UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 20-F/A



|          |  |                                                                                               
|--------- |  | ----------------------------------------------------------------------------------------------
|[  
    ] |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|OR        |  |                                                                                               
|þ         |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934          
|          |  | For the fiscal year ended December 31, 2006                                                   
|OR        |  |                                                                                               
|[  
    ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934      
|OR        |  |                                                                                               
|[  
    ] |  | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934   



Commission file number: 0-30052



Carmanah Technologies Corporation

(Exact name of Registrant as specified in its charter)



Province of Alberta, Canada

(Jurisdiction of incorporation or organization)



925 West Georgia Street, Suite 1304, Vancouver, British Columbia, Canada, V6C 3L2

(Address of principal executive offices)



Securities registered or to be registered pursuant to Section 12(b) of the Act.



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|None                |  | None                                     



Securities registered or to be registered pursuant to Section 12(g) of the Act. Common Shares, no par value



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



Indicate the number of outstanding shares of each of the issuers classes of capital or common shares as of the close of the period covered by the annual report:



42,531,592 common shares issued and outstanding.







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



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    þ  No



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



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.



[ 
]  Large accelerated filer    þ  Accelerated filer    [ 
]  Non-accelerated filer



Indicate by check mark which financial statement item the registrant has elected to follow.

þItem 17    [ 
]  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    þ  No



Unless otherwise indicated, all references herein are expressed in Canadian dollars and United States currency is stated as “US$”.



THIS SUBMISSION SHOULD BE CONSIDERED IN CONJUNCTION WITH PREVIOUSLY FILED FORMS 20-F AND 6-K.  THE AUDITED FINANCIAL STATEMENTS AND NOTES THERETO ATTACHED ARE AN INTEGRAL PART OF THIS SUBMISSION.







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EXPLANATORY NOTE:



This Annual Report on Form 20-F/A is being filed as Amendment Number 1 to our Annual Report on Form 20-F which was originally filed with the Securities and Exchange Commission on April 24, 2007.  We are filing this Form 20-F/A to restate our financial statements for the year ended December 31, 2006 to reflect the following items relating to the Companys year end inventory count:

a)

Goods physically received at year end in the amount of $368,000 were not recorded as received in the Companys enterprise resource planning (ERP) system.  These goods were included in the physical count but no corresponding liability was identified.

b)

Inventory count errors related primarily to improper item identification during the physical count.  These errors resulted in low value items being counted as high value items.  The impact of the error was approximately $385,000.

As a result of these two errors, the Company has restated their December 31, 2006 financial statements to reduce inventory by $385,000, increase accounts payable by $368,000 and increase cost of goods sold by $753,000.  After income taxes, the net reduction to earnings was $499,511 or $0.012 per share.



We have revised our discussion of disclosure controls and procedures to discuss the above-referenced restatement and how such restatement affected our CEOs and CFOs conclusions regarding our disclosure controls and procedures and internal control over financial reporting.  We have concluded that, solely because of the restatement as described above and described in greater detail in Note 18 to our consolidated financial statements, we are required to conclude, and we have concluded, that we had a material weakness in internal control.  Accordingly, we have concluded that our internal controls over financial reporting were not effective as of December 31, 2006.



This Form 20-F/A amends and restates only certain information in the following sections as a result of the restatement described above:



Part I  Item 3. Key Information

Part I  Item 5. Operating and Financial Review and Prospects

Part I  Item 6. Directors and Senior Management

Part I  Item 8. Financial Information

Part II  Item 15. Controls and Procedures

Part II  Item 17. Financial Statements



In addition, we are also including currently dated Sarbanes Oxley Act Section 302 and Section 906 certifications of the Chief Executive Officer and Chief Financial Officer that are attached to this Form 20-F/A as Exhibits 12.1, 12.2, 12.3, 12.4.



For the convenience of the reader, this Form 20-F/A sets forth the entire Form 20-F which was prepared and relates to the Company as of December 31, 2006.  However, this Form 20-F/A only amends and restates the Items described above to reflect the effects of the restatement and no attempt has been made to modify or update other disclosures presented in our Form 20-F for the year ended December 31, 2006.



Except for the foregoing amended information, this Form 20-F/A continues to describe conditions as of the date of the original filing and we have not updated the disclosures contained herein to reflect events that occurred at a later date.   This Annual Report on Form 20-F/A contains forward-looking statements that were made at the time the original Annual Report on Form 20-F was filed on April 24, 2007.  It is subject to the factors described in Item 3D  Risk Factors and must be considered in light of any





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subsequent to the filing of the original Form 20-F, including all filings we made with the Securities and Exchange Commission.



TABLE OF CONTENTS



GLOSSARY OF TERMS

6

NOTE REGARDING FORWARD-LOOKING STATEMENTS

7

PART I

8

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

8

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

8

ITEM 3.

KEY INFORMATION

8

A.

Selected Financial Data

10

B.

Capitalization and Indebtedness

12

C.

Reasons for the Offer and Use of Proceeds

12

D.

Risk Factors

12

ITEM 4.

INFORMATION ON THE COMPANY

19

A.

History and Development of the Corporation

19

B.

Business Overview

22

C.

Organizational Structure

25

ITEM 4A.

UNRESOLVED STAFF COMMENTS

29

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

29

A.

Operating Results

29

B.

Liquidity and Capital Resources

39

C.

Research and Development, Patents and Licenses, Etc.

41

D.

Trend Information

43

E.

Off-Balance Sheet Arrangements

43

F.

Tabular Disclosure of Contractual Obligations

43

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

43

A.

Directors and Senior Management

43

B.

Compensation

48

C.

Board Practices

52

D.

Employees

55

E.

Share Ownership

56

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

60

A.

Major Shareholders

60

A.1.a

Holdings by Major Shareholders

60

A.2

Canadian Share Ownership

60

A.3

Control of the Corporation

61

A.4

Change in Control Arrangements

61

B.

Related Party Transactions

61

C.

Interests of Experts and Counsel

62

ITEM 8.

FINANCIAL INFORMATION

62

A.

Consolidated Statements and Other Financial Information

62

B.

Significant Changes

62

ITEM 9.

THE OFFER AND LISTING

63

A.

Offer and Listing Details

63

B.

Plan of Distribution

64

C.

Markets

64

D.

Selling Shareholders

64

E.

Dilution

64

F.

Expenses of the Issue

64

ITEM 10.

ADDITIONAL INFORMATION

64

A.

Share Capital

64

B.

Memorandum and Articles of Association

65



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C.

Material Contracts

67

D.

Exchange Controls

68

E.

Taxation

69

F.

Dividends and Paying Agents

78

G.

Statements by Experts

78

H.

Documents on Display

78

I.

Subsidiary Information

79

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

79

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

80

PART II

80

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

80

ITEM 14.

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

80

ITEM 15.

CONTROLS AND PROCEDURES

81

ITEM 16.

82

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

82

ITEM 16B.

CODE OF ETHICS

82

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

82

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

83

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

83

PART III

84

ITEM 17.

FINANCIAL STATEMENTS

84

ITEM 18.

FINANCIAL STATEMENTS

84

ITEM 19.

EXHIBITS

84

SIGNATURE

86



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GLOSSARY OF TERMS



|                        |                                                                                                                                                                                                                                                                                                                                                
|----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ABCA                    | The Business Corporations Act (Alberta).                                                                                                                                                                                                                                                                                                       
|AVVA                    | AVVA Technologies Inc., a wholly owned subsidiary of the Corporation, incorporated under the laws of the Province of Alberta.                                                                                                                                                                                                                  
|Board                   | Board of Directors of the Corporation.                                                                                                                                                                                                                                                                                                         
|Corporation or Carmanah | Carmanah Technologies Corporation (formerly Andina Development Corporation), a corporation incorporated pursuant to the Business Corporations Act (Alberta).                                                                                                                                                                                   
|CSI                     | Carmanah Signs Inc. (formerly AVVA Light Corp.), a wholly owned operating subsidiary of AVVA Technologies Inc., incorporated under the laws of the Province of Alberta.                                                                                                                                                                        
|CTI                     | Carmanah Technologies Inc., a wholly owned operating subsidiary of the Corporation, incorporated pursuant to the Corporation Act (British Columbia).   Effective January 1, 2006, the Corporation, CTI and SPS were amalgamated pursuant to the provisions of the AlbertBusiness Corporations Actto form Carmanah Technologies Corporation.    
|CTC-US                  | Carmanah Technologies Corporation (formerly SPS Energy Solutions Inc.) a wholly owned US operating subsidiary of Carmanah Technologies Corporation, incorporated under the laws of Nevada.                                                                                                                                                     
|Directors               | the Directors of Carmanah Technologies Corporation, formerly Andina Development Corporation.                                                                                                                                                                                                                                                   
|Exchange                | means the TSX Venture Exchange Inc., formerly the Canadian Venture Exchange.                                                                                                                                                                                                                                                                   
|GAAP                    | Generally accepted accounting principles.                                                                                                                                                                                                                                                                                                      
|ICA                     | Investments Canada Act.                                                                                                                                                                                                                                                                                                                        
|LED                     | Light-emitting diodes.                                                                                                                                                                                                                                                                                                                         
|SPS                     | Soltek Powersource Ltd., a wholly owned operating subsidiary of AVVA Technologies Inc., incorporated under the laws of the Province of British Columbia.  Effective January 1, 2006, the Corporation, CTI and SPS were amalgamated pursuant to the provisions of the Albert Business Corporations Actto form Carmanah Technologies Corporation.



Words importing the singular number only include the plural and vice versa, and words importing any gender include all genders.





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NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for statements of historical fact, certain information contained in this Annual Report constitutes forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as expects or does not expect, is expected, anticipates or does not anticipate, plans, estimates, predicts, potential, continue, believe or intends, or stating that certain actions, events or results may, could, should, would, might or will be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements.  Such statements are included, among other places, in this document under the headings Key Information, Information on the Company and Operating and Financial Review and Prospects.



Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Carmanahs actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements.  Such factors include, but are not limited to, the following: Carmanahs limited operating history; exchange rate fluctuations; Carmanahs dependence upon key personnel; Carmanahs product recognition and development of markets; Carmanahs dependence upon outside agents and distributors; Carmanahs dependence upon the successful expansion of its marketing, sales, support and service organizations; competition; risks associated with field testing and resolution of product deficiencies; risks associated with technological change; Carmanahs potential additional capital requirements; Carmanahs history of no dividends; Carmanahs reliance upon technological innovation; Carmanahs protection of its patents and proprietary rights; the potential additional disclosure requirement for trades involving Carmanahs common shares; the potential difficulty of enforcing civil liabilities against Carmanah or its officers or directors under U.S. federal securities laws; potential product liability claims and other risk and uncertainties described elsewhere in this annual report and under the heading Risk Factors beginning on page 8 of this annual report.



Although Carmanah believes that the expectations reflected in its forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance, achievements or other future events.  Moreover, neither Carmanah nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements.  Carmanah is under no duty to update any of these forward-looking statements after the date of this report.  You should not place undue reliance on these forward-looking statements.







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PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.

KEY INFORMATION

The Corporation was incorporated as Andina Development Corporation by a Certificate of Incorporation issued pursuant to the provisions of the ABCA on March 26, 1996 with an authorized capital of an unlimited number of common shares without par value and an unlimited number of preferred shares, issuable in series. By a Certificate of Amendment dated November 18, 1999, the Corporation restated its Articles of Incorporation. Pursuant to a Certificate of Amendment dated January 14, 2000, the Corporation changed its name to Bargain Castle International Limited and pursuant to a Certificate of Amendment dated February 10, 2000, the Corporation changed its name back to Andina Development Corporation. The initial business of the Corporation was that of mineral exploration. The Corporation was engaged directly and indirectly in the acquisition, exploration and, if warranted, development of natural resource properties and related undertakings.  Pursuant to a Certificate of Amendment and Registration of Restated Articles dated June 19, 2001, the Corporation changed its name from Andina Development Corporation to Carmanah Technologies Corporation and consolidated its issued and outstanding Common Shares on the basis of one post consolidated share for each 1.5 pre-consolidated shares outstanding. All share information presented in this Annual Report gives retroactive effect to this share consolidation.



On June 21, 2001, the Corporation completed a reverse takeover through the acquisition of CTI and later changed its name to Carmanah Technologies Corporation. See Item 4. Information on the Company  B. Business Overview. Except where otherwise indicated, the financial information in this Annual Report gives effect to the reverse takeover accounting principles. CTI is in the business of developing and manufacturing solar-powered LED (light emitting diode) lighting solutions and the sale of related products.



On October 1, 2003, the Corporation acquired all of the issued and outstanding share capital, stock options and warrants of AVVA in exchange for share capital, stock options and warrants of the Corporation. AVVAs operating subsidiary, CSI, is in the business of designing, manufacturing and distributing energy efficient, illuminated sign products for corporate identity, point-of-purchase sales, and architectural and signage applications. See Item 4. Information on the Company  A. History and Development of the Corporation  Acquisitions and Dispositions.



On July 1, 2005, the Corporation acquired all the issued and outstanding share capital of SPS, a leading designer, manufacturer and supplier of renewable energy solutions. See Item 4. Information on the Company  A. History and Development of the Corporation  Acquisitions and Dispositions.



Effective January 1, 2006, the Corporation, CTI and SPS were amalgamated pursuant to the provisions of the Business Corporations Act(Alberta) to form Carmanah Technologies Corporation.





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The Corporations head office is located at Building 3  203 Harbour Road, Victoria, BC Canada V9A 3S2 and its contact person and numbers are:



Irene Schamhart, Corporate Secretary

Telephone:

(250) 380-0052

Direct:

(250) 412-8304

Toll Free:

1-877-722-8877

Fax:

(250) 380-0062



The registered and records office of the Corporation is located at 1000 Canterra Tower, 400 Third Avenue S.W., Calgary, AB Canada T2P 4H2.



The Corporation has an unlimited number of common shares authorized without par value. As of December 31, 2006, the end of the Corporations most recent fiscal year, there were 42,531,592 common shares issued and outstanding.



The Corporations common shares trade on the Toronto Stock Exchange under the symbol CMH, Berlin and Deutsche Börse AG Exchanges under the trading symbol QCX and in the United States, Carmanahs shares are quoted over-the-counter on the Pinksheet® under the symbol CMHXF.





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A.

Selected Financial Data

This data has been derived from our restated audited financial statements, which have been prepared in accordance with Canadian GAAP and reconciled for material measurement differences to U.S. GAAP.  Details of the restatement are discussed in note 18 of the consolidated financial statements and in Item 5 Operating and Financial Review and Prospects in this Form 20-F/A.



Set forth in the following table are selected financial data with respect to the Corporations financial condition and results of operation for the years ended December 31, 2006, 2005, 2004, 2003, and 2002. The selected financial and operating information as at December 31, 2006 and 2005 and for each of the years in the three year period ended December 31, 2006 should be read in conjunction with the restated financial statements and notes thereto included elsewhere herein and in conjunction with Item 5 - Operating and Financial Review and Prospects. The selected financial data as at and for these periods have been extracted from, and are qualified by reference to the financial statements included herein at

Item 17.  The selected financial data as at December 31, 2004, 2003, and 2002 and for the years ended December 31, 2003 and 2002 have been extracted from audited financial statements not included herein.



|                                |                   |               |              |              |              |             | 
|------------------------------- | ----------------- | ------------- | ------------ | ------------ | ------------ | ----------- | 
|Fiscal Years ended December 31,
|                                |                   | 2006          | 2005         | 2004         | 2003         | 2002       
|                                |                   | (restated)  1 |              |              |              |            
|                                | Revenues          |               |              |              |              |            
|                                | Canadian GAAP     | $
62,445,860  | $
38,729,885 | $
15,895,041 | $
9,220,018  | $
6,468,899
|                                | U.S. GAAP         | $
62,445,860  | $
38,729,885 | $
15,895,041 | $
9,220,018  | $
6,468,899
|                                | Total Assets      |               |              |              |              |            
|                                | Canadian GAAP     | $
55,758,452  | $
48,792,549 | $
19,866,167 | $
10,673,668 | $
3,790,636
|                                | U.S. GAAP         | $
55,626,820  | $
48,644,752 | $
19,745,080 | $
10,596,099 | $
3,774,944
|                                | Net Income/(Loss) |               |              |              |              |            
|                                | Canadian GAAP     | $
(365,025)   | $
680,962    | $
592,823    | $
(126,394)  | $
11,928   
|                                | U.S. GAAP         | $
(253,259)   | $
758,064    | $
147,721    | $
(818,550)  | $
(922,641)



1  see note 18 of the consolidated financial statements for a discussion of the restated amounts.











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|Fiscal Years ended December 31,              
|---------------------------------------------
|                                             
|Retained Earnings/(Deficit)                  
|Canadian GAAP                                
|U.S. GAAP                                    
|Shareholders Equity                         
|Canadian GAAP                                
|U.S. GAAP                                    
|Share capital and contributed surplus        
|Canadian GAAP                                
|U.S. GAAP                                    
|Weighted average number of shares outstanding
|Canadian GAAP                                
|Basic                                        
|Diluted                                      
|U.S. GAAP                                    
|Basic                                        
|Diluted                                      
|Net Income/(Loss) Per Share                  
|Canadian GAAP                                
|Basic and diluted                            
|U.S. GAAP                                    
|Basic and diluted                            



1  see note 18 of the consolidated financial statements for a discussion of the restated amounts.

Exchange Rates

Unless otherwise indicated, all monetary references herein are denominated in Canadian Dollars. References to $ or Dollars are to Canadian Dollars and references to US$ or U.S. Dollars are to United States Dollars.



The following table sets forth, (i) for the five most recent financial years, the average rate of exchange for the Canadian dollar, expressed in U.S. dollars, calculated by using the average of the exchange rates on the last day for which data is available for each month during such periods; and (ii) the high and low exchange rate during the previous six months, in each case based on the noon buying rate in New City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York.



The Average Rate, calculated by using the average of the exchange rates on the last day of each month during the period, is set out for each of the periods indicated in the table below.







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|                        |           |           |           |           |           | 
|----------------------- | --------- | --------- | --------- | --------- | --------- | 
|Year Ended December 31,
|                        | 2006      | 2005      | 2004      | 2003      | 2002     
|Average for Period      | US$0.8844 | US$0.8254 | US$0.7719 | US$0.7205 | US$0.6370



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



|                |           |           |           |           |           |           | 
|--------------- | --------- | --------- | --------- | --------- | --------- | --------- | 
|Month Ended    
|                | March     | February  | January   | December  | November  | October  
|                | 2007      | 2007      | 2007      | 2006      | 2006      | 2006     
|High for Period | US$0.8673 | US$0.8631 | US$0.8586 | US$0.8760 | US$0.8869 | US$0.8965
|Low for Period  | US$0.8467 | US$0.8437 | US$0.8457 | US$0.8582 | US$0.8715 | US$0.8784



As of December 31, 2006, the noon rate of exchange, as reported by the Federal Reserve Bank of New York for the conversion of United States dollars into Canadian dollars was US$0.8582 (US$1.00 = CDN$1.1652).



As of March 30, 2007, the noon rate of exchange, as reported by the Federal Reserve Bank of New York for the conversion of United States dollars into Canadian dollars was US$0.8673 (US$1.00 = CDN$1.1530).

B.

Capitalization and Indebtedness

Not applicable.

C.

Reasons for the Offer and Use of Proceeds

Not applicable.

D.

Risk Factors

In addition to other information and other risk factors set forth elsewhere in this Annual Report, the following risk factors should be carefully considered in evaluating the Corporation and its business because such factors currently may have a significant impact on its business, operating results and financial condition.

Exchange Rate Fluctuations

Because the Corporations reporting currency is the Canadian dollar, its operations outside Canada face additional risks, including fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. The Corporation may from time to time engage in hedging activities and enter into foreign currency contracts in an attempt to reduce the Corporations exposure to foreign exchange risks. Further, to the extent the Corporation has operations outside Canada, it is subject to the impact of foreign currency fluctuations and exchange rate charges on the Corporations reporting in its financial statements of the results from such operations outside Canada. Since such financial statements are prepared utilizing Canadian dollars as the basis for presentation, results from operations outside





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Canada reported in the financial statements must be restated into Canadian dollars utilizing the appropriate foreign currency exchange rate, thereby subjecting such results to the impact of currency and exchange rate fluctuations. In addition, these fluctuations in the rates of currency exchange may materially affect the Corporations over-all financial position and results of operations.

Dependence on Key Personnel

Our success depends in large part on our ability to attract and retain highly skilled technical, managerial, sales, and marketing personnel. The loss of any key personnel, or the inability to attract and retain additional skilled employees could have a material adverse effect on the Corporations business, operating results and financial condition and our ability to grow.

We have recently hired a Chief Operating Officer, and have previously disclosed our intention to hire a new Chief Executive Officer and Chief Financial Officer.

The success of the Corporation depends, to a significant extent, upon the efforts and abilities of its senior management team. We recently hired several senior management positions, including our chief operating officer and vice-president of product management, and have plans to hire a new Chief Executive Officer and Chief Financial Officer.  Our success will depend on their effective integration into and management of us. There can be no assurance that our management team will be able to be integrated into our business and work together effectively. Our current senior management and employees have only worked together for a relatively short period of time as a result of recent changes in senior management.

Fluctuations in the mix of products sold may adversely affect our financial results.

Because of the wide differences in gross margin among solar LED products, solar power systems products and lighting products, the mix of revenues from our product lines may cause our gross margins and operating performance to fluctuate.  Fluctuations in the mix and types of our products may also affect the extent to which we are able to recover our fixed costs and investments that are associated with a particular product, and as a result can negatively impact our financial results.



The Corporation has made a decision to deregister from SEC reporting requirements under Form 20-F.  Cessation of this filing could reduce the attractiveness of our shares to certain investors.  In addition, it may make it more difficult for the Corporation to raise capital in the future.

Based on an assessment of the costs versus the benefits of maintaining status as a foreign private issuer under Form 20-F, the Corporation has made the decision that it is no longer economically sensible to continue with this filing.  This decision took into account the residency of the Corporations registered shareholder base, the costs with continuing to file the Form 20-F, the incremental costs of complying with requirements under the Sarbanes-Oxley Act and the Corporations current financing requirements and avenues for fulfilling those requirements.

Failure to implement the appropriate controls and procedures to manage our growth could harm our ability to expand our business, improve our operating results, and improve our overall financial condition.

We experienced a period of rapid growth in our operations, which has placed, and will continue to place, a significant strain on our management, administrative, operational, technical and financial infrastructure. To manage our growth, we will need to continue to improve our operational, financial, and management





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processes and controls and our reporting systems and procedures. While the Corporation is focused on the need for improved processes and controls, to date the Corporation has had a difficult time implementing appropriate procedures to remediate existing deficiencies.

We currently have deficiencies in our internal control over financial reporting and have restated our previously issued financial results. If we are unable to improve and maintain the quality of our system of internal control over financial reporting, any deficiencies could materially and adversely affect our ability to provide timely and accurate financial information about our company.

In April 2007 the Corporation restated its consolidated financial statements for the year ended December 31, 2006 to adjust for errors related primarily to an inventory count performed at the end of 2006.

In the process of preparing its financial statements for the three months ended March 31, 2007, the Corporation determined that certain adjustments were required related to Carmanahs 2006 year end inventory count.  Goods physically received at year end in the amount of $368,000 were not recorded as received in the Corporations enterprise resource planning (ERP) system.  These goods were included in the physical count but no corresponding liability was identified.  Moreover, inventory count errors related to improper item identification during the physical count.  These errors resulted in low value items being counted as high value items. The impact of this error was approximately $385,000.





As a result, the Corporation has restated its consolidated financial statements as further detailed elsewhere in this document.  We have begun to remediate all known material weaknesses and significant deficiencies; however, we cannot be certain that the measures we have taken will ensure that we will maintain effective controls over our financial processes and reporting in the future. Any failure to maintain effective controls or to adequately implement required new or improved controls could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information.



Product Recognition and Development of Markets

To attract users, the Corporation must develop an identity and increase public awareness for the products it offers. To increase product awareness, traffic and revenue, the Corporation intends to substantially increase its offline and on-line advertising and promotional efforts. The Corporation's marketing activities may, however, not result in increased revenue and, even if they do, any increased revenue may not offset the expenses incurred in building brand recognition.  The promotional efforts required to successfully implement the Corporations business plan may require expenditures beyond the financial resources available to the Corporation.  Moreover, despite these efforts, the Corporation may be unable to increase public awareness of its products, which would have an adverse effect on the results of the operations of the Corporation.



While the Corporation has historical sales of its products upon which it bases its sales estimates and has conducted internal research on the size of its target markets, its estimated market size in any given industry sector may be significantly smaller or may not exist at all.  To the knowledge of management, there are no independent market studies for solar LED lighting.  Investors will have to rely on the expertise and knowledge of management in targeting and identifying emerging markets for solar LED lighting products.

Dependence on Outside Agents and Distributors





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The Corporations success will also depend, to a significant extent, upon the ability to develop strategic alliances with distributors. Furthermore, the initial market penetration for the Corporations products and services will heavily depend on the level of success of sales efforts.  There can be no assurance that such alliances will develop or that they will prove successful over the course of the Corporations future operations.

Dependence upon Successful Expansion of Marketing, Sales, Support and Service Organizations

The Corporation is currently developing its marketing, sales, support and service organizations.  The Corporations future success depends upon the successful expansion of these organizations.  Although the Corporation believes that such initiatives ultimately will improve the Corporations operating results, to the extent related expenditures are incurred and revenues do not correspondingly increase the Corporations operating results may be materially and adversely affected.  There can be no assurance that these steps will be successful.

Competition

The Corporation operates in an industry which is new, rapidly evolving and could be highly competitive.  The level of competition is likely to increase as new participants enter the market. Many of the Corporations potential competitors may have longer operating histories, larger customer bases and significantly greater financial, sales, marketing, technical and other resources than the Corporation.  Moreover, these competitors may enter into strategic or commercial relationships with larger, more established and better financed companies.  Some of the Corporations competitors may be able to enter into these strategic or commercial relationships on more favourable terms. Additionally, these competitors may have research and development capabilities that would allow them to develop new or improved products that may compete with the products of the Corporation.  New technologies and the expansion of existing technologies may also increase competitive pressures on the Corporation.  These competitors could with concerted research effort imitate the features of the Corporations solar LED lighting resulting in a market dilution and reduced profit margins.

Risks Related to Field Testing and Resolution of Product Deficiencies

The Corporations new lighting products are subjected to rigorous testing procedures and the Corporation plans to conduct additional field tests in such fashion in the future.  These field tests could potentially encounter problems for any number of reasons such as the failure of the Corporations technology, the failure of the technology of others and the failure to combine these technologies properly.  Any problems or perceived problems with the solar LED lighting products and any other field tests could damage the Corporations reputation, the reputation of its products and the Corporations ability to secure contracts in the future.



Difficulties in product design, performance and reliability could result in lost revenue, delays in customer acceptance of the Corporations products and lawsuits and would be detrimental to the Corporations market reputation.  Serious defects are frequently found during the period immediately following the introduction of new products or enhancements to existing products.  The Corporations products and the products incorporated from third parties, are not error free.  Undetected errors or performance problems may be discovered in the future.  Moreover, known errors which the Corporation considers minor may be considered serious by its customers.  The Corporation may not be able to successfully complete the development of planned or future products in a timely manner or to adequately address product defects, which could harm the Corporations business and prospects.  In addition, product defects may expose the





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Corporation to product liability claims, for which the Corporation may not have sufficient product liability insurance.  A successful suit against the Corporation could harm its business and financial condition.

Technological Change

The technical features of the Corporations products will contribute to the marketability of its products.  There can be no assurance that current competitors or new market entrants will not succeed in developing and introducing new or enhanced systems having technologies and features superior to, or more effective than, any technologies which have been or are being developed rendering the Corporations current and proposed products obsolete or less marketable.  Accordingly, the ability of the Corporation to compete will be dependent on the timely enhancement of its existing products as well as the development of future products.  There can be no assurance that the Corporation will be able to keep pace with technological developments, or that its products will not become obsolete.  Technological obsolescence of the existing technology remains a possibility, which would have a material adverse affect on the Corporations operations.

Additional Capital Requirements

The Corporation has and may continue to have capital requirements in excess of its currently available resources.  In the event the Corporations plans change, its assumptions change or prove inaccurate, or its capital resources in addition to projected cash flow, if any, prove to be insufficient to fund operations, the Corporation could be required to seek additional financing sooner than currently anticipated.  To the extent that any such financing involves the sale of the Corporations equity securities, the interests of the Corporations then existing shareholders could be substantially diluted. There can be no assurance that such financing will be available to the Corporation on terms acceptable to it, if at all.

No Dividends

The payment of dividends on the common shares of the Corporation is within the discretion of the Board of Directors and will depend upon the Corporations future earnings, its capital requirements, its financial condition, and other relevant factors.  The Corporation has not paid dividends in the past, and it does not currently intend to declare any dividends on its common shares for the foreseeable future.

Reliance on Technological Innovation

The Corporation is relying on its ability to continue technological innovation and leadership. This requires competent staff and adequate financing. In addition, the Corporation will rely on its sales, marketing and customer service efforts to ensure customer demand meets expenditures. If the Corporation is unsuccessful in this regard, its future business, operating results and financial condition may be adversely affected.

Patents and Proprietary Rights

The Corporations success will depend, in part, on its ability to obtain patents and maintain its existing intellectual property rights, and failure to do so could result in the loss of the Corporations exclusivity or the right to use its technologies.  The Corporations success will also depend, in part, on its ability to operate without infringing on the proprietary rights of third parties or without having third parties circumvent the Corporations rights.  The Corporation relies upon patent, trade secret, trademark and copyright laws to protect its intellectual property. Patents, patent applications and trademarks are





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described in Item 5.c. "Operating and Financial Review and Prospects  Research and Development, Patents and Licenses.  Some of the Corporations intellectual property is not covered by any patent or patent application.  The protection afforded by patent, trade secret, trademark and copyright laws is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent.  Therefore, there are no assurances that any of the Corporations patents will not be declared invalid, circumvented, challenged, rendered unenforceable or licensed to others or that any pending or future patent applications will be issued with the breadths of claim coverage sought by the Corporation, if issued at all.  In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries.



It is also anticipated that the Corporation will seek to protect its proprietary intellectual property, including intellectual property that may not be patented or patentable, in part, by confidentiality agreements and, if applicable, inventors rights agreements with its employees and strategic partners.  There can be no assurances that these agreements will not be breached, that the Corporation will have adequate remedies for any such breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships.  It may be necessary for the Corporation to acquire certain intellectual property on the basis of a non-exclusive licence from third parties who may also license such intellectual property to others, including the Corporation's competitors.  If necessary, the Corporation may seek licenses under the patents or other intellectual property rights of others.



The Corporation's competitive position will depend in part upon its ability to obtain or maintain certain proprietary intellectual property used in its products.  This may be achieved in part by prosecuting claims against others who the Corporation believes are infringing the Corporation's rights and by defending claims of intellectual property infringement which may be brought against the Corporation by competitors.  While the Corporation is not currently engaged in any material intellectual property litigation, it could become subject to lawsuits in which it is alleged that it has infringed the intellectual property rights of others or commence law suits against others who it believes are infringing upon the Corporation's rights.  Involvement in intellectual property litigation could result in significant expense to the Corporation, adversely affecting the development of sales of the challenged product or intellectual property and diverting the efforts of the Corporation's technical and management personnel, whether or not such litigation is resolved in the Corporation's favour.

Product Liability

The Corporations products may expose it to product liability claims. A product liability claim brought against the Corporation or a third-party that the Corporation is required to indemnify, whether with or without merit, could have a material adverse effect on the Corporations business, financial condition, operating results and cash flows.

Shares of the Corporation are Considered Penny Stocks and are Subject

to the Penny Stock Rules

Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving "a penny stock." Subject to certain exceptions, a penny stock generally includes any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than U.S.$5.00 per share. The Corporations shares are expected to be deemed penny stocks for the purposes of the Exchange Act.  The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in the Corporations shares, which could severely limit the market liquidity of the shares and impede the sale of the shares in the secondary market.





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Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse in each of the two most recent fiscal years with a reasonable expectation of achieving such level in the current fiscal year) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.  In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt.  A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities.  Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.

Enforcement of Civil Liabilities

The Corporation is incorporated under the laws of Alberta, Canada and all of the Directors and the Corporations officers are residents of Canada.  Consequently, it may be difficult for United States investors to effect service of process within the United States upon the Corporation or upon such persons who are not residents of the United States, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended.  A judgment of a U.S. court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter.  There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or the Corporation predicated solely upon such civil liabilities.

Acquisitions or other Business Transactions

The Corporation may, when and if the opportunity arises, acquire other products, technologies or businesses involved in activities, or having product lines, that are complementary to the Corporations business. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of managements attention from other business concerns, risks associated with entering markets or conducting operations with which the Corporation has no or limited direct prior experience and the potential loss of key employees of the acquired company. Moreover, there can be no assurance that any anticipated benefits of an acquisition will be realized. Future acquisitions by the Corporation could result in potentially dilutive issuances of equity securities, the use of cash, the incurrence of debt and contingent liabilities, and write-off of acquired research and development costs, all of which could materially and adversely affect the Corporations financial condition, results of operations and cash flows.

Passive Foreign Investment Corporation

Certain United States income tax legislation contains rules governing passive foreign investment companies (PFIC) which can have significant tax effects on U.S. Holders of foreign corporations.  These rules do not apply to non-U.S. Holders. In the U.S., a PFIC is defined as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is passive income, which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the Corporation is a controlled foreign corporation or makes an





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election, adjusted tax basis) of its assets that produce or are held for the production of passive income is 50% or more.  The Corporation believes that it qualified as a PFIC for the fiscal year ended December 31, 2001 and may or may not have qualified as a PFIC in subsequent years due to changes in its assets and business operations. There can be no assurance that the Corporations determination concerning its PFIC status will not be challenged or that it will be able to satisfy record keeping requirements which will be imposed on it.  This could adversely impact a U.S. Holders tax situation.  Each U.S. Holder of the Corporation is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.  For further tax information, see Item 7  Taxation  Passive Foreign Investment Corporation.

ITEM 4.

INFORMATION ON THE COMPANY

A.

History and Development of the Corporation

Name and Incorporation



The Corporation was incorporated as Andina Development Corporation (the Corporation) by a Certificate of Incorporation issued pursuant to the provisions of the ABCA on March 26, 1996 with an authorized capital of an unlimited number of common shares without par value and an unlimited number of preferred shares, issuable in series. By a Certificate of Amendment dated November 18, 1999, the Corporation restated its Articles of Incorporation. Pursuant to a Certificate of Amendment dated January 14, 2000, the Corporation changed its name to Bargain Castle International Limited and pursuant to a Certificate of Amendment dated February 10, 2000, the Corporation changed its name back to Andina Development Corporation. Pursuant to a Certificate of Amendment and Registration of Restated Articles dated June 19, 2001, the Corporation changed its name from Andina Development Corporation to Carmanah Technologies Corporation and consolidated its issued and outstanding Common Shares on the basis of one post consolidated share for each 1.5 pre-consolidated shares outstanding.



The initial business of the Corporation was in mineral exploration, engaging directly and indirectly in the acquisition, exploration and, if warranted, development of natural resource properties and related undertakings. Effective June 14, 2001, the Corporation completed a reverse takeover of Carmanah Technologies Inc., on October 1, 2003, the Corporation acquired AVVA and on July 1, 2005, the Corporation acquired SPS. See Item 4. Information on the Company - B. Business Overview.



Effective January 1, 2006, the Corporation, CTI and SPS were amalgamated pursuant to the provisions of the Albert Business Corporations Actto form Carmanah Technologies Corporation.



History of the Corporation



Pursuant to a prospectus dated November 21, 1996, the Corporation made an initial public offering of 1,400,000 Common Shares pursuant to the policies in respect of junior capital pool companies.  The Common Shares were listed and posted for trading on the Exchange (as it then was) on January 8, 1997 under the symbol ADZ.



At a shareholders meeting held on January 21, 1998, the shareholders of the Corporation approved the acquisition of 110 mining claims located in southwestern Newfoundland (referred to collectively as the Nitty Gritty Brook Property) as the "Major Transaction" of the Corporation.  Effective March 20, 1998, the Corporations common shares were removed from the junior capital pool board of the Exchange to the regular listings board.





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Acquisitions and Dispositions



Nitty Gritty Brook Property



After having completed its IPO, pursuant to an asset purchase agreement dated October 1, 1997 with 685307 Alberta Inc., the Corporation acquired the Nitty Gritty Brook Property (the Property) for total consideration of $25,000 cash. The Property, consisting of 110 mineral claims (the Claims), is situated in southwestern Newfoundland along the northeast trend of the Cape Ray Fault Zone. The acquisition of the Property was an arm's length transaction.



On January 21, 1998, the Corporation received shareholder approval of the agreement pursuant to which the Corporation acquired the Property. The Exchange approved the transaction on March 20, 1998.



The Corporation did not have any exploration expenses during the years ended December 31, 1999 and 2000. During the fiscal year ended December 31, 1998, the Corporation spent $141,279 on exploration of the Property. In August 1998, the independent firm of Mercator Geological Services Limited (Mercator), of Dartmouth, Nova Scotia, collected a total of 47 rock samples and 146 stream concentrates as part of a detailed mapping and sampling program which commenced in July 1998. In October 1998, a total of 41 rock samples and 83 stream concentrates were collected as part of a follow-up mapping and sampling program undertaken on the Property. All samples were sent to Eastern Analytical in Springdale, Newfoundland, for fire assay gold and multi-element ICP analysis.



After further reviewing the results of the work conducted by Mercator on the Property, the Corporation determined that the Property did not warrant further exploration expenditures. During the year ended December 31, 2000, the Corporation wrote of all of its interest in the Property.



Bargain Castle International Discount Centres Inc.



On September 15, 1999, the Corporation entered into a letter of intent with Bargain Castle International Discount Centres Inc. (Bargain Castle), pursuant to which the Corporation made an offer to purchase (the Proposed Acquisition) all of the issued and outstanding shares of Bargain Castle.



Bargain Castle is a Vancouver-based private corporation which sells inventory purchased from liquidation sources to retail customers.  Bargain Castle buys goods from a variety of liquidation sources at prices that range from 10% to 50% of regular wholesale prices and sells the goods to its customers at prices that represent a 30% to 90% discount from regular retail prices.



On February 1, 2000, the Corporation announced that it would not be proceeding with the acquisition as the conditions required to be met for closing the acquisition had not been satisfied. Certain closing conditions imposed by the Exchange and certain conditions imposed by the Corporation under the takeover bid offer had not been satisfied. The Corporation loaned various funds to Bargain Castle and wrote-down these advances by $111,500 during the year ended December 31, 2003. The debt is evidenced and secured by promissory notes and a first charge over all the assets of Bargain Castle.



The Corporation is negotiating the collection of these advances and received payments of $6,000 (2005 - $8,000; 2004 - $13,000) during the year ended December 31, 2006.



Carmanah Technologies Inc.







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On June 14, 2001, the Corporation entered into a share purchase agreement (the Share Purchase Agreement) with David R. Green as principal, CTI and all the registered holders of CTI Shares whereby the Corporation acquired (the Acquisition) all of the issued and outstanding Class A shares, Class B shares and Class C shares of CTI (collectively, the CTI Shares) in consideration of the issuance of 14,000,000 common shares of the Corporation. 100,000 common shares were issued as a finders fee for the Acquisition. The Acquisition constituted a Reverse Takeover of the Corporation pursuant to the Exchanges Policies.



As a result of the Acquisition, the Corporation changed its name to Carmanah Technologies Corporation and consolidated its common shares on the basis of one post consolidated common shares for each 1.5 common shares previously outstanding.



AVVA Technologies Inc.



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



Pursuant to the terms of the acquisition agreement, former shareholders of AVVA received 1 common share of Carmanah for every 8 AVVA shares held on the acquisition date. Common share purchase warrants and options outstanding in AVVA as at the effective date were also exchanged on an 8 to 1 ratio into common share purchase warrants and options of Carmanah, respectively.



As a result of the acquisition, Carmanah issued approximately 3,055,477 common shares to former shareholders of AVVA. In addition, Carmanah reserved an aggregate of 116,797 common shares pursuant to the exercise of warrants and 307,813 common shares pursuant to the exercise of stock options granted in conjunction with the acquisition.



AVVA designs, manufactures and distributes energy-efficient, illuminated sign products for corporate identity, point-of-purchase sales, architectural and signage applications. The shares of AVVA were publicly traded on the TSX Venture Exchange under the symbol "AVY. As a result of the acquisition, the shares of AVVA were delisted from the Exchange effective at the close of trading on October 1, 2003.



Soltek Powersource Ltd.



On July 1, 2005, the Corporation acquired all the issued and outstanding share capital of Soltek Powersource Ltd. (SPS), a leading designer, manufacturer and supplier of renewable energy solutions. SPS also offers a range of proprietary solar power and alternative energy systems used by commercial, government and private customers worldwide. The aggregate purchase price including contingent consideration was $13,224,272, comprised initially of $6,000,000 paid in cash from existing funds, $4,090,224 equivalent in common shares and $200,862 in acquisition costs. Additional contingent consideration to the principal vendors of 751,876 common shares valued at $2,631,580 and 300,000 warrants valued at $301,606 was paid since SPS attained specified revenue targets and had earnings before interest, taxes and amortization in excess of 5.5% of revenue for the six month period ending December 31, 2005. The warrants have an exercise price of $2.79 (being the weighted average trading price on June 30, 2005). The shares issued to the principal vendors will be held in a pooling agreement providing for the pro rata release of the shares over a two year period after closing.







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The Corporation does not have any commitments for material capital expenditures during the first quarter of 2007. The Corporation expects to incur capital expenditures in the next 12 months, as required to maintain ongoing operations, however, no significant expenditures are anticipated.



B.

Business Overview

Established in 1996, Carmanah Technologies Corporation is an award-winning manufacturer of renewable and energy-efficient technology solutions. The Corporation is currently focused on three technology groups; solar-powered LED lighting, solar power systems (off grid and grid tie), and LED illuminated signage.



The Corporation has more than 250,000 installations in 110 countries.  The Corporation's products are used extensively in the aviation, industrial, marine, point-of-purchase, recreational, and transportation markets. Carmanah's customer list includes a wide range of government, commercial and private users worldwide, who are serviced directly by the Corporation or by one of its regional authorized distributors and sales agents.



Carmanah manufactures to ISO 9001:2000 quality assurance standards at its primary facilities in Victoria, BC, Canada. Carmanah also has additional sales operations in Calgary, AB, Toronto, ON, the United States and the United Kingdom.



Markets Served



Solar-Powered LED Lighting

Carmanah's Solar LED Lighting Group produces unique lighting products that can operate almost anywhere in the world, and they meet or exceed reliability/maintenance criteria developed for traditional lights connected to an electrical power grid. Carmanah's solar-powered LED lights are suitable for a variety of applications including marine, aviation, roadway, transit, and industrial worksites. Key customer benefits for Carmanah's customers include ease of installation, low capital costs, zero energy costs and no maintenance or servicing.



Carmanah's solar-powered LED lighting and illumination products incorporate the Corporation's patented MICROSOURCE® Energy Management System (EMS), which has been developed and refined over more than a decade. The MICROSOURCE® EMS differentiates Carmanah's solar-powered LED products from its competition and affords the Corporation the unique ability to offer high output performance and extreme reliability in a compact form.



Solar Power Systems

Carmanah's Solar Power Systems Group offers a full range of renewable energy systems and equipment for any size of project. Created through the acquisition of Soltek Powersource Ltd. in 2005, the Carmanah Power Systems Group has more than 20 years experience in remote solar power systems design and technical expertise. It currently supplies approximately 60% of all solar power systems in Canada and is experiencing substantial growth throughout North America.



Off Grid







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For industrial, residential, recreational or custom applications, Carmanah's Solar Power Systems Group specializes in the design and supply of solar-powered electrical systems. Scalable to suit a variety of applications, including industrial, residential, recreational vehicles and marine, Carmanah works with clients to design and procure systems to power equipment at remote locations. Solar power makes it possible for Carmanah's customers to install and operate equipment at isolated locations, often at a fraction of the costs associated with a generator.



Grid-Tie

Through the increasing interest in environmentally friendly power and the growing number of government supported rebate programs, grid-tie solar is becoming one of the fastest growing sectors within the solar industry. Carmanah's Solar Power Systems Group offers grid-tie solutions for both commercial and residential applications.



LED Illuminated Signs

Carmanah's LED Sign Group was created through the acquisition of AVVA Light Corporation in 2003. Since 1993, this group has been creating energy-efficient LED illuminated signs for corporate identity, point-of-purchase sales, architectural, and gaming applications.

Carmanah's signs offer superior illumination characteristics over neon or fluorescent lighting alternatives, as well as long life, zero maintenance, and up to 90% less energy consumption. Each sign is created using state-of-the-art manufacturing and production procedures, including proprietary techniques developed through the Corporations experience in the industry.



Carmanah's LED Sign Group currently has more than 50,000 signs installed throughout North America and abroad, with a client list that includes many of the most progressive and successful global corporations and brands in a variety of market segments.



Sales Verticals



Through both direct and distribution sales programs, Carmanah currently serves the following market sectors:





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|                           |                                                                                                                                                                                                                                                                
|-------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Solar-Powered LED Lighting
|Marine                     | Navigation and hazard marking lights with one, two, three and four nautical mile ranges.                                                                                                                                                                       
|Transit                    | i-SIGNALTMsolar-powered bus signaling device.
i-STOPâ solar-powered bus stop with LED bus signaling, overhead LED security lighting and LED edge-lit schedule illumination.
i-SHELTERTM solar-powered LED lighting systems for shelters and advertising panels.
|Aviation                   | Taxiway edge lighting, runway lighting, obstruction lighting, apron lighting, barricade lighting and emergency lighting.                                                                                                                                       
|Roadways                   | Pedestrian crosswalk signals, school zone flashers, 24 hour roadway beacons, internally-illuminated street-name and traffic signs.                                                                                                                             
|Industrial Worksite        | Warning lights, obstruction lights, equipment-marking lights, railway track warning lights, bridge marking lights.                                                                                                                                             
|Solar Power Systems       
|Off-Grid Solar             | Telecommunications, oil and gas, mobile, security, residential and recreational solar-power systems.                                                                                                                                                           
|Grid-Tie Solar             | Commercial, residential, building-integrated photovoltaic systems.                                                                                                                                                                                             
|LED Illuminated Signs     
|Point-of-Purchase          | Corporate identity, branding, identification, gaming and lottery signs.                                                                                                                                                                                        
|Architectural              | Directional, way-finding, service, corporate identity signs.                                                                                                                                                                                                   





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Emerging Secondary Markets



Carmanahs solar-powered LED and solar power systems technologies are also being applied to for general Illumination applications.

C.

Organizational Structure





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As at December 31, 2006, the Corporation has five main locations:



1.

Corporate Head office located in Buildings 3-6, 203 Harbour Road, Victoria, BC, Canada V9A 3S2;

2.

The Companys primary manufacturing and warehouse facility is located at  Building 300, 770 Enterprise Crescent, Victoria, British Columbia  Canada V8Z 6R4

3.

AVVA and CSI, located at Suite 5-6025 - 12th Street S.E., Calgary, AB T2H 2K1;

4.

Distribution centre for Carmanahs Solar Power Systems group at Bay 60, 4900 64th Avenue S.E. Calgary, Alberta T2C4V3.

5.

SPS-US, SPSs wholly owned US subsidiary, located at 360 El Pueblo Suite 101, Scotts Valley, Santa Cruz, CA, USA 95066.

6.

The Companys sales and warehouse facility for its Solar Power Systems Division is located at #5-556 Bryne Dr., Barrie, ON L4N 9P6

7.

The Companys UK operations is located at 68 Basepoint Business Centre, Metclaf Way, Crawley, RH11 7XX, United Kingdom.



D.

Property, Plants and Equipment



The Corporations corporate office currently shares approximately 5,337 square feet of office space at Suite 1304, 925 West Georgia Street, Vancouver, B.C., Canada with a number of other companies under a lease which expires November 30, 2010. The shared property provides office space to the Corporation for administrative and shareholder relations purposes. Rent for this space is included in the fees paid to VCC of $10,000 per month under an advisory agreement. See Item 6. Directors, Senior Management and Employees  B. Compensation. See map below.



[carmanah20fa100107002.gif]



The Corporation operates at the following locations:



1.

Buildings 3-6  203 Harbour Rd Victoria BC V9A 3S2 is the address of the Corporations administrative headquarters (approximately 22,000 square feet).. The lease expires on August 31, 2011. See map below.







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[carmanah20fa100107004.gif]



2.

Suite 300  770 Enterprise Crescent Victoria BC V8Z 6R4 is the address of the Corporations main production facility. This approximate 25,000 square foot facility is leased, with an expiry date of July 1, 2010.  See map below.



[carmanah20fa100107006.gif]















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3.

Suite 5-6025 - 12th Street S.E., Calgary, AB is the address of AVVA and CSI. This space comprises about 11,485 square feet. The lease expires on September 30, 2009.   See map below.



[carmanah20fa100107008.gif]









4.

Bay 60, 4900 64th Ave. S.E. Calgary, Alberta, Canada T2C 4V3, is the address of the Carmanah Power Systems Group , Calgary operations. This space comprises 5,820 square feet. The lease expires in June 2008.  See map below.







5.

360 El Pueblo Suite 101, Scotts Valley, Santa Cruz, CA, USA 95066, is the address of the Carmanah Power Systems Group (formerly SPS), US operations. This space comprises about 7,950 square feet. The lease expires on August 31, 2008. The Corporation is currently up to date with its lease payments.  Total rent for this space is approximately USD$10,600 per month. See map below.







6.

68 Basepoint Business Centre, Metcalf Way, Crawley, RH11 7XX, United Kingdom, is the address of Carmanahs UK operations. This space comprises about 1,800 square feet. This lease is on a month-to-month basis. The Corporation is currently up to date with its lease payments.  Total rent for this space is approximately $ 8,000 per month. See map below.







7.

#5-556 Bryne Dr., Barrie, Ontario, Canada L4N 9P6, is the address of the Carmanah Power Systems Group (formerly SPS), Barrie operations. This space comprises about 1,997 square feet. The lease expires on January 1, 2010. The Corporation is currently up to date with its lease payments.  Total rent for this space is approximately $ 1,650 per month.  See map
below.









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ITEM 4A.

UNRESOLVED STAFF COMMENTS

None.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of the financial condition, changes in financial condition and results of operations of the Corporation as at December 31, 2006 and 2005 and for its last three fiscal years ending December 31, 2006, 2005 and 2004 should be read in conjunction with the restated audited consolidated financial statements of the Corporation and related notes included herein. Unless expressly stated otherwise, all references to dollar amounts in this section are to Canadian dollars.



A reconciliation of the financial statements to U.S. GAAP is set forth in Note 17 of the audited December 31, 2006 consolidated financial statements included herein at Part IV  Item 17.  Refer to Note 17 for an itemized discussion and analysis of the material measurement differences between Canadian GAAP and U.S. GAAP.



Restatement of 2006 Consolidated Financial Statements

The company has restated its consolidated financial statements for the year ended December 31, 2006 to adjust for errors related primarily to an inventory count performed at the end of 2006.

In the process of preparing its financial statements for the three months ended March 31, 2007, the Company determined that certain adjustments were required related to Carmanahs 2006 year end inventory count.

Two causes have been identified for the errors:

1.

Goods physically received at year end in the amount of $368,000 were not recorded as received in the Company's enterprise resource planning (ERP) system.  These goods were included in the physical count but no corresponding liability was identified.

2.

Inventory count errors related primarily to improper item identification during the physical count.  These errors resulted in low value items being counted as high value items. The impact of this error was approximately $385,000.

The following financial data present the line items affected by the restatement on Carmanahs previously issued consolidated financial statements for the year ended December 31, 2006.



|                                         |                     |             |            
|---------------------------------------- | ------------------- | ----------- | -----------
|                                         | Previously Reported | Adjustments | As Restated
|As at December 31, 2006                  |                     |             |            
|Consolidated Balance Sheet               |                     |             |            
|Inventories                              | 20,737,841          | (385,000)   | 20,352,841 
|Future income taxes                      | 1,473,484           | 94,831      | 1,568,315  
|Accounts payable and accrued liabilities | 7,963,883           | 368,000     | 8,331,883  
|                                         |                     |             |            





-29-







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|                                                           |              |           |            
|---------------------------------------------------------- | ------------ | --------- | -----------
|Income taxes payable                                       | 389,097      | (158,658) | 230,439    
|Retained earnings                                          | 493,064      | (499,511) | (6,447)    
|                                                           |              |           |            
|Year ended December 31, 2006                               |              |           |            
|Consolidated Statement of Operations                       |              |           |            
|Cost of sales                                              | 41,147,512   | 753,000   | 41,900,512 
|Gross profit                                               | 21,298,348   | (753,000) | 20,545,348 
|Operating income                                           | 1,154,576    | (753,000) | 401,576    
|Earnings before income taxes                               | 1,338,503    | (753,000) | 585,503    
|Income tax expense                                         | 1,204,017    | (253,489) | 950,528    
|Net earnings (loss)                                        | 134,486      | (499,511) | (365,025)  
|                                                           |              |           |            
|Consolidated Statement of Cash Flows                       |              |           |            
|Net earnings (loss)                                        | 134,486      | (499,511) | (365,025)  
|Future income taxes (recovery)                             | (516,133)    | (94,831)  | (610,964)  
|Net changes in non-cash working capital                    | (10,298,589) | 594,342   | (9,704,247)
|                                                           |              |           |            
|There were no changes to investing or financing cash flows |              |          



A.

Operating Results

A comparison of the results of operations for the fiscal years ended December 31, 2006, 2005 and 2004 are as follows:



Year Ended December 31, 2006 as compared to Year Ended December 31, 2005

Sales

Carmanah's sales for the year ended December 31, 2006 was $62,446,000, representing an increase of 61% over the same period in 2005 at $38,730,000.  Carmanahs increase in revenues is attributed to ongoing organic growth as well as to the full-year sales contribution from the Companys Solar Power Systems Group acquired July 1, 2005.



A summary of revenues from each of Carmanahs technology groups is as follows:



|                          |                                 |                         |          |         
|------------------------- | ------------------------------- | ----------------------- | -------- | --------
|Sales Summary*            | Three Months Ended December 31, | Year Ended December 31,
|($ thousands)             | 2006                            | 2005                    | 2006     | 2005    
|Solar LED Lighting Group  | $   6,860                       | $   5,645               | $ 26,951 | $ 18,413
|Solar Power Systems Group | 8,235                           | 8,687                   | 31,053   | 15,580  
|LED Sign Group            | 1,303                           | 810                     | 4,442    | 4,736   
|                          | $ 16,398                        | $ 15,142                | $ 62,446 | $ 38,730



* Group amounts include a proportionate allocation of freight and other revenue based on sales.



Solar LED Lighting Group







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Organic sales achieved in 2006 from Carmanah's Solar LED Lighting Group were $26,951,000, representing a 46% increase over the same period in 2005 at $18,413,000.  This group ended the year with a total sales backlog of $1,722,000.  Fourth Quarter 2006 sales were $6,860,000, up $1,215,000 (21.5%) from the same period in 2005.



Sales from the Solar LED Lighting Group were achieved through growth in all vertical markets, as well a number of new product releases.  The Company is seeing an increase in the number of larger orders, signaling more mainstream implementation of its products and technology.



Solar Power Systems Group



Revenues from the Solar Power Systems Group were $31,053,000 for the year ended December 31, 2006, compared to $15,580,000 for the year ended December 31, 2005, which represented six months of consolidated results from July 1, 2005, the acquisition date of SPS.  This group also ended the year with a sales order backlog of $2,209,000.  Fourth Quarter 2006 sales were $8,235,000, down $452,000 (5.2%) from the same period in 2005.



During 2006, Carmanah invested considerable effort into the integration of business processes and personnel, and undertook the implementation of two warehouse relocations.  With these integration and expansion activities completed, this groups performance is expected to trend positively through 2007, in step with Carmanahs business plan.



LED Sign Group



Annual revenues from the LED Sign Group were $4,442,000 for 2006, down $294,000 (6.2%) compared with $4,736,000 for 2005.  Fourth Quarter 2006 sales were $1,303,000, up $493,000 (60.9%) from the same period in 2005.



In late 2006, the Company commenced activities to expand its range of LED sign products to include EVENLITTM Acrylic Light Sheets and LED backlit boxes. These new technologies enable Carmanah to offer a more complete set of solutions to its existing customers.





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Cost of Sales and Gross Profit Margin

Cost of sales for the year ended December 31, 2006 was $41,901,000 (67.1% of sales), resulting in a gross profit margin of 32.9%.  In comparison, for the year ended December 31, 2005, the cost of sales was $24,311,000 (62.8% of sales), resulting in a gross profit margin of 37.2%. This shift in overall gross margin from 2005 to 2006 is primarily due to the full-year contribution from the Solar Power Systems Group compared to its six-month contribution in 2005.

Fourth Quarter cost of sales were $11,653,000 resulting in a gross profit margin of 28.9%.

Carmanah offers product solutions to a variety of market sectors at various gross profit margins.  The blended gross profit margin is significantly affected by the ratio of sales contributed by the various technological groups, by the product mix sold, as well as the related market sector.

Wages and Benefits



For the year ended December 31, 2006, wages and benefit expense was $9,996,000, compared with $6,843,000 for the same period in 2005.  Approximately one half of this increase was due to the full-year impact of the acquisition of Soltek Powersource Ltd.  Other contributing factors were additional commissions due to increase in sales ($0.6 million), increased stock-based compensation expense ($1.0 million) and an overall increase in sales, marketing, finance and administration staff to support corporate growth.



As a percentage of sales, total wages and benefits for the year ended December 31, 2006 were 16%, down from 17.7% for the same period in 2005.

Office and Administration



Office and administration expenses for the year ended December 31, 2006, were $4,136,000 compared to $2,787,000 for the same period in 2005.  This increase is the result of additional public company costs for professional fees, as well as regulatory and listing fees as a result of a transfer from TSX Venture Exchange to TSX Toronto Stock Exchange.  Other contributors to the increase in 2006 were primarily overall growth in facilities and related resources, namely:



·

The full year costs of the four sub-assembly and warehouse operations of theSolar Power Systems Group (compared to six months in 2005);

·

The expansion into Carmanah's new 25,185 square foot Victoria-based warehouse facility in late 2005, and subsequent 5,200 square foot addition in September, 2006;

·

The expansion of its Calgary warehouse facility for Solar Power products in June 2006 from 5,800 square feet to 11,729 square feet.



The facility expansions have increased rent, general office, administration and information technology expenses.  However, as a percentage of sales, office and administration expenses for the year ended December 31, 2006 were 6.6%, down from 7.2% for the same period in 2005.





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Sales and Marketing



Sales and marketing expenses for the year ended December 31, 2006 were $2,365,000, compared to $1,775,000 for the same period in 2005. This increase is due to additional sales and marketing activities for new and existing product lines, including full year costs of expanding its sales and marketing efforts in support of the Solar Power Systems Groups customers and verticals.



Sales and marketing expenses for the year ended December 31, 2006 were 3.8% of total sales, down from 4.6% for the same period in 2005.

Research and Development



For the year ended December 31, 2006, research and development expenses were $2,164,000 (net of $1,255,000 SR&ED investment tax credits), compared with $904,000 (net of $621,000 SR&ED investment tax credits) for the same period in 2005.  The SR&ED investment tax credits were the result of credits generated from scientific research and experimental development expenses, and they are recoverable as an offset to income taxes payable on taxable income.



Carmanahs gross research and development expenses for the year ended December 31, 2006 were $3,419,000, a significant increase of $1,894,000 over the same period in 2005 at $1,525,000.   Approximately one-half of this increase is due to development of the new long range solar LED Lighting products for both the Marine and Aviation vertical markets. This investment included expanded LED optics and ultra low power consumption radio communications systems that will provide benefits for all solar LED Lighting products in the future.  These developments are significant advances for the Company and will form clear competitive advantages for its products in the future.   This investment in development is targeting market opportunities of greater significance than any previously pursued.  The balance of the increase in research and development expenses is due to initiation of additional new product development and enhancements for the Solar LED Group, the full year impact of the Solar Power Systems Groupacquisition, as well as research and development towards cost reduction initiatives and outsourcing.



While all other sales, administrative and general expenses declined as a percentage of sales in 2006 compared to 2005, net research and development expenses increased to 3.5% compared with 2.3% in 2005.

Income Tax



Income tax expense for the year ended December 31, 2006 was $951,000.  This amount is comprised of current tax expense of $1,561,000 less future income tax recovery of $611,000.



Approximately $1.3 million of the current tax expense represents tax credits that were used during the year, usage of which is offset against gross research and development expense.  The balance of differences relative to the statutory rate is primarily related to non-deductible stock-based compensation.  The future income tax recovery of $611,000 reflects the increase in net future tax assets resulting





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primarily from the deferral of the available SR&ED deductions.  Cash taxes for 2006 are approximately $465,000 and relate to the Companys U.S operations.

Earnings



Non-GAAP measures  the Company uses certain non-GAAP measures because they are meaningful measures in assisting management in assessing its operating results and financial performance.  Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies.  One such non-GAAP measure used for assessing financial performance is earnings before interest, taxes and amortization (EBITA).



|                                         |                                 |                         |             |         
|---------------------------------------- | ------------------------------- | ----------------------- | ----------- | --------
|EBITA Reconciliation                     | Three Months Ended
December 31, | Year Ended
December 31,
|($ thousands)                            | 2006                            | 2005                    | 2006        | 2005    
|                                         | (restated)1                     |                         | (restated)1 |         
|Net earnings  as reported               | $ (803)                         | $ (191)                 | $   (365)   | $    681
|Add back (deduct):                       |                                 |                         |             |         
|Interest Income                          | (23)                            | (44)                    | (184)       | (158)   
|Income taxes                             | 54                              | 348                     | 951         | 576     
|Amortization of equipment and leaseholds | 277                             | 215                     | 877         | 575     
|Amortization of intangibles              | 77                              | 84                      | 267         | 150     
|EBITA                                    | $  (418)                        | $  412                  | $ 1,546     | $ 1,824 



1  see note 18 of the consolidated financial statements for a discussion of the restatement.



EBITA was $1,546,000 for the year ended December 31, 2006, representing an decrease of 15% over the same period in 2005 at $1,824,000.



Earnings before tax (EBT) was $586,000 in 2006, representing an decrease of 53% over the same period in 2005 at $1,257,000.  There was a net loss for 2006 of $365,000 as compared to net income of $681,000 for the same period in 2005.  The net loss in 2006 is due to the reduction in pretax income together with the high rate income tax expense described above.







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Year Ended December 31, 2005 as compared to Year Ended December 31, 2004



Carmanah's sales for the year ended December 31, 2005 increased to $38,729,885, representing an increase of 144% from the same period in 2004 at $15,895,041.  Contributions from each technology group were as follows:



|                          |             |            
|------------------------- | ----------- | -----------
|Segmented Sales Summary   | Year Ended 
|December 31,             
|                          | 2005        | 2004       
|Solar LED Lighting Group  | $18,413,057 | $13,305,702
|Solar Power Systems Group | 15,580,463  | -          
|LED Sign Group            | 4,736,365   | 2,589,339  
|                          | $38,729,885 | $15,895,041



Carmanah's increase in revenues is attributed to ongoing organic growth as well as the contribution in Q3 and Q4 from its newly acquired Solar Power Systems Group.



Organic sales achieved for 2005 from Carmanah's Solar LED Lighting and LED Sign Groups amounted to $23,149,422, representing a 46% increase over the same period in 2004 at $15,895,041.  This increase of $7,254,381 is due to approximately $2,113,000 in increased sales contributions from the Corporations established Marine, Aviation and Industrial markets, and to $5,141,000 in increased sales contributions from the Corporations emerging Transit, Roadway and LED signage markets.  Sales booked in 2005 for these two groups was in excess of $25 million, and they ended the year with a record sales order backlog of $3.6 million.



Sales contributions from the Corporation's Solar Power Systems Group amounted to $15,580,463 for the six-month period ending December 31, 2005.  This group also ended the year with a sales order backlog of $1.1 million.

Cost of Sales and Gross Profit Margin



Carmanah's cost of sales for the year ended December 31, 2005 was $24,311,146 (63% of sales), resulting in a gross profit margin of 37%.  In comparison, for the year ended December 31, 2004, the cost of sales was $7,655,700 (48% of revenue), resulting in a gross profit margin of 52%.  The shift in Carmanah's cost of sales and gross margin is primarily due to the sales contribution by its Solar Power Systems Group during the last half of the fiscal year ($15,580,463 at 27% gross margin).



Carmanah offers a wide array of product solutions to a variety of market sectors at various gross profit margins.  The gross profit margin is significantly affected by the ratio of sales contributed by the various technological groups, by the product mix sold, as well as the related market sector.  Management is focused on the continual improvement of gross margins in all sectors.





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Wages and Benefits



For the year ended December 31, 2005, wages and benefits was $6,843,164 compared with $3,509,101 for the same period in 2004.  This increase is the result of:



·

$1,835,232 in additional wage expense resulting from the acquisition of the Solar Power Systems Group;

·

$326,944 in additional commissions due to increase in sales;

·

$322,018 increased wages costs resulting from the expansion into the UK in late 2005;

·

an increase in marketing, finance and administrative staff in support of overall sales growth; and

·

an increase in senior staffing to provide more strength and support across the Corporation's executive and middle management teams.



As a percentage of sales, total wages and benefits for the year ended December 31, 2005 were 18%, down from 22% for the same period in 2004.

Office and Administration



Office and administration expenses for the year ended December 31, 2005, were $2,786,675, representing a 96% increase over same period in 2004 of $1,423,744.  The acquisition of the Solar Power Systems Group contributed to 51% of this increase, with the addition of $690,037 in office and administration expenses.  Other contributors to the increase in 2005 were primarily overall growth in facilities and related resources:



·

In late 2004, Carmanah opened an office in London, England, to support the Corporation's UK and European operations;

·

In early 2005, Carmanah expanded its existing Victoria facility to include an additional 6,000 square feet for LED-illuminated roadway sign manufacturing;

·

In September 2005, Carmanah entered a lease to commence build out for a new 25,000 square foot manufacturing and warehouse facility; and

·

In late 2005, Carmanah expanded its Santa Cruz, CA, warehouse facility to support its US operations.



Carmanah's facility expansions have increased rent, general office, administration and information technology expenses.  However, as a percentage of sales, office and administration expenses for the year ended December 31, 2005 were 7%, down from 9% for the same period in 2004.

Sales and Marketing



Sales and marketing expenses for the year ended December 31, 2005, were $1,775,099, representing a 32% increase over the same period in 2004 of $1,341,112.  Carmanah continued to increase sales and marketing activities for new and existing product lines throughout its worldwide marketplace, and is expanding its sales and marketing efforts to include the Power Systems Group's customers and verticals.







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Sales and marketing expenses for the year ended December 31, 2005 were 5% of total sales, down from 8% for the same period 2004.

Research and Development



For the year ended December 31, 2005, research and development expenses were $903,723 (net of $620,935 SR&ED investment tax credits), compared with $959,842 (net of $316,000 SR&ED investment tax credits and $71,223 government grant) in the previous year.  The SR&ED investment tax credits were the result of credits generated from scientific research and experimental development expenses, and recoverable as an offset to income taxes payable on taxable income.  Carmanah's growth in research and development was the result of increased investment in new product offerings and existing product enhancements.



As a percentage of sales, gross research and development expenses (before investment tax credits and grants) were 4% in 2005, compared with 8% in 2004.

Income Tax



Income tax expense for the year ended December 31, 2005 totals $575,646.  This amount is comprised of current tax expense of $1,021,372 and future income tax recovery of $445,726.  The current tax expense relates to taxable income generated by Carmanah in the normal course of operations.  Current tax expense as a percentage of pre-tax earnings is high, as Carmanah chose to postpone certain tax deductions to use investment tax credits that offset taxes otherwise payable.  The future income tax recovery of $445,726 recognizes the availability of future tax deductions and was increased by $333,000 as a result of a reduction of the valuation allowance against future tax assets.  The reduction of the valuation allowance recognizes the benefit of future income tax assets on past tax losses, based on the expectation of future taxable income.

Earnings



Earnings before interest, taxes and amortization ("EBITA") were $1,981,573 for the year ended December 31, 2005, representing an increase of 92% over the same period in 2004 at $1,034,439.  Earnings before income tax were $1,256,608, compared with $592,937 in 2004, representing an increase of 112%.  Net earnings were $680,962 in 2005, compared to $592,823 in 2004, representing an increase of 15%.







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Non-GAAP measures



The Company uses certain non-GAAP measures to assist in assessing its financial performance.  Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies.  One such non-GAAP measure used for assessing financial performance is EBITA. EBITA is calculated as net earnings before interest, taxes and amortization.  A reconciliation of EBITA to net earnings is as follows:



|For the year ended December 31,          |   | 2005  |   |   | 2004  |  
|---------------------------------------- | - | ----- | - | - | ----- | -
|($ in thousands)                         |   |       |   |   |       |  
|Net earnings  as reported               | $ | 681   |   | $ | 593   |  
|Add back:                                |   |       |   |   |       |  
|Interest income                          |   | (158  | ) |   | (126  | )
|Income taxes                             |   | 576   |   |   | 114   |  
|Amortization of equipment and leaseholds |   | 575   |   |   | 400   |  
|Amortization of intangibles              |   | 150   |   |   | 41    |  
|EBITA                                    | $ | 1,824 |   | $ | 1,022 |  





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Critical Accounting Estimates



Warranty Reserve



The Company calculates a warranty reserve for future returns of products currently sold, as per the terms of the Companys Warranty.   An updated review of historical return rates is completed at each quarter, and is used in determining an estimate return rate in future, to which a provision is calculated and booked.  If warranty costs are greater or less than anticipated by the Company, adjustments to the warranty provision would be made as a charge or credit to income in the period that the adjustment to the warranty provision is made.  Warranty balances have increased in proportion to the increase in sales. There was no significant change in return rates in fiscal 2006.



Intangibles and Goodwill



Intangible assets, comprised of customer lists and relationships, and goodwill were acquired on the acquisition of AVVA Light Corporation and Carmanah Technologies Corporation (formerly Soltek Powersource Ltd.).  At least annually, the Company reviews the carrying value of its intangible assets and goodwill for potential impairment. Among other things, this review considers the fair value of the business based on discounted estimated cash flows. If circumstances indicate that impairment in the value of these assets has occurred, the Company would record this impairment in the earnings of the current period.  There was no goodwill or intangible impairment recorded in fiscal 2006 or 2005.

In addition, the Company estimates the useful life of customer lists and relationships in determining the amortization period for these intangibles.



Inventory



The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products. During the second quarter of 2006, we completed a demand forecast analysis. The demand forecast is also a direct input in the development of our short-term manufacturing plans, to help enable consistency between inventory valuation and build decisions. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, or if we fail to accurately forecast the demand, we could be required to write down inventory, which would have a negative impact on our financial results.



B.

Liquidity and Capital Resources

Carmanah's net cash, cash equivalents, and short-term investments at December 31, 2006 were $2,335,000, compared to $11,662,000 at December 31, 2005.



The Company reported net working capital of $26,721,000 (current ratio of 3.5:1) at December 31, 2006 compared with $26,332,000 (current ratio of 5.4:1) at December 31, 2005.



Net cash usage from operations for the year ended December 31, 2006 was $8,449,000.  This is due primarily to increases in inventory levels through 2006, specifically:





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·

Approximately $4 million in solar panel inventory as a result of aggressive purchasing to manage short term supply risk in the module market in 2006;

·

An additional $2.5 million in component inventory as a result of new product introduction in 2006; and

·

Increases resulting from overall sales growth.



Management made the decision in 2006 to invest in inventory to support short term supply problems and to support a wide range of new product introductions.  Management is now focused on returning inventory to more normalized levels.



During the year ended December 31, 2006, Carmanah also invested $1,920,000 in leasehold improvements and equipment related to setup and completion of the Company's new production and warehousing facility, as well as to improvements to its head office facility.  These projects were effectively completed by the end of Q2 2006.  These improvements have prepared Carmanah's facilities for the anticipated growth over the next two years.



As per the December 2005 financing, Management advised that funds raised would be primarily used for significant infrastructure improvements, as well as pro-active inventory investment related to potential supply-side challenges in the photovoltaics market.  With the availability of dollars to invest in inventory, Management was able to negotiate favorable supply contracts, providing benefits through to the end of 2007.



Carmanah has credit facilities with the Royal Bank of Canada, which include demand operating loans and revolving term loans to a combined maximum of $12,500,000 (2005 - $9,800,000).  Interest on operating and term loan facilities are at prime plus 0.125%.  These credit facilities are secured by general security agreements.  At December 31, 2006, the Company had drawn $1,915,000 on these facilities.



At December 31, 2006, the Company had the following commitments for premises and equipment:



|                                |   |           |   |           |   |           |   |           |         | After
|------------------------------- | - | --------- | - | --------- | - | --------- | - | --------- | ------- | -----
|                                |   | Total     |   | 1 year    |   | 2-3 years |   | 4-5 years | 5 years
|Lease commitments               | $ | 3,509,949 | $ | 1,036,477 | $ | 1,733,424 | $ | 740,048   | $       | Nil  
|Obligations under capital lease |   | 12,854    |   | Nil       |   | 12,854    |   | Nil       |         | Nil  
|Total                           | $ | 3,522,803 | $ | 1,036,477 | $ | 1,746,278 | $ | 740,048   | $       | Nil  



The Company generated cash flows from operations of $1,256,000 before changes in non-cash working capital for the year ended December 31, 2006 as compared to $1,396,000 during 2005.  Cash flows during the year came from non-cash items totaling $1,621,000 offset by the net loss of $365,000. Net changes in non-cash working capital items utilized cash of $9,704,000 for the year ended December 31, 2006, bringing cash utilized for operating activities to $8,449,000.



During the year ended December 31, 2006, the Company utilized $1,920,000 of its cash for leasehold improvements and purchase of computers and office equipment, utilized $86,500 of its cash for the purchase of intangible assets, and redeemed $8,280,000 in short-term investments.





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During the year ended December 31, 2006, the Company raised an aggregate of $1,150,000 from various exercises of stock options.



During the year ended December 31, 2006, the Company utilized $22,000 of its cash to make principal payments on its obligations under capital leases.



The Company believes that its cash and cash equivalents, short-term investments and cash from improved operations going forward will be sufficient to satisfy its immediate and future operating cash requirements.



The other sources of funds potentially available to the Company are through the exercise of 3,453,082 outstanding stock options which expire between June 13, 2007 to December 18, 2011 and 300,000 outstanding warrants which expire on June 30, 2010.

C.

Research and Development, Patents and Licenses, Etc.

At the present time Carmanah has eleven proprietary technologies that it has protected, or is in the process of protecting, through patent procedures. All eleven technologies relate to Carmanahs core technology of solar-powered LED lighting. The inventors on the various patents vary, but all patents have been assigned to Carmanah Technologies Inc.



The first proprietary technology relates to the manufacture of unitized solar-powered LED lights in which electrolytic double-layer capacitors (rather than batteries) are used as the energy storage mechanism. This technology is patented in the United States ("A Light Assembly", patent 5,782,552, July 21, 1998), and in Europe (patent 0851989, Sept., 27, 2000) The European patent is ratified in the U.K, France, Italy, and Germany (as patent number 696 10 504.7-08).



The second proprietary technology relates to the manufacture of unitized, sealed solar LED lights in which batteries are the energy storage mechanism. Patents have been obtained in the U.S. ("Sealed Solar-Powered Light Assembly", patent number 6,013,985, January 11, 2000) and Canada (patent number 2,241,044)



The third proprietary technology relates to a software algorithm that allows solar LED products to adapt their energy consumption to their solar environment, and therefore extends the range of use of a solar LED light to very poor solar illumination conditions.  A U.S. patent for this technology was issued on June 3, 2003, as "Automatic Light Control for Solar-Powered Lighting", U.S. patent number 6,573,659).



The fourth proprietary technology relates to a method of doming solar panels and integrating them into the lighting product. It specifically identifies three highways products in which this doming process is used. This patent is filed as a Patent Cooperation Treaty (PCT) International Application serial number PCT/CA02/00574  Potted Domed Solar Panel Capsule and Traffic Warning Lamps Incorporating Same, April 22, 2002. A US application for this invention has been published US 2006/0076047 A1.



The fifth proprietary technology relates to providing solar-powered lighting at bus stops. A PCT application (PCT/CA2003/001457) was filed on September 24, 2003. This has since become a granted patent in the United Kingdom (GB2410368) and a published US application (US 2006/0120068 A1).







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The sixth proprietary technology relates to a solar powered wireless crosswalk warning system. Both a US and Canadian patent were applied for. The US application was filed on November 24, 2004 and has been published as US 2005/0128105 A1.



The seventh proprietary technology relates to a public transportation signaling device. Carmanah purchased two US patents (6,355,989 and 6,621,177) on March 23, 2004.



The eighth proprietary technology relates to solar powered LED illuminated signage. Two US applications have been filed and published, specifically US 2006/0291241 A1 and US 2006/0289054 A1.



The ninth proprietary technology relates to software algorithms and electronic circuitry to optimize solar power collection and storage. A US application was filed on April 6, 2006.



The tenth proprietary technology relates to the assignment of group identities to remote controlled airfield lights. A provisional US application was filed on April 10, 2006.



The eleventh proprietary technology relates to a reflective optical element used in Carmanahs new marine and aviation lights. A US application was filed June 21, 2006 and is now published as US 2006/0291209 A1.



Carmanah has trademark protection in Canada and the U.S. for solar powered lighting.



Management believes that its current proprietary rights are sufficient to carry on its research and development activities for new lighting products, as currently contemplated.  Despite efforts to protect proprietary rights, unauthorized parties may attempt to copy aspects of its technology or to obtain and use information that Carmanah regards as proprietary.  The policing of unauthorized use of any intellectual property is difficult and the extent of any such piracy is difficult to determine.  The laws of some foreign countries do not protect proprietary rights as fully as do the laws of Canada and the United States.  There can be no assurance that Carmanahs efforts to protect proprietary rights in Canada and the United States or abroad will be adequate or that competition will not independently develop similar technology.



Carmanah is not aware that it is infringing any proprietary rights of third parties, although it cannot assure investors that third parties will not claim that it has infringed their intellectual property rights.  Carmanah may experience infringement claims in the future as the number of products and competitors in this industry segment grows and the functionality or products in different industry segments overlap.  Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management's attention and resources, cause product shipment delays, or require Carmanah to enter into royalty or licensing agreements.  Such royalty or licensing agreements, if required, may not be available on acceptable terms to the Corporation, if at all.  In the event of successful claim of patent infringement against Carmanah that impacted its ability to license the infringed or similar technology, the business, operating results and financial condition of CTI would be materially adversely affected.



During the year ended December 31, 2006, the Corporation spent $2,164,000 (2005 - $904,000; 2004 - $960,000) for research and development, net of SRED Investment Tax Credits of $1,255,000, $621,000, and $316,000, respectively. The SRED Investment Tax Credits were the result of credits generated from scientific research and development expenses, and are recoverable as an offset to income taxes payable on taxable income.





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D.

Trend Information

Changes in the relative value of the US dollar can significantly impact the Corporations top line revenues. As a result, the company may periodically enter into foreign exchange hedge contracts.  The company will also sell in alternate currencies, and monitor the US dollar when preparing fixed price quotes. The Corporation had no outstanding hedge contracts at December 31, 2006 or December 31, 2005 .

E.

Off-Balance Sheet Arrangements

The Corporation does not utilize off-balance sheet arrangements.

F.

Tabular Disclosure of Contractual Obligations

The following table outlines the Corporations contractual obligations as at December 31, 2006:



|                                |   |           |   |           |   |           |   |           |         | After
|------------------------------- | - | --------- | - | --------- | - | --------- | - | --------- | ------- | -----
|                                |   | Total     |   | 1 year    |   | 2-3 years |   | 4-5 years | 5 years
|Lease commitments(1)            | $ | 3,509,949 | $ | 1,036,477 | $ | 1,733,424 | $ | 740,048   | $       | Nil  
|Obligations under capital lease |   | 12,854    |   | Nil       |   | 12,854    |   | Nil       |         | Nil  
|Total                           | $ | 3,522,803 | $ | 1,036,477 | $ | 1,746,278 | $ | 740,048   | $       | Nil  

(1)The Corporation has entered into operating lease agreements for rental of premises and equipment.

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.

Directors and Senior Management

The following is a list of the Directors and senior officers of the Corporation as at December 31, 2006 and as at the date of this Form 20-F, their municipalities of residence, their current positions with the Corporation and their principal occupations during the past five years. All of the Directors are residents of Canada.



Directors were elected at the last Annual General Meeting held on May 25, 2006 and/or appointed to fill any vacancy created on the Board, and serve until the next Annual General Meeting of Shareholders, or until their successors are appointed.  Officers are appointed by the Board and serve at the pleasure of the Board.



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|                                              |                                                 |                                                                                                                                                                                                                                                                                                                                                                 
|--------------------------------------------- | ----------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name, Age and Residence                       | Position(s) with the
      Corporation          | Terms of the Various
      Offices Held                                                                                                                                                                                                                                                                                                                         
|Art Aylesworth
Age: 54

Victoria, B.C.
Canada | Director, President and Chief Executive Officer | Director, President and Chief Executive Officer of the Corporation since June 20, 2001.

President & CEO of Carmanah Technologies Corporation since June 20, 2001; President & CEO of Carmanah Technologies Inc.(4) from May, 2000 to December 31, 2005; CEO of Carmanah Signs Inc.(5) (formerly AVVA Light Corp.(6)) from October 1, 2003 to December 31, 2005.





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|                                                               |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |  | 
|-------------------------------------------------------------- | ------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | 
|Name, Age and Residence                                        | Position(s) with the
    Corporation | Terms of the Various
    Offices Held                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Divesh Sisodraker
(1) (2)

Age: 38

North Vancouver, BC
Canada | Director                             | Director of the Corporation since May 25, 2006.

Chartered Accountant; President and CEO of actualizer interactive inc., Chief Financial Officer and Secretary of Nasdaq-traded Taleo from April 2005 until December 2006; Served in various roles with Pivotal Corporation, a customer relationship management software provider, including president and chief executive officer, chief financial officer, and vice-president, corporate development from January 2000 to March 2005; Director of Finance and Treasurer of A.L.I. Technologies Inc., a digital image management solution provider, from September 1998 to December 1999; Held roles as an investment analyst with HSBC Capel Asia Limited, a banking and financial services company, and West Shore Ventures Limited, a financial services company, from September 1995 to February 1998; Associate Accountant, KPMG, January 1991 to September 1995.
|Mark Komonoski
Age: 46

Calgary, AB SW
Canada                  | Director                             | Director of the Corporation since October 1, 2003.

President & Director of AVVA Technologies Inc. (6)  from September 1993 to March 1997; Since 1999, President of TradeMark Equity Marketing Inc., a venture capital public company development firm.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                







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|                                                           |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  | 
|---------------------------------------------------------- | -------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | 
|Name, Age and Residence                                    | Position(s) with the
      Corporation | Terms of the Various
      Offices Held                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Praveen K. Varshney (1)(3)
Age: 42

Vancouver, B.C.
Canada | Director and Chief Financial Officer   | Director of the Corporation since May 21, 1996; Director and Secretary of the Corporation from May 21, 1996 to January 30, 2000; President, Chief Executive Officer, Chief Financial Officer and Director of the Corporation from January 31, 2000 to June 19, 2001.

Chartered Accountant; Principal and Director, Varshney Capital Corp., from January 1, 2000 to present; Principal, Varshney Chowdhry Group of Companies, from August, 1991 to December 31, 1999; Partner, Varshney Chowdhry & Co., Chartered Accountants, between May 1993 and September 1995; currently a director and or officer of several publicly traded companies, such as, Afrasia Mineral Fields Inc., Camphor Ventures Inc., Garnet Point Resources Corp., JER Envirotech International Corp. and Northern Canadian Minerals Inc.
|Kelly Edmison (1) (2)

Age: 55

Vancouver, B.C.
Canada     | Director                               | Director of the Corporation since June 13, 2002.

CEO of Pender Financial Group Corporation, a merchant banking firm; Prior to 2002, Principal of Kelly Edmison Law Corporation; Practiced Securities and Commercial Law with Ladner Downs (now Borden Ladner Gervais) from 1985 to 1995; currently a director and or officer of several publicly traded companies, such as, Icron Technologies Inc., IP Applications Corp., Pender Financial Group Corporation, Pender Growth Fund (VCC) Inc. and Radiant Communications Corporation.                                                                                                                                                                                                                                                                         





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|                                                     |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  | 
|---------------------------------------------------- | -------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | 
|Name, Age and Residence                              | Position(s) with the
      Corporation | Terms of the Various
      Offices Held                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Peeyush Varshney (3)
Age: 40

Vancouver, B.C.
Canada | Corporate Secretary                    | Secretary of the Corporation since January 31, 2000; Director of the Corporation from January 31, 2000 to June 18, 2001.

Barrister and Solicitor; Principal and Director, Varshney Capital Corp., from January 1, 2000 to present; Principal, Varshney Chowdhry Group of Companies, from July, 1996 to December 31, 1999; currently a director and or officer of several publicly traded companies, such as, Afrasia Mineral Fields Inc., Avigo Resources Corp., Camphor Ventures Inc., Garnet Point Resources Corp., JER Envirotech International Corp., Mantle Resources Inc., Minaean International Corp., MVE Capital Corp. and Northern Canadian Minerals Inc.
|David Egles 
Age: 49

Victoria, B.C.
Canada          | Director                               | Director and Senior Vice President, Business Strategies, of Carmanah Technologies Corporation since July 1, 2005.

Director and President of Soltek Powersource Ltd.(7) from 1988  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|David Green (2)

Age: 59

Victoria, B.C.
Canada      | Chairman & Director                    | Chairman and Director of the Corporation since June 18, 2001.
Scientist and Professional Engineer; Chairman and Chief Technology Officer of Carmanah Technologies Corporation since June 20, 2001; Chairman and Chief Technology Officer of Carmanah Technologoies Inc.(4) since incorporation in 1998; President of Carmanah Management Corp. since 1989.                                                                                                                                                                                                                                                                                                          



(1)

Member of the Corporations Audit Committee.

(2)

Member of the Corporations Compensation Committee

(3)

Praveen Varshney and Peeyush Varshney are brothers.

(4)

Carmanah Technologies Inc. (CTI) was formerly a 100% subsidiary of Carmanah Technologies Corporation;





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(5)

Carmanah Signs Inc. (CSI) was formerly a 100% subsidiary of Carmanah Technologies Corporation; Effective January 1, 2006, CSI was amalgamated with the Corporation.

(6)

AVVA Technologies Inc. (AVVA) was formerly a 100% subsidiary of Carmanah Technologies Corporation;

(7)

Soltek Powersource Ltd. (Soltek) was formerly a 100% subsidiary of Carmanah Technologies Corporation; Effective January 1, 2006, Soltek was amalgamated with the Corporation.

B.

Compensation

The aggregate amount of compensation paid by the Corporation during the fiscal year ended December 31, 2006, to all Directors and the Corporations officers, as a group, for services in all capacities was approximately $803,000 (2005 - $606,750; 2004 - $503,000).



The Corporation is required under applicable securities legislation in Canada, to disclose to its shareholders details of compensation paid to its Directors and Officers. Set out below are particulars of compensation paid to the following persons (the "Named Executive Officers") during the three most recently completed fiscal years:

(a)

the Corporations chief executive officer (CEO);

(b)

the Corporations chief financial officer (CFO);

(c)

each of the Corporations three most highly compensated executive officers, other than the CEO and CFO, who was serving as an executive officer at the end of the most recently completed fiscal year and whose total salary and bonus exceeds $150,000 (US$128,733 @ $1.1652) per year; and

(d)

any additional individuals for whom disclosure would have been provided under (c) but for the fact that the individual was not serving as an executive officer of the Corporation at the end of the most recently completed fiscal year.



The following information fairly reflects all material information regarding compensation paid to the Directors and Corporations officers, which information has been disclosed to the Corporations shareholders in accordance with applicable Canadian law.



The criteria used in determining the amount of executive officer compensation which is appropriate is based on an assessment of salaries paid in the industry for similar duties in which the Corporation is engaged.



Executive officers are entitled to participate in stock options granted by the Corporation.  For additional information with respect to stock options granted to executive officers, please refer to Item 6E  Stock Option Plan.







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As at December 31, 2006, the end of the most recently completed fiscal year of the Corporation, the Corporation had two Named Executive Officers, whose names and positions held within the Corporation are set out in the summary of compensation table below.

Summary Compensation Table

|                                                       |                    |                            |                        |                                            |                                         |                                             |               |                            | 
|------------------------------------------------------ | ------------------ | -------------------------- | ---------------------- | ------------------------------------------ | --------------------------------------- | ------------------------------------------- | ------------- | -------------------------- | 
|                                                       |                    | Annual Compensation        | Long Term Compensation |                                           
|                                                       |                    |                            | Awards                 | Payouts                                   
|Name and Principal Position of Named Executive Officer | Fiscal
Year
Ending | Salary                     | Bonus                  | Other Annual Compen-sation                 | Securities Under Options / SARs
Granted | Restricted Shares or Restricted Share Units | LTIP
Pay-Outs | All 
Other 
Compen-
sation
|Art Aylesworth
President, CEO, & Director              | 2006
2005
2004     | $220,000
$200,000
$200,000 | Nil
Nil
Nil            | Nil
Nil
Nil                                | Nil
500,000
Nil                         | Nil
Nil
Nil                                 | N/A
N/A
N/A   | Nil
Nil
Nil               
|Praveen Varshney
CFO & Director                        | 2006
2005
2004     | Nil 
Nil
Nil               | Nil
Nil
Nil            | $140,000 (1)(2)$135,000 (1)(2)$120,000 (1) | 115,000
15,000
Nil                      | Nil
Nil
Nil                                 | N/A
N/A
N/A   | Nil
Nil
Nil               

(1)

Pursuant to an advisory agreement dated June 20, 2001, between the Corporation and Varshney Capital Corp. (VCC), the Corporation paid an aggregate of $120,000, being $10,000 per month to VCC during the fiscal year ended December 31, 2006. VCC is a B.C. private company of which Praveen Varshney, Chief Financial Officer and a director of the Corporation, and Peeyush Varshney, Corporate Secretary of the Corporation, are directors. VCC is also partially owned by Peeyush Varshney.

(2)

The Corporation paid directors fee of an aggregate of $20,000, being $5,000 per quarter to OM Management, a company wholly owned by Praveen Varshney.



Long-Term Incentive Plans - Awards in Most Recently Completed Fiscal Year



The Corporation has no long-term incentive plans in place and therefore there were no awards made under any long-term incentive plan to the Named Executive Officers during the Corporations most recently completed fiscal year.  A "Long-Term Incentive Plan" is a plan under which awards are made based on performance over a period longer than one fiscal year, other than a plan for options, SARs (stock appreciation rights) or restricted share compensation.







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Options/SARs Granted During the Most Recently Completed Fiscal Year



The following table sets out incentive stock options granted to the Named Executive Officers, during the most recently completed fiscal year. No SARs (stock appreciation rights) were granted during this period.



|                 |                                           |                                                                     |                                     |                                                                                      |                              
|---------------- | ----------------------------------------- | ------------------------------------------------------------------- | ----------------------------------- | ------------------------------------------------------------------------------------ | -----------------------------
|Name             | Securities
Under Options/SARs Granted
(#) | Percent of Total Options/SAR Granted to Employees in Financial Year | Exercise or Base Price ($/Security) | Market Value of Securities Underlying Options/SARs on the Date of Grant ($/Security) | Expiration Date              
|Praveen Varshney | 15,000
100,000                            | 1%
6%                                                               | $3.03
$2.80                         | $3.03
$2.80                                                                          | July 4, 2011
October 12, 2011



Aggregated Option/SAR Exercises During the Most Recently 
Completed Fiscal Year and Fiscal Year End Option/SAR Values



The following table sets out incentive stock options exercised by the Named Executive Officers, during the most recently completed fiscal year as well as the fiscal year end value of stock options held by the Named Executive Officers. During this period, no outstanding SARs were held by the Named Executive Officers.

|                 |                                      |                                    |                                                                       |                                                                                                 
|---------------- | ------------------------------------ | ---------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------
|Name             | Securities
Acquired on 
Exercise
(#) | Aggregate 
Value 
Realized ($) (1) | Unexercised Options at
Fiscal Year-End
Exercisable/Unexercisable 
(#) | Value of Unexercised In-the-Money Options at Fiscal Year-End ($) Exercisable / Unexercisable (2)
|Art Aylesworth   | Nil                                  | $Nil                               | 400,000 / 400,000                                                     | $525,000 / $Nil                                                                                 
|Praveen Varshney | 125,000                              | $381,250                           | 15,000 / 115,000                                                      | $Nil / $15,000                                                                                  

(1)

Based on the difference between the option exercise price and the closing market price of the Corporations shares on the date of exercise.

(2)

In-the-Money Options are those where the market value of the underlying securities as at the most recent fiscal year end exceeds the option exercise price.  The closing market price of the Corporations shares as at December 31, 2006, (ie. fiscal year end) was $2.95.



Option and SAR Repricings



There were no options repriced for the Named Executive Officers during the fiscal year ended December 31, 2006.



Defined Benefit or Actuarial Plan Disclosure



The Corporation does not maintain any defined benefit or actuarial plan.







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Termination of Employment, Change in Responsibilities and Employment and Management Contracts



Art Aylesworth



The Corporation was entitled to terminate this agreement at any time during the term with immediate effect upon written notice to Mr. Aylesworth provided that the Corporation pays Mr. Aylesworth an amount equal to $200,000 in severance pay in 12 equal payments, commencing on the date of termination.



Effective January 1, 2006, the Corporation completed a new employment agreement with its existing CEO, Mr. Art Aylesworth to be Chief Executive Officer for a further term of 3 years.  Mr. Aylesworth was previously employed pursuant to an employment agreement dated January 1, 2004 as the Corporations Chief Executive Officer at a base annual salary of $200,000.  The compensation payable to Mr. Aylesworth under the new agreement is comprised of the following:



(i)

annual base salary of $220,000 during 2006, $250,000 during 2007 and $300,000 during 2008;

(ii)

reimbursement of his business membership fees; and

(iii)

500,000 stock options at $3.42 per share which shall vest over a period of three years.



In addition, performance bonuses will be paid to Mr. Aylesworth which shall be based on criteria, which amount shall not exceed 50% of the annual salary payable to Mr. Aylesworth for that year pursuant to (i) above.



The Corporation shall be entitled to terminate this agreement at any time during the term with immediate effect upon written notice to Mr. Aylesworth provided that the Corporation shall pay to Mr. Aylesworth on the date of termination:

(i)

an amount equal to the base salary that would have been payable to Mr. Aylesworth for the 12 month period immediately following the date of termination if the date of termination occurs within the 2006 calendar year; or

(ii)

an amount equal to the base salary that would have been payable to Mr. Aylesworth for the 18 month period immediately following the date of termination if the date of termination occurs within the 2007 or 2008 calendar year.



Praveen Varshney, C.A.



Pursuant to an advisory agreement dated June 20, 2001, between the Corporation and Varshney Capital Corp. (VCC), the Corporation agreed to pay monthly fees of $10,000 to VCC for a term of three years. The agreement was renewed on May 4, 2004 for another year and expired on June 30, 2005, after which the Corporation continued to pay fees of $10,000 to VCC on a month to month basis. During the fiscal year ended December 31, 2006, the Corporation paid an aggregate of $120,000 to VCC.



VCC is a B.C. private company of which Praveen Varshney, Chief Financial Officer and a director of the Corporation, and Peeyush Varshney, Corporate Secretary of the Corporation, are directors. VCC is also partially owned by Peeyush Varshney.





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C.

Board Practices

The Board consists of seven members, the terms of which expire at the general meeting of shareholders to be held in each year. The information regarding the term each director has served in office in Item 6.A  Directors and Senior Management is hereby incorporated by reference in response to this item 6.C. Directors are elected by a majority of the votes of the Corporations common shares present in person or represented by proxy at its annual meeting of shareholders and entitled to vote at such election. Each director will hold office until his or her term expires and his or her successor has been elected and qualified. Executive officers serve at the discretion of the Board. Officers are elected at the annual meeting of the directors held immediately after the annual general meeting of shareholders. The directors hold regularly scheduled meetings at which members of management are not in attendance.



The Corporations Board, which is responsible for supervising the management of the business and affairs of the Corporation, is comprised of David Green, Art Aylesworth, Praveen Varshney, Kelly Edmison, Mark Komonoski, Dave Egles and Divesh Sisodraker.



The mandate of the Board is to supervise the management of the Corporation and to act in the best interests of the Corporation. The Board approves all significant decisions that affect the Corporation and its subsidiaries before they are implemented. The Board meets on a quarterly basis and special meetings are held at the call of the Chairman or upon the request of two members of the Board.



Compensation for members of the Board is determined on the recommendation of the chair of the Compensation Committee who, from time to time as appropriate, presents to the Board information as to director and committee-member compensation based on that provided by several other companies of comparable size to the Corporation.



The Corporation has the following committees of the Board:



Audit Committee



The audit committee is comprised of at least three directors, the majority of whom are not employees, control persons or officers of the Corporation or any of its associates or affiliates. The Board appoints or re-appoints an audit committee after each annual shareholders meeting.



The audit committee consists of Messrs. Varshney, Sisodraker and Edmison. The audit committee engages on behalf of the Corporation the independent public accountants to audit the Corporations annual financial statements, and reviews and approves the planned scope of the annual audit.



Each member of the Audit Committee has education and experience relevant to the performance of his responsibilities as an Audit Committee member.



Divesh Sisodraker is a chartered accountant.  Mr. Sisodraker is currently the chief financial officer of Nasdaq-traded Taleo. He has also served as chief executive officer, president, chief financial officer at Pivotal Corporation, as director of finance with A.L.I. Technologies and was an accountant at KPMG from 1991 to 1995.



Kelly Edmison is President and CEO of Pender Financial Group Corporation, a Vancouver based merchant bask focused on the technology sector.  Prior to Joining Pender, Mr. Edmsion practiced commercial laws for over 20 years.  Mr. Edmison is a director and executive officer of various public





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companies and currently serves on the board/audit committee of Icron Technologies Corporation and IP Applications Corp. which are listed on the TSX Venture Exchange.



In particular, each of the members of the Audit Committee has an understanding of the accounting principles used by the Corporation in preparing its financial statements, has the ability to assess the accounting principles in connection with the accounting for estimates, accruals and reserves, has experience analyzing and evaluating financial statements similar in breadth and complexity to those of the Corporation, and has an understanding of internal controls and procedures for financial reporting.



Compensation Committee



The Board appointed a compensation committee composed entirely of directors who are not employees, control persons or officers of the Corporation or any of its associates and affiliates. The compensation committee has a written charter that establishes the committees purpose, responsibilities, member qualifications, member appointment and removal, structure and operations (including any authority to delegate to individual members or subcommittees), and the manner of reporting to the Board. In addition, the compensation committee has the authority to engage and compensate any outside advisor that it determines to be necessary to permit it to carry out its duties.



The compensation committee is also responsible for the following:



(a)

reviewing and approving corporate goals and objectives relevant to CEO compensation, evaluating the CEOs performance in light of those corporate goals and objectives, and determining (or making recommendations to the Board with respect to) the CEOs compensation level based on this evaluation;



(b)

making recommendations to the Board with respect to non-CEO officer and director compensation, incentive-compensation plans and equity-based plans; and



(c)

reviewing executive compensation disclosure before the Corporation publicly discloses this information.



The members of the compensation committee are Messrs. Sisodraker, Green and Edmison.



Report on Executive Compensation



The Corporations compensation policy consists of base salary, discretionary cash incentives (by way of bonuses) and incentive stock options. The compensation payable to Mr. Aylesworth is governed by the written employment agreements referred to above. The compensation payable to Mr. Varshney is based on the advisory agreement with VCC referred to above.



Subject to the terms of any employment contract, the compensation of executive officers is reviewed annually. The recommendations of the Compensation Committee are referred to the Board for approval.

It is the policy of the Corporation that its employees receive compensation based on the market value of the type of job they perform, internal pay equity and their level of individual performance. The pay for performance philosophy adopted by the Board is specifically emphasized in the executive compensation program, in order to maintain the position of the Corporation in a highly competitive business environment.







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Base salaries are competitive in the industry and are determined on the basis of outside market data as well as individual performance and experience level. The Chief Executive Officers base salary is determined based on general understanding of salaries paid to chief executive officer salaries of publicly traded companies and the relative experience and expertise of the Corporations Chief Executive Officer. Mr. Aylesworth has been with the Corporation for six years and has extensive knowledge of the Corporation and its industry and has led the Corporations record growth and market expansion. Base salaries for senior managers of the Corporation are based on the experience and performance of each senior manager.



In 2006, a new employment contract was entered into by the Corporation with the Chief Executive Officer. This employment contract was reviewed by the Compensation Committee and approved by the Board of Directors. The Corporation expects that changes to the base salary and any annual bonuses for the other executive officers will continue to be submitted to the Compensation Committee and to the Board for review and approval.



The Compensation committee meets with the Chief Executive Officer and Human Resources Manager on a regular basis to review the compensation package of all employees and determine the compensation for all remaining executives (except for that contractually provided for) of the Corporation. The overall compensation program of the Corporation is intended to attract and retain competent, committed individuals, who will ensure the long-term success of the Corporation.

Compensation of Directors



Effective April 1, 2005, each director of the Corporation who is not an employee is entitled to an annual retainer as follows:



Base compensation:

·

$15,000

·

15,000 options



Committee members:

·

$5,000 additional



Chair of committees:

·

$10,000 additional



Chairman of the Board:

·

$65,000 additional



During the fiscal year ended December 31, 2006, Messrs. Green, Sisodraker, Edmison and Varshney received $15,000 each for acting as directors of the Corporation. In addition, Messrs. Green and Varshney received $5,000 for being a member of the audit committee, Mr. Green received $65,000 as Chairman of the Board, Mr. Edmison received $10,000 as chairman of the compensation committee and Mr. Sisodraker received $14,583 as chairman of the audit committee. During the fiscal year ended December 31, 2006, the Corporation also granted 15,000 options to each of Messrs. Green, Varshney, Edmison and Sisodraker at $3.03 per share.







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Directors and Officers Liability Insurance



The Corporation maintains directors and officers liability insurance in the principal amount of $10,000,000. The premium payable for the insurance during the period from February 15, 2006 to February 15, 2007 was $27,580. The insurance policy provides that the Corporation is liable for the initial $25,000 for each loss claimed.



Corporate Governance Committee



The Corporate Governance Committee is responsible for reviewing the overall governance principles of the Corporation, and recommending any changes to these principles. This committee is responsible for the statement of corporate governance practices included in the Corporations information circular. This committee monitors best practices among major Canadian companies to ensure the Corporation continues to carry out high standards of corporate governance. All of the members of the Board are members of the Corporate Governance Committee.

D.

Employees

As at December 31, 2006, Carmanah had a staff of 200 full-time employees, including 29 in research and engineering, 78 in manufacturing (including 2 in UK operations), 50 in sales and marketing (including 1 in UK operations), and 43 in finance, information technology, administration and human resources. Carmanah operates out of three buildings comprising a total of approximately 40,000 square feet, at the Pacific Marine Technology Centre, Victoria, British Columbia, Canada.



As at December 31, 2006, CSI had a staff of 37 full-time employees, including 26 in manufacturing, 6 in sales and marketing and 5 in administration. CSI operates out of a building comprising a total of approximately 10,000 square feet, at #5  6025 12th Street SE, Calgary, Alberta, Canada.



As at December 31, 2006, CTC-US had a staff of 9 full-time employees, including 6 in sales and marketing, 1 in administration and 2 in manufacturing and operations.



None of the Corporations employees is represented by a labor union and the Corporation believes its employee relations to be excellent.





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E.

Share Ownership

The following list indicates the number of shares held beneficially by current Directors and Officers of the Corporation as at March 30, 2007 and the corresponding percentage of the Corporations issued capital such shares represent:



|                                                            |                |                                              |                        
|----------------------------------------------------------- | -------------- | -------------------------------------------- | -----------------------
|                                                            | Title of Class | Amount and Nature of Beneficial Ownership(8) | Percent of Class(7) (8)
|David Green                                                 | Common Stock   | 2,461,070 (1)                                | 5.79%                  
|Art Aylesworth                                              | Common Stock   | 1,280,258 (2)                                | 3.01%                  
|Praveen K. Varshney                                         | Common Stock   | 367,600 (3)                                  | 0.86%                  
|Kelly Edmison                                               | Common Stock   | 136,332 (4)                                  | 0.32%                  
|Mark Komonoski                                              | Common Stock   | 180,000 (5)                                  | 0.42%                  
|Dave Egles                                                  | Common Stock   | 538,721(6)                                   | 1.27%                  
|Divesh Sisodraker                                           | Common Stock   | 15,000(7)                                    | 0.04%                  
|Peeyush Varshney                                            | Common Stock   | 113,866(8)                                   | 0.27%                  
|All executive officers and directors as a group (8 persons) |                | 5,092,847 (9)                                | 11.98%                 

(1)

2,402,177 shares are held beneficially through Carmanah Management Corporation, a private company owned by David Green; 30,000 of these shares are represented by stock options.

(2)

800,000 of these shares are represented by stock options. 125,000 shares are held beneficially through Convertech Solutions, a private company partially owned by Art Aylesworth.

(3)

130,000 of these shares are represented by stock options.

(4)

23,000 shares are held beneficially through Arbutus Family Holdings Limited; 73,332 shares are represented by stock options.

(5)

175,000 shares are represented by stock options.

(6)

50,000 of these shares are represented by stock options.

(7)

15,000 of these shares are represented by stock options.

(8)

30,000 of these shares are represented by stock options.

(9)

Based on 42,538,842 shares outstanding at March 30, 2007.

(10)

1,303,332 shares are represented by stock options.

Stock Option Plan

The board of directors of the Corporation first adopted its written stock option plan on May 10, 2001, which was ratified by shareholders on June 18, 2001 (the Plan). The purpose of the Plan is to advance the interests of the Corporation by encouraging the directors, officers, employees and consultants of the Corporation, and of its subsidiaries and affiliates, to acquire shares in the Corporation, thereby increasing their proprietary interest in the Corporation, encouraging them to remain associated with the Corporation





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and furnishing them with additional incentive in their efforts on behalf of the Corporation in the conduct of its affairs.



The Plan is administered by the board of directors of the Corporation or by a special committee of the board of directors if appointed from time to time. The Plan provides that options will be issued pursuant to option agreements (Option Agreements). No optionee under the Plan shall be granted an option which exceeds the maximum number permitted by the Toronto Stock Exchange (the Exchange). Options issued pursuant to the Plan will have an exercise price determined by the directors of the Corporation provided that the exercise price shall not be less than the market price or such other minimum price permitted by the Exchange.



Options granted under the Amended Plan will be non-transferable and vest equally on a quarterly basis over a period of 18 months. The options will expire the earlier of 5 years from the date of grant or 90 days from the date the optionee ceases to be a director, officer, employee or consultant of the Corporation of its subsidiaries or a management company employee (or, in the case of an optionee performing investor relations activities, within 30 days of the cessation of his service to the Corporation).  In the event of death of an optionee, options held by such optionee will expire the earlier of 5 years from the date of grant or one year from the date of such death.



Pursuant to the Plan, the Corporation may amend from time to time or terminate the terms and conditions of the Plan by resolution of the board of directors. Any amendments shall be subject to the prior consent of any applicable regulatory bodies, including the Exchange and shareholder approval may be required in some instances.



The Plan also provides that:



(i)

the number of Common Shares granted to any one individual in any 12 month period may not equal more than 5% of the issued and outstanding Common Shares.



(ii)

the number of Common Shares reserved for issuance to any one consultant during any twelve month period, shall not exceed 2% of the issued and outstanding Common Shares of the Corporation.



(iii)

the number of Common Shares reserved for issuance to employees and consultants who are engaged or employed in investor relations activities during any twelve-month period shall not exceed in the aggregate 2% of the issued and outstanding Common Shares of the Corporation.



The Plan was amended on May 27, 2005, to increase the number of incentive stock options reserved for issuance under the Plan to 4,559,133 common shares, which represents 14% of the Corporations issued and outstanding shares as at March 31, 2005.



The majority of the shares reserved under the Plan have now been allocated and management has proposed to amend the number of shares issuable pursuant to the Plan to 4,927,856 which represents 12% of the issued and outstanding capital of the Corporation on April 17, 2006. This will ensure that the Corporation will have an adequate pool of common shares under the Plan to enable the Corporation to attract and retain personnel of the highest calibre. This amendment to the Plan has been approved by the shareholders of the Corporation at its annual and special meeting held on May 25, 2006.







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The policies of the Exchange permit a Corporation to adopt a plan which has a fixed number of shares reserved for issuance which does not exceed 20% of the issued and outstanding shares of the Corporation. The Corporation recognizes that it is beneficial to the shareholders of the Corporation that it maintains a reasonable fixed number of shares reserved for issuance under a fixed plan.



It should be noted that since 2001, the number of shares reserved for issuance has been reduced from 20% to 14% and now to 12% of the issued and outstanding capital of the Corporation, notwithstanding that Exchange policies permit up to 20% of the outstanding shares to be reserved under a fixed plan.



As at December 31, 2006, the following directors and employees stock options to purchase a total of 3,453,082 common shares of the Corporation were outstanding:



|                         | Options outstanding |             |   | Options exercisable
|------------------------ | ------------------- | ----------- | - | -------------------
|                         |                     | Weighted    |   |                    
|                         | Number              | average     |   | Weighted           
|                         | outstanding at      | remaining   |   | average            
|                         | December 31,        | contractual |   | exercise           
|Range of exercise prices | 2006                | life        |   | price              
|                         |                     | (years)     |   |                    
|$0.75 to $1.99           | 551,832             | 1.56        | $ | 1.03               
|$2.00 to $2.99           | 1,200,250           | 3.71        |   | 2.81               
|$3.00 to $3.80           | 1,701,000           | 3.28        |   | 4.09               
|                         | 3,453,082           | 3.55        | $ | 2.76               





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As at the date of this Annual Report, 1,303,332 stock options were allocated to directors and executive officers of the Corporation as follows:



|                         |         |                |                  
|------------------------ | ------- | -------------- | -----------------
|Name of Director/Officer | Number  | Exercise Price | Expiration Date  
|Art Aylesworth           | 300,000 | $1.20          | November 10, 2008
|Art Aylesworth           | 500,000 | $3.42          | December 9, 2010 
|David Green              | 15,000  | $3.00          | May 27, 2010     
|David Green              | 15,000  | $3.03          | July 4, 2011     
|Praveen Varshney         | 15,000  | $3.00          | May 27, 2010     
|Praveen Varshney         | 15,000  | $3.03          | July 4, 2011     
|Praveen Varshney         | 100,000 | $2.80          | October 12, 2011 
|Kelly Edmison            | 43,332  | $0.75          | June 13, 2007    
|Kelly Edmison            | 15,000  | $3.00          | May 27, 2010     
|Kelly Edmison            | 15,000  | $3.03          | July 4, 2011     
|Peeyush Varshney         | 15,000  | $3.00          | May 27, 2010     
|Peeyush Varshney         | 15,000  | $3.03          | July 4, 2011     
|Mark Komonoski           | 50,000  | $2.75          | November 12, 2009
|Mark Komonoski           | 25,000  | $3.00          | July 21, 2010    
|Mark Komonoski           | 50,000  | $3.42          | December 9, 2010 
|Mark Komonoski           | 50,000  | $2.98          | September 5, 2011
|Dave Egles               | 50,000  | $3.03          | July 4, 2011     
|Divesh Sisodraker        | 15,000  | $3.03          | July 4, 2011     
|                         |         |                |                  







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ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.

Major Shareholders

A.1.a

Holdings by Major Shareholders

The following table sets forth the shareholdings of those persons who own of record or are known to the Corporation to own beneficially, directly or indirectly, or exercise control or direction over, more than 5% of the issued and outstanding common shares of the Corporation as at March 30, 2007:



|                            |                   |                                           |                     
|--------------------------- | ----------------- | ----------------------------------------- | --------------------
|Identity of Person or Group | Type of Ownership | Amount and Nature of Beneficial Ownership | Percent of Class (2)
|David Green                 | Direct & Indirect | 2,461,070 (1)                             | 5.79%               

(1)

2,402,177 shares are held beneficially through Carmanah Management Corporation, a private company owned by David Green; 30,000 of these shares are represented by stock options.

(1)

Based on 42,538,842 shares outstanding at March 30, 2007.

A.2

Canadian Share Ownership

The following table indicates the approximate number of Canadian record holders of common shares and the portion and percentage of common shares held in Canada as at March 30, 2007:



|                        |                            |                                        |                                           
|----------------------- | -------------------------- | -------------------------------------- | ------------------------------------------
|Total Number
of Holders | Number of
Canadian Holders | Number of Common Shares
Held in Canada | Percentage of Common
Shares Held in Canada
|104                     | 60                         | 41,422,350                             | 97.38%                                    



A substantial number of common shares are held in street name by trustees, executors, guardians, custodians or other fiduciaries, including depositories, brokerage firms and financial institutions.  Based on the number of annual reports and proxy statements requested by such nominees, management of the Corporation estimates that the number of Canadian beneficial holders of common shares exceeds 6,500.









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U.S. Share Ownership



The following table indicates the approximate number of record holders of common shares with United States addresses and the portion and percentage of common shares held in the United States as at March 30, 2007:



|                        |                        |                                          |                                             
|----------------------- | ---------------------- | ---------------------------------------- | --------------------------------------------
|Total Number
of Holders | Number of
U.S. Holders | Number of Common Shares
Held in the U.S. | Percentage of Common
Shares Held in the U.S.
|104                     | 39                     | 903,367                                  | 2.12%                                       



The computation of the number and percentage of common shares held in the United States is based upon the number of common shares held by record holders with United States addresses and by trusts, estates or accounts with United States addresses as disclosed to the Corporation following inquiry to all record holders known to the Corporation to be trustees, executors, guardians, custodians or other fiduciaries holding common shares for one or more trusts, estates or accounts. United States residents may beneficially own common shares held of record by non-United States residents.



A substantial number of common shares are held in street name by trustees, executors, guardians, custodians or other fiduciaries, including depositories, brokerage firms and financial institutions.  Based on the number of annual reports and proxy statements requested by such nominees, management of the Corporation estimates that the number of U.S. beneficial holders of common shares exceeds 744.



A.3

Control of the Corporation

The Corporation is a publicly owned Canadian company, the shares of which are owned by Canadian residents, U.S. residents and other foreign residents. To the best of the Corporations knowledge, the Corporation is not directly or indirectly owned or controlled by another corporation, any foreign governments or any other natural or legal person, jointly or severally.



A.4

Change in Control Arrangements

The Corporation is not aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Corporation.



B.

Related Party Transactions

Other than as disclosed in Item 6. Directors, Senior Management and Employees  B. Compensation and the transactions set forth below, there are no other related party transactions or proposed transactions involving any insider, Director, or associate or affiliate of an insider, of the Corporation that have occurred during the most recently completed fiscal year of the Corporation or during the period since the end of the Corporations most recently completed fiscal year. There are no debts owing directly or indirectly to the Corporation by any Director or officer of the Corporation, or by an associate of any Director or officer of the Corporation.







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Management of the Corporation has an interest in the following transactions, all of which relate to compensations paid to members of management for their services to the Corporation.



1.

Praveen Varshney and Peeyush Varshney are directors of VCC, and Peeyush Varshney is a controlling shareholder of VCC. During fiscal 2006, the Corporation paid VCC management fees of $120,000 (2005 - $120,000; 2004 - $120,000). VCC is in the business of providing management services to public companies. See B. Compensation  Corporate Advisory Agreement  Varshney Capital Corp.



2.

During fiscal 2006, the Corporation paid $69,673 (2005 - $64,735; 2004 - $83,000) for research and development services to David Green, Chairman of the Corporation.



3.

During fiscal 2006, the Corporation paid $29,944 (2005 - $24,312; 2004 - $nil) for rent to a company controlled by Dave Egles, an officer of the Corporation



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

C.

Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

A.

Consolidated Statements and Other Financial Information

Attached hereto are the Corporations consolidated restated audited financial statements, consisting of consolidated balance sheets as at December 31, 2006 and 2005, and consolidated statements of operations and retained earnings (deficit), and cash flows for each of the years in the three-year period ended December 31, 2006 along with related notes and the Report of Independent Registered Public Accounting Firm.  See Item 17. Financial Statements.

Legal Proceedings

There are no material legal or arbitration proceedings to which the Corporation was a party or in respect of which the property of the Corporation is subject. The Corporations management has no knowledge of any legal proceedings in which the Corporation may be involved or that are contemplated by governmental authorities or otherwise.

Dividend Policy

No dividends have been paid on any class of shares of the Corporation since the date of its incorporation and it is not contemplated that any dividends will be paid in the immediate or foreseeable future.

B.

Significant Changes

Effective February 2, 2006, the Corporations common shares commenced trading on the Toronto Stock Exchange under the symbol CMH.





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ITEM 9.

THE OFFER AND LISTING

A.

Offer and Listing Details

The Corporations common shares commenced trading on the Exchange on January 8, 1997 under the symbol ADZ. Following the completion of the Corporations reverse takeover of Carmanah on June 21, 2001, the Corporation consolidated its share capital on a 1 new for 1.5 old basis and the common shares of Carmanah commenced trading on the Exchange on July 6, 2001 under the symbol CMH while the common shares of Andina (ADZ) were delisted. Effective February 2, 2006, Carmanahs common shares commenced trading on the Toronto Stock Exchange under the symbol CMH.



The following table sets forth the reported high and low prices in Canadian funds for the Corporations common shares on the Exchange for (a) the most recent six months; (b) each quarterly period for the past two fiscal years and for the first quarter of 2006, and (c) the five most recent fiscal years:





|                       |        |       
|---------------------- | ------ | ------
|                       | High   | Low   
|Monthly Stock Prices   |        |       
|March 2007             | $
3.48 | $
2.98
|February 2007          | $
3.48 | $
3.20
|January 2007           | $
3.49 | $
2.92
|December 2006          | $
3.06 | $
2.89
|November 2006          | $
3.53 | $
2.90
|October 2006           | $
3.60 | $
2.63
|Quarterly Stock Prices |        |       
|Fiscal 2007            |        |       
|First Quarter          | $
3.49 | $
2.92
|Fiscal 2006            |        |       
|First Quarter          | $
4.05 | $
3.36
|Second Quarter         | $
3.90 | $
2.88
|Third Quarter          | $
3.50 | $
2.62
|Fourth Quarter         | $
3.60 | $
2.63
|Fiscal 2005            |        |       
|Fourth Quarter         | $
3.80 | $
3.15
|Third Quarter          | $
3.68 | $
2.83
|Second Quarter         | $
2.95 | $
2.50
|First Quarter          | $
3.04 | $
2.50





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|                    |        |        | 
|------------------- | ------ | ------ | 
|Annual Stock Prices
|Fiscal 2006         | $
4.05 | $
2.62
|Fiscal 2005         | $
3.80 | $
2.50
|Fiscal 2004         | $
3.22 | $
1.57
|Fiscal 2003         | $
1.55 | $
0.76
|Fiscal 2002         | $
0.90 | $
0.45



The closing price of the Corporations shares on the Toronto Stock Exchange was $2.95 on December 29, 2006 and $3.02 on March 30, 2007.



Although the Corporations shares are sometimes quoted over-the-counter on the PinkSheets® under the symbol CMHXF in the United States, an established trading market for the Corporations securities does not exist in the United States.

B.

Plan of Distribution

Not applicable.

C.

Markets

As at the date hereof, the Corporations Common Shares are quoted on the following stock exchanges:



·

Toronto Stock Exchange in the province of British Columbia, Canada under the trading symbol CMH.

·

Berlin and Deutsche Börse AG Exchanges under the trading symbol QCX.

·

In the United States, Carmanahs shares are sometimes quoted over-the-counter on the PinkSheets® under the symbol CMHXF.

D.

Selling Shareholders

Not applicable.

E.

Dilution

Not applicable.

F.

Expenses of the Issue

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

A.

Share Capital

Not applicable.





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B.

Memorandum and Articles of Association

Securities Register

The Corporation maintains at Pacific Corporate Trust Company (transfer agent) a securities register in which it records the securities issued by it in registered form, showing with respect to each class or series of securities:



a.

the names, alphabetically arranged and the latest known address of each person who is or has been a security holder;

b.

the number of securities held by each security holder; and

c.

the date and particulars of the issue and transfer of each security.



The transfer agent keeps information relating to a security holder that is entered in the securities register for at least seven years after the security holder ceases to be a security holder.

Powers of Directors

Approval and Voting

Every director who is a party to a material contract or a proposed material contract with the Corporation, or who is a director or an officer of or has a material interest in any person who is a party to a material contract or proposed material contract with the Corporation, must disclose in writing to the Corporation or request to have entered in the minutes of meetings of Directors, the nature and extent of the Directors or Officers interest in a material contract or proposed material contract if the contract is one that in the ordinary course of the Corporations business would not require approval of the Board of the Shareholders. The disclosure must be made immediately after the Director or Officer becomes aware of the contract or proposed contract. A Director who is required to disclose an interest in a material contract or proposed material contract may not vote on any resolution to approve the contract unless the contract is:



a.

an arrangement by way of security for money lent to or obligations undertaken by the Director, or by a body corporate in which the Director has an interest, for the benefit of the Corporation or an affiliate;

b.

a contract relating primarily to the Directors remuneration as a Director or Officer, employee or agent of the Corporation or as a director, officer, employee or agent of an affiliate;

c.

a contract for indemnity or insurance under the ABCA; or

d.

a contract with an affiliate.



If a material contract is made between the Corporation and a Director or Officer, or between the Corporation and another person of which a Director or Officer is a director or officer or in which the Director or Officer has a material interest:



a.

the contract is neither void nor voidable by reason only of that relationship, or by reason only that a Director with an interest in the contract is present at or is counted to determine the presence of a quorum at a meeting of Directors or committee of Directors that authorized the contract; and





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b.

a Director or Officer or former Director or Officer to whom a profit accrues as a result of the making of the contract is not liable to account to the Corporation for that profit by reason only of holding office as a Director or Officer, if the Director or Officer disclosed the Directors or Officers interest in the contract in the manner prescribed by the ABCA and the contract was approved by the Board or the Shareholders and was reasonable and fair to the Corporation at the time it was approved.

Remuneration and Expenses

Neither the Articles nor the By-Laws provide for the Directors power to vote compensation to themselves or any members of their body in the absence of an independent quorum.



However, the Directors are entitled to receive remuneration for their services in the amount the Board determines. Subject to the Boards approval, the Directors are also entitled to be reimbursed for traveling and other expenses incurred by them in attending meetings of the Board or any committee of Directors or in the performance of their duties as Directors.



Nothing contained in the By-Laws precludes a Director from serving the Corporation in another capacity and receiving remuneration for acting in that other capacity.



The Directors must disclose to the Shareholders the aggregate remuneration paid to the Directors. The disclosure must be in a written document to be placed before the Shareholders at every annual meeting of Shareholders and must relate to the same time period as the financial statements required to be presented at the meeting.

Borrowing

Without limiting the borrowing power of the Corporation provided by the ABCA, the Board may, without authorization of the Shareholders borrow money on the credit of the Corporation, issue, reissue, sell or pledge debt obligations of the Corporation, subject to section 42 of the ABCA, give a guarantee on behalf of the Corporation to secure performance of an obligation of any person and mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation, owned or subsequently acquired, to secure any obligation of the Corporation.



The Directors may, by resolution, delegate to a Director, a committee of Directors or an Officer all or any of the powers conferred on them by the above.

Qualification

A person is not required to hold shares issued by the Corporation to qualify for election as a director of the Corporation. A person is disqualified for election as a Director if that person:



a.

is less than 18 years of age;

b.

is

i)

a dependant adult as defined in the Dependant Adults Act (Alberta) or the subject of a certificate of incapacity under that Act.

ii)

a formal patient as defined in the Mental Health Act (Alberta),

iii)

the subject of an order under The Mentally Incapacitated Persons Act (Alberta) appointing a committee of his or her person, estate or both, or





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iv)

a person who has been found to be of unsound mind by a court elsewhere than in Alberta;

c.

is not an individual; or

d.

has the status of bankrupt.

Description of Securities

The Corporation is authorized to issue an unlimited number of Common Shares.

Common Shares

The Corporation is authorized to issue an unlimited number of common shares without nominal or par value of which, as at December 31, 2006, 42,531,592 shares are issued and outstanding as fully paid and non-assessable, 3,453,082 shares are reserved under directors, employees and management stock options (see Item 6E. Directors, Senior Management and Employees  Share Ownership  Stock Options) and 300,000 common shares are reserved pursuant to the exercise of previously issued warrants. The holders of the common shares are entitled to vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote, and on every poll taken at every such meeting, or adjourned meeting, every holder of Common Shares shall be entitled to one vote in respect of each Common Share held.

Annual and Special General Meetings

The Board must call an annual general meeting of Shareholders to be held not later than 18 months after the date of incorporation and subsequently, not later than 15 months after holding the last preceding annual meeting. An annual meeting is to be held for the purposes of considering the financial statements and auditors report, fixing the number of Directors for the following year, electing Directors, appointing an auditor and transacting any other business that may properly be brought before the meeting.



The Board may at any time call a special meeting of Shareholders.

Notice of Meetings

Notice of the time and place of a meeting of Shareholders must be sent not less than 21 days and not more than 50 days before the meeting to each Shareholder entitled to vote at the meeting, each Director and the auditor of the Corporation.



Notice of a meeting of Shareholders called for the purpose of transacting any business other than a consideration of the financial statements and auditors report, fixing the number of Directors for the following year, election of Directors and reappointment of the incumbent auditor must state the nature of the business to be transacted in sufficient detail to permit a Shareholder to form a reasoned judgment on that business and must state the text of any special resolution to be submitted to the meeting.

C.

Material Contracts



During the year ended December 31, 2005, the Corporation acquired all of the issued and outstanding share capital of SPS. See Item 4. Information on the Company  Acquisitions and Dispositions  Soltek Powersource Ltd.





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D.

Exchange Controls

There are no governmental laws, decrees or regulations in Canada relating restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of the Corporations common shares.  Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (5% if the shareholder is a corporation owning at least 10 % of the common shares of the Corporation) pursuant to Article X of the reciprocal treaty between Canada and the United States.



Except as provided in the Investment Canada Act, there are no limitations under the laws of Canada, the Province of Ontario or in the Articles of Incorporation of the Corporation on the right of foreigners to hold or vote the common shares of the Corporation.



The Investment Canada Act (the ICA), which became effective on June 30, 1985, regulates the acquisition by non-Canadians of control of a Canadian business enterprise.  In effect, the ICA required review by Investment Canada, the agency which administers the ICA, and approval by the Canadian government in the case of an acquisition of control of a Canadian business by a non-Canadian where: (i) in the case of acquisition (for example, through a share purchase or asset purchase),  the assets of the business are $5 million or more in value; or  (ii)  in the case of an indirect acquisition  ( for example,  the acquisition of the foreign parent of the Canadian business)  where the Canadian business has assets of $50 million or more in value or if the Canadian business represents more than 50% of the assets of the original group and the Canadian business has assets of $5 million or more in value.  Review and approval are also required for the acquisition or establishment of a new business in areas concerning Canadas cultural heritage or national identity such as book publishing, film production and distribution, television and radio, production and distribution of music, and the oil and natural gas industry, regardless of the size of the investment.



In the context of the Corporation, in essence, three methods of acquiring control of a Canadian business are regulated by the ICA:  (i) the acquisition of all or substantially all of the assets used in carrying on the Canadian business; (ii) the acquisition, directly or indirectly, of voting shares of a Canadian corporation carrying on the Canadian business; (iii) the acquisition of voting of an entity which controls, directly or indirectly, another entity carrying on a Canadian business.  An acquisition of a majority of the voting interests of an entity, including a corporation, is deemed to be an acquisition of control under the ICA.  An acquisition of less than one- third of the voting shares of a corporation is deemed not to be an acquisition of control.  An acquisition of less than a majority, but one-third or more, of the voting shares of a corporation is presumed to be an acquisition of control unless it can be established that on the acquisition the corporation is not, in fact, controlled by the acquirer through the ownership of voting shares.  For partnerships, trusts, joint ventures or other unincorporated entities, an acquisition of less than a majority of the voting interests is deemed not to be an acquisition of control.



As a result of the cumulative impact of the Free Trade Agreement between Canada and the United States to relax the restriction of the ICA, except where the Canadian business is in the cultural, oil and gas, uranium, financial services or transportation sectors, the threshold for direct acquisition of control by U.S.  Investors and other foreign investors acquiring control of a Canadian business from U.S. Investors has been raised from $5 million to $223 million of gross assets, and indirect acquisitions are not reviewable.



In addition to the foregoing, the ICA requires that all other acquisitions of control of Canadian businesses by non-Canadians are subject to formal notification to the Canadian government.  Theses provisions





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require a foreign investor to give notice in the required form, which notices are for information, as opposed to review, purposes.

E.

Taxation

The following summary of the material Canadian federal income tax consequences generally applicable in respect of the common stock reflects the Corporations opinion.  The tax consequences to any particular holder of common stock will vary according to the status of that holder as an individual, trust, corporation or member of a partnership, the jurisdiction in which that holder is subject to taxation, the place where that holder is resident and, generally, according to that holders particular circumstances.  This summary is applicable only to holders who are resident in the United States, have never been resident in Canada, deal at arms length with the Corporation, hold their common stock as capital property and who will not use or hold the common stock in carrying on business in Canada.  Special rules, which are not discussed in this summary, may apply to a United States holder that is an issuer that carries on business in Canada and elsewhere.



This summary is based upon the provisions of the Income Tax Act of Canada and the regulations thereunder  (collectively, the Tax Act or ITA) and the Canada-United States Tax Convention  (the Tax Convention)  as at the date of the Registration Statement and the current administrative practices of Canada Customs and Revenue Agency.  This summary does not take into account provincial income tax consequences.



Each holder should consult his own tax advisor with respect to the income tax consequences applicable to him in his own particular circumstances.



Canadian Federal Income Tax Considerations



If a non-resident were to dispose of common stock of the Corporation to another Canadian corporation which deals or is deemed to deal on a non-arms length basis with the non-resident and which, immediately after the disposition, is connected with the Corporation (i.e., which holds shares representing more than 10% of the voting power and more than 10% of the market value of all issued and outstanding shares of the Corporation), the amount by which the fair market value of any consideration (other than any shares of the purchaser corporation) exceeds the paid-up capital of the common stock sold will be deemed to be taxable as a dividend paid by the purchasing corporation, either immediately or eventually by means of a deduction in computing the paid-up capital of the purchasing corporation, and subject to withholding taxes as described below.



Under the Tax Act, a gain from the sales of common stock by a non-resident will not be subject to Canadian tax, provided the shareholder (and/or persons who do not deal at arms length with the shareholder) have not held a substantial interest in the Corporation (25% or more of the shares of any class of the Corporations stock) at any time in the five years preceding the disposition.  Generally, the Tax Convention will exempt from Canadian taxation any capital gain realized by the resident of the United States, provided that the value of the common stock is not derived principally from real property situated in Canada.



Dividends



In the case of any dividends paid to non-residents, the Canadian tax is withheld by the Corporation, which remits only the net amount to the shareholder.  By virtue of Article X of the Tax Convention, the rate of tax on dividends paid to residents of the United States is generally limited to 15% of the gross





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dividend (or 5% in the case of certain corporate shareholders owing at least 10% of the Corporations voting shares).  In the absence of the treaty provisions, the rate of Canadian withholding tax imposed on non-residents is 25% of the gross dividend.  Stock dividends received by non-residents from the Corporation are taxable by Canada as ordinary dividends.



Where a holder disposes of common stock to the Corporation (unless the Corporation acquired the common stock in the open market in the manner in which shares would normally be purchased by any member of the public) will result in a deemed dividend to the U.S. holder equal to the amount by which the consideration paid by the Corporation exceeds the paid-up capital of such stock, the amount of such dividend will be subject to withholding tax as described above.



Capital Gains



A non-resident of Canada is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of a share of a class that is listed on a prescribed stock exchange unless the share represents taxable Canadian property to the holder thereof.  A common share of the Corporation will be taxable Canadian property to a non-resident holder if, at any time during the period of five years immediately preceding the disposition, the non-resident holder, persons with whom the non-resident holder did not deal at arms length, or the non-resident holder and persons with whom he/she did not deal at arms length owned 25% or more of the issued shares of any class or series of the Corporation.  In the case of a non-resident holder to whom shares of the Corporation represent taxable Canadian property and who is resident in the United States, no Canadian tax will be payable on a capital gain realized on such shares by reason of the Canada-United States Income Tax Convention 1980) (the Treaty) unless the value of such shares is derived principally from real property situated in Canada or the non-resident holder previously held the share while resident in Canada.  However, in such a case, certain transitional relief under the Treaty may be available.



U.S. Federal Income Tax Consequences



The following is a general discussion of certain possible U.S. federal income tax consequences, under current law, generally applicable to a U.S. Holder (as hereinafter defined) of shares in the Corporation.  This discussion is of a general nature only and does not take into account the particular facts and circumstances, with respect to U.S. federal income tax issues, of any particular U.S. Holder.  In addition, this discussion does not cover any state, local or foreign tax consequences.  (See Taxation--Canadian Federal Income Tax Consequences below).



The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (Code), Treasury Regulations, published Internal Revenue Service (IRS) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations.  This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.



This discussion is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any U.S. Holder or prospective U.S. Holder of shares issued by the Corporation, and no opinion or representation with respect to the U.S. federal income tax consequences to any such U.S. Holder or prospective U.S. Holder is made.  Accordingly, U.S. Holders and prospective U.S. Holders of common shares issued by the Corporation should consult





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their own financial advisor, legal counsel or accountant regarding the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of shares issued by the Corporation.



U.S. Holders



As used herein, a U.S. Holder means a holder of common shares issued by the Corporation who is (i) a citizen or individual resident of the U.S., (ii) a corporation created or organized in or under the laws of the U.S. or of any political subdivision thereof, (iii) an estate whose income is taxable in the U.S. irrespective of source or (iv) a trust subject to the primary supervision of a court within the U.S. and control of a U.S. fiduciary as described Section 7701(a)(30) of the Code.  If a partnership or other pass-through entity treated as a partnership for U.S. federal income tax purposes holds shares issued by the Corporation, the U.S. federal income tax treatment of the partners or owners of such partnership or other pass-through entity generally will depend on the status of such partners or owners and the activities of such partnership or pass-through entity.



Persons Not Covered



This summary does not address the U.S. federal income tax consequences to persons (including persons who are U.S. Holders) subject to special provisions of U.S. federal income tax law, including (i) persons who are tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, or brokers, dealers or traders in securities, (ii) persons who have a functional currency other than the U.S. dollar, (iii) persons subject to the alternative minimum tax, (xi) persons who own their common shares as part of a straddle, hedging, conversion transaction, constructive sale or other arrangement involving more than one position, (iv) persons who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services, (v) persons that own an interest in an entity that owns common shares, (vi) persons who own, exercise or dispose of any options, warrants or other rights to acquire common shares, (vii) persons who are partners or owners of partnerships or other pass-through entities or (viii) persons who own their common shares other than as a capital asset within the meaning of Section 1221 of the Code.



Distributions Made by the Corporation to U.S. Holders

General Rules.  U.S. Holders receiving distributions (including constructive distributions) with respect to common shares issued by the Corporation are required to include in gross income as a dividend for U.S. federal income tax purposes the gross amount of such distributions (without reduction for any Canadian income tax withheld from such distributions), equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Corporation has current or accumulated earnings and profits.  To the extent that distributions from the Corporation exceed its current and accumulated earnings and profits, such distributions will be treated first as a return of capital, to the extent of the U.S. Holders adjusted basis in the shares, and thereafter as gain from the sale or exchange of the shares.  (See more detailed discussion at Disposition of Shares below).  Any Canadian tax withheld from a distribution by the Corporation may be credited, subject to certain limitations, against the U.S. Holders U.S. federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder's U.S. federal taxable income by those who itemize deductions.  (See more detailed discussion at Foreign Tax Credit below).



Currency Gain or Loss.  In the case of foreign currency received as a distribution that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt.  Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars,





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will be ordinary income or loss.  However, an individual whose realized gain does not exceed $200 will not recognize that gain, to the extent that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.



Dividend may be Eligible for Reduced Tax Rate.  For taxable years beginning after December 31, 2002 and before January 1, 2009, dividends received by U.S. Holders that are individuals, estates or trusts from qualified foreign corporations, as defined in Section 1(h)(11) of the Code, generally are taxed at the same preferential tax rates applicable to long-term capital gains.  Although not free from doubt, it appears that the Corporation would be a qualified foreign corporation, as defined in Section 1(h)(11) of the Code pursuant to the U.S. Canada income tax treaty if the Corporation is not a Passive Foreign Investment Company (PFIC).  A corporation that is properly described as a PFIC, Foreign Personal Holding Company (defined below), or a Foreign Investment Company (defined below) for its taxable year during which it pays a dividend, or for its immediately preceding taxable year, will not be treated as a qualifying foreign corporation and dividends received by U.S. Holders that are individuals, estates or trusts generally will be subject to U.S. federal income tax at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains).



Dividends not Eligible for Dividends Received Deduction.  Dividends paid by the Corporation generally will not be eligible for the dividends received deduction allowed to corporate shareholders receiving dividends from certain U.S. corporations.  Under certain circumstances, a U.S. Holder that is a corporation and that owns shares representing at least 10% of the total voting power and the total value of shares issued by the Corporation may be entitled to a 70% deduction of the U.S. source portion of dividends received from the Corporation (unless the Corporation qualifies as a Foreign Personal Holding Company or a PFIC as defined below).  The availability of the dividends received deduction is subject to several complex limitations that are beyond the scope of this discussion, and U.S. Holders of shares issued by the Corporation should consult their own financial advisor, legal counsel or accountant regarding the dividends received deduction.



Dividend Paid to Shareholder who Made QEF Election may be Exempt from Tax.  Generally, shareholders are not subject to additional income taxation on distributions made by a PFIC to the extent of the shareholders basis in the corporations shares if a Qualified Electing Fund (QEF) election is in effect.  (Please see the QEF election discussion below.)  A shareholders basis in this situation is usually equal to the cost of purchasing the shares plus the amount of the corporations income that was reported on the shareholders return pursuant to the QEF election less any prior distributions made by the corporation to the shareholder.  Again, these rules are subject to several exceptions that are beyond the scope of this discussion.  U.S. Holders of shares issued by the Corporation should consult their own financial advisor, legal counsel or accountant regarding whether dividends paid by the Corporation to them will be exempt from federal income tax if a QEF election is made.

Disposition of Shares



General Rule.  A U.S. Holder will recognize gain or loss upon the sale or other taxable disposition of shares issued by the Corporation equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholders tax basis in the shares.  This gain or loss will be capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder, which will be long-term capital gain or loss if the shares are held for more than one year.



Reduced Tax Rate.  Preferential tax rates apply to long-term capital gains of U.S. Holders that are individuals, estates or trusts.  There are currently no preferential tax rates for long-term capital gains for a





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U.S. Holder that is a corporation (other than a corporation subject to Subchapter S of the Code).  Deductions for net capital losses are subject to significant limitations.  For U.S. Holders that are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted.  For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.  Sales of PFIC stock are not eligible for the reduced long-term capital gains rates that are usually applicable to sales of stock unless the shareholder made a QEF election regarding such shares.



The Corporation may be a Passive Foreign Investment Company



General Discussion.  Management of the Corporation believes that it qualified as a PFIC, within the meaning of Sections 1291 through 1298 of the Code, for the fiscal year ended December 31, 2001 and may have qualified as a PFIC in prior years.  The Corporation may or may not have qualified as a PFIC in subsequent years due to changes in its assets and business operations.  However, there can be no assurance that the Corporation will not be considered a PFIC, for the fiscal year ended December 31, 2006, and may qualify as a PFIC in subsequent years.  This determination is not binding on U.S. Holders or the IRS and there can be no assurance that the IRS will not challenge this determination.  A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to numerous special U.S. federal income taxation rules and may elect to be taxed under two alternative tax regimes.  The following is a discussion of these three sets of special rules applied to U.S. Holders of shares issued by the Corporation.  In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a controlled foreign corporation (as defined below) and a U.S. Holder owns, actually or constructively, 10 % or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation (See more detailed discussion at Controlled Foreign Corporation below).



Definition of PFIC.  Section 1297 of the Code defines a PFIC as a corporation that is not formed in the U.S. and, for any taxable year, either (a) 75% or more of its gross income is passive income or (b) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of passive income is 50% or more.  Passive income includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.  However, gains resulting from commodities transactions are generally excluded from the definition of passive income if substantially all of a merchants, producers or handlers business is as an active merchant, producer or handler of such commodities.  For purposes of the PFIC income test and the assets test, if a foreign corporation owns (directly or indirectly) at least 25% by value of the stock of another corporation, such foreign corporation shall be treated as if it (a) held a proportionate share of the assets of such other corporation, and (b) received directly its proportionate share of the income of such other corporation.  Also, for purposes of such PFIC tests, passive income does not include any interest, dividends, rents or royalties that are received or accrued from a related person to the extent such amount is properly allocable to the income of such related person which is not passive income.  For these purposes, a person is related with respect to a foreign corporation if such person controls the foreign corporation or is controlled by the foreign corporation or by the same persons that control the foreign corporation.  For these purposes, control means ownership, directly or indirectly, of stock possessing more than 50% of the total voting power of all classes of stock entitled to vote or of the total value of stock of a corporation







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Generally Applicable PFIC Rules.  If a U.S. Holder does not make a timely election to be taxed in conformity with the Mark-to-Market rules or the QEF rules during a year in which it holds (or is deemed to have held) shares issued by the Corporation while it is a PFIC (a Non-Electing U.S. Holder), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reasons of a pledge) of his common shares and (ii) certain excess distributions (generally, distributions received in the current taxable year that are in excess of 125% of the average distributions received during the three preceding years or, if shorter, the U.S. Holders holding period) by the Corporation.



A Non-Electing U.S. Holder generally would be required to pro rate all gains realized on the disposition of his common shares and all excess distributions on his common shares over the entire holding period for the common shares.  All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to the Corporations first taxable year during such U.S. Holders holding period and beginning after January 1, 1987 for which the Corporation was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income.  The Non-Electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year.  A Non-Electing U.S. Holder that is not a corporation must treat this interest charge as personal interest which, as discussed above, is wholly nondeductible.  The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.



If the Corporation is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds shares issued by the Corporation, then it will continue to be treated as a PFIC with respect to such common shares, even if it ceases meeting the definition of a PFIC.  A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such common shares had been sold on the last day of the last taxable year for which it was a PFIC.



Market-to-Market Election.  Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold, actually or constructively, marketable stock (as specifically defined in the Treasury Regulations) of a foreign corporation that qualifies as a PFIC may annually elect to mark such stock to the market (a mark-to-market election).  If such an election is made, such U.S. Holder will generally not be subject to the special taxation rules of Section 1291 discussed above.  However, if the mark-to-market election is made by a Non-Electing U.S. Holder after the beginning of the holding period for the PFIC stock, then the Section 1291 rules will apply to certain dispositions of, distributions on and other amounts taxable with respect to the Corporations common shares.  A U.S. Holder who makes the mark-to market election will include in income for the taxable year for which the election was made an amount equal to the excess, if any, of the fair market value of the Corporations common shares as of the close of such tax year over such U.S. Holders adjusted basis in such common shares.  In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holders adjusted tax basis in the common shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the Corporations shares included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior tax year but for the Section 1291 interest on tax deferral rules discussed above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years.  A U.S. Holders adjusted tax basis in his shares will be adjusted to reflect the amount included in or deducted from income as a result of a mark-to-market election.  A mark-to-market election applies to the taxable year in which the election is made and to each subsequent taxable year, unless the shares cease to be marketable, as specifically defined, or the IRS consents to revocation of the election.





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QEF Election.  A U.S. Holder who makes a timely QEF election (an Electing U.S. Holder) regarding his shares issued by the Corporation will be subject, under Section 1293 of the Code, to current U.S. federal income tax for any taxable year in which the Corporation qualifies as a PFIC on his pro rata share of the Corporations (i) net capital gain (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) ordinary earnings (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the shareholders taxable year in which (or with which) the Corporations taxable year ends, regardless of whether such amounts are actually distributed.



The effective QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares (or deemed to be realized on the pledge of his shares) as capital gain; (ii) treat his share of the Corporations net capital gain, if any, as long-term capital gain instead of ordinary income; and (iii) either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Corporations annual realized net capital gain and ordinary earnings subject, however, to an interest charge.  If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as personal interest that is not deductible.



The procedure a U.S. Holder must comply with in making an effective QEF election, and the U.S. federal income tax consequences of the QEF election, will depend on whether the year of the election is the first year in the U.S. Holders holding period in which the Corporation is a PFIC.  If the U.S. Holder makes a QEF election in such first year, i.e., a timely QEF election, then the U.S. Holder may make the QEF election by simply filing the appropriate QEF election documents at the time the U.S. Holder files his tax return for such first year.  However, if the Corporation qualified as a PFIC in a prior year, then in addition to filing the QEF election documents, the U.S. Holder must elect to recognize (i) under the rules of Section 1291 of the Code (discussed herein), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date or (ii) if the Corporation is a controlled foreign corporation, the U.S. Holders pro rata share of the Corporations post-1986 earnings and profits as of the qualification date.  The qualification date is the first day of the Corporations first tax year in which the Corporation qualified as a QEF with respect to such U.S. Holder.  The elections to recognize such gain or earnings and profits can only be made if such U.S. Holders holding period for the shares includes the qualification date.  By electing to recognize such gain or earnings and profits, the U.S. Holder will be deemed to have made a timely QEF election.  A U.S. Holder who made elections to recognize gain or earnings and profits after May 1, 1992 and before January 27, 1997 may, under certain circumstances, elect to change such U.S. Holders qualification date to the first day of the first QEF year.  U.S. Holders are urged to consult a tax advisor regarding the availability of and procedure for electing to recognize gain or earnings and profits under the foregoing rules.  In addition to the above rules, under very limited circumstances, a U.S. Holder may make a retroactive QEF election if such U.S. Holder failed to file the QEF election documents in a timely manner.



A QEF election, once made with respect to the Corporation, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or terminated, or the IRS consents to revocation of the election.  If a QEF election is made by a U.S. Holder and the Corporation ceases to qualify as a PFIC in a subsequent tax year, the QEF election will remain in effect, although not applicable, during those tax years in which the Corporation does not qualify as a PFIC.  Therefore, if the Corporation again qualifies as a PFIC in a subsequent tax year, the QEF election will be effective and the U.S. Holder will be subject to the rules described above for Electing U.S. Holders in such tax year and any subsequent tax years in which the Corporation qualifies as a PFIC.  In addition, the QEF election





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remains in effect, although not applicable, with respect to an Electing U.S. Holder even after such U.S. Holder disposes of all of his or its direct and indirect interest in the Corporations shares.  Therefore, if such U.S. Holder reacquires an interest in the Corporation, that U.S. Holder will be subject to the rules described above for Electing U.S. Holders for each tax year in which the Corporation qualifies as a PFIC.



Generally, shareholders do not make a QEF election unless they have sufficient information to determine their proportionate shares of a corporations net capital gain and ordinary earnings.  The Corporation has not calculated these amounts for any shareholder and do not anticipate making these calculations in the foreseeable future.  Therefore, U.S. Holders of the Corporations common shares should consult their own financial advisor, legal counsel or accountant regarding the QEF election before making this election.



Other PFIC Rules.  Under Section 1291(f) of the Code, the IRS has issued Proposed Treasury Regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.  Generally, in such cases the basis of shares in the hands of the transferee and the basis of any property received in the exchange for those shares would be increased by the amount of gain recognized.  However, the specific U.S. federal income tax consequences to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred.



Certain special, generally adverse, rules will apply with respect to shares issued by the Corporation while it is a PFIC whether or not it is treated as a QEF.  For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.



The PFIC rules are very complicated, and U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the PFIC rules, including the advisability of and procedure for making a QEF election or a mark-to-mark election, and how these rules may impact their U.S. federal income tax situation.

Foreign Tax Credit



A U.S. Holder who pays (or has withheld from distributions) Canadian or other foreign income tax with respect to the ownership of shares issued by the Corporation may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for U.S. federal income tax purposes with respect to such foreign tax paid or withheld.  Generally, it will be more advantageous to claim a credit because a credit reduces U.S. federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayers income subject to U.S. federal income tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from distributions to) the U.S. Holder during that year.



There are significant and complex limitations that apply to the foreign tax credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holders U.S. income tax liability that the U.S. Holders foreign source income bears to his or its worldwide taxable income.  In applying this limitation, the various items of income and deduction must be classified as either foreign source or U.S. source.  Complex rules govern this classification process.  In addition, this limitation is calculated separately with respect to specific classes of income such as passive income, high withholding tax interest, financial services income, shipping income, and certain other classifications of income.  Dividends distributed by the Corporation will generally constitute foreign





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source income, and will be classified as passive income or, in the case of certain U.S. Holders, financial services income for these purposes.



In addition, U.S. Holders that are corporations and that own 10% or more of the Corporations voting stock may be entitled to an indirect foreign tax credit under Section 902 of the Code with respect to the payment of dividends by the Corporation under certain circumstances and subject to complex rules and limitations.The availability of the foreign tax credit and the application of the limitations with respect to the foreign tax credit are fact specific, and each U.S. Holder of common shares issued by the Corporation should consult their own financial advisor, legal counsel or accountant regarding the foreign tax credit rules.



Information Reporting; Backup Withholding



Certain information reporting and backup withholding rules may apply with respect to certain payments related to shares issued by the Corporation.  In particular, a payor or middleman within the U.S., or in certain cases outside the U.S., will be required to withhold 28% (which rate is scheduled for periodic adjustment) of any payments to a U.S. Holder regarding dividends paid by the Corporation, or proceeds from the sale of, such common shares within the U.S., if a U.S. Holder fails to furnish its correct taxpayer identification number (generally on Form W-9) or otherwise fails to comply with, or establish an exemption from, the backup withholding tax requirements.  Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holders U.S. federal income tax liability, provided the required information is furnished to the IRS.  U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the information reporting and backup withholding rules applicable to the Corporations shares.



Other Considerations for U.S. Holders



In the following circumstances, the above sections of this discussion may not describe the U.S. federal income tax consequences to U.S. Holders resulting from the ownership and disposition of shares issued by a foreign corporation.



Foreign Personal Holding Company.  If at any time during a taxable year (a) more than 50% of the total voting power or the total value of outstanding shares issued by the Corporation is owned, directly or indirectly, by five or fewer individuals who are citizens or residents of the U.S. and (b) 60% (or 50% in certain cases) or more of the Corporations gross income for such year is foreign personal holding company income as defined in Section 553 of the Code (e.g., dividends, interest, royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions), the Corporation may be treated as a Foreign Personal Holding Company (FPHC)  In that event, U.S. Holders of the Corporations common shares would be required to include in gross income for such year their allocable portions of such foreign personal holding company income to the extent the Corporation does not actually distribute such income.



The Corporation does not believe that it currently qualifies as a FPHC.  However, there can be no assurance that the Corporation will not be considered a FPHC for the current or any future taxable year.



Foreign Investment Company.  If (a) 50% or more of the total voting power or the total value of the Corporations outstanding shares is owned, directly or indirectly, by citizens or residents of the U.S., U.S. partnerships or corporations, or U.S. estates or trusts (as defined by the Code Section 7701(a)(30)), and (b) the Corporation is found to be engaged primarily in the business of investing, reinvesting, or





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trading in securities, commodities, or any interest therein, the Corporation may be treated as a "Foreign Investment Company" (FIC) as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging the Corporations common shares to be treated as ordinary income rather than capital gain.



The corporation does not believe that it currently qualifies as a FIC.  However, there can be no assurance that it will not be considered a FIC for the current or any future taxable year.



Controlled Foreign Corporation.  If more than 50% of the total voting power or the total value of the Corporations outstanding shares is owned, directly or indirectly, by citizens or residents of the U.S., U.S. partnerships or corporations, or U.S. estates or trusts (as defined by the Code Section 7701(a)(30)), each of which own, directly or indirectly, 10% or more of the total voting power of the Corporations outstanding shares (each a 10% Shareholder), the Corporation could be treated as a Controlled Foreign Corporation (CFC) under Section 957 of the Code.



The classification of the Corporation as a CFC would effect many complex results, including that 10% Shareholders would generally (i) be treated as having received a current distribution of the Corporations Subpart F income and (ii) would also be subject to current U.S. federal income tax on their pro rata shares of the Corporations earnings invested in U.S. property.  The foreign tax credit may reduce the U.S. federal income tax on these amounts for such 10% Shareholders (See more detailed discussion at Foreign Tax Credit above).  In addition, under Section 1248 of the Code, gain from the sale or other taxable disposition of the Corporations common shares by a U.S. Holder that is or was a 10% Shareholder at any time during the five-year period ending with the sale is treated as a dividend to the extent of the Corporations earnings and profits attributable to the common shares sold or exchanged.



If the Corporation is classified as both a PFIC and a CFC, it generally will not be treated as a PFIC with respect to 10% Shareholders.  This rule generally will be effective for taxable years of 10% Shareholders beginning after 1997 and for its taxable years ending with or within such taxable years of 10% Shareholders.



The Corporation does not believe that it currently qualifies as a CFC.  However, there can be no assurance that it will not be considered a CFC for the current or any future taxable year.



The FPHC, FIC and CFC rules are very complicated, and U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the FPHC, FIC and CFC rules and how these rules may impact their U.S. federal income tax situation.

F.

Dividends and Paying Agents

Not applicable.

G.

Statements by Experts

Not applicable.

H.

Documents on Display

The Corporation has filed with the Securities and Exchange Commission (the SEC) this Annual Report on Form 20-F, including exhibits, under the Exchange Act with respect to the Corporations common shares.





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You may read and copy all or any portion of this annual report of other information in the Corporations files in the SECs public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC located at Seven World Trade Centre, 13th Floor, New York, NY 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.

I.

Subsidiary Information

Not applicable.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the Corporations financial position due to adverse changes in financial market prices and rates. The Corporations market risk exposure is primarily a result of fluctuations in foreign currency exchange rates.



Foreign Currency Risk



The Corporation conducts business on a global basis in international currencies. As such, the Corporation is exposed to adverse or beneficial movements in foreign exchange rates. The Corporations sales are denominated in various currencies such as the U.S. dollar, Canadian dollar, British pound and Euro. The Corporations functional currency and the currency in which it reports its financial statements are in Canadian dollars.



The Corporation is exposed to foreign exchange fluctuations as its revenues are translated into Canadian dollars. All translation gains and losses are included in the determination of net income (loss). As exchange rates vary, these results when translated may impact the Corporations overall expected financial results.



The Corporation has evaluated its exposure to foreign currency risk and has determined that while it has a degree of exposure to the Euro and British pound, its most significant operating exposure to foreign currencies at this time is to the U.S. dollar. In certain historical periods, the weakening of the U.S. dollar has negatively affected the Corporations revenues.  Sensitivity analysis used to analyze the effect of foreign currency fluctuations indicates that a $0.01 change in the value of the U.S. dollar relative to the Canadian dollar would affect revenues by approximately 0.5%.  The effect on gross profit is less since a significant portion of product costs are denominated in U.S. dollars. Foreign exchange gains recognized in the determination of net earnings for the year were $262,536 (2005 - $122,462; 2004 - $30,850).



Interest Rate Risk



The Corporations exposure to market rate risk for changes in interest rates relates primarily to its investment portfolio. The investment of cash is regulated by the Corporations investment policy of which the primary objective is the security of principal. Among other selection criteria, the investment policy states that the term to maturity of investments cannot exceed one year in length. The Corporation invest its cash in a variety of short-term financial instruments, including government bonds, commercial paper and money market instruments. The Corporations portfolio consists primarily of investment grade





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securities to minimize credit risk. These investments are typically denominated in Canadian dollars. Cash balances in foreign currencies are operating balances and are only invested in demand or short term deposits of the local operating bank. The Corporation does not use derivative financial instruments in its investment portfolio.



Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted because of a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, the Corporations future investment income may fall short of expectations because of changes in interest rates or it may suffer losses in principal if forced to sell securities that have seen a decline in market value because of changes in interest rates.



While interest income on the Corporations cash, cash equivalents, and short-term investments is subject to interest rate fluctuations, the Corporation believes that the impact of these fluctuations does not have a material effect on its financial position due to the short-term nature of these financial instruments. The Corporations interest income and interest expense are most sensitive to the general level of interest rates in Canada. Sensitivity analysis is used to measure the Corporations interest rate risk. Based on analysis of the Corporations balances as of December 31, 2006, a 100 basis-point adverse change in interest rates would not have a material effect on its consolidated financial position, results of operation, or cash flows.



The Corporation does not have any material exposure to commodity risks. The Corporation is exposed to economic and political changes in international markets where the Corporation competes such as inflation rates, recession, foreign ownership restrictions and other external factors over which the Corporation has no control; domestic and foreign government spending, budgetary and trade policies.



ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There have been no defaults, dividend arrearages or delinquencies.

ITEM 14.

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

There have been no material modifications to the Corporations common shares.





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ITEM 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Management, including the CEO and CFO, directly supervises the preparation of all of the financial reports prepared by the Corporation and is directly involved in the Corporations financial record keeping and reporting. All accounting records and financial reports prepared by the Corporation are reviewed for accuracy by the CEO and CFO.

As of the end of the period covered by this annual report, an evaluation was carried out under the supervision and with the participation of the Corporations management, including the CEO and CFO, of the effectiveness of the design and operation of the Corporations disclosure controls and procedures, as such term is defined under Rules 13(a)  15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO have concluded that the Corporations disclosure controls and procedures are effective in ensuring that material information required to be disclosed in this annual report is recorded, processed, summarized and reported, and required disclosure is made within the time period specified in the rules and forms of the U.S. Securities and Exchange Commission.



Managements Annual Report on Internal Control Over Financial Reporting



Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Corporation. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP and US GAAP.



The framework used by management to evaluate the effectiveness of the Corporations internal control over financial reporting consisted of a comparative review of the documentation underlying the financial reporting process for the last fiscal year against the financial statements, a review of record maintenance procedures, meetings with employees responsible for financial reporting and the preparation of financial statements, and an overall assessment of the processes in place to prevent and detect weaknesses in the Corporations internal control over financial reporting.



Inventory errors discovered in the first quarter of 2007 relating to 2006 are described in Section 1.3 of the Corporations Management Discussion and Analysis for the year ended December 31, 2006 as restated and can be attributed to a breakdown in normal processes for receiving goods and controls around the year end inventory count and the related adjustments.   Management considers this to be a material weakness at December 31, 2006.



As a result of the above errors, management has reviewed these controls and concluded that the design of internal controls over financial reporting was not effective as of December 31, 2006 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes.



This annual report does not include an attestation report of the Corporations registered public accounting firm regarding internal control over financial reporting.  Managements report was not subject to attestation by the Corporations registered public accounting firm pursuant to temporary rules of the Securities Exchange Commission that permit the Corporation to provide only managements report in this annual report.





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Changes in Internal Control over Financial Reporting



As a result of the errors described above, management will be implementing new procedures designed to prevent and detect such errors in the future.  In the first quarter of 2007, management commenced enhanced cycle counting procedures to ensure that unusual adjustments can be detected and analyzed on a timely basis.  Management will also continue to review the appropriateness of the control environment and make other changes, as considered appropriate.



Additional disclosures pertaining to the Corporations management information circulars, material change reports, press releases and other information are available on the SEDAR website at www.sedar.com.

ITEM 16.



ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

As at the date hereof, the Audit Committee is composed of Messrs. Sisodraker, Edmison and Varshney. The Board has determined that Messrs. Sisodraker and Varshney are audit committee financial experts as defined in Item 16A of the Form 20-F. Messrs. Sisodraker and Edmison are independent directors under Rule 4200(a)(15) of the National Association of Securities Dealers listing standards, as such standards may be amended and modified.



ITEM 16B.

CODE OF ETHICS

The Corporation has not yet adopted a written code of ethics that meets the new United States' Sarbanes-Oxley standards. The Board believes that its existing standards and procedures are adequate for its purposes.  The Corporation believes that its management structure and corporate culture effectively deter wrongdoing and promote honest and ethical conduct, full, fair and accurate, timely, and understandable disclosure in reports and documents, compliance with applicable governmental laws, rules and regulations, prompt internal reporting of unethical conduct and accountability for adherence to the conduct standards. The Corporation has a small number of employees and most of its officers are also directors, thus eliminating any split between the Corporations management and the directors who are responsible to safeguard shareholder interests.  As a result, the Corporation believes that the activities of the Corporations officers, employees and other agents can be easily monitored by its directors, thus eliminating the need for a formal written code of ethics.



ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG LLP, Chartered Accountants (KPMG), are the independent auditors of the Corporation and examined the financial statements of the Corporation for the fiscal years ending December 31, 2006, 2005, and 2004. KPMG performed the services listed below and were paid the corresponding fees for the fiscal years ended December 31, 2006 and 2005.



|                      |            |                       |          |               
|--------------------- | ---------- | --------------------- | -------- | --------------
|Financial Year
Ending | Audit Fees | Audit Related Fees(1) | Tax Fees | All Other Fees
|December 31, 2006     | $244,380   | $Nil                  | $14,800  | $Nil          





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|                  |          |         |         |     
|----------------- | -------- | ------- | ------- | ----
|December 31, 2005 | $151,307 | $43,328 | $20,252 | $Nil



During the fiscal years ended December 31, 2006 and December 31, 2005, KPMG did not bill for any products or services other than as described above.



The audit committee pre-approves audit engagement terms and fees prior to the commencement of any audit work, other than that which may be necessary for the Corporations independent auditors to prepare the proposed audit approach, scope and fee estimates. The independent auditors annually submit a written proposal that details all audit and audit related services. Audit fees are fixed and contained in the proposal, and the audit committee reviews the nature and dollar value of services provided under such proposal. Any revisions to such proposal after the engagement has begun are reviewed and pre-approved by the audit committee.



There were no fees in 2006 or 2005 that were not pre-approved by the audit committee. All services described above under the captions Audit Fees and Audit Related Fees and Tax Fees and All Other Fees were approved by the audit committee pursuant to SEC Regulation S-X, Rule 2-01(c)(7)(i).



ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.



ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

No purchases of shares or any other units of any class of the Corporations equity securities have been made by or on behalf of the Corporation or any affiliated purchaser during the last fiscal year.





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PART III

ITEM 17.

FINANCIAL STATEMENTS

The Financial Statements have been prepared in accordance with Canadian GAAP and are presented in Canadian dollars.  There are material measurement differences between United States and Canadian GAAP.  A reconciliation of the financial statements to United States GAAP is set forth in Note 17 to the Financial Statements.



|                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------
|Financial Statements                                                                                                                         
|Report of Independent Public Accounting Firm                                                                                                 
|Consolidated Balance Sheets at December 31, 2006 and 2005.                                                                                   
|Consolidated Statements of Operations and Retained Earnings (Deficit) for each of the years in the three-year period ended December 31, 2006.
|Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2006.                                
|Notes to Consolidated Financial Statements for each of the years in the three-year period ended December 31, 2006.                           

ITEM 18.

FINANCIAL STATEMENTS

Not applicable.

ITEM 19.

EXHIBITS

|              |                                                                                                                                                                        
|------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber | Description                                                                                                                                                            
|1.1 (1)       | Articles of Andina Development Corporation dated March 26, 1996.                                                                                                       
|1.2 (1)       | Certificate of Incorporation for Andina Development Corporation dated March 26, 1996.                                                                                  
|1.3 (1)       | By-law effective May 21, 1996, relating generally to the transaction of the business and affairs of Andina Development Corporation.                                    
|1.4 (2)       | Certificate of Amendment and Registration of Restated Articles of Carmanah Technologies Corporation dated June 19, 2001.                                               
|1.4 (4)       | Certificate of Amalgamation pursuant to the Business Corporations Act of Alberta and Registration Statement of Carmanah Technologies Corporation dated January 1, 2006.
|4.1 (1)       | Stock Option Plan dated May 21, 1996.                                                                                                                                  
|4.2 (2)       | Stock Option Plan dated May 10, 2001.                                                                                                                                  
|4.3 (2)       | Corporate Advisory Agreement between Varshney Capital Corp. and Carmanah Technologies Corporation dated June 20, 2001.                                                 
|4.4 (3)       | Amended Stock Option Plan dated April 15, 2004.                                                                                                                        
|4.5 (3)       | Amended Stock Option Plan dated April 20, 2005.                                                                                                                        





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|        |                                                                                                                                      
|------- | -------------------------------------------------------------------------------------------------------------------------------------
|4.6 (3) | Amalgamation Agreement dated August 27, 2003 among Carmanah Technologies Corporation, AVVA Technologies Inc. and 1057614 Alberta Ltd.
|4.7 (3) | Lease agreement between the Corporation of the City of Victoria and Carmanah Holdings Ltd. Dated September 1, 1994.                  
|4.8 (3) | Lease agreement between AVVA and Airstate Ltd. dated August 26, 1998.                                                                
|4.9 (4) | Amended Stock Option Plan dated April 17, 2006.                                                                                      
|8.1 (3) | List of subsidiaries                                                                                                                 
|8.2 (4) | List of subsidiaries as at December 31, 2005                                                                                         
|8.3     | List of subsidiaries as at December 31, 2006                                                                                         
|12.1    | Section 302 Certification                                                                                                            
|12.2    | Section 302 Certification                                                                                                            
|13.1    | Section 906 Certification                                                                                                            
|13.2    | Section 906 Certification                                                                                                            

* Indicates management contract or compensatory plan, contract or arrangement.

(1) Incorporated by reference to Form 20-F filed on April 21, 1999.

(2) Incorporated by reference to Form 20-F filed on July 1, 2002.

(3) Incorporated by reference to Form 20-F filed on July 1, 2004.

(4) Incorporated by reference to Form 20-F filed on July 5, 2006.







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SIGNATURE

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.





CARMANAH TECHNOLOGIES CORPORATION





By: Roland Sartorius, CFO

(Principal Financial Officer)





DATED:  September 21, 2007







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EXHIBIT INDEX

|               |  |                                                                                                                                                                        
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Exhibit
Description                                                                                                                                                    
|1.1 (1)        |  | Articles of Andina Development Corporation dated March 26, 1996.                                                                                                       
|1.2 (1)        |  | Certificate of Incorporation for Andina Development Corporation dated March 26, 1996.                                                                                  
|1.3 (1)        |  | By-law effective May 21, 1996, relating generally to the transaction of the business and affairs of Andina Development Corporation.                                    
|1.4 (2)        |  | Certificate of Amendment and Registration of Restated Articles of Carmanah Technologies Corporation dated June 19, 2001.                                               
|1.4 (4)        |  | Certificate of Amalgamation pursuant to the Business Corporations Act of Alberta and Registration Statement of Carmanah Technologies Corporation dated January 1, 2006.
|4.1 (1)        |  | Stock Option Plan dated May 21, 1996.                                                                                                                                  
|4.2 (2)        |  | Stock Option Plan dated May 10, 2001.                                                                                                                                  
|4.3 (2)        |  | Corporate Advisory Agreement between Varshney Capital Corp. and Carmanah Technologies Corporation dated June 20, 2001.                                                 
|4.4 (3)        |  | Amended Stock Option Plan dated April 15, 2004.                                                                                                                        
|4.5 (3)        |  | Amended Stock Option Plan dated April 20, 2005.                                                                                                                        
|4.6 (3)        |  | Amalgamation Agreement dated August 27, 2003 among Carmanah Technologies Corporation, AVVA Technologies Inc. and 1057614 Alberta Ltd.                                  
|4.7 (3)        |  | Lease agreement between the Corporation of the City of Victoria and Carmanah Holdings Ltd. Dated September 1, 1994.                                                    
|4.8 (3)        |  | Lease agreement between AVVA and Airstate Ltd. dated August 26, 1998.                                                                                                  
|4.9 (4)        |  | Amended Stock Option Plan dated April 17, 2006.                                                                                                                        
|8.1 (3)        |  | List of subsidiaries                                                                                                                                                   
|8.2 (4)        |  | List of subsidiaries as at December 31, 2005                                                                                                                           
|8.3            |  | List of subsidiaries as at December 31, 2006                                                                                                                           
|12.1           |  | Section 302 Certification                                                                                                                                              
|12.2           |  | Section 302 Certification                                                                                                                                              
|13.1           |  | Section 906 Certification                                                                                                                                              
|13.2           |  | Section 906 Certification                                                                                                                                              

* Indicates management contract or compensatory plan, contract or arrangement.

(1) Incorporated by reference to Form 20-F filed on April 21, 1999.

(2) Incorporated by reference to Form 20-F filed on July 1, 2002.

(3) Incorporated by reference to Form 20-F filed on July 1, 2004.

(4) Incorporated by reference to Form 20-F filed on July 5, 2006.





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Exhibit 8.3



LIST OF SUBSIDIARIES

As at December 31, 2006



|                                  |                              
|--------------------------------- | -----------------------------
|Subsidiary                        | Jurisdiction of Incorporation
|                                  |                              
|AVVA Technologies, Inc.           | Alberta, Canada              
|Carmanah Signs Inc.               | Alberta, Canada              
|Soltek Powersource Solutions Inc. | California, USA              
|                                  |                              







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Exhibit 12.1



CERTIFICATION

I, Art Aylesworth, certify that:



1.

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



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

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



4.

The companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and



5.

The companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.







Date:

September 21, 2007

By:

Art Aylesworth, President and CEO

(Principal Executive Officer)





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Exhibit 12.2



CERTIFICATION



I, Praveen Varshney, certify that:



1.

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



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

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



4.

The companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and



5.

The companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.







Date:

September 21, 2007

By:

Roland Sartorius, CFO

(Principal Financial Officer)





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Exhibit 13.1



CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the annual report of Carmanah Technologies Corporation (the Corporation) on Form 20-F for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Art Aylesworth, President and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.







Date:

September 21, 2007

By:

Art Aylesworth, President and CEO

(Principal Executive Officer)









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Exhibit 13.2



CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the annual report of Carmanah Technologies Corporation (the Corporation) on Form 20-F for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Praveen Varshney, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.







Date:

September 21, 2007

By:

Roland Sartorius, CFO

(Principal Financial Officer)





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