
     2005                                           High                    Low
     ------------------------------------- -------------- ----------------------

     ------------------------------------- -------------- ----------------------
     First                                           .40                    .24
     ------------------------------------- -------------- ----------------------
     Second                                          .30                    .12
     ------------------------------------- -------------- ----------------------
     Third                                           .54                    .13
     ------------------------------------- -------------- ----------------------
     Fourth                                          .22                    .11
     ------------------------------------- -------------- ----------------------

     ------------------------------------- -------------- ----------------------
     2006                                           High                    Low
     ------------------------------------- -------------- ----------------------

     ------------------------------------- -------------- ----------------------
     First                                           .18                    .11
     ------------------------------------- -------------- ----------------------
     Second                                          .29                    .14
     ------------------------------------- -------------- ----------------------
     Third                                           .16                    .06
     ------------------------------------- -------------- ----------------------
     Fourth                                          .09                    .04

The following table sets forth the high and low market prices for each of the
past 5 months:

     ---------------------------------- ----------------- ----------------------
     2007                                          High,                   Low,
                                              US$ /share             US$ /share
     ---------------------------------- ----------------- ----------------------

     ---------------------------------- ----------------- ----------------------
     January                                        .055                   .031
     ---------------------------------- ----------------- ----------------------
     February                                       .065                   .034
     ---------------------------------- ----------------- ----------------------
     March                                          .050                   .032
     ---------------------------------- ----------------- ----------------------
     April                                          .047                   .028
     ---------------------------------- ----------------- ----------------------
     May                                            .034                   .025
     ---------------------------------- ----------------- ----------------------

ITEM 10. ADDITIONAL INFORMATION.

A. SHARE CAPITAL.

     Not Applicable.

ITEM 10 B.  MEMORANDUM AND ARTICLES OF ASSOCIATION.

1. ORGANIZATION.

     The Company was incorporated in the Province of Ontario, Canada as required
under the Business Corporations Act (Ontario). The registrant's memorandum and
articles do not provide for any specific objects or purposes.

2. DIRECTORS POWERS.

     A director who is a party to, or who is a director or officer of or has a
material interest in a proposal, arrangement or contract cannot vote on any
resolution to approve the potential conflict of interest. A director may not
vote, in the absence of an independent quorum, on compensation to themselves or
any members of their body.


                                       49


     No person shall be qualified for election as a director if such person is
less than 18 years of age, is of unsound mind and has been so found by a court
in Canada or elsewhere, is not an individual, or has the status of a bankrupt.
Directors are not required to retire upon reaching a specific age. A director
need not be a shareholder. A majority of the directors shall be resident
Canadians.

CORPORATE GOVERNANCE.

     The Company's by-laws provide that, subject to any unanimous shareholder
agreement, the Board of Directors shall manage or supervise the management of
the business and affairs of the Corporation. The powers of the board may be
exercised at a meeting at which a quorum is present or by resolution in writing
signed by all the Directors entitled to vote on that resolution at a meeting of
the Board. Where there is a vacancy in the board, the remaining Directors may
exercise all the powers of the Board, so long as a quorum remains in office.

MEETINGS OF THE BOARD OF DIRECTORS.

     The Company's by-laws provide that meetings of the Board of Directors may
be held at any place within or outside Ontario and in any financial year of the
Corporation a majority of the meetings need not be held in Canada. Meetings of
the board shall be held from time to time at such time and at such place as the
Board of Directors, the Chair of the Board, the Managing Director, the President
or any two Directors may determine.

BORROWING POWER.

     The Company's by-laws provide that without limiting the borrowing powers of
the Corporation, as set forth in the Business Corporation Act (Ontario) (the
"Act"), but subject to the articles and any unanimous shareholder agreement, the
Board of Directors may from time to time on behalf of the Corporation, without
authorization of the shareholders:

     borrow money upon the credit of the Corporation;

     issue, reissue, sell or pledge bonds, debentures, notes or other evidences
     of indebtedness or guarantee of the Corporation, whether secured or
     unsecured;

     to the extent permitted by the Act, give directly or indirectly financial
     assistance to any person by means of a loan, a guarantee or otherwise on
     behalf of the Corporation to secure performance of any present or future
     indebtedness, liability or obligation of any person;

     and

     mortgage, hypothecate, pledge or otherwise create a security interest in
     all or any currently owned or subsequently acquired real or personal,
     movable or immovable, property of the Corporation including book debts,
     rights, powers, franchises and undertakings, to secure any such bonds,
     debentures, notes or other evidences of indebtedness or guarantee or any
     other present or future indebtedness, liability or obligation of the
     Corporation.


                                       50


     Nothing limits or restricts the borrowing of money by the Corporation on
bills of exchange or promissory notes made, drawn, accepted or endorsed by or on
behalf of the Corporation.

     Unless the articles of the Corporation otherwise provide, the board may
from time to time delegate to a director, a committee of the board, or an
officer of the Corporation any or all of the powers conferred on the board to
such extent and in such manner as the board may determine at the time of such
delegation.

3. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED AND COMMON SHARES

     The holders of the common shares are entitled to receive notice of and to
attend and vote at all meetings of shareholders of the company and to one vote
in respect of each common share held at all such meetings, except meetings at
which only holders of a specified class of shares (other than the common shares)
are entitled to vote. Holders of common shares are entitled to receive, subject
to the rights of holders of other classes of shares, dividends as and when
declared by the company. Holders of common shares are entitled to receive,
subject to the rights of holders of other classes of shares, the remaining
property of the company on the liquidation, dissolution or winding up of the
company, whether voluntary or involuntary, or any other distribution of the
assets of the company among its shareholders for the purpose of winding up its
affairs.

     The holders of the preferred shares shall have preferred rights as to
dividends as determined by the directors of the company. The preferred shares
may be issued in one or more series, each series to consist of such number of
shares as may before the issue thereof be determined by the directors who may by
resolution fix before the issue thereof the designation, preference, rights,
privileges, restrictions, conditions and limitations attached to the preferred
shares of each series including the rate and nature of preferential dividends,
the date of payment thereof, the redemption price and conditions of redemption,
if any, conversion rights and conditions of conversion, if any, and voting
rights, if any.

DIVIDENDS

     The Company's by-laws provide that, subject to the Act, the articles and
any unanimous shareholder agreement, the Board of Directors may from time to
time declare dividends payable to the shareholders according to their respective
rights and interests in the Corporation. Dividends may be paid in money or
property or by issuing fully paid shares of the Corporation or options or rights
to acquire fully paid shares of the Corporation. Any dividend unclaimed after a
period of six years from the date on which the same has been declared to be
payable shall be forfeited and shall revert to the Corporation.


                                       51


4. CHANGING RIGHTS OF SHAREHOLDERS

     The rights of shareholders may not be modified other than by a majority
vote of the common shares voting on such modification at a special meeting. The
rights of shareholders may also be modified by a unanimous shareholder
agreement.

5. ANNUAL GENERAL MEETINGS AND SPECIAL MEETINGS

     The annual meeting of shareholders shall be held at such time in each year
and at such place anywhere in the world as the board, chair of the board, the
managing director or the president may from time to time determine. The board,
chair of the board, the managing director or the president shall have the power
to call a special meeting of shareholders at anytime. Notice of the time and
place of each meeting of shareholders will be given no less than 21 and no more
than 50 days before the date of the meeting to each director, to the auditor,
and to each shareholder who at the close of business on the record date for
notice is entered in the securities register as the holder of one or more shares
carrying the right to vote.

6. LIMITATIONS TO OWN SECURITIES

     There are no limitations on the rights to own securities, to hold
securities or exercise voting rights on securities imposed by foreign law.

7. ISSUES RELATED TO MERGERS, ACQUISITIONS OR CORPORATE RESTRUCTURING

     Currently there are no provisions in the company's articles or by-laws that
would have an effect of delaying, deferring or preventing any of item 7 above.

8. OWNERSHIP THRESHOLD

     There are no by-law provisions governing the ownership threshold above
which shareholder ownership must be disclosed. However, in the United States, 5%
ownership or more must be publicly disclosed. In Canada, 10% ownership or more
must be publicly disclosed.

9 & 10.LAW

     The laws of Ontario, Canada, relating to Items 2-8 are not significantly
different from the laws of the United States. The conditions imposed by the
memorandum and articles of association governing changes in capital are not more
stringent than is required by law.

C. MATERIAL CONTRACTS

     The Company entered into a value added reseller agreement with Alternate
Energy Inc. and a co-operation agreement with El.Ma, as previously mentioned
under Item 5C "Prospects".


                                       52


     On June 5, 2007, the company executed a binding asset purchase agreement
with MKU Canada Inc., a corporation incorporated under the laws of Ontario,
Canada, a wholly-owned subsidiary of Green Shelters Innovations Ltd. ("GSI"), a
wholly-owned subsidiary of Green Shelters (India) Private Ltd, to sell
substantially all of its assets to MKU Canada Inc.

     This transaction, which was negotiated by the Special Committee of the
Board of Directors of Astris, includes the sale of substantially all of the
assets of the Company, including its fuel cell and test load technology assets
for consideration of: (i) approximately US$3.1 Million in cash; (ii) forgiveness
of US$1.6 Million of face value secured convertible debentures held by ACME
Global Inc. (a subsidiary of GSI) and accrued interest of US$175,000; (iii) an
option for Astris to redeem, for nominal consideration and then cancel 4,248,750
shares recently acquired by ACME Global Inc. for US$0.08 per share; and (iv) a
secured convertible promissory note funding commitment of a minimum of
US$150,000 per month to finance operations to closing and to be forgivable
thereafter.

     Immediately after closing, existing management will resign both as officers
and directors of the Company. It is the intention of the Board of the Company to
appoint a new CEO with a mandate to utilize the remaining cash and residual tax
losses to seek new business opportunities.

     The obligation of the parties to consummate this transaction will be
subject to the following primary conditions: 1) no material adverse change to
Astris' business; 2) execution of employment agreements between GSI and key
personnel of Astris; 3) completion prior to July 31, 2007; 4) approval by at
least two thirds of the votes cast at a Special Meeting of Astris shareholders
on July 10, 2007; 5) closing terms typical of an asset purchase; 6) receipt of
all necessary government approvals; and 7) exclusivity to MKU for the period to
closing. As such, the Company has agreed to a non-refundable break-up fee equal
to the greater of any advances under the secured convertible promissory note
operating facility described above or $500,000, at the time of any breach. Upon
termination, the promissory note would immediately become due and payable.

D. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

     There are no governmental laws, decrees or regulations in Canada relating
to restrictions on the import/export of capital affecting the remittance of
interest, dividends or other payments to non-residential holders of the
Company's Common Shares. Any such remittances to United States residents,
however, are subject to a 15% withholding tax pursuant to Article X of the
reciprocal tax treaty between Canada and the United States. See Part E below.

     Except as provided in the Investment Canada Act (the "Act"), there are no
limitations under the laws of Canada, the Province of Ontario or in the charter
or any other constituent documents of the Company on the right of foreigners to
hold and/or vote the Common Shares of the Company.

     The Act requires a non-Canadian making an investment to acquire control of
a Canadian business, the gross assets of which exceed certain defined threshold
levels, to file an application for review with Investment Canada, the federal
agency created by the Act.


                                       53


     As a result of the Canada-U.S. Free Trade Agreement, the Act was amended in
January 1989 to provide distinct threshold levels for Americans who acquire
control of a Canadian business.

     A Canadian business is defined in the Act as a business carried on in
Canada that has a place of business in Canada, an individual or individuals in
Canada who are employed or self-employed in connection with the business, and
assets in Canada used in carrying on the business.

     An American, as defined in the Act, includes: an individual who is an
American national or a lawful permanent resident of the United States; a
government or government agency of the United States; an American-controlled
entity, corporation or limited partnership or trust which is not controlled in
fact through ownership of its voting interests of which two-thirds of its Board
of Directors, general partners or trustees, as the case may be, are any
combination of Canadians or Americans.

     The following investments by a non-Canadian are subject to review by
Investment Canada:

     (a)  all direct acquisitions of control of Canadian businesses with assets
          of CDN$5 million or more;

     (b)  all indirect acquisitions of control of Canadian businesses with
          assets of CDN$50 million or more if such assets represent less than
          50% of the value of the assets of the entities, the control of which
          is being acquired; and

     (c)  all indirect acquisitions of control of Canadian businesses with
          assets of CDN$5 million or more if such assets represent more than 50%
          of the value of the assets of the entities, the control of which is
          being acquired.

     Review by Investment Canada is required when investments by Americans
exceed CDN$150 million for direct acquisitions of control. For the purposes of
the Act, direct acquisition of control means: a purchase of the voting interest
on a corporation, partnership, joint venture or trust carrying on a Canadian
business, or any purchase of all or substantially all of the assets used in
carrying on a Canadian business; and indirect acquisition of control means a
purchase of the voting interest of a corporation, partnership, joint venture or
trust, whether a Canadian or foreign entity, which controls a corporation,
partnership, joint venture or trust carrying on a Canadian business in Canada.

     The acquisition of certain Canadian businesses is excluded from the higher
thresholds set out for Americans. These excluded businesses include oil, gas,
uranium, financial services (except insurance); transportation services and
cultural services (i.e. the publication, distribution or sale of books,
magazines, periodicals (other than printing or typesetting businesses), music in
print or machine readable form, radio, television, cable and satellite services;
the publication, distribution, sale or exhibitions of film or video recordings
or audio or video music recordings).


                                       54


     Direct or indirect acquisitions of control of these excluded businesses are
reviewable at the CDN$5 and CDN$50 million thresholds.

     A non-Canadian shall not implement an investment reviewable under the Act
unless the investment has been reviewed and the Minister responsible for
Investment Canada is satisfied or is deemed to be satisfied that the investment
is likely to be of net benefit to Canada. If the Minister is not satisfied that
the investment is likely to be a net benefit to Canada, the non-Canadian shall
not implement the investment or, if the investment has been implemented, shall
divest himself of control of the business that is the subject of the investment.

     A non-Canadian or American making the following investments:

          (i)  an investment to establish a new Canadian business; and

          (ii) an investment to acquire control of a Canadian business which
               investment is not subject to review under the Act, must notify
               Investment Canada, within prescribed time limits, of such
               investments.

E. TAXATION.

CANADIAN INCOME TAX CONSEQUENCES

     Management of the Company considers that the following discussion
respecting taxation fairly describes the principal and material Canadian federal
income tax consequences applicable to shareholders of the Company who are
residents of the United States and are not residents of Canada and do not hold,
and are deemed not to hold, Common Shares of the Company in connection with
carrying on a business in Canada (a "non-resident").

     Generally, dividends paid by Canadian corporations to non-resident
shareholders are subject to a withholding tax of 25% of the gross amount of such
dividends. However, Article X of the reciprocal tax treaty between Canada and
the United States reduced to 15% the withholdings tax on the gross amount of
dividends paid to residents of the United States. A further 10% reduction in
1997 in the withholding tax rates on the gross amount of dividends is applicable
when a U.S. corporation owns at least 10% of the voting stock of the Canadian
corporation paying the dividends.

     A non-resident who holds Common Shares as capital property will not be
subject to tax on capital gains realized on the disposition of such Shares
unless such Shares are "taxable Canadian property" within the meaning of the
Income Tax Act (Canada), and no relief is afforded under any applicable tax
treaty. However, the Common Shares of Astris are taxable Canadian property
because they are not traded on a prescribed stock exchange. This creates
Canadian filing requirements for non-residents. Non-Canadian Residents would be
required to file a special Canadian Income Tax Return for dispositions of shares
in Astris stock and would be taxable in Canada on any Net Capital Gains earned
on such dispositions.


                                       55


UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

     The following discussion describes the United States federal income tax
consequences of the ownership and disposition of Common Shares of the Company.
The discussion contained in this summary is based on the Internal Revenue Code
of 1986, as amended (the "Code"), existing and proposed Treasury Regulations,
judicial decisions and administrative pronouncements, all of which are subject
to change. Any such changes may be applied retroactively in a manner that could
result in federal income tax consequences different from those discussed below.

     This summary discusses only Common Shares of the Company held by a U.S.
Holder (defined below) as a capital asset within the meaning of Section 1221 of
the Code, and does not deal with special situations, such as those of banks,
thrift institutions, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or commodities, tax-exempt
investors, holders whose functional currency is not the U.S. dollar, persons who
hold Common Shares of the Company as a position in a straddle, as part of a
synthetic security or hedge, as part of a conversion transaction or other
integrated investment, or persons who are not U.S. Holders (as defined below).
Further, the summary does not include any description of any alternative minimum
tax consequences or any state, local or foreign tax consequences that may be
applicable. This summary assumes that no U.S. Holder will own, directly or
indirectly, Common Shares of the Company representing 10% or more of the voting
power of the Company.

     HOLDERS OF COMMON SHARES OF THE COMPANY ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND
DISPOSITION OF SUCH SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AND THE
POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.

     As used herein, a "U.S. Holder" means a beneficial owner of Common Shares
of the Company who is (I) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any State thereof or the District of Columbia,(iii)
an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust the administration of which
is subject to the primary supervision of a court within the United States and
for which one or more U.S. persons have the authority to control all substantial
decisions.

         If dividends were to be declared, they could be treated as dividends
from a qualified foreign corporation and, accordingly, be subject to a 15% U.S.
tax rate.

Dividends
---------

     Distributions with respect to the Common Shares (other than liquidating
distributions and certain distributions in redemption of the Common Shares)
which are paid out of current or accumulated earnings and profits, as calculated
for United States federal income tax purposes, generally will constitute
dividends taxable as ordinary income. To the extent the amount of any such
distribution paid with respect to the Common Shares exceeds current and
accumulated earnings and profits, as calculated for United States federal income
tax purposes, such excess distribution will not constitute a dividend for United
States federal income tax purposes, but will be treated first as a tax-free
return of capital to the extent of the holder's adjusted tax basis in his Common
Shares (with a corresponding reduction in such basis) and, to the extent the
distribution exceeds such basis, as a capital gain.


                                       56


Foreign Tax Credit
------------------

     A U.S. Holder who pays (or has had withheld from distributions) Canadian
income tax with respect to the ownership of Common Shares of the Company may be
entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. This election is made on a
year-by-year basis and applies to all foreign taxes paid by (or withheld from)
the U.S. Holder during that year. There are significant and complex limitations
that apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's United States Federal
income tax liability that the U.S. Holder's foreign source income bears to his
worldwide taxable income. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of Common Shares should consult their own tax advisors
regarding their individual circumstances.

Dispositions, Including Redemptions

     Any sale, exchange, redemption (except as discussed below) or other
disposition of the Common Shares generally will result in taxable gain or loss
equal to the difference between the amount received upon the sale, exchange,
redemption or other disposition and the holder's adjusted tax basis in the
Common Shares. Such gain or loss generally will be capital gain or loss and will
be long-term capital gain or loss if the holding period for the Shares of the
Company exceeds one year.

     In certain cases, a redemption of Common Shares may be treated as a
dividend, rather than as a payment in exchange for the Shares of the Company. In
such events, the redemption payment will be treated as ordinary dividend income
to the extent that such payment is made out of current or accumulated earnings
and profits, as calculated for United States federal income tax purposes. The
determination of whether the redemption will be treated as a dividend rather
than as payment in exchange for the Common Shares of the Company will depend
upon whether and to what extent the redemption reduces the holder's percentage
stock ownership interest in the Company. A redemption will be treated as an
exchange of stock that produces a capital gain if the redemption either (1)
completely terminates the holder's interest in the Company under Section
302(b)(3) of the Code, (2) is "substantially disproportionate" with respect to
the holder under Section 302(b)(2) of the Code, or (3) is "not essentially
equivalent to a dividend" under Section 302(b)(1) of the Code.

     A redemption will completely terminate the holder's interest in the Company
if, as a result of the redemption, the holder no longer has any stock interest
in the Company, directly or constructively after application of the attribution
rules of Section 302(c) of the Code. A redemption will be "substantially
disproportionate" with respect to the holder if (1) the ratio of the voting
stock owned by the holder (including stock attributed to the holder under
Section 302(c) of the Code) immediately after the redemption to all the voting
stock of the Company is less than 80% of the same ratio for the voting stock
owned by the holder immediately before the redemption, (2) there is a similar
percentage reduction in the ownership by the holder of Common Shares of the
Company, and (3) the holder owns less than 50% of the voting stock of the
Company. Whether a redemption is "not essentially equivalent to a dividend" with
respect to a holder will depend upon the holder's particular circumstances. The
IRS has ruled that a minority shareholder in a publicly held corporation whose
relative stock interest is minimal and who exercises no control with respect to
corporate affairs is considered to have a "meaningful reduction" if such
shareholder has a reduction in his percentage stock ownership. In determining
whether any of the foregoing tests have been satisfied, the holder is deemed,
under the constructive ownership rules of Section 302(c) of the Code, to own any
Common Shares in the Company owned by certain related persons and entities and
any Common Shares which the holder or certain related persons and entities have
an option to acquire. However, because of the ambiguities in applying the
foregoing rules, holders should consult their tax advisors to determine whether
a redemption of Common Shares will be treated as a dividend or as a payment in
exchange for the Common Shares of the Company.


                                       57


F. DIVIDENDS AND PAYING AGENTS

     Not Applicable.

G. STATEMENT BY EXPERTS

     Not Applicable.

H. DOCUMENTS ON DISPLAY

     The Company is subject to the informational requirements for foreign
private issuers under the Securities Exchange Act of 1934, as amended. In
accordance with these requirements, the Company files reports on Form 20-F and
6-K with the United States Securities and Exchange Commission. These materials,
including this annual report and the exhibits thereto, may be inspected and
copied at the Commission's Public Reference Room at 100 F Street, N.E.,
Washington, DC 20549. Copies of the materials may be obtained from the Public
Reference Room at prescribed rates. The public may obtain information on the
operations of the Commission's Public Reference Room by calling the Commission
in the United States at 1-800-SEC-0330. The Commission also maintains a web site
at http://sec.gov that contains reports, proxy statements and other information
regarding registrants that file electronically with the Commission.

I. SUBSIDIARY INFORMATION

     Not Applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


                                       58


INTEREST RATE RISK.

     The Company does not have any significant exposure to changes in interest
rates.

IMPACT OF CURRENCY FLUCTUATIONS

     The Company's operating expenses are primarily paid in Canadian dollars.
Fluctuations in the exchange rate between the Canadian dollar and such other
currencies may have a material effect on the Company's results of operations. In
particular, the Company may be adversely affected by a significant strengthening
of the Canadian dollar against the U.S. dollar or Euro. The Company has not
previously engaged in, and does not now intend to enter into, any currency
hedging or other similar currency hedging transactions. The Company may enter
into such transactions on a non-speculative basis to the extent that it might in
the future have substantial foreign currency exposure.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not Applicable.

PART II.

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

     None.

ITEM 15. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

     As required by Rule 13a-15 under the Securities Exchange Act of 1934, as
amended(the "Exchange Act"), the Company carried out an evaluation under the
supervision and with the participation of the Company's management, including
the Chief Executive Officer and President and the Chief Financial Officer, of
the effectiveness of the Company's disclosure controls and procedures as of
December 31, 2006. In designing and evaluating the Company's disclosure controls
and procedures, the Company and its management recognize that there are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their desired control objectives. Additionally, in evaluating and
implementing possible controls and procedures, the Company's management was
required to apply its reasonable judgment. Furthermore, in the course of this
evaluation, management considered certain internal control areas, including
those discussed below, in which we have made and are continuing to make changes
to improve and enhance controls. Based upon the required evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that as of December
31, 2006, the Company's disclosure controls and procedures were effective (at
the "reasonable assurance" level mentioned above).


                                       59


     From time to time, the Company and its management have conducted and will
continue to conduct further reviews and, from time to time put in place
additional documentation, of the Company's disclosure controls and procedures,
as well as its internal control over financial reporting. The Company may from
time to time make changes aimed at enhancing their effectiveness, as well as
changes aimed at ensuring that the Company's systems evolve with, and meet the
needs of, the Company's business. These changes may include changes necessary or
desirable to address recommendations of the Company's management, its counsel
and/or its independent auditors, including any recommendations of its
independent auditors arising out of their audits and reviews of the Company's
financial statements. These changes may include changes to the Company's own
systems, as well as to the systems of businesses that the Company has acquired
or that the Company may acquire in the future and will, if made, be intended to
enhance the effectiveness of the Company's controls and procedures. The Company
is also continually striving to improve its management and operational
efficiency and the Company expects that its efforts in that regard will from
time to time directly or indirectly affect the Company's disclosure controls and
procedures, as well as the Company's internal control over financial reporting.

 CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

     There were no changes in the Company's internal controls over financial
reporting that has materially affected or that are reasonably likely to
materially affect the Company's internal controls over financial reporting
during the period covered by this Annual Report. We maintain evidential matter,
including documentation, to provide reasonable support for management's
assessment of the effectiveness of the issuer's internal control over financial
reporting.

ITEM 16.

A.
     AUDIT COMMITTEE FINANCIAL EXPERT

     Members of the Audit Committee have broad financial experience which has
been gained in a variety of disciplines including investment banking,
supervision of finance functions and general management, and the Board is
satisfied that collectively they have the requisite financial skills and
expertise to enable them fully to carry out their responsibilities. However, the
Board considers that no individual member of the committee qualifies as a
"financial expert" within the terms of the definition set out in the
Sarbanes-Oxley Act of 2002. All current members of the Audit Committee are
independent.

C.
     PRINCIPAL ACCOUNTANT FEES AND SERVICES

     For the year ended 2006 and 2005, the audit fees were CDN $55,000, and
CDN$46,410. For the year ended 2006 the audit-related fees for the principal
accountants were CDN$ 41,270 and for 2005 $32,000. For the years ended 2006 and
2005, the tax related fees for the principal accountants were CDN $NIL and
CDN$nil. The Company's audit committee's pre-approval of audit fees is discussed
in advance with the principal accountant and the audit committee. If there are
any adjustments, they are approved by the audit committee.


                                       60


E.
     PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     Not Applicable.


PART III.

ITEM 17. FINANCIAL STATEMENTS

     The following documents are filed as Attachment A hereto and are included
as part of this Form 20-F.

ASTRIS ENERGI INC. CONSOLIDATED FINANCIAL STATEMENTS

Description of Document:

     Auditors' Report for the year ended December 31, 2006.

     Auditors' Report for the year ended December 31, 2005.

     Auditors' Report for the year ended December 31, 2004.

     Consolidated Balance Sheets for the year ended December 31, 2006, 2005 and
     2004.

     Consolidated Statements of Loss and Deficit for the years ended December
     31, 2006, 2005 and 2004.

     Consolidated Statements of Cash Flows for the years ended December 31,
     2006, 2005 and 2004.

     Notes to Consolidated Financial Statements for the year ended December 31,
     2006, 2005 and 2004.

ITEM 18. FINANCIAL STATEMENTS

         Not applicable.

ITEM 19. EXHIBITS

3.1* Memorandum of Association of Kayty Exploration Ltd., filed March 18,1981
with the Province of Alberta Office of Consumer and Corporate Affairs.

3.2* Articles of Association of Kayty Exploration Ltd., filed March 18,1981 with
the Province of Alberta Office of Consumer and Corporate Affairs.

3.3* Certificate amending the Memorandum of Association of Kayty Exploration
Ltd., filed July 9, 1981 with the Province of Alberta Office of Consumer and
Corporate Affairs.

3.4* Certificate amending the Memorandum of Association of Kayty Exploration
Ltd., filed November 6, 1981 with the Province of Alberta Office of Consumer and
Corporate Affairs.


                                       61


3.5* Certificate amending the Memorandum of Association of Kayty Exploration
Ltd., filed March 11, 1982 with the Province of Alberta Office of Consumer and
Corporate Affairs.

3.6* Certificate amending the Memorandum of Association of Kayty Exploration
Ltd., filed August 9, 1982 with the Province of Alberta Office of Consumer and
Corporate Affairs.

3.7* Articles of Continuance for Kayty Exploration Ltd., filed September 22,
1987 with the Ministry of Consumer and Commercial Relations, Province of
Ontario, Canada.

3.8* Articles of Amendment for Kayty Inc., filed December 7, 1994 with the
Ministry of Consumer and Commercial Relations, Province of Ontario, Canada.

3.9* Articles of Amendment for WLD Inc., filed July 4, 1995 with the Ministry of
Consumer and Commercial Relations, Province of Ontario, Canada.

3.10* By-Laws of Astris Energi Inc., dated April 12, 1996.

4.1* Astris Energi Inc. Stock Option Plan, dated June 2000.

4.2* Form of Convertible Debenture Document with Cornell Capital Partners, LP,
dated April 10, 2006.

4.3* Warrant number CCP-001 to Cornell Capital Partners, LP dated April 10,
2006.

4.4* Warrant number CCP-002 to Cornell Capital Partners, LP dated April 10,
2006.

4.5* Warrant number CCP-003 to Cornell Capital Partners, LP dated April 10,
2006.

10.1* License Agreement between Astris Energi Inc. and Energy Ventures
Inc.(Canada) dated October 22, 1998.

10.2* Debenture by Astris Energi Inc and Astris Inc. to and in favor of Energy
Ventures Inc. (Canada) dated October 22, 1998.

10.3* Equipment Lease between Astris Energi Inc. and Astris Inc. and Energy
Ventures Inc. (Canada) dated October 22, 1998.

10.4* License Agreement with Macnor Corp. dated October 1, 1999.

10.5* Lease for property located at 2175 Dunwin Drive, Unit 6, Mississauga,
Ontario, between 789542 Ontario Limited and Astris Energi Inc., dated April 14,
2000.

10.6* License Agreement, between Astris Inc. and Astris s.r.o., dated January
30, 1995.

10.7* Grant of Options by Astris Energi Inc. to Energy Ventures Inc., dated
October 22, 1998.


                                       62


10.8* Agreement between Astris Energi Inc. and Fuelcellstore.com, Inc., dated
October 12, 2000.

10.9* Assignment Agreement between Josef Soltys and Astris Inc. for Canadian
Patent #1,295,679, for QUICKCELL, dated November 15, 1995.

10.10* Debenture between Astris Inc. and Donald Alex Blenkarn, in trust, dated
September 30, 1996.

10.11* Value Added Reseller Agreement with Alternate Energy Corp., dated May 14,
2004.

10.12* Co-operation agreement with El.ma, dated October 15, 2004.

10.13* Consulting Agreement with Liikfam Holdings, dated December 10, 2004.

10.14* Purchase and Escrow Agreement between Astris Energi Inc., Macnor
Corporation and 2062540 Ontario Inc. dated January 20, 2005.

10.15* Teaming Arrangement with Plasma Environmental Technologies Inc., dated
February 23, 2005.

10.16* Agreement with First Energy Advisors, dated May 22, 2003.

10.17* Assignment of technology to Astris Energi Inc. from Macnor Corporation,
dated July 25, 2005.

10.18* Form of Convertible Debenture document, dated March 24, 2005.

10.19* Securities Purchase Agreement with Cornell Capital Partners LP, dated
April 10, 2006.

10.20* Investor Registration Rights Agreement with Cornell Capital Partners LP,
dated April 10, 2006.

10.21* Security Agreement with Cornell Capital Partners LP, dated April 10,
2006.

10.22* Security Agreement between 2062540 Ontario Inc. and Cornell Capital
Partners LP, dated April 10, 2006.

10.23* Share Escrow Agreement with Cornell Capital Partners LP, dated April 10,
2006.

10.24* Irrevocable Transfer Agent Instructions between Equity Transfer Services,
Inc., Cornell Capital Partners LP and Astris Energi Inc.

12.1 and 12.2 302 CERTIFICATION

13.1 SECTION 906 CERTIFICATION

23.1 AUDITORS' CONSENT

99* CODE OF ETHICS


                                       63


99.1* WHISTLEBLOWER POLICY

* Previously filed. Otherwise all other exhibits filed herewith.

                                   SIGNATURES

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

                                       ASTRIS ENERGI INC.


                                       By: /s/ Michael Liik
                                           ---------------
                                       President and Chief Executive Officer
                                       Date: October 19, 2007`

**ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Consolidated
      Financial Statements**
 **(Canadian
      Dollars)**
 December
      31, 2006, 2005 and 2004
  
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
  **INDEX**
 
 **December
      31, 2006**
 **PAGE****INDEPENDENT
                  AUDITORS’ REPORT**
              
              
              1**FINANCIAL
                  STATEMENTS**Consolidated
                  Balance Sheets - Statement I
              
              
              2Consolidated
                  Statements of Operations and Deficit - Statement II
              
              
              3Consolidated
                  Statements of Cash Flows - Statement III
              
              
              4**NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
              
              
              5
                  - 40
  
  **INDEPENDENT
      AUDITORS’ REPORT**
 
 **To
      the Board of Directors and Shareholders of**
 **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 
 We
      have
      audited the consolidated balance sheets of **ASTRIS
      ENERGI INC.** (a
      development stage company) as at December 31, 2006 and 2005 and the consolidated
      statements of operations and deficit and cash flows for the years ended December
      31, 2006, 2005 and 2004. These financial statements are the responsibility
      of
      the Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audits. We did not audit the consolidated
      financial statements of **ASTRIS
      ENERGI INC.** (A
      Development Stage Company) for the period from January 1, 1995 (date of
      inception) to December 31, 2002. Those statements were audited by other auditors
      whose reports were furnished to us and our opinion, insofar as it relates to
      amounts for the period from January 1, 1995 (date of inception) to December
      31,
      2002, included in cumulative totals, is based solely upon the reports of other
      auditors.
  We
      conducted our audits in accordance with Canadian generally accepted auditing
      standards and the standards of the Public Company Accounting Oversight Board
      (United States). Those standards require that we plan and perform an audit
      to
      obtain reasonable assurance whether the financial statements are free of
      material misstatement. An audit includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements. An audit
      also includes assessing the accounting principles used and significant estimates
      made by management, as well as evaluating the overall financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.
  In
      our
      opinion, these consolidated financial statements present fairly, in all material
      respects, the financial position of the Company as at December 31, 2006 and
      2005, and the results of its operations and cash flows for the years ended
      December 31, 2006, 2005 and 2004 in accordance with Canadian generally accepted
      accounting principles.
  **Toronto, Ontario**
            **/s/
                Danziger Hochman Partners
                LLP.****May
                17, 2007**
  **COMMENTS
      BY INDEPENDENT AUDITORS ON CANADA - UNITED STATES OF AMERICA REPORTING
      DIFFERENCE**
  The
      Standard of the Public Company Accounting Oversight Board (United States)
      requires the addition of an explanatory paragraph (following the opinion
      paragraph) when the financial statements are affected by conditions and events
      that cast substantial doubt on the Company’s ability to continue as a going
      concern, such as those described in Note 1 to the consolidated financial
      statements. Although
      we conducted our audits in accordance with both Canadian generally accepted
      auditing standards and the standards of the Public Company Accounting Oversight
      Board (United States), our report to the Board of Directors dated May 17, 2007
      is expressed in accordance with Canadian reporting standards which do not permit
      a reference to such conditions and events in the auditors' report when these
      are
      adequately disclosed in the financial statements.
  **Toronto, Ontario**
            **/s/
                Danziger Hochman Partners
                LLP.****May
                17, 2007**
 
 Page
          1
 
  **ASTRIS ENERGI INC.**
              **Statement
                  I**
 **(A
      Development Stage Company)**
 **Consolidated
      Balance Sheets**
 As
      at
      December 31, 2006 and 2005
 (Canadian
      Dollars)
  **2006**
            
            **2005****ASSETS****CURRENT**Cash
            
            $
            22,081
            
            $
            27,857Accounts
                receivable
            
            
            3,780
            
            
            114,300Inventory
            
            
            32,127
            
            
            13,657Prepaid
                expenses and deposits
            
            
            140,205
            
            
            210,347198,193
            
            
            366,161Deferred
                debenture financing costs (note 16)
            
            
            959,787
            
            
            -Property,
                plant and equipment (note 3)
            
            
            580,110
            
            
            603,848Technology
                and patent costs (note 14)
            
            
            28,128
            
            
            12,485$
            1,766,218
            
            $
            982,494**LIABILITIES****CURRENT**Accounts
                payable and accrued liabilities (note 4)
            
            $
            425,845
            
            $
            773,094Advances
                payable (note 17)
            
            
            262,250
            
            
            -Deferred
                revenue
            
            
            10,628
            
            
            17,856Current
                portion of obligation under capital lease
            
            
            10,554Derivative
                liability (note 16)
            
            
            616,894Convertible
                debenture (note 9)
            
            
            -
            
            
            420,0001,326,171
            
            
            1,210,950**LONG-TERM**Obligation
                under capital lease
            
            
            28,360
            
            
            -$CDN
                Convertible debenture @10%, due April 9, 2009(notes
                9 and 16(b))
            
            
            127,703
            
            
            -$U.S.
                Convertible debenture @10%, due April 9, 2009(note
                16(a))
            
            
            337,205
            
            
            -1,819,439
            
            
            1,210,950**SHAREHOLDERS’
                EQUITY****SHARE
                CAPITAL**(note
                6 (a))
            
            
            11,205,002
            
            
            10,030,096**CONTRIBUTED
                SURPLUS**(note 6 (c))
            
            
            5,183,490
            
            
            4,062,739**DEFICIT**(note 12)- Statement II
            
            
            (
                16,441,713
            )
            
            (
                14,321,291
            )(
                53,221
            )
            
            (
                228,456
            )$
            1,766,218
            
            $
            982,494
  Description
        of Business and Going Concern (note 1)
  Commitments
          (note 10)
  Subsequent
            Events (note 18)
 Approved
                on behalf of the Board:
              
              /s/
                Michael Liik (Director)/s/ Brian Clewes
                (Director)
 
 *{See
        accompanying notes.}*
  Page
            2
 
 **ASTRIS ENERGI INC.**
                  **Statement
                      II**
 **(A
      Development Stage Company)**
 **Consolidated
      Statements of Operations and Deficit**
 For
      the
      Years Ended December 31, 2006, 2005 and 2004 and December 31, 1995 through
      December 31, 2006
 (Canadian
      Dollars)
  **From****Inception****Dec.
                31, 1995****2006**
            
            **2005**
            
            **2004**
            
            **to
                Date**(Note
                13)**REVENUE**Sales
            
            $
            85,915
            
            $
            291,512
            
            $
            88,798
            
            $
            869,817**EXPENSES**Research
                and development
            
            
            792,265
            
            
            909,873
            
            
            1,343,695
            
            
            5,522,846General
                and administrative
            
            
            1,326,539
            
            
            2,537,127
            
            
            1,943,799
            
            
            7,570,168Professional
                fees
            
            
            264,742
            
            
            333,555
            
            
            243,076
            
            
            1,476,251Interest
                to related parties
            
            
            -
            
            
            -
            
            
            7,000
            
            
            116,329Debenture
                interest and financing costs
            
            
            467,252
            
            
            83,538
            
            
            -
            
            
            550,790Amortization
            
            
            77,504
            
            
            73,113
            
            
            13,485
            
            
            296,034Amortization
                of debenture financing costs
            
            
            367,579
            
            
            -
            
            
            -
            
            
            367,579Unrealized
                gain on derivatives
            
            
            (
                1,089,544
            )
            
            
            
            
            
            
            
            (
                1,089,544
            )Write
                off of technology (note 14)
            
            
            -
            
            
            1,500,000
            
            
            -
            
            
            1,500,000Acquisition
                costs
            
            
            -
            
            
            185,170
            
            
            -
            
            
            372,9152,206,337
            
            
            5,622,376
            
            
            3,551,055
            
            
            16,683,368**NET
                LOSS FOR THE YEAR**
            
            
            (
                2,120,422
            )
            
            (
                5,330,864
            )
            
            (
                3,462,257
            )
            
            ($15,813,551
            )**DEFICIT,
                BEGINNING OF YEAR**
            
            
            (
                14,321,291
            )
            
            (
                8,990,427
            )
            
            (
                5,528,170
            )**DEFICIT,
                END OF YEAR**
            
            
            ($
                16,441,713
            )
            
            ($14,321,291
            )
            
            ($
                8,990,427
            )**NET
                LOSS PER COMMON SHARE**
            
            
            ($
                0.05
            )
            
            ($
                0.16
            )
            
            ($
                0.26
            )**AVERAGE
                NUMBER OF SHARES OUTSTANDING**(Note
                6)
            
            
            42,561,626
            
            
            33,656,293
            
            
            21,106,312
  *{See
        accompanying notes.}*
  Page
            3
 **ASTRIS ENERGI INC.**
                **Statement
                    III**
 **(A
      Development Stage Company)**
 **Consolidated
      Statements of Cash Flows**
 For
      the
      Years Ended December 31, 2006, 2005 and 2004 and December 31, 1995 through
      December 31, 2006
 (Canadian
      Dollars)
  **Dec.
                31, 1995****2006**
            
            **2005**
            
            **2004**
            
            **to
                Date**(Note
                13)**OPERATING
                ACTIVITIES**Loss
                for the year
            
            
            ($
                2,120,422
            )
            
            ($
                5,330,864
            )
            
            ($
                3,462,257
            )
            
            ($15,813,551
            )Items
                not requiring cashWrite
                off of technology
            
            
            -
            
            
            1,500,000
            
            
            -
            
            
            1,500,000Amortization
                of capital assets
            
            
            77,504
            
            
            73,113
            
            
            13,485
            
            
            242,113Amortization
                of debenture financing costs
            
            
            367,579
            
            
            -
            
            
            -
            
            
            367,579Amortization
                and write-off of goodwill
            
            
            -
            
            
            21,972
            
            
            -
            
            
            553,336Imputed
                interest - amortization of debt discount
            
            
            314,596
            
            
            -
            
            
            -
            
            
            314,596Consulting
                and professional fees paid incapital
                stock to non-related parties
            
            
            631,603
            
            
            1,235,824
            
            
            890,097
            
            
            3,181,119Consulting
                fees paid in capital stock torelated
                parties
            
            
            374,533
            
            
            554,308
            
            
            360,360
            
            
            2,020,954Options
                and warrants issued tonon-employees
            
            
            -
            
            
            718,242
            
            
            319,061
            
            
            1,160,065Unrealized
                gain on derivatives
            
            
            (1,089,544
            )
            
            -
            
            
            -
            
            
            (1,089,544
            )Stock
                based compensation to employees
            
            
            -
            
            
            58,391
            
            
            105,962
            
            
            352,730Loss
                on sale of marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            (
                414,737
            )Other
            
            
            -
            
            
            -
            
            
            -
            
            
            221,523Net
                change in non-cash working capitalbalances
                related to operations (note 7)
            
            
            (
                192,284
            )
            
            466,733
            
            
            (
                329,614
            )
            
            594,889(
                1,636,435
            )
            
            (
                702,281
            )
            
            (
                2,102,906
            )
            
            (
                6,808,928
            )**INVESTING
                ACTIVITIES**Purchase
                of property, plant and equipment
            
            
            (
                5,049
            )
            
            (
                69,206
            )
            
            (
                16,807
            )
            
            (
                139,739
            )Cash
                acquired on purchase of Astris s.r.o. (note 14)
            
            
            -
            
            
            87,091
            
            
            -
            
            
            87,091Astris
                s.r.o. pre-acquisition costs written off
            
            
            -
            
            
            48,190
            
            
            (
                48,190
            )
            
            48,190Proceeds
                from sale of marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            514,735Purchase
                of other assets
            
            
            (
                17,249
            )
            
            (
                7,638
            )
            
            (
                5,502
            )
            
            (
                78,579
            )(
                22,298
            )
            
            58,437
            
            
            (
                70,499
            )
            
            431,698**FINANCING
                ACTIVITIES**Proceeds
                from issuance of convertible debenture
            
            
            -
            
            
            420,000
            
            
            -
            
            
            420,000****Advances
                from related parties
            
            
            -
            
            
            -
            
            
            -
            
            
            (
                15,819
            )****Proceeds
                from issuance of warrants
            
            
            -
            
            
            -
            
            
            537,167
            
            
            1,506,268Repayment
                of obligation under capital lease
            
            
            (8,197
            )
            
            -
            
            
            -
            
            
            (
                8,197
            )Deposit
                on shares
            
            
            -
            
            
            -
            
            
            (
                72,070
            )
            
            -Proceeds
                from issuance of $US convertible debentures
            
            
            1,740,003
            
            
            -
            
            
            -
            
            
            1,740,003Deferred
                financing costs
            
            
            (
                341,099
            )
            
            -
            
            
            -
            
            
            (
                341,099
            )Proceeds
                from advances payable
            
            
            262,
                250
            
            
            -
            
            
            -
            
            
            262,
                250Proceeds
                from issuance of common shares upon exercise of options
            
            
            -
            
            
            73,350
            
            
            1,538,874
            
            
            2,784,6231,652,957
            
            
            493,350
            
            
            2,003,971
            
            
            6,348,029**NET
                DECREASE IN CASH**
            
            
            (
                5,776
            )
            
            (
                150,494
            )
            
            (
                169,434
            )
            
            (
                29,201
            )**CASH,
                BEGINNING OF YEAR**
            
            
            27,857
            
            
            178,351
            
            
            347,785
            
            
            -Cash
                balance of Astris Inc. on acquisition
            
            
            -
            
            
            -
            
            
            -
            
            
            51,282**CASH,
                END OF YEAR**
            
            $
            22,081
            
            $
            27,857
            
            $
            178,351
            
            $
            22,081
  Note
      7 -
      Supplemental Disclosure of Cash Flows Information
 
 {See accompanying notes.}
  Page
          4
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **1.**   **DESCRIPTION
      OF BUSINESS AND GOING CONCERN**
 
 Astris
      Energi Inc. (the “Company”) designs, develops, manufactures and sells alkaline
      fuel cells (“AFCs”) and alkaline fuel cell systems, fuel cell and battery test
      loads and provides engineering and other services.  The Company is based in
      Mississauga, Canada.
 
 Since
      inception, the efforts of the Company have been devoted to the development
      of
      AFCs for industrial, commercial, educational, scientific, transportation and
      similar applications.  To date, the Company has not earned significant
      revenues and is considered to be in the development stage. Currently the Company
      has two projects under development at its Canadian division and two at its
      Czech
      Republic division, Astris s.r.o.
 
 a)
            Canadian
                Division
 
 (i)  ***POWERSTACK
      MC250 Project***
 
 The
      POWERSTACK MC250 project represents fuel cell stack improvement in several
      aspects of AFC technology. The POWERSTACK MC250 is at a pre-commercial stage.
       The Company started a pilot production line of the POWERSTACK MC250 in
      2004.
 
 Since
      inception of this project, the Company has expensed $4,716,076 as at December
      31, 2006 in connection with this project and no amounts have been capitalized
      or
      deferred to date.
 
 (ii)  ***E8
      Generator Project***
 
 The
      E8
      generator project uses the POWERSTACK MC250 to produce 2.4 kW of nominal rated
      power.  The E8 generator is ready to be installed in demonstration and
      pilot applications.
 
 The
      Company has expensed $546,827 as at December 31, 2006 in connection with this
      project. The Company has sold five E8 generators on a demonstration basis to
      a
      potential OEM and potential resellers. There is no assurance that there will
      be
      future revenues from either party.
  Page
          5
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **1.**   **DESCRIPTION
      OF BUSINESS AND GOING CONCERN** (continued)
 
 b)
            Czech
                Republic Division
 
 (i) ***Fuel
      cell based on back-up power system for
      telecommunications***
 
 The
                Company expensed $30,202 to date on this project which began in 2006.
                Grant monies allocated to this project amounted to $16,887 as at
                December
                31, 2006.
  (ii)  ***Research
      and development of fuel cells with a liquid
      electrolyte***
 
 The
      Company expensed $323,479 in 2006 for this project bringing the total to date
      to
      $530,809. Grant monies allocated to this project amounted to $177,715 for the
      year 2006.
  ***Going
      Concern***
 
 The
      financial statements of the Company have been prepared on a going concern basis
      which contemplates the realization of assets and discharge of obligations in
      the
      normal course of business as they come due.  No adjustments have been made
      to assets or liabilities in these financial statements should the Company not
      be
      able to continue normal business operations.
 
 The
      Company has incurred losses for several years and, during 2006, the Company
      utilized $1,636,435 (2005 - $702,281) (2004 - $2,102,906) of cash in operations.
      At December 31, 2006, the Company reported a deficit of $16,441,713 and
      continues to expend cash amounts that significantly exceed revenues.  These
      conditions cast substantial doubt on the ability of the Company to continue
      in
      business and meet its obligations as they come due. Management is considering
      various alternatives and is pursuing additional capital resources. Nevertheless,
      there can be no assurance that these initiatives if undertaken will be
      successful.
 
 The
      Company’s continuance as a going concern is dependent on the success of the
      efforts of its directors and principal shareholders in providing financial
      support in the short term, the success of the Company in raising additional
      long-term financing either from its own resources or from third parties, the
      commercialization of one or more of the Company’s research projects and the
      achievement of profitable operations.  In the event that such resources are
      not secured, the assets may not be realized or liabilities discharged at their
      carrying amounts, and differences from the carrying amounts reported in these
      financial statements could be material.
  Page
          6
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **2.**  **SIGNIFICANT
      ACCOUNTING POLICIES**
 
 ***Basis
      of Presentation***
 
 Effective
      January 1, 2005, the Company, Astris Energi Inc., and its wholly-owned
      subsidiary, Astris Inc., were amalgamated to streamline administrative
      functions. The amalgamated company continues with the same name as the parent
      company.
 
 These
      consolidated financial statements have been prepared in accordance with Canadian
      Generally Accepted Accounting Principles (“GAAP’) and reflect the accounts of
      the parent company and its holding company 2062540 Ontario Inc. which holds
      all
      the outstanding shares of its foreign subsidiary, Astris s.r.o. Astris s.r.o.
      was acquired on January 27, 2005. (See note 14)
 
 All
      material intercompany transactions and balances have been eliminated on
      consolidation.
 
 ***Revenue
      Recognition***
 
 Revenues
      from the sale of fuel cell products and related components are recognized when
      there is persuasive evidence of an arrangement, goods have been delivered,
      the
      fee is fixed or determinable and collection is reasonably assured.
 
 Revenues
                relating to engineering and testing services are recognized at the
                time
                services are rendered.
 
 ***Cash
      and Cash Equivalents***
 
 Cash
      equivalents comprise certain highly liquid instruments with a maturity of three
      months or less when purchased.
 
 ***Prepaid
      Expenses and Deposits***
 
 A
      significant portion of prepaid expenses represent a 24-month prepayment for
      services relating to filings on EDGAR in the United States, starting in
      September 2005.
  Page
          7
 
 **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **2.**  **SIGNIFICANT
      ACCOUNTING POLICIES** (continued)
 
 ***Property,
      Plant and Equipment***
 
 Property,
      plant and equipment are recorded at cost less provision for amortization and
      impairment where indicated. Amortization is provided over the estimated useful
      lives of these assets on a straight line basis, calculated as follows:
 
 Building
            
            
            40
                yearsMachinery
                and equipment
            
            
            5
                yearsFurniture
                and fixtures
            
            
            10
                yearsLeasehold
                improvements
            
            
            Corresponding
                lease term
 
 In
      the
      event that the future undiscounted net cash flows relating to these long lived
      assets are less than their carrying amounts, they are written down to fair
      value.  The impairment loss would be reflected in the operations of the
      year when impairment occurs.
 
 ***Inventory***
 
 Inventory
      is valued at the lower of cost or market value. Cost is determined on a first
      in
      first out basis.
 
 ***Research
      and Development Costs, Investment Tax Credits and Government Assistance***
 
 All
      costs
      relating to scientific research and product evaluation are expensed as incurred.
      Product development costs are expensed as incurred unless the product or process
      is clearly defined; the associated costs can be identified; technical
      feasibility has been reached; there is intention to produce or market the
      product; the future market is clearly defined; and, adequate resources exist
      or
      are expected to be available to complete the project.  To date, these
      criteria have not been met and, accordingly, no development costs have been
      deferred.
 
 Investment
      tax credits are recognized in the period in which the credits are earned and
      realization is considered more likely than not. Government grants are recognized
      when received. Assistance received or receivable is accounted for using the
      cost
      reduction approach.
 
 **2006**
            
            **2005**
            
            **2004**Canadian
                SRED credits
            
            $
            -
            
            $
            283,900
            
            $
            192,870Czech
                Republic government grants
            
            
            177,715
            
            
            137,000
            
            
            -$
            177,715
            
            $
            420,900
            
            $
            192,870
  Page
          8
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **2.**  **SIGNIFICANT
      ACCOUNTING POLICIES** (continued)
 
 ***Income
      Taxes***
 
 Income
      taxes are recorded using the liability method.  Future income and deduction
      amounts arise due to temporary differences between the accounting and income
      tax
      bases of the Company’s assets and liabilities.  Future income tax assets
      and liabilities are measured using substantively enacted income tax rates in
      effect for the year in which those temporary differences are expected to be
      recovered or settled.  The effect on future income tax assets and
      liabilities of a change in income tax rates is recognized in the period that
      includes the date of substantive enactment.  Valuation allowances are
      provided to the extent that realization of such benefits is considered to be
      more unlikely than not.
 
 ***Use
      of Estimates***
 
 The
      preparation of the consolidated financial statements in conformity with Canadian
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      the reported amounts of revenue and expenses during the year. Actual amounts
      could differ from management’s estimates.
 
 ***Financial
      Instruments***
 
 The
      Company’s financial instruments comprise cash; accounts receivable; accounts
      payable and accrued liabilities; derivatives: and, convertible debentures.
 
 The
      fair
      values of the Company’s financial instruments approximate their carrying values
      due to the short-term nature of the instruments. The fair values of the
      Company’s convertible debentures approximate carry value as the interest rates
      and other terms on the debentures approximates those available in the current
      market for instruments of similar terms and maturities.
  ***Interest
      and Credit Risks and Deferred Revenue***
 
 The
      Company is exposed to risks arising from fluctuations in interest rates and
      the
      degree of volatility of these rates.  The Company does not use derivative
      instruments to reduce its exposure to interest risks.
 
 The
      Company is exposed to credit risk on the accounts receivable from its customers.
       In order to reduce its credit risk, the Company has adopted credit
      policies which include the payment of small orders by credit card before
      shipping, the analysis of the financial position of its customers, and the
      regular review of their credit limit. In addition, before the commencement
      of a
      major order, the Company requests a substantial deposit from the customer.
      These
      deposits, when received, are recorded as deferred revenue until the order is
      delivered.
  Page
          9
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **2.**  **SIGNIFICANT
      ACCOUNTING POLICIES** (continued)
 
 ***Foreign
      Exchange Risks***
 
 The
      Company is exposed to risks arising from fluctuations in foreign exchange rates
      and the degree of volatility of these rates.  The Company does not use
      derivative instruments to reduce its exposure to foreign exchange risk.
  ***Derivative
      Instruments***
 
 The
      Company issued convertible debentures as part of its financing activities.
      Accounting for convertible debentures with a debt conversion into shares
      component based on a varying stock price is covered by SFAS 133 in the United
      States and Section 3855 of the CICA Handbook in Canada. These sources prescribe
      when a financial instrument is to be recognized on the balance sheet and at
      what
      amount; sometimes using fair value and other times using cost-based measures.
      They also specify how financial instrument gains and losses are to be presented
      and define financial instruments to include accounts receivable and payable,
      loans, investments in debt and equity securities, and derivative contracts.
      Details of the accounting for these convertible debentures as derivative
      instruments are included in note 16.
 
 ***Stock-based
      compensation***
 
 The
      Company accounts for stock-based compensation in accordance with CICA Handbook
      section 3870 “Stock-Based Compensation and Other Stock-Based Payments.” This
      section establishes standards for the recognition, measurement and disclosure
      of
      stock-based compensation and other stock-based payments made in exchange for
      goods and services, and applies to transactions, including non-reciprocal
      transactions, in which an enterprise grants shares of common stock or other
      equity instruments, or incurs liabilities based on the price of common stock
      or
      other equity instruments. As permitted by Section 3870, the Company applied
      this
      change prospectively for new awards granted on or after January 1, 2002. In
      periods prior to January 1, 2002, the Company recognized no compensation when
      stock options or warrants were issued to employees or non-
      employees.
 
 Effective
      January 1, 2004, the Company adopted the revised accounting recommendations
      contained in the CICA Handbook Section 3870. Commencing in the fiscal year
      2004,
      the Company recorded compensation expense for stock options granted to employees
      on or after January 1, 2004, based on the fair value method of accounting.
      For
      the year ended December 31, 2006, the amount of compensation cost recognized
      in
      income and credited to contributed surplus was $5,002 (2005 - $236,174; 2004
      -
      $333,373). (Note 6 (c).)
 
 ***Comprehensive
      Income***
 
 Income
      and losses arising from the translation of certain year-end balances in the
      Company’s foreign subsidiary are insignificant and grouped with currency expense
      on the consolidated statements of operations and deficit.
  Page
          10
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **2.**  **SIGNIFICANT
      ACCOUNTING POLICIES** (continued)
 
 ***Foreign
      Currency Translation***
 
 The
      Company translates foreign currency denominated transactions and the financial
      statements of integrated foreign operations using the temporal method. Monetary
      assets and liabilities denominated in currencies other than Canadian dollars
      are
      translated into Canadian dollars at the rate of exchange in effect at the
      balance sheet date. Revenues and expenses are translated at the transaction
      exchange rate, with the exception of amortization, which is translated at
      historic rates. Foreign currency gains and losses resulting from the translation
      of assets and liabilities are reflected in net income of the
      period.
 
 ***Leases***
  Leases
      entered into by the Company as a lessee are classified as capital or operating
      leases. Leases that transfer substantially the entire risks and benefits
      incidental to ownership are classified as capital leases. At the inception
      of a
      capital lease, an asset and an obligation are recorded at an amount equal to
      the
      lesser of the present value of the minimum lease payments and the asset’s fair
      market value at the beginning of each lease. Rental payments under operating
      leases are expensed as incurred.
 
 ***Asset
      Impairment***
 
 The
      Company has adopted CICA Handbook Section 3063, Impairment of Long-lived Assets.
      This standard establishes principles for the recognition, measurement and
      disclosure of the impairment of long-lived assets on a prospective basis. The
      standard outlines the impairment process and defines the impairment loss as
      being measured as the excess of the carrying value of the asset over its fair
      value. The evaluation is performed at the lowest level of a group of assets
      and
      liabilities with identifiable cash flows that are independent of those of other
      assets and liabilities.
 
 ***Loss
      per Share***
 
 Basic
      loss per share is calculated on the weighted average number of common shares
      outstanding during the year.  The diluted loss per share is calculated
      based on the weighted average number of common shares that would have been
      outstanding during the year had all potential common shares been issued at
      the
      beginning of the year or when the underlying options or warrants were granted,
      if later.
  Page
          11
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **2.**  **SIGNIFICANT
      ACCOUNTING POLICIES** (continued)
 
 ***New
      Accounting Pronouncements***
 
 Comprehensive
      income and equity In 2005,
      the CICA released Handbook Section 1530, “Comprehensive Income,” and Section
      3251, “Equity,” effective for annual and interim periods beginning on or after
      October 1, 2006. Section 1530 establishes standards for reporting comprehensive
      income. The section does not address issues of recognition or measurement for
      comprehensive income and its components. Section 3251 establishes standards
      in
      addition to Section 1530. The Company does not expect the adoption of these
      standards to have a material effect on its consolidated results of operations
      or
      financial position.
 
 Accounting
      changes In 2006,
      the CICA released Handbook Section 1506, “Accounting Changes,” effective for
      fiscal years beginning on or after January 1, 2007. The Section establishes
      standards and new disclosure requirements for the reporting of changes in
      accounting policies and estimates and the reporting of error corrections. It
      clarifies that a change in accounting policy can be made only if it is a
      requirement under Canadian Generally Accepted Accounting Principals or if it
      provides reliable and more relevant financial statement information. Voluntary
      changes in accounting policies require retrospective application of prior period
      financial statements, unless the retrospective effects of the changes are
      impracticable to determine, in which case the retrospective application may
      be
      limited to the assets and liabilities of the earliest period practicable, with
      a
      corresponding adjustment made to opening retained earnings.
 
 **3.**  **PROPERTY,
      PLANT AND EQUIPMENT**
  **Accumulated**
            
            **Net****2006**
            
            **Cost**
            
            **Amortization**
            
            **Book
                Value****Property,
                Plant and Equipment**Land
            
            $
            128,940
            
            $
            -
            
            $
            128,940Building
            
            
            243,376
            
            
            13,700
            
            
            229,676Machinery
                and equipment
            
            
            290,531
            
            
            94,206
            
            
            196,325Furniture
                and fixtures
            
            
            38,198
            
            
            13,029
            
            
            25,169Leasehold
                improvements
            
            
            10,939
            
            
            10,939
            
            
            -$
            711,984
            
            $
            131,874
            
            $
            580,110
 
 **Accumulated**
            
            **Net****2005**
            
            **Cost**
            
            **Amortization**
            
            **Book
                Value****Property,
                Plant and Equipment**Land
            
            $
            128,940
            
            $
            -
            
            $
            128,940Building
            
            
            238,328
            
            
            6,790
            
            
            231,538Machinery
                and equipment
            
            
            243,420
            
            
            30,183
            
            
            213,237Furniture
                and fixtures
            
            
            38,198
            
            
            8,065
            
            
            30,133Leasehold
                improvements
            
            
            10,939
            
            
            10,939
            
            
            -$
            659,825
            
            $
            55,977
            
            $
            603,848
 
 Page
          12
 
 **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
  **4.**  **RELATED
      PARTY TRANSACTIONS AND BALANCES** ****
 
 **(a)**  **Amounts
      owing to Directors and Officers**
 
 As
      at
      December 31, accounts payables and accrued liabilities includes amounts owing
      to
      the following persons and companies. These amounts arose from transactions
      listed in note 4 (b).
  **Position**
            
            **2006**
            
            **2005**Anthony
                Durkacz (“AD”)
            
            
            Director
                and Officer
            
            $
            2,141
            
            $
            34,596Arthur
                Laudenslager
            
            
            Director
            
            
            2,397
            
            
            20,358Brian
                Clewes
            
            
            Director
            
            
            2,000
            
            
            25,465David
                Ramm
            
            
            Director
            
            
            -
            
            
            10,000Fortius
                Research and Trading
            
            
            Controlled
                by AD
            
            
            5,300
            
            
            31,125Gary
                Brandt
            
            
            Director
            
            
            -
            
            
            8,698Jiri
                Nor (“JN”)
            
            
            Director
                & Officer
            
            
            3,011
            
            
            61,915Liikfam
                Holdings Inc.
            
            
            Controlled
                by ML
            
            
            26,500
            
            
            26,750Macnor
                Corp.
            
            
            Controlled
                by JN
            
            
            21,333
            
            
            102,720Michael
                Liik (“ML”)
            
            
            Director
            
            
            2,000
            
            
            14,512Peter
                Nor
            
            
            Officer
            
            
            1,971
            
            
            6,971$
            66,653
            
            $
            343,110
  Page
          13
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **4.**  **RELATED
      PARTY TRANSACTIONS AND BALANCES** **** (continued)
 
 **(b)**  **Directors
      and Officers**
 
 During
      the years ended December 31, 2006, the Company incurred the following consulting
      expenses with its directors and officers:
 
 **Position**
            
            **2006**
            
            **2005**
            
            **2004**Gary
                Brandt
            
            
            Director
            
            $
            4,000
            
            $
            8,698
            
            $
            -Brian
                Clewes
            
            
            Director
            
            
            6,000
            
            
            25,465
            
            
            -Anthony
                Durkacz (“AD”)
            
            
            Director
                and Officer
            
            
            6,000
            
            
            10,000
            
            
            -Fortius
                Research and Trading
            
            
            Controlled
                by AD
            
            
            92,725
            
            
            112,500
            
            
            100,000Arthur
                Laudenslager
            
            
            Director
            
            
            6,100
            
            
            19,768
            
            
            -Liikfam
                Holdings Inc.
            
            
            Controlled
                by ML
            
            
            100,000
            
            
            118,750
            
            
            -Macnor
                Corp. re Jiri Nor (i)
            
            
            Controlled
                by JN
            
            
            149,997
            
            
            315,998
            
            
            166,279Macnor
                Corp. re Peter Nor (i)
            
            
            Controlled
                by JN
            
            
            98,000
            
            
            120,000
            
            
            93,455Michael
                Liik (“ML”)
            
            
            Director
            
            
            6,000
            
            
            14,511
            
            
            -Jiri
                Nor (“JN”)
            
            
            Director
                and Officer
            
            
            6,000
            
            
            10,000
            
            
            -David
                Ramm
            
            
            Director
            
            
            2,000
            
            
            10,000
            
            
            -$
            476,822
            
            $
            765,690
            
            $
            359,734
  These
      transactions were in the normal course of operations and are measured at the
      exchange amount, which is the amount of consideration established and agreed
      to
      by the related parties.
  (i)
      Jiri
      Nor and Peter Nor provided services on behalf of Macnor Corp.
      respectively.
  Page
          14
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
  **5.** **INCOME
      TAXES**
 
 The
                Company has non-capital tax losses carried forward of approximately
                $9,503,000. If unused, these tax losses will expire as
                follows:
 
 2007
            
            
            188,0002008
            
            
            294,0002009
            
            
            323,0002010
            
            
            1,734,0002014
            
            
            2,882,0002015
            
            
            3,030,0002016
            
            
            1,052,000
  In
                addition, the Company has non-deductible scientific research and
                development expenditures amounting to approximately $1,759,000 which
                have
                no expiry.
 
 Investment
                tax credits recorded during the year as a reduction of expenses aggregated
                to $Nil (2005 - $283,900); (2004 -
                $192,870).
 
 The
      Company’s computation of future income tax recovery is as follows:
 
 **2006**
            
            **2005**
            
            **2004**Loss
                before income taxes
            
            
            ($2,120,422
            )
            
            ($5,330,864
            )
            
            ($3,462,257
            )Statutory
                income tax rate
            
            
            36.12
            %
            
            36.12
            %
            
            36.12
            %Income
                tax recovery at statutory rate
            
            
            (
                765,896
            )
            
            (
                1,925,508
            )
            
            (
                1,250,567
            )Non-taxable
                gain
            
            
            (
                393,543
            )
            
            -
            
            
            -Non-deductible
                expenses
            
            
            779,530
            
            
            138,919
            
            
            125,285Change
                in valuation allowance and other items
            
            
            379,909
            
            
            1,786,589
            
            
            1,125,282Income
                tax expense
            
            $
            -
            
            $
            -
            
            $
            -
 
 The
      components of the Company’s net future income tax assets are as
      follows:
 
 **2006**
            
            **2005**
            
            **2004**Non
                capital losses ($9,503,000 x 36.12%)
            
            $
            3,432,484
            
            $
            3,018,548
            
            $
            1,968,179Scientific
                research and development expense($1,759,000
                x 36.12%)
            
            
            635,351
            
            
            614,639
            
            
            549,175Valuation
                allowance
            
            
            (4,067,835
            )
            
            (3,633,187
            )
            
            (2,517,354
            )Net
                future income tax asset
            
            $
            -
            
            $
            -
            
            $
            -
 
 Page
          15
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.****SHARE
      CAPITAL AND CONTRIBUTED SURPLUS**
 
 **a)**  **Share
      capital**
 
 Share
      capital comprises the following:
 
 **Authorized**
  Unlimited
      common shares
 10,000,000
      preferred shares
 
 **Issued
      and outstanding**
 
 **2006**
            
            **2005****Common
                Shares**
            
            **Common
                Shares****Number**
            
            **$**
            
            **Number**
            
            $Issued
                as at January 1
            
            
            37,906,569
            
            
            10,030,096
            
            
            26,316,551
            
            
            6,227,074Issued
                during the year:-
                acquisition of Astris s.r.o.
            
            
            -
            
            
            -
            
            
            5,000,000
            
            
            1,955,000-
                in exchange for consulting and professional fees and expenses from
                non-related parties
            
            
            2,877,340
            
            
            488,713
            
            
            4,305,927
            
            
            1,294,214-
                in exchange for compensation to employees
            
            
            47,775
            
            
            7,680
            
            
            -
            
            
            --
                in exchange for consulting and professional fees and expenses from
                related
                parties
            
            
            2,616,310
            
            
            374,533
            
            
            1,884,091
            
            
            454,308-
                in repayment of advances from directors
            
            
            -
            
            
            -
            
            
            125,000
            
            
            26,150-
                Conversion of $CDN convertible debentures and accrued
                interest
            
            
            275,998
            
            
            20,740
            
            
            -
            
            
            --
                Conversion of $US convertible debentures
            
            
            4,407,677
            
            
            283,240
            
            
            -
            
            
            --
                for cash
            
            
            -
            
            
            -
            
            
            275,000
            
            
            73,350Balance,
                as at December 31
            
            
            48,131,669
            
            
            11,205,002
            
            
            37,906,569
            
            
            10,030,096
 
 Page
          16
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 The
      weighted average number of shares outstanding during 2006 is 42,561,626 (2005
      -
      33,656,293; 2004 - 21,106,312). These figures are used for purposes of
      calculating the loss per share. No effect has been given to the potential
      exercise of stock options and warrants in the calculation of diluted loss per
      share as the effect would be anti-dilutive.
 
 At
      the
      Company’s annual meeting held on October 22, 2004, an amendment was passed
      increasing the authorized capital of the corporation to an unlimited number
      of
      common shares.
 
 No
      preferred shares have been issued.
 
 **b)**
            **Common
                stock issued to settle obligations of the Company to directors, officers
                and former directors of the
                Company.**
 
 In
                2005, the Company issued 7,009,091 shares of common stock to settle
                obligations owing by the Company to certain directors and/or officers
                of
                the Company and/or to companies owned by
                them.
 
 **Name**
            
            **Date**
            
            **Number**
            
            **$**
            
            **Obligation
                Settled**Macnor
                Corp.
            
            Jan.
                25, 2005
            
            5,000,000
            
            1,955,000
            
            Purchase
                of Astris s.r.o. (note 14)April
                5, 2005
            
            34,015
            
            12,000
            
            Marketing
                services by P. NorApril
                5, 2005
            
            42,519
            
            15,000
            
            Professional
                services by J. NorJune
                28, 2005
            
            125,000
            
            26,150
            
            Repayment
                of liabilityJune
                28, 2005
            
            246,969
            
            51,666
            
            Professional
                services byJiri
                and Peter NorAugust
                2, 2005
            
            378,000
            
            110,000
            
            Bonus
                to Jiri NorSept.
                30, 2005
            
            287,062
            
            60,000
            
            Professional
                services by J. NorSept.
                30, 2005
            
            172,238
            
            36,000
            
            Marketing
                services by P. Nor**Total**
            
            **6,285,803**
            
            **2,265,816**
 
 Fortius
                Research
            
            April
                5, 2005
            
            28,346
            
            10,000
            
            Financial
                consultingand
                Trading
            
            June
                28, 2005
            
            119,503
            
            25,000Sept.
                30, 2005
            
            179,420
            
            37,500**Total**
            
            **327,269**
            
            **72,500**Liikfam
                Holdings
            
            April
                5, 2005
            
            93,681
            
            33,437
            
            Financial
                consultingJune
                28, 2005
            
            119,503
            
            25,000Sept.
                30, 2005
            
            179,420
            
            37,500**Total**
            
            **392,604**
            
            **95,937**A.
                Laudenslager
            
            April
                5, 2005
            
            3,415
            
            1,205
            
            Expense
                recovery**Total**
            
            **3,415**
            
            **1,205********7,009,091**
            
            ******2,435,458**
 
 Page
          17
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 In
      2006,
      the Company issued 2,616,310 shares of common stock to settle obligations owing
      by the Company to certain directors and/or officers of the Company and/or to
      companies owned by them.
 
 **Name**
            
            **Date**
            
            **$**
            
            **Number**
            
            **Obligation
                Settled**Macnor
                Corp.
            
            January
                18, 2006
            
            106,000
            
            651,138
            
            Professional
                services MC250July
                26, 2006
            
            4,000
            
            35,048
            
            project
                (note 1(a)), director feesOctober
                25, 2006
            
            16,000
            
            203,189
            
            and
                reimbursements**Total**
            
            **126,000**
            
            **889,375**
 
 David
                Ramm
            
            January
                18, 2006
            
            10,000
            
            61,428
            
            Director
                fees andJuly
                26, 2006
            
            2,000
            
            17,524
            
            reimbursements**Total**
            
            **12,000**
            
            **78,952**
 
 Fortius
                Research and
            
            January
                18, 2006
            
            10,000
            
            61,428
            
            Financial
                consulting,Trading
            
            July
                26, 2006
            
            4,000
            
            35,048
            
            director
                and expense recoveryMay
                18, 2006
            
            37,500
            
            178,291**Total**
            
            **51,500**
            
            **274,767**
 
 A.
                Laudenslager
            
            July
                26, 2006
            
            4,000
            
            35,048
            
            Director
                fees andJanuary
                18, 2006
            
            590
            
            3,630
            
            reimbursementsJanuary
                18, 2006
            
            19,768
            
            121,428**Total**
            
            **24,358**
            
            **160,106**
 
 Brian
                Clewes
            
            January
                18, 2006
            
            25,465
            
            156,428
            
            Director
                fees andJuly
                26, 2006
            
            4,000
            
            35,048
            
            reimbursements**Total**
            
            **29,465**
            
            **191,476**
 
 Gary
                Brandt
            
            January
                18, 2006
            
            8,698
            
            53,428
            
            Director
                fees andJuly
                26, 2006
            
            4,000
            
            35,048
            
            reimbursements**Total**
            
            **12,698**
            
            **88,476**
 
 Liikfam
                Holdings
            
            January
                18, 2006
            
            39,512
            
            242,712
            
            Financial
                consulting,May
                18, 2006
            
            25,000
            
            118,861
            
            director
                fees andJuly
                26, 2006
            
            29,000
            
            254,096
            
            reimbursementsOctober
                25, 2006
            
            25,000
            
            317,489**Total**
            
            **118,512**
            
            **933,158********374,533**
            
            ******2,616,310**
 
 Page
          18
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 **c)**  **Contributed
      surplus comprises the following** :
  **2006**
            
            **2005**Contributed
                surplus, beginning of year
            
            $
            4,062,739
            
            $
            3,016,647Options
                issued for consulting andprofessional
                fees to non-related parties
            
            
            5,002
            
            
            -Options
                issued to employees
            
            
            -
            
            
            21,144Options
                issued to related parties
            
            
            -
            
            
            215,030Warrants
                issued on acquisition of Astris s.r.o.
            
            
            -
            
            
            254,000Warrants
                issued to non-related parties
            
            
            1,115,749
            
            
            482,068Remaining
                value of loan repaid by issuanceof
                shares to a director
            
            
            -
            
            
            73,850Contributed
                surplus, end of year
            
            $
            5,183,490
            
            $
            4,062,739
 
 Page
          19
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 **d)
      Common stock issued for cash**
 
 i)
      Pursuant to a subscription agreement dated March 3, 2004 with an accredited
      investor, as defined under the laws of the province of Alberta, the Company
      issued a private placement of 651,450 units, comprising one common share and
      one
      common share purchase warrant each, for an aggregate purchase price of $CDN
      390,870. The common share purchase warrants are exercisable up to March 4,
      2007,
      each entitling the holder to purchase one common share at $1.00 (U.S.) per
      share. Each warrant entitles the holder to purchase one common
      share.
 
 ii)
      Pursuant to a subscription agreement dated March 26, 2004 with an accredited
      investor, as defined under the laws of the province of Ontario, the Company
      issued a private placement of 236,035 units, comprising one common share and
      one
      common share purchase warrant each, for an aggregate purchase price of $CDN
      138,080. The common share purchase warrants are exercisable up to March 27,
      2007, each entitling the holder to purchase one common share at $0.50 (U.S.)
      per
      share.
 
 iii)
      Pursuant to a subscription agreement dated March 31, 2004 with an accredited
      investor, as defined under the laws of the province of Alberta, the Company
      issued a private placement of 104,500 units, comprising one common share and
      two
      common share purchase warrants each, for an aggregate purchase price of $CDN
      61,100.  The first tranche of common share purchase warrants was
      exercisable up to October 1, 2005, at $0.80 (U.S.) per share. The second tranche
      of common share purchase warrants are exercisable up to April 1, 2007 at $1.00
      (U.S.) per share. Each warrant entitles the holder to purchase one common
      share.
 
 iv)
      Pursuant to a subscription agreement dated June 3, 2004 with an accredited
      investor, as defined under the laws of the province of Alberta, the Company
      issued a private placement 79,630 units, comprising one common share and one
      common share purchase warrant each, for an aggregate purchase price of $CDN
      43,000.  The common share purchase warrants are exercisable up to June 30,
      2007 each entitling the holder to purchase one common share at $0.80 (U.S.)
      per
      share.
  v)
      Pursuant to subscription agreements dated July 26 - 28, 2004 with certain
      accredited investors, as defined under the laws of the province of Alberta,
      Canada and the United States of America, the Company issued a private placement
      1,694,167 units comprised of one common share and one common share purchase
      warrant each, for an aggregate purchase price of $CDN 660,725. The common share
      purchase warrants were exercisable up to December 31, 2005, each entitling
      the
      holder to purchase one common share at $0.50 (U.S.) per share.
 
 vi)
      Pursuant to a subscription agreement dated October 1, 2004, with a U.S. company,
      the Company issued a private placement 88,900 units, comprising one common
      share
      and one common share purchase warrant each, for an aggregate purchase price
      of
      $CDN 52,000.  The common share purchase warrants are exercisable up to
      September 30, 2007 each entitling the holder to purchase one common share at
      $0.90 (U.S.) per share.
  Page
          20
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 **d)
      Common stock issued for cash** (Continued)
 
 vii)
      Pursuant to subscription agreement dated October 8, 2004 with an accredited
      investor, as defined under the laws of the province of Ontario, Canada, the
      Company issued a private placement 20,000 units comprising one common share
      and
      one common share purchase warrant each, for an aggregate purchase price of
      $CDN
      11,500.  The common share purchase warrants are exercisable up to October
      8, 2007, each entitling the holder to purchase one common share at $0.90 (U.S.)
      per share.
 
 viii)
      Pursuant to a subscription agreement dated December 3, 2004 with a U.S. company,
      the Company issued a private placement 166,700 units, comprising one common
      share and one common share purchase warrant each, for an aggregate purchase
      price of $CDN 62,500.  The common share purchase warrants are exercisable
      up to December 3, 2007 each entitling the holder to purchase one common share
      at
      $0.60 (U.S.) per share.
  During
      2005, there were no shares issued for cash (except for the exercise of options
      as noted below).
 
 During
      2006, no shares were issued for cash.
 
 Page
          21
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 **e)
          Stock option plan**
 
 The
      Company has stock option plans for its employees and consultants who are
      regarded as integral to the progress of the Company and its operations. Options
      are normally issued as a bonus on employment or are tied into performance
      related compensation. Performance related compensation includes completion
      of
      research and development projects within specific timeframes and budget,
      achieving financial targets on behalf of the Company or
      introduction/referral/completion of business agreements or arrangements. In
      general, the minimum vesting requirement of options issued is one year. The
      maximum term of options is five years from the grant date. Normally, the
      exercise price of the option is determined using the five-day closing average
      of
      the shares prior to the grant date.
 
 On
      October 22, 2004, the Board of Directors passed a resolution authorizing an
      amendment increasing the maximum number of common shares for issuance under
      the
      Company’s Stock Option Plan to 5,100,000 shares.
 
 On
      October 12, 2005, the Board of Directors received approval from shareholders
      at
      the Company’s Annual General Meeting to increase the common shares available for
      the Company’s Stock Option Plan by 2,000,000 shares.
 
 **(i)
      Stock options granted**
 
 For
      the
      year ended December 31, 2004, stock options were granted as follows under the
      Company’s Stock Option Plan:
 
 To
      employees, 149,170 at a price of $0.35 (U.S.), expiring December 16,
      2009.
  To
      consultants, 154,670 at a price of $0.35 (U.S.), expiring December 16,
      2009.
  To
      an
      officer, 100,000 at a price of $0.36 (U.S.), expiring December 6,
      2009.
  To
      a
      director, 500,000 at a price of $0.36 (U.S.), expiring December 11, 2009,
      subject to certain conditions.
 
 For
      the
      year ended December 31, 2005, stock options were granted as follows under the
      Company’s Stock Option Plan:
 
 To
      one
      director, 200,000 at a price of $0.15 (U.S.), expiring July 19,
      2010.
  To
      all
      directors, 1,400,000 at a price of $0.15 (U.S.), expiring July 19, 2010, subject
      to certain conditions.
  To
      an
      officer, 200,000 at a price of $0.15 (U.S.), expiring July 19,
      2010.
  To
      employees, 225,000 at a price of $0.15 (U.S.), expiring November 4,
      2010.
  To
      a
      consultant, 25,000 at a price of $0.15 (U.S.), expiring November 4,
      2010.
 
 For
      the
      year ended December 31, 2006, stock options were granted as follows under the
      Company’s Stock Option Plan:
 
 To
      an
      outside consultant, 50,000 at a price of $0.14 (U.S.), expiring January 16,
      2009.
  Page
          22
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 **(ii)
      Stock Options exercised**
 
 i)
      During
      the three months ended June 30, 2004, one employee of the Company exercised
      40,000 options at $0.20 (U.S.) for total proceeds of $10,400 and one non-related
      party exercised 200,000 options at $0.30 (U.S.) for total proceeds of
      $81,732.
 
 ii)
      During the three months ended September 30, 2004, a party unrelated to the
      Company exercised 120,000 options at $0.30 (U.S.) for total proceeds of
      $46,770.
 
 iii)
      During the three months ended December 31, 2004, one non-related party exercised
      580,000 options at $0.30 (U.S.) for total proceeds of $219,358. One director
      exercised 62,500 options for $0.25 for total proceeds of $15,625.
  iv)
      On
      January 21, 2005, Gordon Emerson exercised 125,000 options at $0.17 (U.S.)
      for
      proceeds of $31,250.
 
 v)
      On
      November 26, 2005, a director of the Company exercised 150,000 options at $0.24
      (U.S.) for proceeds of $42,100.
 
 vi)
      No
      stock options were exercised during the 2006 fiscal year.
 
 Page
          23
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
  **(iii)
      Stock option valuation**
 
 Stock
      options issued are valued using the Black-Scholes option pricing model with
      the
      following assumptions: risk free interest rate of between 3.60% and 3.82%,
      expected life of between 1 year and 5 years, expected volatility of between
      96%
      and 112%, closing rate of exchange on the issue date and no
      dividends.
 
 **(iv)
      Summary table**
  **Weighted****Average****Options
                for**
            
            **Exercise****Common
                Shares**
            
            **Price
                U.S.$**Balance,
                January 1, 2004
            
            
            3,355,000
            
            
            0.34Options
                granted in 2004
            
            
            903,840
            
            
            0.36Options
                exercised in 2004
            
            
            (1,002,500
            )
            
            0.29Options
                expired or forfeited in 2004
            
            
            (312,500
            )
            
            0.44Balance,
                December 31, 2004
            
            
            2,943,840
            
            
            0.35Options
                granted in 2005
            
            
            2,050,000
            
            
            0.15Options
                exercised in 2005
            
            
            (
                275,000
            )
            
            0.27Options
                expired or forfeited in 2005
            
            
            (675,000
            )
            
            0.39Balance,
                December 31, 2005
            
            
            4,043,840
            
            
            0.25Options
                granted in 2006
            
            
            50,000
            
            
            0.14Options
                exercised in 2006
            
            
            -
            
            
            -Options
                expired or forfeited in 2006
            
            
            (275,000
            )
            
            0.36Balance,
                December 31, 2006
            
            
            3,818,840
            
            
            0.24
 
 Page
          24
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 **(v)
      Exercise dates and weighted average exercise prices by
      year**
 
 **Weighted****Average****Options
                for**
            
            **Exercise****Common
                Shares**
            
            **Price
                U.S.$**Exercisable
                at December 31, 2004
            
            
            2,343,840
            
            
            0.35Exercisable
                at December 31, 2005
            
            
            1,943,840
            
            
            0.31Exercisable
                at December 31, 2006
            
            
            1,718,840
            
            
            0.29
  **(vi)
      Weighted average remaining contractual life**
 
 The
      following table summarizes information about the Company’s stock options
      outstanding as at December 31, 2006:
 
 **Number**
            
            **Weighted**
            
            **Weighted**
            
            **Number**
            
            **Weighted****Exercise**
            
            **Outstanding
                at**
            
            **Average**
            
            **Average**
            
            **Exercisable**
            
            **Average****Price**
            
            **December
                31,**
            
            **Remaining**
            
            **Share
                Price**
            
            **December
                31,**
            
            **Share
                Price****U.S.$**
            
            **2006**
            
            **Life
                in Years**
            
            **U.S.$**
            
            **2006**
            
            **U.S.$**0.14 —
                0.25
            
            
            2,535,000
            
            
            3.05
            
            
            0.16
            
            
            935,000
            
            
            0.170.26 —
                0.50
            
            
            903,840
            
            
            2.95
            
            
            0.36
            
            
            403,840
            
            
            0.350.50 —
                0.62
            
            
            380,000
            
            
            1.77
            
            
            0.53
            
            
            380,000
            
            
            0.533.818,840
            
            
            2.90
            
            
            0.24
            
            
            1,718,840
            
            
            0.29
  Page
          25
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 **f)
      Common share purchase warrants**
 
 As
      at
      December 31, 2004, the Company had issued and outstanding a total of 8,524,476
      common share purchase warrants. These warrants had expiry dates ranging from
      October 2005 to December 2007. The weighted average exercise price of the
      warrants was $0.68 (U.S.).
  4,386,232
      warrants had been issued during the 2004 fiscal year as follows:
 
 **Issue**
            
            **Expiry**
            
            **Number
                of**
            
            **Exercise****Date**
            
            **Date**
            
            **Warrants**
            
            **Price****Recipient**The
                Taylor Made Mgmt Corp.-A
            
            March
                31, 2004
            
            Oct.
                1, 2005
            
            651,450
            
            ExpiredThe
                Taylor Made Mgmt Corp.-B
            
            March
                31, 2004
            
            April
                1, 2007
            
            651,450
            
            U.S.$1.00PSSI
                Paralegal Support Services
            
            March
                26, 2004
            
            March
                26, 2007
            
            236,035
            
            U.S.$1.00The
                Taylor Made Mgmt Corp.-A
            
            March
                31, 2004
            
            Oct.
                1, 2005
            
            104,500
            
            ExpiredThe
                Taylor Made Mgmt Corp.-B
            
            March
                31, 2004
            
            March
                1, 2007
            
            104,500
            
            U.S.$1.00The
                Taylor Made Mgmt Corp.-A
            
            June
                30, 2004
            
            June
                30, 2007
            
            79,630
            
            U.S.$0.80Michael
                Wright
            
            July
                27, 2004
            
            Dec.
                31, 2005
            
            200,000
            
            ExpiredAlternate
                Energy Corp.
            
            July
                27, 2004
            
            Dec.
                31, 2005
            
            1,000,000
            
            ExpiredDonal
                Carrol
            
            July
                27, 2004
            
            Dec.
                31, 2005
            
            140,000
            
            ExpiredPhillip
                Patterson
            
            July
                27, 2004
            
            Dec.
                31, 2005
            
            10,000
            
            ExpiredThe
                Taylor Made Mgmt Corp.-A
            
            July
                27, 2004
            
            Dec.
                31, 2005
            
            344,167
            
            ExpiredBelcor
                Development Corporation
            
            October
                1, 2004
            
            Sept.
                30, 2007
            
            88,900
            
            U.S.$0.90Belcor
                Development Trust
            
            October
                1, 2004
            
            Sept.
                30, 2007
            
            88,900
            
            U.S.$0.90Phillip
                Patterson
            
            October
                8, 2004
            
            Sept.
                30, 2007
            
            20,000
            
            U.S.$0.90Belcor
                Development Corporation
            
            Dec.
                3, 2004
            
            Dec.
                3, 2007
            
            166,700
            
            U.S.$0.60Liikfam
                Holdings Inc.
            
            Dec.
                9, 2004
            
            Dec.
                9, 2007
            
            500,000
            
            U.S.$0.374,386,232
  Page
          26
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 On
      January 27, 2005, the Company issued 5,000,000 warrants to Macnor Corporation
      (see note 6 (b)), in partial payment for the purchase by the Company of 2062540
      Ontario Inc. a company that owns 70% of the Company’s Czech affiliate, Astris
      s.r.o.. Of these 5,000,000 warrants, 2,000,000 have a strike price of $ 0.90
      (CDN) and expire January 27, 2008; 2,000,000 have a strike price of $1.10 (CDN)
      and expire January 27, 2008 and 1,000,000 have an exercise price of $1.30 (CDN)
      and expire January 27, 2008.
 
 As
      at
      December 31, 2005, the Company had issued and outstanding a total of 12,380,359
      common share purchase warrants. These warrants had expiry dates ranging from
      March 2007 to January 2008. The weighted average exercise price of the warrants
      was $0.71(U.S.).
 
 10,156,000
      warrants had been issued during the 2005 fiscal year as follows:
 
 **Issue**
            
            **Expiry**
            
            **Number
                of**
            
            **Exercise****Date**
            
            **Date**
            
            **Warrants**
            
            **Price****Recipient**Macnor
                Corp (note 14)
            
            Jan.
                27, 2005
            
            Jan.
                27, 2008
            
            2,000,000
            
            U.S.
                $0.75Macnor
                Corp (note 14)
            
            Jan.
                27, 2005
            
            Jan.
                27, 2008
            
            2,000,000
            
            U.S.
                $0.92Macnor
                Corp (note 14)
            
            Jan.
                27, 2005
            
            Jan.
                27, 2008
            
            1,000,000
            
            U.S.
                $1.08Fraser
                McKenzie
            
            Mar.
                24, 2005
            
            Mar
                24, 2007
            
            156,000
            
            U.S.
                $0.23New
                Century Capital Consultants
            
            Aug.
                02, 2005
            
            Sept.
                02, 2005
            
            1,000,000
            
            ExpiredNew
                Century Capital Consultants
            
            Aug.
                02, 2005
            
            Nov.
                02, 2005
            
            1,000,000
            
            ExpiredNew
                Century Capital Consultants
            
            Aug.
                02, 2005
            
            Aug.
                02, 2007
            
            1,000,000
            
            U.S.
                $0.25Optima
                Capital
            
            Aug.
                02, 2005
            
            Oct.
                02, 2005
            
            1,000,000
            
            ExpiredBina
                Consulting
            
            Aug.
                08, 2005
            
            Aug.
                08, 2007
            
            800,000
            
            U.S.
                $0.36Elliott
                Goldstein Consulting
            
            Aug.
                08, 2005
            
            Aug.
                08, 2007
            
            200,000
            
            U.S.
                $0.3610,156,000
 
 During
                the 2005 fiscal year, 6,300,117 warrants expired (850,000 from 2002;
                2,450,117 from 2004; and, 3,000,000 from 2005)**.**
  Page
          27
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **6.**  **SHARE
      CAPITAL AND CONTRIBUTED SURPLUS** (continued)
 
 During
      the twelve months ended December 31, 2006, 1,961,215 common share purchase
      warrants that had been issued in 2003 expired.
 
 As
      at
      December 31, 2006, the Company had issued and outstanding a total of 17,459,244
      common share purchase warrants. These warrants have expiry dates ranging from
      March 2007 to April 2010. The weighted average exercise price of the warrants
      was $0.51(U.S.).
 
 7,040,100
      warrants had been issued during the 2005 fiscal year as
      follows:
  **Issue**
            
            **Expiry**
            
            **Number
                of**
            
            **Exercise****Date**
            
            **Date**
            
            **Warrants**
            
            **Price****Recipient**Matthew
                Chipman
            
            Mar.
                15, 2006
            
            Mar.
                15, 2009
            
            500,000
            
            U.S.
                $0.19Michael
                Sheppard
            
            Mar.
                15, 2006
            
            Mar.
                15, 2009
            
            500,000
            
            U.S.
                $0.19Belcor
                Development Corporation
              Profit
                Sharing Plan
            
            Mar.
                22, 2006
            
            Mar.
                22, 2009
            
            88,900
            
            U.S.
                $0.19Belcor
                Development Corporation
            
            Mar.
                22, 2006
            
            Mar.
                22, 2009
            
            255,600
            
            U.S.
                $0.19Alternate
                Energy Corporation
            
            May
                22, 2006
            
            Apr.
                12, 2009
            
            1,500,000
            
            U.S.
                $0.19Cornell
                Capital Partners
            
            Apr.
                10, 2006
            
            Apr
                9, 2009
            
            1,600,000
            
            U.S.
                $0.19Cornell
                Capital Partners
            
            Apr.
                10, 2006
            
            Apr
                9, 2009
            
            600,000
            
            U.S.
                $0.20Cornell
                Capital Partners
            
            Apr.
                10, 2006
            
            Apr
                9, 2009
            
            1,000,000
            
            U.S.
                $0.30Canadian
                debenture holder (note 16)
            
            Apr.
                10, 2006
            
            Apr
                9, 2009
            
            405,300
            
            U.S.
                $0.19Canadian
                debenture holder (note 16)
            
            Apr.
                10, 2006
            
            Apr
                9, 2009
            
            151,988
            
            U.S.
                $0.20Canadian
                debenture holder (note 16)
            
            Apr.
                10, 2006
            
            Apr
                9, 2009
            
            253,312
            
            U.S.
                $0.30Ardour
                Capital Investments
            
            Apr.
                10, 2006
            
            Apr
                10, 2010
            
            185,000
            
            U.S
                $0.287,040,100
  Page
          28
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **7.**  **CONSOLIDATED
      STATEMENTS OF CASH FLOW**
 
 a)
                The net change in non-cash operating working capital balances related
                to
                operations comprises the following:
 
 ******2006**
            
            **2005**
            
            ******2004**Decrease
                (increase) in accounts receivables
            
            $
            110,520
            
            
            ($
                91,752
            )
            
            ($
                2,544
            )Decrease
                (increase in prepaid expenses
            
            
            71,420
            
            
            (
                131,651
            )
            
            15,819Decrease
                (increase) in investment tax creditsrefundable
            
            
            -
            
            
            199,586
            
            
            (
                199,586
            )Decrease
                increase in inventory
            
            
            (
                18,470
            )
            
            (
                10,594
            )
            
            -Increase
                (decrease) in accounts payables and accrued liabilities
            
            
            (
                347,248
            )
            
            483,288
            
            
            (
                143,303
            )Increase
                (decrease) in deferred revenue
            
            
            (
                7,228
            )
            
            17,856
            
            
            -($192,284
            )
            $
            466,733
            
            
            ($329,614
            )
 
 b)
      Supplementary financial information:
 
 **2006**
            
            **2005**
            
            **2004**Common
                shares issued to purchase Astris s.r.o.
            
            $
            -
            
            $
            1,955,000
            
            $
            -Warrants
                issued to purchase Astris s.r.o.
            
            
            -
            
            
            254,000
            
            
            -Common
                shares and contributed surplus issuedto
                pay down director liability
            
            
            -
            
            
            100,000
            
            
            -Capital
                lease obligations entered into uponacquisition
                of property and equipment
            
            
            47,111
            
            
            -
            
            
            -Conversion
                of convertible debenture (note 9)
            
            
            420,000
            
            
            -
            
            
            -Conversion
                of convertible debenture
            
            
            303,980
            
            
            -
            
            
            -
   Page
          29
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **8.**  **SEGMENTED
      FINANCIAL INFORMATION**
 
 The
      Company currently is currently in the design, development, manufacturing and
      sale of alkaline fuel cells, alkaline fuel cell systems, fuel cell and battery
      test loads and also provides engineering and other services.  Fewer than
      50% of the Company’s long-term assets are located in the Czech Republic.
 Revenue is derived primarily from the sale of goods and services to
      customers in the following locations and in the following amounts.
 
 ******2006**
            
            **2005**
            
            ******2004**Canada
            
            $
            17,220
            
            $
            53,019
            
            $
            7,508Czech
                Republic
            
            
            763
            
            
            10,381
            
            
            4,310Rest
                of the world
            
            
            67,932
            
            
            228,112
            
            
            76,980$
            85,915
            
            $
            291,512
            
            $
            88,798
 
 The
      Company’s segmented information by geographical location is as
      follows:
 
 ******Canada**
            
            **Czech**
              **Republic**Assets
            
            $
            1,276,692
            
            $
            489,526Revenue
            
            
            85,152
            
            
            763Net
                loss
            
            
            1,669,326
            
            
            451,096
  **9.**  **CANADIAN
      $420,000 CONVERTIBLE DEBENTURE**
 
 On
      March
      15, 2005, the Company entered into a subscription (the “Agreement”) to issue a
      CDN $420,000 secured convertible debenture (the “Debenture”) to Canadian
      accredited investors. The maturity date of the Debenture was December 10, 2005.
      The Company did not have the ability to repay the debt at maturity and
      subsequently negotiated a new convertible debt agreement. Currently, the
      Canadian dollar convertible debentures and the US dollar debentures have the
      same terms and conditions, on a *pari
      passu* basis,
      maturing on April 9, 2009. (See note 16 (b).)
 
 **10.**  **COMMITMENTS**
 
 The
      Company has an operating lease for office and laboratory space. The minimum
      annual lease payments under the terms of the existing leases are $34,800 to
      October 31, 2006, plus a proportionate share of common area costs. The lease
      expired as of October 31, 2006 and the Company now rents its premises on a
      month-to-month basis.
 
 **11.**  **COMPARATIVE
      FIGURES**
 
 Comparative
      figures have been reclassified, where necessary, to conform to the current
      year’s basis of presentation.
  Page
          30
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **12.**  **EQUITY**
 
 See
      note
      13.
 
 Changes
      in the Company’s equity from January 1, 1995 to December 31, 2006 are as
      follows:
 
 **Deficit****Accumulated****During****Number
                of**
            
            **Consideration**
            
            **Contributed**
            
            **Development****Shares
                Issued**
            
            **Amount**
            
            **Surplus**
            
            **Stage**
            
            **Total**Balance,
                January 1, 1995
            
            
            5,000,000
            
            
            558,927
            
            
            -
            
            
            (628,162
            )
            
            (69,235
            )Purchase
                Astris Inc. at December 31, 1995
            
            
            1,500,000
            
            
            150,000
            
            
            -
            
            
            -
            
            
            150,000Balance,
                December 31, 1995
            
            
            6,500,000
            
            
            708,927
            
            
            -
            
            
            (628,162
            )
            
            80,765Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,055,819
            )
            
            (1,055,819
            )Balance,
                December 31, 1996
            
            
            6,500,000
            
            
            708,927
            
            
            -
            
            
            (1,683,981
            )
            
            (975,054
            )Issued
                for cash on exercise of warrants
            
            
            3,220,000
            
            
            3,220
            
            
            -
            
            
            -
            
            
            3,220Issued
                for cash on exercise of warrants
            
            
            174,850
            
            
            175
            
            
            -
            
            
            -
            
            
            175Issued
                in exchange for outstanding liabilities
            
            
            748,706
            
            
            374,354
            
            
            -
            
            
            -
            
            
            374,354Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (89,568
            )
            
            (89,568
            )Balance,
                December 31, 1997
            
            
            10,643,556
            
            
            1,086,676
            
            
            -
            
            
            (1,773,549
            )
            
            (686,873
            )Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (138,660
            )
            
            (138,660
            )Balance,
                December 31, 1998
            
            
            10,643,556
            
            
            1,086,676
            
            
            -
            
            
            (1,912,209
            )
            
            (825,533
            )Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (40,666
            )
            
            (40,666
            )Balance,
                December 31, 1999
            
            
            10,643,556
            
            
            1,086,676
            
            
            -
            
            
            (1,952,875
            )
            
            (866,199
            )Issued
                as payment for consulting fees to non-related parties
            
            
            62,500
            
            
            10,500
            
            
            -
            
            
            -
            
            
            10,500Issued
                as payment for consulting fees to non-related parties
            
            
            18,750
            
            
            10,500
            
            
            -
            
            
            -
            
            
            10,500Issued
                as payment for consulting fees to related parties
            
            
            200,000
            
            
            50,000
            
            
            -
            
            
            -
            
            
            50,000Cash
                on exercised warrants
            
            
            102,900
            
            
            103
            
            
            -
            
            
            -
            
            
            103issued
                for outstanding liabilities
            
            
            1,110,078
            
            
            277,519
            
            
            -
            
            
            -
            
            
            277,519Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (35,580
            )
            
            (35,580
            )Balance,
                December 31, 2000
            
            
            12,137,784
            
            
            1,435,298
            
            
            -
            
            
            (1,988,455
            )
            
            (553,157
            )
 
 Page
          31
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **12.** **EQUITY** (continued)
  **Deficit****Accumulated****During****Number
                of**
            
            **Consideration**
            
            **Contributed**
            
            **Development****Shares
                Issued**
            
            **Amount**
            
            **Surplus**
            
            **Stage**
            
            **Total**Balance,
                December 31, 2000
            
            
            12,137,784
            
            
            1,435,298
            
            
            -
            
            
            (1,988,455
            )
            
            (553,157
            )Issued
                as payment for consulting fees to non-related parties
            
            
            182,300
            
            
            99,672
            
            
            -
            
            
            -
            
            
            99,672Issued
                as payment for consulting fees to related parties
            
            
            341,885
            
            
            208,050
            
            
            -
            
            
            -
            
            
            208,050Cash
                received on exercise of options
            
            
            325,000
            
            
            121,206
            
            
            -
            
            
            -
            
            
            121,206Issued
                for cash
            
            
            353,250
            
            
            195,000
            
            
            -
            
            
            -
            
            
            195,000Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (593,984
            )
            
            (593,984
            )Balance,
                December 31, 2001
            
            
            13,340,219
            
            
            2,059,226
            
            
            -
            
            
            (2,582,439
            )
            
            (523,213
            )Issued
                as payment for consulting fees to non-related parties
            
            
            486,050
            
            
            166,801
            
            
            -
            
            
            -
            
            
            166,801Issued
                as payment for consulting fees to related parties
            
            
            657,925
            
            
            207,456
            
            
            -
            
            
            -
            
            
            207,456Issued
                for cash
            
            
            2,006,250
            
            
            628,631
            
            
            -
            
            
            -
            
            
            628,631Share
                adjustment
            
            
            (384,041
            )
            
            (80,025
            )
            
            391,378
            
            
            -
            
            
            311,353Consulting
                and professional fees paid in options to non-employees
            
            
            -
            
            
            -
            
            
            83,354
            
            
            -
            
            
            83,354Warrants
                issued
            
            
            -
            
            
            (456,850
            )
            
            456,850
            
            
            -
            
            
            -Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (738,762
            )
            
            (738,762
            )Balance,
                December 31, 2002
            
            
            16,106,403
            
            
            2,525,239
            
            
            931,582
            
            
            (3,321,201
            )
            
            135,620Issued
                as payment for consulting fees to non-related parties
            
            
            209,082
            
            
            136,122
            
            
            -
            
            
            -
            
            
            136,122Issued
                as payment for consulting fees to related parties
            
            
            412,825
            
            
            266,247
            
            
            -
            
            
            -
            
            
            266,247Issued
                as repayment of advances from directors
            
            
            45,500
            
            
            20,400
            
            
            -
            
            
            -
            
            
            20,400Issued
                for cash
            
            
            2,456,615
            
            
            1,193,165
            
            
            -
            
            
            -
            
            
            1,193,165Warrants
                issued
            
            
            -
            
            
            (797,320
            )
            
            797,320
            
            
            -
            
            
            -Issued
                as payment for consulting fees to non-employees
            
            
            -
            
            
            -
            
            
            131,063
            
            
            -
            
            
            131,063Issued
                as payment for consulting fees to employees
            
            
            -
            
            
            -
            
            
            188,377
            
            
            -
            
            
            188,377Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (
                2,206,969
            )
            
            (2,206,969
            )Balance,
                December 31, 2003
            
            
            19,230,425
            
            
            3,343,853
            
            
            2,048,342
            
            
            (5,528,170
            )
            
            (135,975
            )
  Page
          32
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **12.**  **EQUITY** (continued)
 
 **Deficit****Accumulated****During****Number
                of**
            
            **Consideration**
            
            **Contributed**
            
            **Development****Shares
                Issued**
            
            **Amount**
            
            **Surplus**
            
            **Stage**
            
            **Total**Balance,
                December 31, 2003
            
            
            19,230,425
            
            
            3,343,853
            
            
            2,048,342
            
            
            (5,528,170
            )
            
            (135,975
            )Issued
                as payment for consulting fees to non-related parties
            
            
            1,728,872
            
            
            890,096
            
            
            -
            
            
            -
            
            
            890,096Issued
                as payment for consulting fees to related parties
            
            
            586,592
            
            
            332,360
            
            
            -
            
            
            -
            
            
            332,360Issued
                as repayment of advances from directors
            
            
            293,751
            
            
            128,000
            
            
            -
            
            
            -
            
            
            128,000Shares
                issued for cash
            
            
            4,476,911
            
            
            2,161,587
            
            
            -
            
            
            -
            
            
            2,161,587Warrants
                issued
            
            
            -
            
            
            (628,822
            )
            
            628,822
            
            
            -
            
            
            -Options
                issued to non-employees
            
            
            -
            
            
            -
            
            
            192,481
            
            
            -
            
            
            192,481Options
                issued to employees
            
            
            -
            
            
            -
            
            
            140,892
            
            
            -
            
            
            140,892Proceeds
                from issuance of warrants
            
            
            -
            
            
            -
            
            
            6,110
            
            
            -
            
            
            6,110Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,462,257
            )
            
            (3,462,257
            )Balance,
                December 31, 2004
            
            
            26,316,551
            
            
            6,227,074
            
            
            3,016,647
            
            
            (8,990,427
            )
            
            253,294Acquisition
                of Astris s.r.o. (note 14)
            
            
            5,000,000
            
            
            1,955,000
            
            
            254,000
            
            
            -
            
            
            2,209,000Issued
                as payment for consulting fees to non-related parties
            
            
            4,305,927
            
            
            1,294,214
            
            
            -
            
            
            -
            
            
            1,294,214Issued
                as payment for consulting fees to related parties
            
            
            1,884,091
            
            
            454,308
            
            
            -
            
            
            -
            
            
            454,308Issued
                as repayment of advances from director
            
            
            125,000
            
            
            26,150
            
            
            73,850
            
            
            -
            
            
            100,000Options
                exercised for cash
            
            
            275,000
            
            
            73,350
            
            
            -
            
            
            -
            
            
            73,350Options
                issued to employees
            
            
            -
            
            
            -
            
            
            21,144
            
            
            -
            
            
            21,144Options
                issued to related parties
            
            
            -
            
            
            -
            
            
            215,030
            
            
            -
            
            
            215,030Warrants
                issued to non-related parties
            
            
            -
            
            
            -
            
            
            482,068
            
            
            -
            
            
            482,068Loss
                for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,330,864
            )
            
            (5,330,864
            )Balance,
                December 31, 2005
            
            
            37,906,569
            
            
            10,030,096
            
            
            4,062,739
            
            
            (14,321,291
            )
            
            (228,456
            )
   Page
          33
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **12.**  **EQUITY** (continued)
 **Deficit****Accumulated****During****Number
                  of**
              
              **Consideration**
              
              **Contributed**
              
              **Development****Shares
                  Issued**
              
              **Amount**
              
              **Surplus**
              
              **Stage**
              
              **Total**Balance,
                  December 31, 2005
              
              
              37,906,569
              
              
              10,030,096
              
              
              4,062,739
              
              
              (14,321,291
              )
              
              (228,456
              )Issued
                  as payment for consulting fees to non-related parties
              
              
              2,925,115
              
              
              496,393
              
              
              -
              
              
              -
              
              
              496,393Issued
                  as payment for consulting fees to related parties
              
              
              2,616,310
              
              
              374,533
              
              
              -
              
              
              -
              
              
              374,533Options
                  issued for consulting and professional fees to non-related
                  parties
              
              
              -
              
              
              -
              
              
              5,002
              
              
              -
              
              
              5,002Warrants
                  issued to non-related parties
              
              
              -
              
              
              -
              
              
              1,115,749
              
              
              -
              
              
              1,115,749Conversion
                  of $CDN convertible debentures
              
              
              275,998
              
              
              20,740
              
              
              -
              
              
              -
              
              
              20,740Conversion
                  of $US convertible debentures
              
              
              4,407,677
              
              
              283,240
              
              
              -
              
              
              -
              
              
              283,240Loss
                  for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,120,422
              )
              
              (2,120,422
              )Balance,
                  December 31, 2006
              
              
              48,131,669
              
              
              11,205,002
              
              
              5,183,490
              
              
              (16,441,713
              )
              
              (
                  53,221
              )
  Page
            34
 **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **13.**  **PRIOR
      YEAR AMOUNTS INCLUDED IN THE DEVELOPMENT STAGE COMPANY**
 
 Under
      the
      effective date of December 31, 1995, the Company was redefined as a development
      stage company in accordance with Accounting Guideline AcG-11, “Enterprises in
      the Development Stage.” The amount included in opening deficit at December 31,
      1995 was $628,162. All amounts recorded in the “inception to date” category as
      comparative amounts have been accumulated since December 31, 1995.
 
 The
      figures from inception December 31, 1995 to date on the accompanying
      consolidated statements of operations and deficit and cash flows, as well as
      the
      figures from January 1, 1995 to December 31, 2003 and the figures under the
      columns entitled “deficit accumulated during development stage” and “total” in
      note 12 to the consolidated financial statements are presented for information
      purposes only and are not covered by the Auditors’ Report of ASTRIS ENERGI INC.
      (A Development Stage Company), dated May 17, 2007.
 
 **14.**  **ACQUISITION
      OF ASTRIS s.r.o.**
 
 On
      January 27, 2005, the Company acquired 70% of the outstanding shares in Astris
      s.r.o., its company in the Czech Republic. The Company already owned the
      remaining 30% of Astris s.r.o., making it a 100% subsidiary company. The
      aggregate purchase price of $2,209,000 was paid by issuing 5,000,000 common
      shares of the Company for $1,955,000 and 5,000,000 warrants for $254,000.
      2,500,000 common shares were held in escrow until January 2, 2006, and were
      released on that date. Each warrant entitles the holder to one common share
      of
      the Company.
  The
      value
      of the 30% of Astris s.r.o. already owned by the Company had been written down
      to $Nil in a previous year. Technology acquired in the amount of $1,500,000
      was
      written off in the year of acquisition.
  The
      following table summarizes in Canadian dollars the fair value of the assets
      acquired and liabilities assumed on the date of acquisition based on a
      conversion rate of 18.6637 Czech Korunas for each Canadian $1.00.
  Net
                assets acquired:Cash
            
            $
            87,091Other
                current assets
            
            
            63,259150,350Other
                assetsLand
            
            
            128,935Building
            
            
            235,400Equipment
            
            
            184,708Furniture
                and fixtures
            
            
            21,520Property,
                plant and equipment
            
            
            570,563Technology
            
            
            1,521,972Total
                assets
            
            $
            2,242,885Less:Current
                liabilities
            
            
            33,885Purchase
                price
            
            $
            2,209,000
  Page
          35
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **14.** **ACQUISITION
          OF ASTRIS S.R.O.** (continued)
 
 Consideration:5,000,000
                common shares
            
            $
            1,955,0002,000,000
                Class “A” warrants
            
            
            124,0002,000,000
                Class “B” warrants
            
            
            94,0001,000,000
                Class “C” warrants
            
            
            36,000$
            2,209,000
 
 **15.** **DIFFERENCES
          BETWEEN CANADIAN AND UNITED STATES ACCOUNTING** **PRINCIPLES**
 
 This
      reconciliation only covers measurement issues and not disclosure issues pursuant
      to the rules and regulations of the Securities and Exchange Commission.
 
 The
      consolidated financial statements of the Company for the years ended December
      31, 2006, 2005 and 2004 and the period December 31, 1995 (date of inception
      of
      development stage company) through December 31, 2006 have been prepared in
      accordance with generally accepted accounting principles as applied in Canada
      (“Canadian GAAP”). In the following respects, generally accepted accounting
      principles as applied in the United States (“US GAAP”) differ from those applied
      in Canada.
 
 There
      would be no adjustments needed to arrive at net loss for the years ended
      December 31, 2006, 2005 and 2004 and the period December 31, 1995 (date of
      inception of development stage company) through December 31, 2006 if US GAAP
      were employed.  Similarly, there would be no adjustments needed to arrive
      at shareholders’ equity as at December 31, 2006, 2005 and 2004 if US GAAP were
      employed.
 
 ***Accounting
      for future (deferred) income taxes***
 
 The
      significant differences between U.S. GAAP and Canadian GAAP in the accounting
      for future income taxes relate to the treatment of proposed changes in income
      tax rates and terminology. Under Canadian GAAP, future income tax assets and
      liabilities are measured using substantively enacted tax rates and laws expected
      to apply when the differences between the accounting basis and tax basis of
      assets and liabilities reverse. Under U.S. GAAP, future income tax assets and
      liabilities are called deferred income tax assets and liabilities and are
      measured using only currently enacted tax rates and laws. As at December 31,
      2006, 2005 and 2004, the difference in rate determination did not result in
      any
      adjustment from Canadian to U.S. GAAP since any deferred tax assets were not
      considered more likely than not to be realized and, accordingly, a full
      valuation allowance was recorded on such assets.
 
 ***Property,
      plant and equipment and contributed surplus***
 
 There
      is
      a difference between U.S. GAAP and Canadian GAAP for property, plant and
      equipment with respect to terminology. Under U.S. GAAP, property, plant and
      equipment are commonly called “fixed assets.” There is a difference between U.S.
      GAAP and Canadian GAAP with respect to terminology. Under U.S. GAAP, contributed
      surplus is referred to as “additional paid in capital”.
 
 Page
          36
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
  **16.** **CONVERTIBLE
      DEBENTURES**
 
 **(a)
      $1,500,000 USD Convertible Debentures**
 
 On
                April 10, 2006, the Company entered into a Securities Purchase Agreement,
                dated as of April 10, 2006 (“Agreement”), with Cornell Capital Partners,
                LP, referred to as the “Investor”. The Agreement provides for the sale by
                the Company to the Investor of Secured Convertible Debenture (the
                “Debenture”) issued by the Company in the aggregate principal amount of
                $1,740,002 ($1,500,000 USD) (“Principal Amount”). The Principal Amount is
                to be funded by the Investor in two tranches $870,001 ($750,000 USD)
                on
                April 18, 2006, and $870,001 ($750,000 USD) tobe
                funded, based upon satisfaction of the following conditions: two
                business
                days prior to the date a registration statement (the “Registration
                Statement”) is filed, pursuant to the Registration Rights Agreement with
                the United States Securities and Exchange Commission (the
                “SEC”).
                The Debenture matures April 9, 2009, bears interest at 10% per
                annumwith interest payable in cash or, at the Company's option, in shares
                of
                common stock provided certain conditions are satisfied.Pursuant
                to the Agreement, the Investor also received common stock purchase
                warrants (the “Warrants”) to purchase (i) 1,000,000 shares of the
                Company's common stock at an exercise price of $.30 per share (ii)
                600,000
                shares of the Company's common stock at an exercise price of $.20
                per
                share and (iii) 1,600,000 shares of the Company's common stock at
                an
                exercise price of $.19 per share.
 
 The
                Debenturehas
                an initial conversion price of the lesser of (i) a price equal to
                $.2483
                (the “Fixed Conversion Price”) or (ii) ninety percent (90%) of the
                lowest daily volume weighted average price of the common stock of
                the
                Company during the ten trading days immediately preceding the conversion
                date (as quoted by Bloomberg, LP) per share and provides for anti-dilution
                protection (in certain circumstances). The Investor may not convert
                the
                Debenture or exercise the Warrants to the extent that, after giving
                effect
                to such conversion or exercise, as the case may be, the Investor
                would
                beneficially own in excess of 4.99% of the number of shares of common
                stock of the Company outstanding immediately after giving effect
                to such
                conversion or exercise, calculated in accordance with Section 13(d)
                of the
                Securities Exchange Act of 1934, as amended, and the rules and regulations
                promulgated there under. Such limitation with respect to such conversion
                or exercise may be waived by the Investor upon not less than 65 days
                prior
                notice to the Company.The
                warrants are exercisable for a period of three years. The conversion
                of
                the Debenture is subject to an effective registration statement to
                be
                filed by the Company.
 
 Page
          37
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **16.** **CONVERTIBLE
      DEBENTURES** (Continued)
 
 **(a)
      $1,500,000 USD Convertible Debentures** (Continued)
 
 The
      Company has determined the conversion feature of the Debenture represents an
      embedded derivative which would be required to be fair valued and bifurcated
      from the underlying host debt as derivative liability. The embedded derivative
      liability will be adjusted to the fair value of the underlying securities at
      end
      of each reporting period. The recorded fair values of the derivative liability
      can fluctuate significantly based upon the fluctuations in the market value
      of
      the underlying securities, as well as the volatility of the stock price during
      the term used for observation and the term remaining for the warrants. The
      adjustment to fair value for the derivative liability will result in an
      unrealized gain or loss and recorded in the income statement as a component
      of
      the consolidated statements of operations. The estimated fair value of the
      derivative liability has been determined using the Black-Scholes option pricing
      model using the following assumptions: exercise price based upon the conversion
      price of the Debenture, historical stock price volatility, risk free interest
      rate based upon the five year selected government of Canada benchmark bond
      yield; dividend yield of 0%; and, an initial three year term. The initial fair
      value of the embedded derivative totalled $1,395,227 which has been recorded
      as
      a derivative liability with the offsetting amount recorded as debt discount.
      The
      amount recorded as a debt discount will be accreted as interest expense over
      the
      life of the Debenture using an effective interest method. As of December 31,
      2006, the unaccreted debt discount totalled $1,119,545 which $275,682 had been
      accreted for the year ended December 31, 2006.
 
 Additionally,
      the Warrants related to the convertible debenture would be required to be
      recorded at fair value and accounted for as a financing cost associated with
      the
      convertible debenture. The estimated fair value of the related warrants was
      determined using Black-Scholes option pricing model using the following
      assumptions: exercise price pursuant to the Agreement, risk free interest rate
      based upon the five year selected government of Canada benchmark bond yield;
      dividend yield of 0% and 3 year term. The fair value of the related warrants
      totalled $714,819 which has been recorded as capitalized financing cost which
      will be amortized over the life of the Debenture using the effective interest
      method. As of December 31, 2006, the unamortized financing cost totalled
      $485,085 which $229,734 had been amortized for the year ended December 31,
      2006.
 
 Page
          38
  **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **16.** **CONVERTIBLE
      DEBENTURES** (Continued)
 
 **(b)
      $420,000 Convertible Debenture**
 
 On
                May 30, 2006, the Company entered into a Securities Purchase Agreement,
                dated as of April 10, 2006 (“Agreement”), with eighteen investors referred
                to as the “Investors” The Agreement provides for the sale by the Company
                to the Investors of a Secured Convertible Debenture (the “Debenture”)
                issued by the Company in the aggregate principal amount of $420,000
                (“Principal Amount”). The Debenture matures April 9, 2009, bear interest
                at 10% per annumwith interest payable in cash or, at the Company's option, in shares
                of
                common stock provided certain conditions are satisfied.Pursuant
                to the Agreement, the Investors also received common stock purchase
                warrants (the “Warrants”) to purchase (i) 253,312 shares of the Company's
                common stock at an exercise price of $.30 per share (ii) 151,998
                shares of
                the Company's common stock at an exercise price of $.20 per share
                and
                (iii) 405,300 shares of the Company's common stock at an exercise
                price of
                $.19 per share.The
                Debenturehas
                an initial conversion price of the lesser of (i) a price equal to
                $.2483
                (the “Fixed Conversion Price”) or (ii) ninety percent (90%) of the
                lowest daily volume weighted average price of the common stock during
                the
                ten trading days immediately preceding the Conversion Date (as quoted
                by
                Bloomberg, LP) per share and provides for anti-dilution protection
                (in
                certain circumstances). The Investor may not convert the Debenture
                or
                exercise the Warrants to the extent that, after giving effect to
                such
                conversion or exercise, as the case may be, the Investor would
                beneficially own in excess of 4.99% of the number of shares of common
                stock of the Company outstanding immediately after giving effect
                to such
                conversion or exercise, calculated in accordance with Section 13(d)
                of the
                Securities Exchange Act of 1934, as amended, and the rules and regulations
                promulgated there under. Such limitation with respect to such conversion
                or exercise may be waived by the Investor upon not less than 65 days
                prior
                notice to the Company.The
                Warrants are exercisable for a period of three years. The conversion
                of
                the Debenture is subject to an effective registration statement to
                be
                filed by the Company.
 
 The
      Company has determined the conversion feature of the Debenture represents an
      embedded derivative which would be required to be fair valued and bifurcated
      from the underlying host debt as derivative liability. The embedded derivative
      liability will be adjusted to the fair value of the underlying securities at
      end
      of each reporting period. The recorded fair values of the derivative liability
      can fluctuate significantly based upon the fluctuations in the market value
      of
      the underlying securities, as well as the volatility of the stock price during
      the term used for observation and the term remaining for the warrants. The
      adjustment to fair value for the derivative liability will result in either
      an
      unrealized gain or loss and recorded in the income statement as a component
      of
      the Statement of Operations. The estimated fair value of the derivative
      liability has been determined using Black-Scholes option pricing model using
      the
      following assumptions: exercise price based upon the conversion price of the
      Debenture, historical stock price volatility, risk free interest rate based
      upon
      the five year selected government of Canada benchmark bond yield; dividend
      yield
      of 0%; and, an initial 3 year term. The initial fair value of the embedded
      derivative totalled $311,211 which has been recorded as a derivative liability
      with the offsetting amount recorded as debt discount. The amount recorded as
      a
      debt discount will be accreted as interest expense over the life of the
      Debenture using an effective interest method. As of December 31, 2006, the
      unaccreted debt discount totalled $272,296 which $38,915 had been accreted
      for
      the year ended December 31, 2006.
 
 Page
          39
 
 **ASTRIS
      ENERGI INC.**
 **(A
      Development Stage Company)**
 **Notes
      to the Consolidated Financial Statements**
 December
      31, 2006, 2005 and 2004
 (Canadian
      Dollars)
 
 **16.** **CONVERTIBLE
      DEBENTURES** (Continued)
 
 **(b)
      $420,000 Convertible Debentures** (Continued)
 
 Additionally,
      the Warrants related to the convertible debenture would be required to be
      recorded at fair valued and accounted for as a financing cost associated with
      the convertible debenture. The estimated fair value of the related warrants
      was
      determined using Black-Scholes option pricing model using the following
      assumptions: exercise price pursuant to the Agreement, risk free interest rate
      based upon the five year selected government of Canada benchmark bond yield;
      dividend yield of 0% and 3 year term. The fair value of the related warrants
      totaled $106,559 which has been recorded as capitalized financing cost which
      will be amortized over the life of the Debenture using an effective interest
      method. As of December 31, 2006, the unamortized financing cost totaled $82,980
      which $23,579 had been amortized for the year ended December 31,
      2006.
 
 **17.** **ADVANCES
      PAYABLE**
 The
          Company received advances of CDN $262,250 (U.S. $226,600) to fund working
          capital during a due diligence exclusivity period related to the transaction
          described in note 18. If the transaction is not consummated during the
          exclusivity period, the advances are to be converted into common stock
          of the
          Company at U.S. $0.08 per share. Subsequent to year-end, the Company received
          additional advances of CDN $131,125 (U.S. $113,300). As the transaction
          was not
          completed within the exclusivity period, the total advances payable of
          U.S.
          $339,900 were converted into 4,248,750 shares of common stock of the
          Company.
  **18.** **SUBSEQUENT
      EVENTS**
 
 On
      April
      13, 2007, the Company executed a binding letter of intent (“LOI”) with Green
      Shelters Innovations Ltd. (“GSI”), a wholly-owned subsidiary of Green Shelters
      (India) Private Ltd, to sell substantially all of its assets.
  This
      transaction includes the sale of substantially all of the assets of the Company,
      including its fuel cell and test load technology assets for consideration of:
      (i) approximately US$3.1 Million in cash; (ii) forgiveness of US$1.6 Million
      of
      face value secured convertible debentures held by ACME Global Inc. (a subsidiary
      of GSI) and accrued interest of US$175,000; (iii) an option for Astris to redeem
      and then cancel 4,248,750 shares recently acquired by ACME Global Inc. for
      US$0.08 per share for nominal consideration; and (iv) a secured convertible
      promissory note funding commitment of a minimum of US$150,000 per month to
      finance operations to closing and to be forgivable thereafter.
  On
      closing, existing management would resign both as officers and directors of
      the
      Company. It is the intention of the Board of the Company to appoint a new CEO
      with a mandate to utilize the remaining cash and residual tax losses to seek
      a
      new business opportunity
  Page
          40