**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-KSB**




**ANNUAL
      REPORT PURSUANT TO**


**SECTION
      13 OR 15(D) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**




For
      the
      fiscal year ended December 31, 2007




Commission
      file number:  000-51762





**ALTERNATIVE
      ENERGY SOURCES, INC.**


(Name
      of
      Small Business Issuer in its charter)




Delaware
            
            74-3038728(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)




310
                West 20thKansas
                City, Missouri 64108Street(Address
                of Principal Executive Offices)(816)
                842-3835(Issuer’s
                telephone number, including area
                code)




Securities
      registered pursuant to Section 12(b) of the Exchange Act:





Title
                of each class
            
            Name
                of each exchange on which registeredNone
            
            None





Securities
      registered pursuant to Section 12(g) of the Exchange Act:





Common
      Stock, par value $.0001





Check
      whether the issuer in not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90 days.





Yes x No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB.




Yes x No o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





Yes o No x





State
      issuer’s revenues for its most recent fiscal
      year: _____ $0_____





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days.





$ 3,380,376
      as of March 20, 2007





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date.





40,500,009
      on March 20, 2007




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







**Special
      Note Regarding Forward-Looking Statements**





This
      Annual Report on Form 10-KSB contains forward-looking statements regarding
      our
      business, financial condition, results of operations, performance and prospects.
      All statements that are not historical or current facts are forward-looking
      statements and are made pursuant to the safe harbor provisions of the Private
      Securities Litigation Reform Act of 1995. Forward-looking statements involve
      known and unknown risks, uncertainties and other factors, many of which may
      be
      beyond our control, that may cause our actual results, performance or
      achievements to be materially different from any future results, performances
      or
      achievements expressed or implied by the forward-looking
      statements.





In
      some
      cases, you can identify forward-looking statements by terms such as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,”
“plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and
      similar expressions intended to identify forward-looking statements.
      Forward-looking statements reflect our current views with respect to future
      events, are based on assumptions and are subject to risks and uncertainties.
      Given these uncertainties, you should not place undue reliance on these
      forward-looking statements. Also, forward-looking statements represent our
      estimates and assumptions only as of the date of this report. Except as required
      by law, we assume no obligation to update any forward-looking statements
      publicly, or to update the reasons actual results could differ materially from
      those anticipated in any forward-looking statements, even if new information
      becomes available in the future. Readers are urged to carefully review and
      consider the various disclosures made by us in this report and in our other
      reports filed from time to time with the Securities and Exchange Commission,
      known as the Commission, that advise interested parties of the risks and factors
      that may affect our business.





Since
      our
      common stock may be considered a “penny stock,” we are ineligible to rely on the
      safe harbor for forward looking statements provided by Section 27A of the
      Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of
      the Securities Exchange Act of 1934, as amended (the “Exchange Act”).





**PART
      I**





**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**





We
      are a
      development stage company that has been engaged in product development and
      pre-operational activities since its formation and have no operating history
      as
      a producer of ethanol. Prior to the first quarter of 2008, we had no revenues.
      We had planned to engage in the business of constructing, owning and operating
      fuel grade ethanol plants in the Midwest corn-belt. To date, we have been
      unsuccessful in securing the necessary capital to implement our business plan.
      In order to continue in business it will be necessary to generate cash flow;
      otherwise the Company will have insufficient funds to continue its business.
      To
      generate cash flow, commencing in the first quarter of 2008, we have sought
      to
      provide management advisory and consulting services. While we have generated
      a
      limited amount of revenue from our consulting activity in early 2008, monthly
      revenue has not been sufficient to cover the Company’s monthly operating
      expenses. Our only revenue has been derived from a consulting agreement that
      is
      scheduled to terminate effective March 31, 2008. As of the date of this report,
      we have no other immediate prospects of generating additional revenue, other
      than the proceeds from the settled lawsuit against McGuireWoods LLP discussed
      below and in Item 3 of this Annual Report.





Our
      financial statements as of and for the period ended December 31, 2007 have
      been
      prepared on a going concern basis, which contemplates the realization of assets
      and the settlement of liabilities and commitments in the normal course of
      business. There can be no guarantee that we will be successful in generating
      sufficient cash flow from consulting and advisory services to continue as a
      going concern. If we are unsuccessful, we will cease operations.





The
      Company had no ethanol operations during 2007, and therefore no material
      operating or capital expenditures for the period. General and administrative
      expenditures for the year ended December 31, 2007 totaled $6,852,367. The
      Company is attempting to reduce its recurring operating cash uses to
      approximately $150,000 per month in the second quarter of 2008. The Company
      also
      anticipates no project development expenditures in 2008 unless significant
      funding is received.





On
      January 31, 2008 the Company filed a Petition of Damages in the Circuit Court
      of
      Jackson County, Missouri that was subsequently removed to the United States
      Federal Court for the Western District of Missouri, against McGuireWoods LLP
      relating to damages caused by defendants actions in the Company’s $12 million
      private placement of shares in 2006. The Company has entered into a settlement
      agreement with McGuireWoods LLP pursuant to which the Company would receive
      approximately $320,000, after expenses related to the suit are paid. These
      funds
      are expected to be received in April, 2008.


1


If
      we are
      successful in bringing down our costs to $150,000 per month, and are paid the
      $320,000 we expect to receive from the McGuireWoods LLP settlement, we estimate
      we have sufficient cash on hand to continue our business until June,
      2008.





To
      address our ability to continue as a going concern, we have been seeking
      additional capital through the sale and issuance of equity and debt financing.
      At this point, we have not been able to obtain this capital.





Our
      plan
      was to construct ethanol plants in Boone County, Iowa and Kankakee, Illinois
      and
      all permits for those plants were obtained in June, 2007. However, as noted
      above, we have been unable to obtain the capital to construct the plants. As
      a
      result, we were unable to extend the option to purchase land for the Kankakee,
      Illinois plant. We extended the option to purchase land for the Boone County,
      Iowa plant until the end of 2008 but must obtain capital to construct the plant
      which in the current environment may not be possible.





To
      complete construction and commence operation of the two plants we will need
      to
      raise approximately $730 million in new capital. This amount is intended to
      cover the cost of construction, capitalized interest during construction,
      pre-operating costs, financing and legal fees and the necessary working capital
      lines to operate the Plants and provide for risk management hedging activities.
      If we are unable to obtain this new capital we may not be able to continue
      as a
      going concern.





The
      Company’s Board of Directors formed a Special Committee to explore and evaluate
      strategic alternatives aimed at enhancing shareholder value for the Company's
      non-management stockholders. Strategic alternatives considered include a
      possible sale of the Company. The Special Committee has retained the investment
      banking firm of Christenberry Collet & Company, Inc. to provide independent
      financial advisory services and has engaged Stinson Morrison Hecker LLP as
      independent legal counsel. No strategic alternative will be pursued unless
      it is
      recommended by the Special Committee.





The
      Company and a privately-held company (the “Potential Acquiror”) entered into a
      letter agreement to provide financial assurances to the Potential Acquiror
      for
      the time and expense incurred in evaluating a possible purchase of the Company.
      Under the terms of the letter agreement, the Company is free to pursue any
      strategic transaction including the sale of the Company to another acquiror
      but
      is required to pay the Potential Acquiror a fee of $500,000 (and reimburse
      its
      reasonable expenses up to $500,000) if, within one year, the Company enters
      into
      an agreement with respect to a change-of-control transaction with another
      acquiror. However, that fee would be payable only upon consummation of such
      a
      transaction. There can also be no assurance regarding whether the Board will
      elect to pursue any other strategic alternatives it may consider, or that any
      such alternatives will be consummated.





Alternative
      Energy Sources, Inc. was incorporated on April 8, 2002 as a development stage
      company that planned to profit by providing consulting services and selling
      wind
      energy power systems to the residential, agricultural and small business sectors
      throughout Washington, Idaho, Montana, and Oregon.





In
      the
      3rd quarter of 2004, the Company stated on Form 10-QSB that it was changing
      its
      business plan from focusing on business opportunities within the alternative
      energy marketplace to identifying and pursuing the development of a new business
      plan and direction for the Company. The reason for the change of direction
      was
      based upon the Company’s inability to raise proceeds or generate revenue from
      its proposed business plan. Since August 19, 2004, until the first quarter
      of
      2008, we had no revenues.





As
      of
      December 31, 2007, we had seven full time employees who are responsible for
      company-wide management, marketing, project management, logistics and
      administration. If we are successful in obtaining financing, thus allowing
      us to
      execute the business plan, we anticipate an increase in employees of up to
      25
      full time equivalents by the end of 2008. There can be no assurance that the
      Company will be successful in obtaining the necessary funding to execute our
      business plan.




2


**RISK
      FACTORS**





**Risks
      Related to our Business**





**We
      are a development stage company with no operating history as a producer of
      ethanol.**





We
      have
      no operating history in our contemplated ethanol production business and, to
      date, have not earned any revenues, except for limited revenue in 2008 from
      the
      performance of consulting services. We have announced plans to construct three
      ethanol plants (subsequently reduced to plans to construct two plants), but
      have
      not begun construction on any of the plants. Accordingly, it may be difficult
      for investors to evaluate our business prospects.





Our
      business is dependent on the implementation of our business plan, including
      our
      ability to make future investments. There can be no assurance that our efforts
      will ultimately be successful or result in revenues or profits. There is no
      assurance that investors will not lose their entire investment.





Moreover,
      our prospects must be considered in light of the risks and uncertainties
      encountered by an early-stage company and in rapidly evolving markets, such
      as
      the ethanol market, where supply and demand may change significantly in a short
      amount of time. Some of these risks relate to our potential inability
      to:





·
            effectively
                manage our contemplated business and operations;·
            recruit
                and retain key personnel;·
            successfully
                create and maintain the low-cost structure we envision as we expand
                the
                scale of our business;·
            manage
                rapid growth in personnel and operations;·
            develop
                new products that complement our contemplated business;
                and·
            successfully
                address the other risks described throughout this
                report.





If
      we
      cannot successfully address these risks, our contemplated business and the
      results of our contemplated operations and financial position would suffer.





**We
      may be substantially dependent on a limited number of facilities, and any
      operational disruption could result in a reduction of sales volume and could
      cause us to incur substantial losses.**





If
      we are
      successful in raising capital to construct our proposed ethanol plants, most
      of
      our revenues will be derived from the sale of ethanol and the related
      co-products that we plan to produce. We have announced plans to construct three
      ethanol plants. If commenced, our anticipated operations may be subject to
      significant interruption if any of our facilities experience a major accident
      or
      are damaged by severe weather or other natural disasters. In addition, our
      operations would be subject to labor disruptions and unscheduled downtime,
      or
      other operational hazards inherent in the ethanol industry, such as equipment
      failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures,
      transportation accidents and natural disasters. Some of these operational
      hazards may cause personal injury or loss of life, severe damage to or
      destruction of property and equipment or environmental damage, and may result
      in
      suspension of operations and the imposition of civil or criminal penalties.
      The
      insurance that we plan to obtain, if obtained, may not be adequate to fully
      cover the potential operational hazards described above.





**We
      may not be able to continue as a going concern.**





Our
      consolidated financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. We have a history of operating losses that
      are
      likely to continue in the future. Our significant losses from operations and
      our
      dependence on equity and debt financing raise substantial doubt about our
      ability to continue as a going concern. Our financial statements do not include
      any adjustments that might be necessary should we be unable to continue as
      a
      going concern. Our operations must begin to provide sufficient revenues to
      improve our working capital position. Additionally, we will require additional
      capital to construct ethanol production facilities and commence our planned
      operations. If we are unable to raise additional capital we may need to revise
      our business plan, reduce the scope of our planned operations or discontinue
      our
      operations. If we are unable to secure additional funds in the immediate future
      we will likely be forced to cease operations in the second quarter of 2008.
      The
      current environment for receiving funding is extremely difficult and there
      can
      be no assurance that the Company will be able to obtain the necessary funding
      to
      continue operations. In such case, investors could lose their entire investment.
      As of December 31, 2007, our cash reserves were $69,091 and we had an additional
      $109,678 invested in money-market investments.


3


**We
      may be unable to attract alternative potential acquirors**





The
      Company has entered into a letter agreement with a privately-held company (the
      “Potential Acquiror”) providing financial assurances to the Potential Acquiror
      for the time and expense incurred in evaluating a possible purchase of the
      Company. Under the terms of the letter agreement, the Company is free to pursue
      any strategic transaction including the sale of the Company to another acquiror
      but is required to pay the Potential Acquiror a fee of $500,000 (and reimburse
      its reasonable expenses up to $500,000) if, within one year, the Company enters
      into an agreement with respect to a change-of-control transaction with another
      acquiror. The Company has not entered into an agreement with the Potential
      Acquiror providing for the purchase of the Company, and no assurance can be
      given that any such agreement will be executed. The obligations of the Company
      under the letter agreement, may significantly reduce the likelihood of
      attracting competing suitors or completing a sale of the Company to any entity
      other than the Potential Acquiror.





**We
      may not be able to implement our business plan for construction or operation
      of
      ethanol plants and have not received the necessary funds for our planned ethanol
      plant construction.**





We
      planned to grow our contemplated business by investing in new or existing
      facilities. In August, 2006 we announced plans to construct two ethanol plants
      -
      one in Iowa and one in Illinois. In October, 2006 we announced plans to
      construct one additional ethanol plant in Illinois. We were unable to extend
      the
      option to purchase land for our site in Illinois. We have extended the option
      on
      the Iowa site until the end of 2008, however, if we are unable to obtain the
      necessary funding to move our plans forward we will not be able to construct
      our
      plant.





To
      implement our business strategies we must obtain funding and have been
      unsuccessful to date in raising capital. Our funds on hand are not sufficient
      to
      continue operating as a going concern. If we are unable to secure additional
      funds in the immediate future we will likely be forced to cease operations
      in
      the second quarter of 2008. The current environment for receiving funding is
      extremely difficult and there can be no assurance that the Company will be
      able
      to obtain the necessary funding to continue operations. In such case, investors
      could lose their entire investment. As of December 31, 2007, our cash reserves
      were $69,091 and we had an additional $109,678 invested in money-market
      investments.





We
      must
      also obtain numerous regulatory approvals and permits in order to construct
      and
      operate additional or expanded facilities. These requirements may not be
      satisfied in a timely manner or at all. In addition, we may be adversely
      affected by environmental, health and safety laws, regulations and liabilities.
      Satisfaction of these federal and state governmental requirements may
      substantially increase our costs, which could have a material adverse effect
      on
      the results of our contemplated operations and financial position. Our
      contemplated expansion plans may also result in other unanticipated adverse
      consequences, such as diverting management’s attention from our existing
      operations.





Our
      anticipated construction costs may also increase to levels that would make
      a new
      facility too expensive to complete or unprofitable to operate. Contractors,
      engineering firms, construction firms, and equipment suppliers also receive
      requests and orders from other ethanol companies and, therefore, we may not
      be
      able to secure their services or products on a timely basis or on acceptable
      financial terms. We may suffer significant delays or cost overruns as a result
      of a variety of factors, such as shortages of workers or materials,
      transportations constraints, adverse weather, unforeseen difficulties or labor
      issues, any of which could prevent us from commencing operations at our
      facilities.





Accordingly,
      we may not be able to implement our acquisition or expansion strategy as planned
      or at all. We may not find additional appropriate sites for new facilities
      and
      we may not be able to finance, construct, develop, or operate these new or
      expanded facilities successfully.





Any
      additional capital raised through the sale of equity may dilute the ownership
      percentages of existing stockholders. This could also result in a decrease
      in
      the fair market value of our equity securities because our assets would be
      owned
      by a larger pool of outstanding equity. The terms of securities we issue in
      future capital transactions may be more favorable to our new investors, and
      may
      include preferences, superior voting rights and the issuance of warrants or
      other derivative securities, and issuances of incentive awards under equity
      employee incentive plans, which may have a further dilutive effect.





Our
      ability to obtain needed financing may be impaired by such factors as the
      capital markets (both generally and in the ethanol industry in particular),
      our
      status as a new enterprise without a demonstrated operating history, the
      location of our facilities, the prices of ethanol and the raw materials needed
      to produce ethanol on the commodities markets (which will impact the amount
      of
      asset-based financing available to us) and/or the loss of key
      management.


4


Further,
      if ethanol prices on the commodities markets decrease, then our revenues will
      likely decrease, and such decreased revenues may increase our requirements
      for
      capital. If the amount of capital we are able to raise from financing
      activities, together with our revenues from operations, is not sufficient to
      satisfy our capital needs (even to the extent that we reduce our operations),
      we
      may be required to cease our operations.





We
      may
      incur substantial costs in pursuing future capital financing, including
      investment banking fees, legal fees, accounting fees, securities law compliance
      fees, printing and distribution expenses and other costs. We may also be
      required to recognize non-cash expenses in connection with certain securities
      we
      may issue, such as convertible notes and warrants, which may adversely impact
      our financial condition.





**We
      are dependent upon our officers for management and direction, and the loss
      of
      any of these persons could adversely affect our contemplated operations and
      results.**





We
      are
      dependent upon our executive officers, specifically, Mark Beemer, our Chairman
      and Chief Executive Officer, Lee Blank, our President and Chief Operating
      Officer, John Ward, our Executive Vice President and Director of Operations,
      and
      John Holland, our Executive Vice President and Chief Financial Officer, for
      implementation of our proposed expansion strategy and execution of our
      contemplated business. The loss of any of our officers could have a material
      adverse effect upon the results of our contemplated operations and financial
      position. We do not maintain “key person” life insurance for any of our
      officers. The loss of any of our officers could delay or prevent the achievement
      of our contemplated business objectives.





**Our
      management team does not have extensive experience in public company matters,
      which could impair our ability to comply with legal and regulatory requirements.**





Our
      management team has had limited U.S. public company management experience or
      responsibilities, which could impair our ability to comply with legal and
      regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable
      federal securities laws including filing required reports and other information
      required on a timely basis. There can be no assurance that our management will
      be able to implement and affect programs and policies in an effective and timely
      manner that adequately respond to increased legal, regulatory compliance and
      reporting requirements imposed by such laws and regulations. Our failure to
      comply with such laws and regulations could lead to the imposition of fines
      and
      penalties and further result in the deterioration of our business.





**Risks
      Related to our Industry**





**Our
      anticipated results may be substantially dependent on commodity prices,
      especially prices for corn, natural gas, ethanol, and unleaded gasoline.**





As
      a
      result of the volatility of the prices for commodities, anticipated results
      may
      fluctuate substantially and we may experience periods of declining prices for
      our products and increasing costs for our raw materials, which could result
      in
      operating losses. Although we may attempt to offset a portion of the effects
      of
      fluctuations in prices by entering into forward contracts to supply ethanol
      or
      purchase corn, natural gas or other items or by engaging in transactions
      involving exchange-traded futures contracts, the amount and duration of these
      hedging and other risk mitigation activities may vary substantially over time
      and these activities also involve substantial risks.





**Our
      contemplated business is likely to be highly sensitive to corn prices and we
      generally will be unable to pass on increases in corn prices to our customers.**





The
      principal raw material we expect to use to produce ethanol and co-products,
      including dry and wet distillers grains, is corn. As a result, changes in the
      price of corn can significantly affect our contemplated business. In general,
      rising corn prices produce lower profit margins. Because ethanol competes with
      non-corn-based fuels, we are not likely to be able to pass along increased
      corn
      costs to customers. At certain levels, corn prices may make ethanol uneconomical
      to use in fuel markets.





Weather
      conditions and other factors affecting crop yields, farmer planting decisions,
      and general economic, market and regulatory factors all influence the price
      of
      corn. Government policies and subsidies with respect to agriculture and
      international trade, and global and local demand and supply also impact the
      price. The significance and relative effects of these factors on the price
      of
      corn are difficult to predict. Any event that tends to negatively affect the
      supply of corn, such as adverse weather or crop disease, could increase corn
      prices and potentially harm our business. In addition, ethanol producers may
      also have difficulty, from time to time, in physically sourcing corn on
      economical terms due to supply shortages. Such a shortage could require us
      to
      suspend our contemplated operations until corn becomes available at acceptable
      terms, which would have a material adverse effect on our business, results
      of
      operations and financial position. The price paid for corn at a facility could
      increase if an additional ethanol production facility is built in the same
      general vicinity.


5





**The
      spread between ethanol and corn prices can vary significantly, and the recent
      lower levels of these spreads may continue.**





The
      gross
      margin of our anticipated business depends principally on the spread between
      ethanol and corn prices. In recent periods, the spread between ethanol and
      corn
      prices has been at low levels, driven in large part by high corn prices and
      ethanol prices. Any further reduction in the spread between ethanol and corn
      prices, whether as a result of an increase in corn prices or a reduction in
      ethanol prices, would adversely affect our anticipated results of operations
      and
      financial position.





**The
      market for natural gas is subject to market conditions that create uncertainty
      in the price and availability of the natural gas that the Company may use in
      our
      anticipated manufacturing process.**





Our
      contemplated business may rely upon third parties for supplies of natural gas,
      which is consumed in the manufacture of ethanol. The prices for and availability
      of natural gas is subject to volatile market conditions. These market conditions
      often are affected by factors beyond our control, such as higher prices
      resulting from colder than average weather conditions and overall economic
      conditions. Significant disruptions in the supply of natural gas could impair
      our ability to manufacture ethanol for our customers. Furthermore, increases
      in
      natural gas prices or changes in natural gas costs relative to natural gas
      costs
      paid by competitors could adversely affect our anticipated results of operations
      and financial position.





**Fluctuations
      in the selling price and production cost of gasoline may reduce our anticipated
      profit margins, if profits are achieved.**





Ethanol
      is marketed both as a fuel additive to reduce vehicle emissions from gasoline
      and as an octane enhancer to improve the octane rating of gasoline with which
      it
      is blended. As a result, ethanol prices are influenced by the supply and demand
      for gasoline and our anticipated results of operations and financial position
      may be materially adversely affected if gasoline demand or price decreases.
      Historically, the price of a gallon of gasoline has been lower than the cost
      to
      produce a gallon of ethanol. In addition, some of the sales contracts into
      which
      we may enter may provide for pricing on an indexed basis, so that the price
      we
      may receive for products sold under these arrangements will be adjusted as
      gasoline prices change.





**Our
      anticipated business will be subject to seasonal fluctuations.**





Our
      anticipated operating results are likely to be influenced by seasonal
      fluctuations in the price of our primary operating inputs, corn and coal or
      natural gas or both, and the price of our primary product, ethanol. The spot
      price of corn tends to rise during the spring planting season in May and June
      and tends to decrease during the fall harvest in October and November. The
      price
      for natural gas, however, tends to move opposite that of corn and tends to
      be
      lower in the spring and summer and higher in the fall and winter. In addition,
      ethanol prices are substantially correlated with the price of unleaded gasoline
      especially in connection with our indexed, gas-plus sales contracts. The price
      of unleaded gasoline tends to rise during each of the summer and winter. Given
      our lack of operating history, we do not know yet how these seasonal
      fluctuations will affect our results over time.





**If
      we engage in hedging transactions and other risk mitigation strategies, those
      strategies could harm our financial results.**





It
      is
      possible that, in an attempt to partially offset the effects of volatility
      of
      ethanol prices and corn and natural gas costs, we will enter into contracts
      to
      supply a portion of our ethanol production or purchase a portion of our corn
      or
      natural gas requirements on a forward basis and also engage in other hedging
      transactions involving exchange-traded futures contracts for corn, natural
      gas
      and unleaded gasoline from time to time. The price of unleaded gasoline also
      affects the price we receive for our ethanol under indexed contracts. The
      financial statement impact of these activities is dependent upon, among other
      things, the prices involved and our ability to sell sufficient products to
      use
      all of the corn and natural gas for which we have futures contracts. Hedging
      arrangements, if entered into, will also expose us to the risk of financial
      loss
      in situations where the other party to the hedging contract defaults on its
      contract or, in the case of exchange-traded contracts, where there is a change
      in the expected differential between the underlying price in the hedging
      agreement and the actual prices paid or received by us. Hedging activities
      can
      themselves result in losses when a position is purchased in a declining market
      or a position is sold in a rising market.


6


A
      hedge
      position is often settled in the same time frame as the physical commodity
      is
      either purchased (corn and natural gas) or sold (ethanol). Hedging losses may
      be
      offset by a decreased cash price for corn and natural gas and an increased
      cash
      price for ethanol. If we do hedge, we may also vary the amount of hedging or
      other risk mitigation strategies we undertake, and we may choose not to engage
      in hedging transactions at all. As a result, our results of operations and
      financial position may be adversely affected by increases in the price of corn
      or natural gas or decreases in the price of ethanol or unleaded gasoline. As
      of
      the date of this report, we have not entered into any such hedging transactions.





**Growth
      in the sale and distribution of ethanol is dependent on the changes to and
      expansion of**


**related
      infrastructure which may not occur on a timely basis, if at all, and the
      Company’s contemplated operations could be adversely affected by infrastructure
      disruptions.**





Substantial
      development of infrastructure will be required by persons and entities outside
      our control for our contemplated operations, and the ethanol industry generally,
      to grow. Areas requiring expansion include, but are not limited to:





·
            additional
                rail capacity;·
            additional
                storage facilities for ethanol;·
            increases
                in truck fleets capable of transporting ethanol within localized
                markets;·
            expansion
                of refining and blending facilities to handle ethanol;
                and·
            growth
                in service stations equipped to handle ethanol
                fuels.





Substantial
      investments required for these infrastructure changes and expansions may not
      be
      made or they may not be made on a timely basis. Any delay or failure in making
      the changes to or expansion of infrastructure could hurt the demand or prices
      for our contemplated products, impede our delivery of those products, impose
      additional costs on us, or otherwise have a material adverse effect on our
      results of contemplated operations or financial position. Our contemplated
      business will be dependent on the continuing availability of infrastructure
      and
      any infrastructure disruptions could have a material adverse effect on our
      business.





**New
      ethanol plants under construction or decreases in the demand for ethanol may
      result in excess U.S. production capacity.**





According
      to the Renewable Fuels Association, (the “RFA”), domestic ethanol production
      capacity has increased from 1.9 billion gallons per year (“BGY”) as of January
      2001 to an estimated 6.5 BGY in 2007. During December 2007 ethanol was produced
      at a record level of 489 million gallons. The RFA estimates that,
      as of March 2008, approximately 6.2 BGY of additional production capacity
      is under construction or expansion. According to the RFA, at the end of December
      2007, 134 ethanol refineries were in production with a capacity of 7.2BGY.
      The
      RFA has reported that, according to information provided to it, there are
      numerous ethanol projects that are seeking financing. Excess capacity in the
      ethanol industry would have an adverse effect on our contemplated results of
      operations, cash flows, and financial position. In a manufacturing industry
      with
      excess capacity, producers have an incentive to manufacture additional products
      for so long as the price exceeds the marginal cost of production (i.e., the
      cost
      of producing only the next unit, without regard for interest, overhead or fixed
      costs). This incentive can result in the reduction of the market price of
      ethanol to a level that is inadequate to generate sufficient cash flow to cover
      costs.





Excess
      capacity may also result from decreases in the demand for ethanol, which could
      result from a number of factors, including regulatory developments and reduced
      U.S. gasoline consumption. Reduced gasoline consumption could occur as a result
      of increased prices for gasoline or crude oil, which could cause businesses
      and
      consumers to reduce driving or acquire vehicles with more favorable gasoline
      mileage. There is some evidence that this has occurred in the recent past as
      U.S. gasoline prices have increased.





**We
      may not be able to compete effectively in the U.S. ethanol industry.**





In
      the
      U.S., our contemplated business would compete with other corn processors,
      ethanol producers and refiners. As of March 2008, the top 7 producers accounted
      for at least 48% of the ethanol production capacity in the U.S., according
      to
      the RFA. A number of competitors are divisions of substantially larger
      enterprises and have substantially greater financial resources than we plan
      to
      have. Smaller competitors also pose a threat. Farmer-owned cooperatives and
      independent firms consisting of groups of individual farmers and investors
      have
      been able to compete successfully in the ethanol industry. These smaller
      competitors operate smaller facilities which do not affect the local price
      of
      corn grown in the proximity to the facility as much as larger facilities. In
      addition, many of these smaller competitors are farmer-owned and often require
      their farmer-owners to commit to selling them a certain amount of corn as a
      requirement of ownership. A significant portion of production capacity in the
      ethanol industry consists of smaller-sized facilities. Most new ethanol plants
      under development across the country are individually owned. In addition,
      institutional investors and high net worth individuals could heavily invest
      in
      ethanol production facilities and oversupply the demand for ethanol, resulting
      in lower ethanol price levels that might adversely affect the results of our
      contemplated operations and financial position.


7





The
      ethanol industry also includes increasing competition from international
      suppliers. Although there is a $0.54 per gallon tariff (which is scheduled
      to
      expire January 1, 2009) on foreign produced ethanol that is approximately equal
      to the blenders’ credit, ethanol imports equivalent to up to 7% of total
      domestic production in any given year from various countries were exempted
      from
      this tariff under the Caribbean Basin Initiative to spur economic development
      in
      Central America and the Caribbean. Currently, international suppliers produce
      ethanol primarily from sugar cane and have cost structures that may be
      substantially lower than ours.





Any
      increase in domestic or foreign competition could result in reduced ethanol
      prices. As a result, we could be forced to take other steps to compete
      effectively, which could adversely affect the results of our contemplated
      operations and financial position.





**The
      U.S. ethanol industry is highly dependent upon federal and state legislation
      and
      regulation and any changes in legislation or regulation could materially and
      adversely affect the results of our contemplated operations and financial
      position.**





The
      elimination or significant reduction in the blenders’ credit could have a
      material adverse effect on the results of our contemplated operations and
      financial position. The cost of producing ethanol is made significantly more
      competitive with regular gasoline by federal tax incentives. Before January
      1,
      2005, the federal excise tax incentive program allowed gasoline distributors
      that blended ethanol with gasoline to receive a federal excise tax rate
      reduction for each blended gallon sold. If the fuel was blended with 10%
      ethanol, the refiner/marketer paid $0.052 per gallon less tax, which equated
      to
      an incentive of $0.52 per gallon of ethanol. The $0.52 per gallon incentive
      for
      ethanol was reduced to $0.51 per gallon in 2005 and is scheduled to expire
      (unless extended) in 2010. The blenders’ credits may not be renewed in 2010 or
      may be renewed on different terms. In addition, the blenders’ credits, as well
      as other federal and state programs benefiting ethanol (such as tariffs),
      generally are subject to U.S. government obligations under international trade
      agreements, including those under the World Trade Organization Agreement on
      Subsidies and Countervailing Measures, and might be the subject of challenges
      thereunder, in whole or in part. The elimination or significant reduction in
      the
      blenders’ credit or other programs benefiting ethanol may have a material
      adverse effect on the results of our contemplated operations and financial
      position.





**Ethanol
      can be imported into the U.S. duty-free from some countries, which may undermine
      the ethanol industry in the U.S.**





Imported
      ethanol is generally subject to a $0.54 per gallon tariff that was designed
      to
      offset the $0.51 per gallon ethanol incentive available under the federal excise
      tax incentive program for refineries that blend ethanol in their fuel. A special
      exemption from the tariff exists for ethanol imported from 24 countries in
      Central America and the Caribbean Islands, which is limited to a total of 7%
      of
      U.S. production per year. Imports from the exempted countries may increase
      as a
      result of new plants under development. Since production costs for ethanol
      in
      these countries are estimated to be significantly less than what they are in
      the
      U.S., the duty-free import of ethanol through the countries exempted from the
      tariff may negatively affect the demand for domestic ethanol and the price
      at
      which we sell our ethanol.





**The
      effect of the Renewable Fuel Standard in the recent Energy Policy Act is
      uncertain.**





The
      use
      of fuel oxygenates, including ethanol, was mandated through regulation, and
      much
      of the forecasted growth in demand for ethanol was expected to result from
      additional mandated use of oxygenates. Most of this growth was projected to
      occur in the next few years as the remaining markets switch from MTBE to
      ethanol. The recently enacted energy bill, however, eliminated the mandated
      use
      of oxygenates and established minimum nationwide levels of renewable fuels
      (ethanol, biodiesel or any other liquid fuel produced from biomass or biogas)
      to
      be included in gasoline. Because biodiesel and other renewable fuels in addition
      to ethanol are counted toward the minimum usage requirements of the renewable
      fuel standards set forth in the legislation, the elimination of the oxygenate
      requirement for reformulated gasoline may result in a decline in ethanol
      consumption, which in turn could have a material adverse effect on the results
      of our contemplated operations and financial condition. The legislation also
      included provisions for trading of credits for use of renewable fuels and
      authorized potential reductions in the Renewable Fuel Standard (“RFS”)
      minimum by action of a governmental administrator. In addition, the rules for
      implementation of the RFS and the energy bill are still under development.


8





The
      legislation did not include MTBE liability protection sought by refiners, and
      ethanol producers have generally estimated that this will result in accelerated
      removal of MTBE and increased demand for ethanol. Refineries may use other
      possible replacement additives, such as iso-octane, iso-octene or alkylate.
      Accordingly, the actual demand for ethanol may increase at a lower rate than
      production for estimated demand, resulting in excess production capacity in
      our
      industry, which would negatively affect our results of operations, financial
      position and cash flows.





**Waivers
      of the RFS minimum levels of renewable fuels included in gasoline could have
      a
      material adverse affect on the results of our contemplated operations.**





Under
      the
      Energy Policy Act, the U.S. Department of Energy, in consultation with the
      Secretary of Agriculture and the Secretary of Energy, may waive the renewable
      fuels mandate with respect to one or more states if the Administrator of the
      U.S. Environmental Protection Agency, or U.S. EPA, determines that implementing
      the requirements would severely harm the economy or the environment of a state,
      a region or the U.S., or that there is inadequate supply to meet the
      requirement. Any waiver of the RFS with respect to one or more states would
      adversely offset demand for ethanol and could have a material adverse effect
      on
      the results of our contemplated operations and financial condition.





**We
      may be adversely affected by environmental, health and safety laws, regulations
      and liabilities.**





If
      we are
      able to successfully pursue our business plan, we will become subject to various
      federal, state and local environmental laws and regulations, including those
      relating to the discharge of materials into the air, water and ground, the
      generation, storage, handling, use, transportation and disposal of hazardous
      materials, and the health and safety of our employees. In addition, some of
      these laws and regulations require our contemplated facilities to operate under
      permits that are subject to renewal or modification. These laws, regulations
      and
      permits can often require expensive pollution control equipment or operational
      changes to limit actual or potential impacts to the environment. A violation
      of
      these laws and regulations or permit conditions can result in substantial fines,
      natural resource damages, criminal sanctions, permit revocations and/or facility
      shutdowns.





Furthermore,
      if we are able to successfully implement our plan, we may become liable for
      the
      investigation and cleanup of environmental contamination at each of the
      properties that we may own or operate and at off-site locations where it may
      arrange for the disposal of hazardous substances. If these substances have
      been
      or are disposed of or released at sites that undergo investigation and/or
      remediation by regulatory agencies, we may be responsible under the
      Comprehensive Environmental Response, Compensation and Liability Act of 1980,
      or
      CERCLA, or other environmental laws for all or part of the costs of
      investigation and/or remediation, and for damages to natural resources. We
      may
      also be subject to related claims by private parties alleging property damage
      and personal injury due to exposure to hazardous or other materials at or from
      those properties. Some of these matters may require expending significant
      amounts for investigation, cleanup, or other costs.





In
      addition, new laws, new interpretations of existing laws, increased governmental
      enforcement of environmental laws, or other developments could require us to
      make additional significant expenditures. Continued government and public
      emphasis on environmental issues can be expected to result in increased future
      investments for environmental controls at ethanol production facilities. Present
      and future environmental laws and regulations (and interpretations thereof)
      applicable to ethanol operations, more vigorous enforcement policies and
      discovery of currently unknown conditions may require substantial expenditures
      that could have a material adverse effect on the results of our contemplated
      operations and financial position.





The
      hazards and risks associated with producing and transporting ethanol and Dried
      Distilled Grains (“DDGs”) (such as fires, natural disasters, explosions, and
      abnormal pressures and blowouts) may also result in personal injury claims
      or
      damage to property and third parties. As protection against operating hazards,
      we maintain insurance coverage against some, but not all, potential losses.
      However, we could sustain losses for uninsurable or uninsured risks, or in
      amounts in excess of existing insurance coverage. Events that result in
      significant personal injury or damage to our property or third parties or other
      losses that are not fully covered by insurance could have a material adverse
      effect on the results of our contemplated operations and financial
      position.


9





**Risks
      Related to Our Common Stock**





**Investors
      may have difficulty trading and obtaining quotations for our common stock.**





Our
      common stock is currently quoted on the Over-the-Counter Bulletin Board under
      the symbol “AENS.OB.” Our common stock is not actively traded, and the bid and
      asked prices for our common stock have fluctuated widely. As a result, investors
      may find it difficult to dispose of, or to obtain accurate quotations of the
      price of, our securities. This severely limits the liquidity of our common
      stock, and would likely reduce the market price of our common stock and hamper
      our ability to raise additional capital.





**The
      market price of our common stock is, and is likely to continue to be, highly
      volatile and subject to wide fluctuations.**





The
      market price of our common stock is highly volatile and subject to wide
      fluctuations. A number of factors that are beyond our control contribute to
      this
      volatility, including:





·
            Investor
                response to dilution caused by our issuance of additional shares
                of common
                stock and other forms of equity securities, which would occur in
                connection with future capital financings to fund our operations
                and
                growth, to attract and retain valuable personnel and in connection
                with
                future strategic partnerships with other companies;·
            announcements
                of new acquisitions, reserve discoveries or other business initiatives
                by
                our competitors;·
            changes
                in the market for ethanol and the commodities used in the production
                of
                ethanol and/or in the capital markets generally;·
            changes
                in the demand for ethanol, including changes resulting from the
                introduction or expansion of alternative fuels and fuel
                additives;·
            quarterly
                variations in our revenues and operating expenses;·
            changes
                in the valuation of similarly situated companies, both in our industry
                and
                in other industries;·
            changes
                in analysts’ estimates affecting our company, our competitors and/or our
                industry;·
            changes
                in the accounting methods used in or otherwise affecting our
                industry;·
            additions
                and departures of key personnel;·
            announcements
                of technological innovations or new products available to competitive
                industries, such as the oil and gas industry;·
            announcements
                by relevant governments pertaining to incentives for alternative
                energy
                development programs;·
            fluctuations
                in interest rates and the availability of capital in the capital
                markets;
                and·
            significant
                sales of our common stock, including sales by existing investors
                and/or
                future investors in future offerings we may make to raise additional
                capital.





These
      and
      other factors are largely beyond our control, and the impact of these risks,
      singly or in the aggregate, may result in material adverse changes to the market
      price of our common stock and/or our results of operations and financial
      condition.





**Our
      operating results may fluctuate significantly, and these fluctuations may cause
      our stock price to decline.**





If
      we are
      successful in implementing our business plan, our operating results will likely
      vary in the future primarily as the result of fluctuations in our revenues
      and
      operating expenses, including the coming to market of ethanol that we are able
      to produce, expenses that we incur, the price of ethanol in the commodities
      markets and other factors. Since our inception, we have not generated revenues
      on which investors may gauge our future performance. If our results of
      operations do not meet the expectations of current or potential investors,
      the
      price of our common stock may decline.





**We
      do not expect to pay dividends in the foreseeable future.**





We
      do not
      intend to declare dividends for the foreseeable future, as we anticipate that
      we
      will reinvest any future earnings, if any, in the development and growth of
      our
      business. Therefore, investors will not receive any funds unless they sell
      their
      common stock, and stockholders may be unable to sell their shares on favorable
      terms or at all. Investors cannot be assured of a positive return on investment
      or that they will not lose the entire amount of their investment in the common
      stock.





**Investors
      will experience dilution upon the exercise of warrants or options.**





There
      are
      12,000,000 shares of common stock underlying outstanding warrants, which if
      exercised or converted, could decrease the net tangible book value of investors’
common stock. In addition, there are 4,000,000 shares of common stock underlying
      options that have been or may be granted pursuant to our stock option plan.
      If
      the holders of those options exercise those options, investors may experience
      dilution in the net tangible book value of their common stock. Further, the
      sale
      or availability for sale of the underlying shares in the marketplace could
      depress our stock price.


10





**Our
      directors and officers will have a high concentration of common stock ownership.**





Based
      on
      the 40,500,009 shares of common stock that are outstanding as of March 20,
      2008,
      our officers and directors beneficially own approximately 35.0% of our
      outstanding common stock. Such a high level of ownership by such persons may
      have a significant effect in delaying, deferring or preventing any potential
      change in control of us. Additionally, as a result of their high level of
      ownership, our officers and directors might be able to strongly influence the
      actions of the Board and the outcome of actions brought to our shareholders
      for
      approval. Such a high level of ownership may adversely affect the voting and
      other rights of our shareholders.





**Applicable
      SEC rules governing the trading of “penny stocks” limit the trading and
      liquidity of the common stock, which may affect the trading price of our common
      stock.**





Shares
      of
      our common stock are considered “penny stock” and may be subject to SEC rules
      and regulations which impose limitations upon the manner in which such shares
      may be publicly traded and regulate broker-dealer practices in connection with
      transactions in “penny stocks.” Penny stocks generally are equity securities
      with a price of less than $5.00 (other than securities registered on certain
      national securities exchanges or quoted on the NASDAQ system, provided that
      current price and volume information with respect to transactions in such
      securities is provided by the exchange or system). The penny stock rules require
      a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
      from the rules, to deliver a standardized risk disclosure document that provides
      information about penny stocks and the risks in the penny stock market. The
      broker-dealer must also provide the customer with current bid and offer
      quotations for the penny stock, the compensation of the broker-dealer and its
      salesperson in the transaction, and monthly account statements showing the
      market value of each penny stock held in the customer’s account. In addition,
      the penny stock rules generally require that prior to a transaction in a penny
      stock, the broker-dealer make a special written determination that the penny
      stock is a suitable investment for the purchaser and receive the purchaser’s
      written agreement to the transaction. These disclosure requirements may have
      the
      effect of reducing the level of trading activity in the secondary market for
      a
      stock that becomes subject to the penny stock rules which may increase the
      difficulty investors may experience in attempting to liquidate such securities.





**ITEM
      2.**  **DESCRIPTION
      OF PROPERTIES**





No
      properties are or have been owned by the Company since its formation. The
      Company announced plans to construct plants in Boone County, Iowa; Kankakee,
      Illinois and Greenville, Illinois. However, the Company was only able to extend
      the option on the Boone County site until the end of 2008. The land options
      on
      the Kankakee and Greenville sites have lapsed. In addition, the Company leases
      its headquarters in Kansas City, Missouri.





**ITEM
      3.**  **LEGAL
      PROCEEDINGS**





The
      Company may be a party from time to time to various claims and lawsuits which
      arise in the ordinary course of business. The Company does not believe that
      the
      ultimate resolution of these ordinary claims or lawsuits will have a material
      adverse effect on our business, financial condition, results of operation,
      or
      cash flows.





No
      director, officer, or affiliate of the Company and no owner of record or
      beneficial owner of more than 5.0% of the equity securities of the Company,
      or
      any associate of any such director, officer or security holder is a party
      adverse to the Company, or has a material interest adverse to the Company in
      reference to pending litigation.





On
      February 12, 2007, McGuireWoods, LLP, notified the Company that an entity
      controlled by Louis Zehil, a former partner with that firm, caused an entity
      under his control to acquire shares in a private placement of the Company’s
      stock without the required restricted legend, which shares were subsequently
      traded. If the shares were acquired without the required legend and subsequently
      traded, such trades may be in violation of the federal securities laws. The
      transactions in question relate to the $12 million private placement of shares
      of the Company’s common stock and warrants to purchase shares of the Company’s
      common stock to a group of institutional and accredited investors announced
      on
      June 20, 2006, for which McGuireWoods served as the Company’s external legal
      counsel.


11


On
      February 21, 2007, the U.S. Securities and Exchange Commission notified the
      Company that it was conducting an investigation into Zehil’s activities as it
      relates to the sale of shares of the Company’s common stock during June and
      September of 2006.





The
      Company is cooperating fully with the Securities and Exchange Commission’s
      review of the Zehil transactions. We do not expect any legal action to be
      brought against the Company as a result of the suspect transactions and their
      review by the Securities and Exchange Commission. Accordingly, there should
      be
      no material impact on our results of operations or financial
      position.





On
      January 31, 2008 the Company filed a Petition of Damages in the Circuit Court
      of
      Jackson County, Missouri that was subsequently removed to the United States
      Federal Court for the Western District of Missouri, against McGuireWoods LLP
      relating to damages caused by defendants actions in the Company’s $12 million
      private placement of shares in 2006. The Company has entered into a settlement
      agreement with McGuireWoods LLP pursuant to which the Company would receive
      approximately $320,000, after expenses related to the suit are paid. These
      funds
      are expected to be received in April, 2008.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of security holders during the fourth quarter
      of fiscal year 2007.





**PART
      II**





**ITEM
      5.**  **MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
      PURCHASES OF EQUITY SECURITIES**





Our
      common stock has been quoted on the Over-the-Counter Bulletin Board under the
      symbol “AENS.OB” since July, 2004, but has only been actively traded since June
      19, 2006. For the periods indicated, the following table sets forth the high
      and
      low bid prices per share of our common stock on the OTC Bulletin Board:





**Quarter
                Ended**
            
            **High**
            
            **Low**December
                31, 2007
            
            $
            0.145
            
            $
            0.135September
                30, 2007
            
            $
            0.72
            
            $
            0.65June
                30, 2007
            
            $
            0.88
            
            $
            0.84March
                31, 2007
            
            $
            0.80
            
            $
            0.76





Quotations
      reflect inter-dealer prices, without retail mark-up, mark-down or commission
      and
      may not represent actual transactions.




As
      of
      December 31, 2007 there were 40,500,009 shares of common stock issued and
      outstanding.





As
      of
      December 31, 2007, there were approximately 81 holders of record of shares
      of
      our common stock.





We
      have
      never declared or paid dividends on shares of our common stock and we intend
      to
      retain future earnings, if any, to support the development of our business
      and
      therefore do not anticipate paying cash dividends for the foreseeable future.
      Payment of future dividends, if any, will be at the discretion of our board
      of
      directors after taking into account various factors, including current financial
      condition, operating results and current and anticipated cash
      needs.





**ITEM
      6.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS**





**Management’s
      Plan of Operation and Discussion and Analysis of Financial Condition and Results
      of Operations**





We
      are a
      development stage company that has been engaged in product development and
      pre-operational activities since its formation and have no operating history
      as
      a producer of ethanol. Prior to the first quarter of 2008, we had no revenues.
      We had planned to engage in the business of constructing, owning and operating
      fuel grade ethanol plants in the Midwest corn-belt. To date, we have been
      unsuccessful in securing the necessary capital to implement our business plan.
      In order to continue in business it will be necessary to generate cash flow;
      otherwise the Company will have insufficient funds to continue its business.
      To
      generate cash flow, commencing in the first quarter of 2008, we have sought
      to
      provide management advisory and consulting services. While we have generated
      a
      limited amount of revenue from our consulting activity in early 2008, monthly
      revenue has not been sufficient to cover the Company’s monthly operating
      expenses. Our only revenue has been derived from a consulting agreement that
      is
      scheduled to terminate effective March 31, 2008. As of the date of this report,
      we have no other immediate prospects of generating additional revenue, other
      than the proceeds from the settled lawsuit against McGuireWoods LLP discussed
      in
      Item 3 above.


12





Our
      financial statements as of and for the period ended December 31, 2007 have
      been
      prepared on a going concern basis, which contemplates the realization of assets
      and the settlement of liabilities and commitments in the normal course of
      business. There can be no guarantee that we will be successful in generating
      sufficient cash flow from consulting and advisory services to continue as a
      going concern. If we are unsuccessful, we will cease operations.





The
      Company had no ethanol operations during 2007, and therefore no material
      operating or capital expenditures for the period. General and administrative
      expenditures for the year ended December 31, 2007 totaled $6,852,367. The
      Company is attempting to reduce its recurring operating cash uses to
      approximately $150,000 per month in the second quarter of 2008. The Company
      also
      anticipates no project development expenditures in 2008 unless significant
      funding is received.





If
      we are
      successful in bringing down our costs to $150,000 per month, and are paid the
      $320,000 we expect to receive from the McGuireWoods LLP settlement, we estimate
      we have sufficient cash on hand to continue our business until June,
      2008.





To
      address our ability to continue as a going concern, we have been seeking
      additional capital through the sale and issuance of equity and debt financing.
      At this point, we have not been able to obtain this capital.





Our
      plan
      was to construct ethanol plants in Boone County, Iowa and Kankakee, Illinois
      and
      all permits for those plants were obtained in June, 2007. However, as noted
      above, we have been unable to obtain the capital to construct the plants. As
      a
      result, we were unable to extend the option to purchase land for the Kankakee,
      Illinois plant. We extended the option to purchase land for the Boone County,
      Iowa plant until the end of 2008 but must obtain capital to construct the plant
      which in the current environment may not be possible.





To
      complete construction and commence operation of the two plants we will need
      to
      raise approximately $730 million in new capital. This amount is intended to
      cover the cost of construction, capitalized interest during construction,
      pre-operating costs, financing and legal fees and the necessary working capital
      lines to operate the Plants and provide for risk management hedging activities.
      If we are unable to obtain this new capital we may not be able to continue
      as a
      going concern.





The
      Company’s Board of Directors formed a Special Committee to explore and evaluate
      strategic alternatives aimed at enhancing shareholder value for the Company's
      non-management stockholders. Strategic alternatives considered include a
      possible sale of the Company. The Special Committee has retained the investment
      banking firm of Christenberry Collet & Company, Inc. to provide independent
      financial advisory services and has engaged Stinson Morrison Hecker LLP as
      independent legal counsel. No strategic alternative will be pursued unless
      it is
      recommended by the Special Committee.





The
      Company and a privately-held company (the “Potential Acquiror”) entered into a
      letter agreement to provide financial assurances to the Potential Acquiror
      for
      the time and expense incurred in evaluating a possible purchase of the Company.
      Under the terms of the letter agreement, the Company is free to pursue any
      strategic transaction including the sale of the Company to another acquiror
      but
      is required to pay the Potential Acquiror a fee of $500,000 (and reimburse
      its
      reasonable expenses up to $500,000) if, within one year, the Company enters
      into
      an agreement with respect to a change-of-control transaction with another
      acquiror. However, that fee would be payable only upon consummation of such
      a
      transaction. There can also be no assurance regarding whether the Board will
      elect to pursue any other strategic alternatives it may consider, or that any
      such alternatives will be consummated.





Alternative
      Energy Sources, Inc. was incorporated on April 8, 2002 as a development stage
      company that planned to profit by providing consulting services and selling
      wind
      energy power systems to the residential, agricultural and small business sectors
      throughout Washington, Idaho, Montana, and Oregon.





In
      the
      3rd quarter of 2004, the Company stated on Form 10-QSB that it was changing
      its
      business plan from focusing on business opportunities within the alternative
      energy marketplace to identifying and pursuing the development of a new business
      plan and direction for the Company. The reason for the change of direction
      was
      based upon the Company’s inability to raise proceeds or generate revenue from
      its proposed business plan. Since August 19, 2004, until the first quarter
      of
      2008, we had no revenues.


13





As
      of
      December 31, 2007, we had seven full time employees who are responsible for
      company-wide management, marketing, project management, logistics and
      administration. If we are successful in obtaining financing, thus allowing
      us to
      execute the business plan, we anticipate an increase in employees of up to
      25
      full time equivalents by the end of 2008. There can be no assurance that the
      Company will be successful in obtaining the necessary funding to execute our
      business plan.





**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.





**ITEM
      7.**  **FINANCIAL
      STATEMENTS**




Financial
      statements as of and for the fiscal year ended December 31, 2007 have been
      examined to the extent indicated in their report by Bagell, Josephs, Levine
      & Company, L.L.C, independent registered public accounting firm, and have
      been prepared in accordance with GAAP and pursuant to Regulation S-B as
      promulgated by the SEC. The aforementioned financial statements are included
      herein starting with page  F-1.




**ITEM
      8.****CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





On
      June
      19, 2006, the Company, Beemer Acquisition Corp., a wholly owned subsidiary
      of
      the Company, and Beemer Energy, Inc. entered into a Merger Agreement and Plan
      of
      Reorganization and consummated the merger of Beemer Acquisition Corp. with
      and
      into Beemer Energy, Inc. The merger resulted in Beemer Energy, Inc. becoming
      our
      wholly owned subsidiary. Following the merger, our management and business
      operations became substantially the management and business operations of Beemer
      Energy, Inc. before the merger.





Before
      the merger, our independent registered public accounting firm was Stark Winter
      Schenkein & Co. Because the merger was treated as a reverse acquisition for
      accounting purposes, future historical financial reports filed by us will be
      those of Beemer Energy, Inc., the accounting acquiror. Accordingly, our board
      of
      directors changed our independent registered public accounting firm from Stark
      Winter Schenkein & Co. to Bagell, Josephs, Levine & Company, LLC. Stark
      Winter Schenkein & Co. was dismissed as our independent registered public
      accounting firm on August 10, 2006, and Bagell, Josephs, Levine & Company,
      LLC was engaged as our independent registered public accounting firm on the
      same
      date.





The
      reports of Stark Winter Schenkein & Co. on our financial statements for the
      past two fiscal years did not contain an adverse opinion or a disclaimer of
      opinion and were not qualified or modified as to uncertainty, audit scope,
      or
      accounting principles, but did include an explanatory paragraph relating to
      our
      ability to continue as a “going concern.”





In
      connection with the audit of our financial statements for the past two fiscal
      years ended December 31, 2005 and 2004, and through the date of the dismissal,
      there were no disagreements with Stark Winter Schenkein & Co. on any matter
      of accounting principles or practices, financial statement disclosure, or
      auditing scope or procedure, which, if not resolved to the satisfaction of
      Stark
      Winter Schenkein & Co., would have caused Stark Winter Schenkein & Co.
      to make reference to the matter in its reports.





During
      the most recent fiscal year and through the date of the dismissal of Stark
      Winter Schenkein & Co., no information is required to be reported under Item
      304(a)(1)(iv)(B) of Regulation S-B. This change in accountants was disclosed
      in
      our Current Report on Form 8-K, filed with the SEC on August 15,
      2006.





**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES**




**Disclosures
      Controls and Procedures**




We
      have
      adopted and maintain disclosure controls and procedures (as such term is defined
      in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
      as
      amended (the "Exchange Act")) that are designed to ensure that information
      required to be disclosed in our reports under the Exchange Act, is recorded,
      processed, summarized and reported within the time periods required under the
      SEC's rules and forms and that the information is gathered and communicated
      to
      our management, including our Chief Executive Officer (Principal Executive
      Officer) and Chief Financial Officer (Principal Financial Officer), as
      appropriate, to allow for timely decisions regarding required disclosure.


14




As
      required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial
      Officer carried out an evaluation under the supervision and with the
      participation of our management, of the effectiveness of the design and
      operation of our disclosure controls and procedures pursuant to Exchange Act
      Rule 15d-14 as of the end of the period covered by this report. Based on the
      foregoing evaluation, our Chief Executive Officer and Chief Financial Officer
      have concluded that our disclosure controls and procedures are effective in
      timely alerting them to material information required to be included in our
      periodic SEC filings and to ensure that information required to be disclosed
      in
      our periodic SEC filings is accumulated and communicated to our management,
      including our Chief Executive Officer and Chief Financial Officer, to allow
      timely decisions regarding required disclosure as a result of the deficiency
      in
      our internal control over financial reporting discussed below.




**ITEM
      8A(T).**  **CONTROLS
      AND PROCEDURES**




**Management's
      Annual Report on Internal Control Over Financial
      Reporting.**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting for the Company in accordance with and as
      defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal
      control over financial reporting is designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles. Our internal control over financial reporting includes
      those policies and procedures that:




(i)
      pertain to the maintenance of records that, in reasonable detail, accurately
      and
      fairly reflect the transactions and dispositions of our assets;




(ii)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation; and




(iii)
      provide reasonable assurance regarding prevention or timely detection of
      unauthorized.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




Management's
      assessment of the effectiveness of the small business issuer's internal control
      over financial reporting is as of the year ended December 31, 2007. We believe
      that internal control over financial reporting is effective. We have not
      identified any, current material weaknesses considering the nature and extent
      of
      our current operations and any risks or errors in financial reporting under
      current operations.




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




No
      change
      in our internal control over financial reporting (as defined in Rules 13a-15(f)
      and 15d-15(f) under the Exchange Act) occurred during the period covered by
      this
      report that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





**ITEM
      8B.**  **OTHER
      INFORMATION**





None.





**PART
      III**





**ITEM
      9.**  **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
      COMPLIANCE WITH SECTION** **16(A) OF THE EXCHANGE ACT**




The
      following table sets forth information regarding our directors and executive
      of ficers
      as
      of December 31, 2007:


15




Name:
            
            Age:
            
            Position:
            
            Director
                Since:Mark
                A. Beemer
            
            44
            
            Chairman
                and Chief Executive Officer
            
            Mr.
                Beemer joined the Company in 2006 and serves as Chairman of the Board,
                Chief Executive Officer and Director. Mr. Beemer came to the Company
                from
                Penford Products Company in Cedar Rapids, Iowa, where he served as
                Vice
                President of Commodities and assumed responsibility for trading corn
                futures, corn basis, natural gas, and other by-products of corn wet
                mills
                and oversaw all risk management utilizing futures, options, and cash
                contracts since 2005. Prior to moving to Penford, Mr. Beemer spent
                12
                years at Archer Daniels Midland Company (“ADM”), where he served from 2001
                to 2005 as Vice President of Strategic Planning, Transportation,
                Origination, and Operations for the joint venture between ADM and
                Farmland
                Industries.Lee
                L. Blank
            
            44
            
            President,
                Chief Operations Officer and Secretary
            
            Mr.
                Blank joined the Company in 2006 and serves as President, Chief Operating
                Officer and Director. Prior to joining the Company, Mr. Blank spent
                19
                years at ADM, where he was most recently the Sales Manager and Director
                of
                Exports for ADM Milling. Mr. Blank previously served as Director
                of Rates
                for ADM Corporate Transportation, as Western Sales Manager of ADM’s
                Bio-Products Division, and as the manager for soybean crushing plants
                located in three states.John
                J. Holland
            
            58
            
            Executive
                Vice-President and Chief Financial Officer
            
            Mr.
                Holland joined the Company in August 2006. Mr. Holland was employed
                by
                Butler Manufacturing Company, a manufacturer of metal building systems
                for
                commercial construction, from 1980 until his retirement as CEO in
                2004
                following the strategic evaluation process that culminated in the
                sale of
                Butler Manufacturing Company to BlueScope Steel. Mr. Holland currently
                serves as a director for Cooper Tire and Rubber Co., Inc., Saia,
                Inc., and
                Saint Luke's Health System of Kansas City.John
                A. Ward
            
            56
            
            Executive
                Vice-President & Director of Operations
            
            Dr.
                Ward joined the Company in September 2006. From 1991 through 2006,
                Dr.
                Ward was at ADM, where he most recently served as Vice President
                and
                Director of Group Operations for Corn Products and Bio-Products from
                2001
                until he joined the Company.W.
                Gordon Snyder
            
            61
            
            Director
            
            Mr.
                Snyder is president of Black Diamond Strategies, an executive consulting
                company located in Leawood, Kansas, which he founded in 2003. He
                is also
                an active investor in, adviser to and/or Board member of numerous
“early
                stage” companies in industries including financial services, technology,
                alternative energy, food and beverage, telecom and media. From 1986
                through 2003, he worked at American Century Investments, where he
                most
                recently served as head of sales, marketing and services.A.
                Michael Espy
            
            54
            
            Director
            
            Mr.
                Espy was secretary of the United States Department of Agriculture
                from
                1993 to 1994 and is a former U.S. congressman. Since 1994, Mr. Espy
                has
                been an attorney in private practice in his law firm, Mike Espy PLLC,
                and
                has operated a consulting firm, AE Agritrade Inc., where he has advised
                on
                agricultural matters, international commercial transactions, and
                public/private project investment.John
                D. McNamara
            
            59
            
            Director
            
            Mr.
                McNamara has been president and CEO of McNamara and Associates, an
                executive consulting firm based in Toronto, Ontario, since 2002.
                He is
                also president and CEO of Kompass Commodities International Inc.,
                an
                agricultural and food ingredient brokerage firm, which he founded
                in 2004.
                Mr. McNamara joined ADM in 1985 and served as global president of
                ADM from
                1998 to 2002. Mr. McNamara serves on the board of Twin Rivers Technologies
                and Toxin Alert Inc. Toxin Alert is traded on the Venture Exchange
                of the
                Toronto Stock Exchange.




16





Douglas
                D. Wilner
            
            65
            
            Director
                (1)
            
            Mr.
                Wilner has been the managing partner of D. Wilner & Associates LP, a
                management consulting firm, since July, 2004, and he has also been
                the
                president and CEO of U.S. Syngas Inc., an energy development partnership
                since 1995. From 1996 to 2004, Mr. Wilner founded and served as the
                President and CEO of Pipeline Power Partners LP, a Robert Bass Group
                company.




(1)
      Douglas D. Wilner resigned from the Company’s Board of Directors, effective
      March 20, 2008.




The
      term
      of office of each director of the Company ends at the next annual meeting of
      the
      Company’s stockholders or when such director’s successor is elected and
      qualifies.




**Board
      Committees**




The
      Board
      of Directors is directly responsible for governance of the Company. Given the
      small size of the Board and the development stage of the Company, the Board
      as a
      whole serves as the audit, compensation and governance committees.




**Director
      Independence**




The
      Company has voluntarily adopted the NASDAQ Marketplace Rules for determining
      whether a director is independent and our Board of Directors has determined
      that
      three of our five directors, Messrs. Snyder, Espy, and McNamara, are
“independent” within the meaning of Rule 4200(a)(15) of the NASDAQ
      Manual.




**Family
      Relationships**




None.




**Code
      of Ethics**




The
      Company has not adopted a code of ethics applicable to the officers of the
      Company. Given the small size of the Company and the development stage of the
      Company, such a program was deemed unnecessary. The Company intends to implement
      a code of ethics at such time as is more appropriate.




**Compliance
      with Section 16 of the Exchange Act**




Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires directors
      and
      certain officers of the Company and persons who own more than ten percent of
      the
      Company’s common stock to file with the Securities and Exchange Commission
      initial reports of beneficial ownership (Form 3) and reports of subsequent
      changes in their beneficial ownership (Form 4 or Form 5) of the Company’s common
      stock. Such directors, officers and greater-than-ten-percent stockholders are
      required to furnish the Company with copies of the Section 16(a) reports they
      file. The Securities and Exchange Commission has established specific due dates
      for these reports, and the Company is required to disclose in this proxy
      statement any late filings or failures to file.




Based
      solely upon a review of the copies of the Section 1 6(a)
      reports (and any amendments thereto) furnished to the Company and written
      representations from certain reporting persons that no additional reports were
      required, the Company believes that its directors, reporting officers and
      greater-than-ten-percent stockholders complied with all these filing
      requirements for the fiscal year ended December 31, 2007.





**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**





The
      following table summarizes all compensation recorded by us in the last completed
      fiscal year for our principal executive officer, each other executive officer
      serving as such whose annual compensation exceeded $100,000 and up to two other
      individuals for whom disclosure would have been made in this table but for
      the
      fact that such individuals were not serving as our executive officers as of
      the
      end of the last completed fiscal year. Such officers are referred to herein
      as
      our “Named Executive Officers.”


17





**Summary
      Compensation Table**





**Name
                and Principal Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock
                Awards ($)**
            
            **Option
                Awards ($)(1)(2)**
            
            **Non-Equity
                Incentive**
              **Plan
                Compensation ($)**
            
            **Nonqualified
                Deferred Compensation Earnings ($)**
            
            **All
                Other Compensation ($)**
            
            **Total**
              **($)**Mark
                A. Beemer Chairman and CEO
            
            
            2007
            
            $
            190,000
            
            
            —
            
            
            —
            
            $
            59,335
            
            
            —
            
            
            —
            
            
            —
            
            $
            249,335Lee
                L. Blank President/ COO
            
            
            2007
            
            $
            160,000
            
            
            —
            
            
            —
            
            $
            39,556
            
            
            —
            
            
            —
            
            
            —
            
            $
            199,556John
                J. Holland EVP/CFO
            
            
            2007
            
            $
            180,000
            
            
            —
            
            
            —
            
            $
            145,395
            
            
            —
            
            
            —
            
            
            —
            
            $
            325,395John
                A. Ward EVP/Dir. of Operations
            
            
            2007
            
            $
            180,000
            
            
            —
            
            
            —
            
            $
            159,929
            
            
            —
            
            
            —
            
            
            —
            
            $
            339,929




(1)
            Granted
                under the terms of our 2006 Equity Incentive Plan.





(2)
            Assumptions
                made in the valuation of stock options granted to Messrs. Beemer,
                Blank,
                Holland and Ward are discussed in Note 4 to the Consolidated
                Financial Statements of Alternative Energy Sources, Inc. for the
                period
                from incorporation to September 30, 2006. The Black-Scholes option-pricing
                model was used to determine the fair value of the option grants at
                the
                date of grant, with the following assumptions:




Expected
                Volatility
            
            
            56.8-59.8
            %Expected
                term (in years)
            
            
            6.0-6.25Expected
                dividends
            
            
            0Risk-free
                rate of return (weighted average)
            
            
            4.76Grant
                date fair value (options granted to Messrs. Beemer and Blank)
            
            $
            1.00Grant
                date fair value (options granted to Messrs. Holland and Ward)
            
            $
            2.44-0.67Expected
                forfeitures
            
            
            0





Because
      the Company does not have specific historical or implied volatility information
      available due to it being in the development stage, expected volatility is
      based
      on the historical or implied volatility of similar entities with publicly
      available share or option prices. This methodology is in accordance with
      Securities and Exchange Commission Staff Accounting Bulletin No. 107-“D. Certain
      Assumptions Used in Valuation Methods.” The expected term represents the
      estimated average period of time that the options remain outstanding using
      the
“simplified” method, also in accordance with Staff Accounting Bulletin No. 107.
      The risk-free rate of return reflects the weighted average interest rate offered
      for zero coupon treasury bonds over the expected term of the
      options.


18


**Outstanding
      Equity Awards at Fiscal Year-End**





**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number
                of Securities Underlying Unexercised Options (#)
                Exercisable**
            
            **Number
                of Securities Underlying Unexercised Options (#)
                Unexercisable**
            
            **Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options**
              **(#)**
            
            **Option
                Exercise Price**
              **($)**
            
            **Option
                Exercise Date**
            
            **Number
                of Shares of Stock That Have Not Vested**
              **(#)**
            
            **Market
                Value of Shares of Stock That Have Not Vested**
              **($)**
            
            **Equity
                Incentive Plan Awards: Number of Unearned Shares, Units or
                Other Rights That Have Not Vested**
              **(#)**
            
            **Equity
                Incentive Plan Awards: Market or Payout Value of
                Unearned Shares or Other Rights That Have Not**
              **Vested**
              **($)**Mark
                A. Beemer
            
            
            –
            
            
            300,000
            
            
            –
            
            $
            1.00
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –Lee
                L. Blank
            
            
            –
            
            
            200,000
            
            
            –
            
            $
            1.00
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –John
                J. Holland
            
            
            –
            
            
            750,000
            
            
            –
            
            $
              $
            2.19-
              0.67
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –John
                A. Ward
            
            
            –
            
            
            750,000
            
            
            –
            
            $
              $
            2.44-
              0.67
            
            
            –
            
            
            –
            
            
            –
            
            
            –
            
            
            –





**Agreements
      with Executive Officers**





We
      have
      entered into executive employment agreements with Mark Beemer, our Chairman
      and
      Chief Executive Officer, Lee Blank, our President and Chief Operating Officer,
      John Ward, our Executive Vice President and Director of Operations, and John
      Holland, our Executive Vice President and Chief Financial Officer.





Mark
      Beemer - Chairman and Chief Executive Officer





On
      June
      19, 2006, we entered into an executive employment agreement with Mr. Beemer
      for
      a term of one year with automatic renewal for one-year periods commencing on
      the
      day after the effective date of the agreement. The agreement provides for an
      annual base salary of $190,000, with an opportunity to increase the base salary
      up to $240,000 upon the occurrence of certain events, and an annual bonus
      subject to our achieving our target performance levels, as approved by the
      compensation committee of our Board of Directors (or the full Board of Directors
      until our Board establishes a compensation committee).





Under
      the
      agreement, Mr. Beemer is also entitled to receive a grant of an option under
      our
      2006 Equity Incentive Plan, to purchase 300,000 shares of common stock, 33.3%
      of
      which option shall vest and become exercisable on the first anniversary of
      the
      grant, an additional 33.3% of the option shall vest and become exercisable
      on
      the second anniversary of the grant, and the remaining 33.4% of the option
      shall
      vest and become exercisable on the third anniversary of the grant of the option.
      The options have an exercise price of $1.00 and expire June 19, 2016. Under
      the
      agreement, Mr. Beemer will be subject to typical non-competition and employee
      non-solicitation restrictions while he is employed by us and for one year
      thereafter. Mr. Beemer and his dependents will be entitled to participate in
      our
      benefit plans at our expense. Subject to certain notice requirements,
      Mr. Beemer and the Company are entitled to terminate the employment
      agreement at any time. If we terminate the employment agreement without cause
      or
      if Mr. Beemer terminates the employment agreement for good reason, then Mr.
      Beemer is entitled to receive his base salary and guaranteed bonus during the
      then-remaining term of the employment agreement plus a one-time severance
      payment equal to his then-current annual base salary, as well as continuation,
      at our expense, of Mr. Beemer’s participation in our benefit
      programs.





“Good
      reason,” under Mr. Beemer’s employment agreement, includes an adverse change in
      Mr. Beemer’s position, title, duties or responsibilities, or any failure to
      re-elect him to such position (except for termination for cause). Mr. Beemer’s
      employment agreement includes standard indemnity, insurance, non-competition
      and
      confidentiality provisions.


19


Lee
      Blank - President, Chief Operating Officer and Secretary





On
      June
      19, 2006, we entered into an executive employment agreement with Mr. Blank.
      The
      Agreement provides for an annual base salary of $160,000, with an opportunity
      to
      increase the base salary up to $210,000 upon the occurrence of certain events,
      and an annual bonus subject to our achievement of our target performance levels
      as approved by the compensation committee of our Board of Directors (or the
      full
      Board of Directors until our Board establishes a compensation committee). Mr. Blank is also entitled to receive
      an
      option grant of 200,000 shares from our 2006 Equity Incentive Plan, 33.3% of
      which option shall be exercisable on the first anniversary of the grant, an
      additional 33.3% of the option shall be vested and become exercisable on the
      second anniversary of the grant, and the remaining 33.4% of the option shall
      be
      vested and become exercisable on the third anniversary of the grant of the
      option. The options have an exercise price of $1.00 and expire June 19, 2016.
      Subsequent grants of stock options will vest and be exercisable pursuant to
      the
      terms and conditions of the 2006 Equity Incentive Plan.





Under
      the
      agreement, Mr. Blank will be subject to traditional non-competition and employee
      non-solicitation restrictions while he is employed by us and for one year
      thereafter. Mr. Blank and his dependents will be entitled to participate in
      our
      benefit plans at our expense. If we terminate the employment agreement without
      cause or if Mr. Blank terminates the employment agreement for good reason,
      then
      Mr. Blank is entitled to receive his base salary and guaranteed bonus during
      the
      then-remaining term of the agreement plus a one time severance payment equal
      to
      his then-current annual base salary, as well as continuation, at our expense,
      of
      Mr. Blank’s participation in the benefit programs described above.





Mr.
      Blank’s employment agreement has a one-year term of service with automatic
      renewal for one-year periods commencing on the day after the effective date
      of
      the agreement subject to termination by the Company at any time for cause or
      without cause, and provides for severance payments to Mr. Blank, in the event
      he
      is terminated without cause or he terminates the agreement for good reason,
      in
      the amount of two times total compensation for the prior year. “Good reason”
includes an adverse change in the executive’s position, title, duties or
      responsibilities, or any failure to re-elect him to such position (except for
      termination for cause). Mr. Blank’s employment agreement includes typical
      indemnity, insurance, non-competition and confidentiality
      provisions.





John
      A. Ward - Executive Vice President and Director of Operations





Dr.
      Ward
      executed an employment agreement with us on September 20, 2006, the date Dr.
      Ward was hired as our Executive Vice President and Director of Operations.
      Dr.
      Ward’s employment agreement is for a four-year term, providing for an annual
      base salary of $180,000, with an opportunity to increase the base salary up
      to
      $260,000 upon the occurrence of certain events, and an annual bonus subject
      to
      our achieving our target performance levels as approved by the Board of
      Directors. Dr. Ward is also entitled to receive an option grant of 400,000
      and
      350,000 shares, respectively from our 2006 Stock Option Plan, 25% of which
      shall
      be exercisable on the first anniversary of the grant, 25% of the option shall
      be
      vested and become exercisable on the second anniversary of the grant, 25% of
      the
      option shall be vested and become exercisable on the third anniversary of the
      grant, and the remaining 25% of the option shall be vested and become
      exercisable on the fourth anniversary of the grant of the option. The options
      have an exercise price of $2.44 and $0.67, respectively and expire September
      20,
      2016 and August 16, 2016, respectively.





Under
      the
      agreement, Dr. Ward will be subject to typical non-competition and employee
      non-solicitation restrictions while he is employed by us and for one year
      thereafter. Dr. Ward and his dependents will be entitled to participate in
      our
      benefit plans at our expense. Subject to certain notice requirements, Dr. Ward
      will be entitled to terminate the employment agreement at any time. If Dr.
      Ward
      terminates the employment agreement for good reason, then Dr. Ward is entitled
      to receive his base salary and guaranteed bonus during the then-remaining term
      of the agreement plus a one time severance payment equal to his then-current
      annual base salary, as well as continuation at our expense in the benefit
      programs described above.





John
      J. Holland - Chief Financial Officer and Assistant Secretary





John
      J.
      Holland executed an employment agreement with us upon the commencement of his
      employment on August 16, 2006. Mr. Holland's employment agreement is for a
      four
      year term, providing for an annual base salary of $180,000, with an opportunity
      to increase the base salary up to $260,000 upon the occurrence of certain
      events, and an annual bonus subject to our achieving our target performance
      levels as approved by the compensation committee of our Board of Directors
      (or
      the full Board of Directors until our Board establishes a compensation committee). Mr. Holland is also entitled to receive
      an option grant of 400,000 and 350,000 shares, respectively from our 2006 Stock
      Option Plan, 25% of which shall be exercisable on the first anniversary of
      the
      grant, 25% of the option shall be vested and become exercisable on the second
      anniversary of the grant, 25% of the option shall be vested and become
      exercisable on the third anniversary of the grant, and the remaining 25% of
      the
      option shall be vested and become exercisable on the fourth anniversary of
      the
      grant of the option. The options have an exercise price of $2.19 and $0.67,
      respectively and expire August 16, 2016 and 2017, respectively.


20





Under
      the
      agreement, Mr. Holland will be subject to typical non-competition and employee
      non-solicitation restrictions while he is employed by us and for one year
      thereafter. Mr. Holland and his dependents will be entitled to participate
      in
      our benefit plans at our expense. Subject to certain notice requirements, either
      Mr. Holland or we will be entitled to terminate the employment agreement at
      any
      time. If we terminate the employment agreement without cause or if Mr. Holland
      terminates the employment agreement for good reason, then Mr. Holland is
      entitled to receive his base salary and guaranteed bonus during the
      then-remaining term of the agreement plus a one time severance payment equal
      to
      his then-current annual base salary, as well as continuation at our expense
      of
      Mr. Holland’s participation in the benefit programs described
      above.





**Repricing
      of Options/SARS**





There
      was
      no repricing or replacement of options or stock appreciation rights in
      2007.





**2006
      Equity Incentive Plan**





On
      June
      9, 2006 our Board of Directors adopted our 2006 Equity Incentive Plan (the
“2006
      Plan”). Also on June 9, 2006, the 2006 Plan was approved by our stockholders
      holding a majority of the outstanding shares of our common stock on that
      date.




The
      2006
      Plan is intended to promote our interests by attracting and retaining
      exceptional employees, consultants, and directors, and enabling participants
      in
      the 2006 Plan to participate in our long-term growth and financial success.
      Under the 2006 Plan, we may grant (i) stock options, which are intended to
      qualify as “incentive stock options” under Section 422 of the Internal Revenue
      Code of 1986, as amended, (ii) non-qualified stock options,
      (iii) reload stock options, (iv) stock appreciation rights, and
      (v) restricted stock awards, which are restricted shares of common stock.
      Incentive stock options may be granted pursuant to the 2006 Plan for no more
      than 10 years from June 9, 2006. Non-qualified stock options, stock appreciation
      rights and restricted stock awards may be granted under the 2006 Plan until
      the
      2006 Plan is discontinued or terminated by our Board of Directors. Reload stock
      options may be awarded for an identical period of time as the underlying option
      connected to such reload stock options.




A
      total
      of 4,000,000 shares of our common stock was reserved for issuance under the
      2006
      Plan. If an award granted under the 2006 Plan expires, terminates, is
      unexercised or is forfeited, or if any shares are surrendered to us in
      connection with an award, the shares subject to such award and the surrendered
      shares will become available for further awards under the 2006
      Plan.





The
      number of shares subject to the 2006 Plan, the number of shares subject to
      any
      numerical limit in the 2006 Plan, and the number of shares and terms of any
      award, may be adjusted in the event of any change in our outstanding common
      stock by reason of any stock dividend, spin-off, stock split, reverse stock
      split, recapitalization, reclassification, merger, consolidation, liquidation,
      business combination or exchange of shares, or similar transaction.





**Limitation
      of Tax Deduction for Executive Compensation**





Under
      Section 162(m) of the Internal Revenue Code, publicly traded companies may
      not receive a tax deduction on non-performance based compensation to executive
      officers in excess of $1 million. Awards under the Company’s 2006 Equity
      Incentive Plan qualify as performance-based compensation under the law. No
      specific actions have been taken with regard to cash compensation to comply
      with
      Section 162( m)
      at
      this time, sinc e
      no
      officer’s cash compensation currently has the potential to be effected by the
      $1 million limit.





**Directors’s
      Compensation**





On
      January 5, 2007, our Board of Directors adopted a compensation policy for Board
      members, to compensate the non-employee directors for work performed at our
      request outside of Board meetings. The Board approved compensation to be paid
      to
      the non-employee directors at the rate of $250 per hour, up to a maximum of
      $1,800 per day, plus reimbursement of reasonable expenses. On that same date,
      our Board of Directors approved compensation of our non-employee directors
      at
      the rate of $750.00 per telephonic Board meeting, and $1,500.00 for personal
      attendance at Board meetings. In addition, we reimburse the non-employee
      directors for reasonable travel expenses incurred for the purpose of attending
      Board meetings. Directors who are also employees of the Company are not
      separately compensated for service on the Board.


21





In
      addition to compensation paid for meeting attendance and for services provided
      to us outside of Board meetings, our directors are eligible to participate
      in
      our 2006 Equity Incentive Plan.





Upon
      their elections to our Board of Directors, our non-employee directors were
      granted stock options under our 2006 Equity Incentive Plan to acquire 75,000
      shares of our common stock. The exercise price of these options is equal to
      the
      closing price of our common stock on the OTC Bulletin Board on the date of
      the
      directors’ respective grants: $1.80 for Mr. Snyder; and $1.15 for Messrs. Espy,
      McNamara and Wilner and $1.60 for Mr. Spigarelli. One-third of each such option
      will vest on each of the first three anniversaries of the grant date and will
      expire 10 years after the grant date.





**NON-EMPLOYEE
      DIRECTOR COMPENSATION**





**Name**
            
            **Fees
                Earned or**
              **Paid in**
              **Cash
                ($)**
            
            **Stock
                Awards (S)**
            
            **Options
                Awards**
              **($)(2)**
            
            **Non-Equity
                Incentive Plan Compensation ($)**
            
            **Nonqualified
                Deferred Compensation Earnings ($)**
            
            **All
                Other Compensation ($)**
            
            **Total
                ($)**W.
                Gordon Snyder
            
            $
            19,838
            
            
            —
            
            $
            26,380
            
            
            —
            
            
            —
            
            
            —
            
            $
            46,218A.
                Michael Espy
            
            $
            3,750
            
            
            
            
            $
            16,666
            
            
            
            
            
            
            
            
            
            
            $
            20,416John
                McNamara
            
            $
            4,500
            
            
            
            
            $
            16,666
            
            
            
            
            
            
            
            
            
            
            $
            21,166James
                Spigarelli (1)
            
            $
            4,750
            
            
            
            
            $
            16,666
            
            
            
            
            
            
            
            
            
            
            $
            21,416Douglas
                Wilner (1)
            
            $
            15,250
            
            
            
            
            $
            22,865
            
            
            
            
            
            
            
            
            
            
            $
            38,115




(1)
            Mr.
                Spigarelli resigned from the board on January 4, 2008 and Mr. Wilner
                resigned from the board on March 20, 2008.(2)
            The
                Black-Scholes option-pricing model was used to determine the fair
                value of
                the option grants with the following assumptions:




Expected
                Volatility
            
            
            56.8-59.8
            %Expected
                term (in years)
            
            
            6.0-6.25Expected
                dividends
            
            
            0Risk-free
                rate of return (weighted average)
            
            
            4.76Grant
                date fair value – 75,000 options
            
            $
            1.80Grant
                date fair value – 225,000 options
            
            $
            1.15Grant
                date fair value – 75,000 options
            
            $
            1.60Expected
                forfeitures
            
            
            0




Because
      the Company does not have specific historical or implied volatility information
      available due to it being in the development stage, expected volatility is
      based
      on the historical or implied volatility of similar entities with publicly
      available share or option prices. This methodology is in accordance with
      Securities and Exchange Commission Staff Accounting Bulletin No. 107-“D. Certain
      Assumptions Used in Valuation Methods.” The expected term represents the
      estimated average period of time that the options remain outstanding using
      the
“simplified” method, also in accordance with Staff Accounting Bulletin No. 107.
      The risk-free rate of return reflects the weighted average interest rate offered
      for zero coupon treasury bonds over the expected term of the
      options.





**ITEM
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED** **STOCKHOLDER MATTERS**




The
      following table sets forth certain information regarding the beneficial
      ownership of our common stock as of March 20, 2008. The two tables set forth
      the
      beneficial ownership of (i) each person who, to our knowledge, beneficially
      owns more than 5% of the outstanding shares of common stock; (ii) each of the
      directors and executive officers of the Company; and (iii) all of our executive
      officers and directors as a group. The address of each executive officer and
      director is c/o Alternative Energy Sources, Inc., 310 W. 20th Street, Kansas
      City, Missouri 64108.


22





**Name
                of Beneficial Owner**
            
            **Amount and Nature of
                Beneficial Ownership**
            
            **Percentage
                of class (1)**Mark
                A. Beemer
            
            
            8,316,000
                (2
            )
            
            20.53
            %Lee
                L. Blank
            
            
            5,211,666
                (3
            )
            
            12.87
            %A.
                Michael Espy
            
            
            25,000
                (4
            )
            
            *John
                J. Holland
            
            
            131,000
                (4
            )
            
            *John
                D. McNamara
            
            
            25,000
                (4
            )
            
            *W.
                Gordon Snyder
            
            
            50,000
                (4
            )
            
            *John
                A. Ward
            
            
            400,000
                (4
            )
            
            ***Executive
                Officers and Directors as Group**
            
            
            **14,158,666**
            
            
            **35.0**
            **%**




*
      The
      percentage of shares beneficially owned does not exceed 1% of our common
      stock




(1)
            Beneficial
                ownership percentages are calculated based on 40,500,009 shares of
                common
                stock issued and outstanding as of March 20, 2008. Beneficial ownership
                is
                determined in accordance with Rule 13d-3 of the Exchange Act. The
                number
                of shares beneficially owned by a person includes shares of common
                stock
                underlying options or warrants held by that person that are currently
                exercisable or exercisable within 60 days of March 20, 2008. The
                shares
                issuable pursuant to the exercise of those options or warrants are
                deemed
                outstanding for computing the percentage ownership of the person
                holding
                those options and warrants but are not deemed outstanding for the
                purposes
                of computing the percentage ownership of any other person. The persons
                named in the table have sole voting and sole investment power with
                respect
                to the shares set forth opposite that person’s name, subject to community
                property laws, where applicable, unless otherwise noted in the applicable
                footnote.(2)
            Includes
                warrants to purchase 250,000 shares of common stock for a period
                of five
                years from June 19, 2006 at an exercise price of $2.00 per share
                and
                100,000 stock options that are exercisable at $1.00 per
                share.(3)
            Includes
                warrants to purchase 10,000 shares of common stock for a period of
                five
                years from June, 19, 2007 at an exercise price of $2.00 per share
                and
                66,666 stock options that are exercisable at $1.00 per
                share.(4)
            Includes
                exercisable stock options for each respective officer and director
                as
                follows: Mr. Espy 25,000 stock options exercisable at $1.15 per share;
                Mr.
                Holland 100,000 stock options exercisable at $2.19 per share; Mr.
                McNamara
                25,000 stock options exercisable at $1.15 per share; Mr. Snyder 25,000
                stock options exercisable at $1.80 per share; and Mr. Ward 100,000
                stock
                options exercisable at $2.44 per
                share.





**Changes
      in Control**





On
      June
      19, 2006, Alternative Energy Sources, Inc., Beemer Acquisition Corp., our wholly
      owned subsidiary, and Beemer Energy, Inc., a Delaware corporation, executed
      a
      Merger Agreement and Plan of Reorganization. Beemer Energy, Inc. was a privately
      held company formed on May 10, 2006 to serve as a vehicle to effect a merger
      with a publicly held company. On the closing date of the merger, Beemer
      Acquisition Corp. merged with and into Beemer Energy, Inc., with Beemer Energy,
      Inc. remaining as the surviving corporation and our wholly-owned subsidiary.
      Also on the closing date of the merger, the holders of Beemer Energy Inc.’s
      issued and outstanding capital stock before the merger surrendered all of their
      issued and outstanding capital stock of Beemer Energy, Inc. and received
      12,900,000 shares of our common stock, par value $0.0001 per share. Our
      stockholders before the merger retained 15,000,000 shares of our common
      stock.





Also
      on
      the Closing Date, the Company closed on a private offering of units of its
      securities consisting of Common Stock and warrants to purchase Common Stock
      (the
“Offering”). Investors in the Offering purchased 12,000,000 shares of Common
      Stock and warrants to acquire 12,000,000 shares of Common Stock at an exercise
      price of $2.00 per share, expiring June 19, 2011. Consideration for the
      investors’ purchases totaled $12,000,000.





Immediately
      following the Merger and the Offering, the Alternative Energy stockholders
      held
      approximately 37.04% of the issued and outstanding shares of Common Stock and
      the Beemer Stockholders, investors in the Offering and a finder that received
      shares of Common Stock in connection with the Merger and the Offering held
      63.96% of the Company’s issued and outstanding Common Stock.


23


On
      the
      date the Merger and the Offering closed, Mr. Stephen Jackson, then the Company’s
      sole director, appointed Mr. Beemer as a director, then resigned from the Board.
      Mr. Beemer then appointed Mr. Blank as director. The Company filled the
      additional vacancies on the Board by appointing the individuals described
      earlier in this proxy statement.





**Equity
      Compensation Plan**





Securities
      authorized for issuance under equity compensation plans as of December 31,
      2007,
      are as follows:





**Plan
                category**
            
            **Number of securities
                to be issued upon exercise of
                outstanding options, warrants and rights****(a)**
            
            **Weighted-average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
              **(b)**
            
            **Number
                of securities**
              **remaining available for
                future issuance under equity**
              **compensation
                plans**
              **(excluding
                securities**
              **reflected
                in column (a)) (c)****Equity
                compensation plans approved by security holders**
            
            
            2,839,000
            
            $
            1.43
            
            
            1,161,000**Equity
                compensation plans not approved by security holders**
            
            
            —
            
            
            —
            
            
            —**Total**
            
            
            2,839,000
            
            $
            1.43
            
            
            1,161,000




Equity
      compensation plans consist of our 2006 Equity Incentive Plan, under which our
      board of directors is authorized to issue options or other rights to acquire
      up
      to 4,000,000 shares of our common stock. The shares of common stock underlying
      awards granted under the 2006 Equity Incentive Plan include options to acquire
      2,839,000 shares of common stock. Options granted under the 2006 Equity
      Incentive Plan entitle the grantee, upon exercise, to purchase a specified
      number of shares from us at a specified exercise price per share. The exercise
      price for shares of common stock covered by an option cannot be less than the
      fair market value of the common stock on the date of grant unless we agree
      otherwise at the time of the grant. The board of directors will determine the
      period of time during which an option may be exercised, except that no option
      may be exercised more than ten years after the date of grant.





Our
      stockholders approved and adopted the 2006 Equity Incentive Plan on June 9,
      2006. Through December 31, 2007, our board of directors has granted stock
      options to acquire 2,839,000 shares of our common stock under the 2006 Equity
      Incentive Plan, at a weighted average exercise price of $1.43 per
      share.





During
      the past three years no unregistered securities under the Securities Act have
      been sold by the Company.





During
      the quarter ended December 31, 2007 we did not repurchase any shares as part
      of
      any publicly announced plans or programs or otherwise.





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




Except
      as
      otherwise indicated herein, there have been no related party transactions,
      or
      any other transactions or relationships required to be disclosed pursuant to
      Item 404 of Regulation S-B. The information presented in Item 9 above regarding
      Director Independence is incorporated into this Item 12 hereto by reference.





**ITEM
      13.**  **EXHIBITS**





The
      following exhibits are filed with or incorporated as part of this report as
      required by Item 601 of Regulation S-B:





**Exhibit
                No.**
            
            **Description**
            
            **Reference**2.1
            
            Agreement
                and Plan of Merger and Reorganization, dated as of June 19, 2006,
                by and
                between Alternative Energy Sources, Inc. a Delaware corporation,
                Beemer
                Acquisition Corp., a Delaware corporation, and Beemer Energy, Inc.,
                a
                Delaware corporation.
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).




24




3.1
            
            Certificate
                of Amendment of the Certificate of Incorporation
            
            Previously
                filed as Exhibit 3.1 to the Company’s Quarterly Report for the period
                ended September 30, 2007 on Form 10-QSB (File No.
                000-51762)3.2
            
            By-Laws
            
            Previously
                filed as Exhibit 3.2 to the Company’s Form SB-2 filed on February 11,
                2003, registration number 333-103096, and is hereby incorporated
                into this
                filing by reference.4.1
            
            Form
                of Warrant issued to the Investors in the Private Placement Offering,
                June
                19, 2006.
            
            Incorporated
                by reference to Exhibit 4.2 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).4.2
            
            Prospectus
                filed with the Securities and Exchange Commission that includes 12,600,000
                shares of common stock and 12,000,000 shares of common stock issuable
                upon
                the exercise of warrants.
            
            Incorporated
                by reference to Company’s Form SB-2 filed with the Securities and Exchange
                Commission on October 11, 2006.4.3
            
            Prospectus
                filed with the Securities and Exchange Commission that includes 12,600,000
                shares of common stock and 12,000,000 shares of common stock issuable
                upon
                the exercise of warrants.
            
            Incorporated
                by reference to Company’s Form SB-2/A filed with the Securities and
                Exchange Commission on December 21,
                2006.


10.1
            
            Form
                of Employment Agreement between the Company and John J. Holland dated
                August 16, 2006.
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with the Securities and Exchange Commission on August 22, 2006 (File
                No.
                000-51762).10.2
            
            Form
                of Subscription Agreement date June 19, 2006 by and between Alternative
                Energy Sources, Inc., Beemer Energy, Inc., and the investors in the
                Offering.
            
            Incorporated
                by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.3
            
            Form
                of Registration Rights Agreement dated June 19, 2006 by and between
                Alternative Energy Sources, Inc. and the investors in the
                Offering.
            
            Incorporated
                by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.4
            
            Form
                of Employment Agreement, dated June 19, 2006, by and between Alternative
                Energy Sources, Inc. and Mark A. Beemer.
            
            Incorporated
                by reference to Exhibit 10.4 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.5
            
            Form
                of Employment Agreement, dated June 19, 2006, by and between Alternative
                Energy Sources, Inc. and Lee L. Blank.
            
            Incorporated
                by reference to Exhibit 10.5 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.6
            
            Form
                of Lock-Up Agreement dated June 19, 2006 between Tompkins Capital
                Group
                and each of Mark A. Beemer and Lee L. Blank.
            
            Incorporated
                by reference to Exhibit 10.6 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.7
            
            Form
                of Agreement and Plan of Merger and Reorganization dated June 19,
                2006
                among Alternative Energy Sources, Inc., Beemer Acquisition Corp.
                and
                Beemer Energy, Inc.
            
            Incorporated
                by reference to Exhibit 10.6 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).




25





10.8
            
            Form
                of Employment Agreement between the Company and Dr. John A. Ward
                dated
                September 20, 2006.
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with the Securities and Exchange Commission on September 25, 2006
                (File
                No. 000-51762).10.9
            
            Non-Qualified
                Stock Option Agreement between the Company and John D. McNamara dated
                January 5, 2007.
            
            Incorporated
                by reference to Exhibit 10.1 to the Company’s Quarterly Report for
                the period ended March 31, 2007 on Form 10-QSB (File No.
                000-51762).10.10
            
            Non-Qualified
                Stock Option Agreement between the Company and Mike Espy dated January
                5,
                2007.
            
            Incorporated
                by reference to Exhibit 10.2 to the Company’s Quarterly Report for
                the period ended March 31, 2007 (File No.
                000-51762).10.11
            
            Non-Qualified
                Stock Option Agreement between the Company and Douglas D. Wilner
                dated
                January 5, 2007.
            
            Incorporated
                by reference to Exhibit 10.3 to the Company’s Quarterly Report for
                the period ended March 31, 2007 (File No.
                000-51762).10.12
            
            Form
                of Non-Qualified Stock Option Agreement.
            
            Incorporated
                by reference to Exhibit 10.5 to the Company’s Quarterly Report for
                the period ended March 31, 2007 (File No.
                000-51762).10.13
            
            Letter
                Agreement with a Potential Acquiror dated November 9,
                2007.
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on November 13, 2007 (File
                No.
                000-51762).10.14
            
            Indemnification
                Agreement between the Company and Mark A. Beemer, dated May 10,
                2007*10.15
            
            Indemnification
                Agreement between the Company and Lee L. Blank, dated May 10,
                2007*10.16
            
            Indemnification
                Agreement between the Company and John J. Holland, dated May 10,
                2007*10.17
            
            Indemnification
                Agreement between the Company and John W. Ward, dated May 10,
                2007*10.18
            
            Indemnification
                Agreement between the Company and John D. McNamara, dated May 10,
                2007*10.19
            
            Indemnification
                Agreement between the Company and Mike Espy, dated May 10,
                2007*10.20
            
            Indemnification
                Agreement between the Company and W. Gordon Synder, dated May 10,
                2007*31.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002. *




26





31.2
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002. *32
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002. **
                Filed herewith.




27


**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





**Auditors’
      Fees**




Bagell,
      Josephs, Levine & Company, LLC billed the Company the following amounts for
      services provided during fiscal 2007 and 2006:




2007
            
            2006Audit
                Fees
            
            $
            59,442
            
            $
            34,579Audit-Related
                FeesTax
                FeesAll
                Other FeesTotal
                Fees
            
            $
            59,442
            
            $
            34,579




*Audit
      fees in 2006 include additional audit fees paid in 2006 subsequent to the
      publication of the proxy statement for the annual meeting of stockholders in
      2006. Audit fees in 2007 are fees billed through the date of this
      document.




•
            *Audit
                Fees*.
                This category includes the fees and out-of-pocket expenses for the
                audit
                of the Company’s annual financial statements and review of the Company’s
                quarterly reports.




•
            *Audit-Related
                Fees*.
                This category consists of fees for assurance and related services
                reasonably related to the performance of the audit or the review
                of the
                Company’s financial statements, not otherwise reported under Audit
                Fees.




•
            *Tax
                Fees*.
                This category consists of fees for tax compliance, tax advice and
                tax
                planning.




•
            *All
                Other Fees*.
                This category consists of fees for other non-audit
                services.




The
      Board
      is required to pre-approve all audit and non-audit services performed by the
      Company’s independent auditor to assure that the provision of such services does
      not impair the auditor’s independence. The Board will not authorize the
      independent auditor to perform any non-audit service which independent auditors
      are prohibited from performing under the rules and regulations of the Securities
      and Exchange Commission or the Public Company Accounting Oversight Board. The
      Board may delegate its pre-approval authority to one or more of its members,
      but
      not to management. The member or members to whom such authority is delegated
      shall report any pre-approval decisions to the Board at its next scheduled
      meeting.




28


**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




ALTERNATIVE
                ENERGY SOURCES, INC.Date: March
                28, 2008
            By:
            /s/ Mark
                A. BeemerMark
                A. BeemerChairman
                and Chief Executive Officer and
                Director





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant in the
      capacities and on the dates indicated.





**Signature**
            
            **Title**
            
            **Date**/s/Mark
                A. Beemer
            
            Chairman
                and Chief Executive Officer and Director
            
            March
                28, 2008Mark
                  A. Beemer/s/Lee
                L. Blank
            
            President,
                Chief Operating Officer and Director
            
            March
                28, 2008Lee
                  L. Blank/s/John
                J. Holland
            
            Chief
                Financial Officer
            
            March
                28, 2008John
                  J. Holland/s/W.
                Gordon Snyder
            
            Director
            
            March
                28, 2008W.
                  Gordon Snyder/s/A.
                Michael Espy
            
            Director
            
            March
                28, 2008A.
                  Michael Espy/s/John
                D. McNamara
            
            Director
            
            March
                28, 2008John
                D. McNamara




29


**EXHIBIT
      INDEX**




**Exhibit
                No.**
            
            **Description**
            
            **Reference**2.1
            
            Agreement
                and Plan of Merger and Reorganization, dated as of June 19, 2006,
                by and
                between Alternative Energy Sources, Inc. a Delaware corporation,
                Beemer
                Acquisition Corp., a Delaware corporation, and Beemer Energy, Inc.,
                a
                Delaware corporation.
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).3.1
            
            Certificate
                of Amendment of the Certificate of Incorporation
            
            Previously
                filed as Exhibit 3.1 to the Company’s Quarterly Report for the period
                ended September 30, 2007 on Form 10-QSB (File No.
                000-51762)3.2
            
            By-Laws
            
            Previously
                filed as Exhibit 3.2 to the Company’s Form SB-2 filed on February 11,
                2003, registration number 333-103096, and is hereby incorporated
                into this
                filing by reference.4.1
            
            Form
                of Warrant issued to the Investors in the Private Placement Offering,
                June
                19, 2006.
            
            Incorporated
                by reference to Exhibit 4.2 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).4.2
            
            Prospectus
                filed with the Securities and Exchange Commission that includes 12,600,000
                shares of common stock and 12,000,000 shares of common stock issuable
                upon
                the exercise of warrants.
            
            Incorporated
                by reference to Company’s Form SB-2 filed with the Securities and Exchange
                Commission on October 11, 2006.4.3
            
            Prospectus
                filed with the Securities and Exchange Commission that includes 12,600,000
                shares of common stock and 12,000,000 shares of common stock issuable
                upon
                the exercise of warrants.
            
            Incorporated
                by reference to Company’s Form SB-2/A filed with the Securities and
                Exchange Commission on December 21, 2006.


10.1
            
            Form
                of Employment Agreement between the Company and John J. Holland dated
                August 16, 2006.
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with the Securities and Exchange Commission on August 22, 2006 (File
                No.
                000-51762).10.2
            
            Form
                of Subscription Agreement date June 19, 2006 by and between Alternative
                Energy Sources, Inc., Beemer Energy, Inc., and the investors in the
                Offering.
            
            Incorporated
                by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.3
            
            Form
                of Registration Rights Agreement dated June 19, 2006 by and between
                Alternative Energy Sources, Inc. and the investors in the
                Offering.
            
            Incorporated
                by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.4
            
            Form
                of Employment Agreement, dated June 19, 2006, by and between Alternative
                Energy Sources, Inc. and Mark A. Beemer.
            
            Incorporated
                by reference to Exhibit 10.4 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.5
            
            Form
                of Employment Agreement, dated June 19, 2006, by and between Alternative
                Energy Sources, Inc. and Lee L. Blank.
            
            Incorporated
                by reference to Exhibit 10.5 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).




30





10.6
            
            Form
                of Lock-Up Agreement dated June 19, 2006 between Tompkins Capital
                Group
                and each of Mark A. Beemer and Lee L. Blank.
            
            Incorporated
                by reference to Exhibit 10.6 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.7
            
            Form
                of Agreement and Plan of Merger and Reorganization dated June 19,
                2006
                among Alternative Energy Sources, Inc., Beemer Acquisition Corp.
                and
                Beemer Energy, Inc.
            
            Incorporated
                by reference to Exhibit 10.6 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on June 23, 2006 (File No.
                000-51762).10.8
            
            Form
                of Employment Agreement between the Company and Dr. John A. Ward
                dated
                September 20, 2006.
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with the Securities and Exchange Commission on September 25, 2006
                (File
                No. 000-51762).10.9
            
            Non-Qualified
                Stock Option Agreement between the Company and John D. McNamara dated
                January 5, 2007.
            
            Incorporated
                by reference to Exhibit 10.1 to the Company’s Quarterly Report for
                the period ended March 31, 2007 on Form 10-QSB (File No.
                000-51762).10.10
            
            Non-Qualified
                Stock Option Agreement between the Company and Mike Espy dated January
                5,
                2007.
            
            Incorporated
                by reference to Exhibit 10.2 to the Company’s Quarterly Report for
                the period ended March 31, 2007 (File No.
                000-51762).10.11
            
            Non-Qualified
                Stock Option Agreement between the Company and Douglas D. Wilner
                dated
                January 5, 2007.
            
            Incorporated
                by reference to Exhibit 10.3 to the Company’s Quarterly Report for
                the period ended March 31, 2007 (File No.
                000-51762).10.12
            
            Form
                of Non-Qualified Stock Option Agreement.
            
            Incorporated
                by reference to Exhibit 10.5 to the Company’s Quarterly Report for
                the period ended March 31, 2007 (File No.
                000-51762).10.13
            
            Letter
                Agreement with a Potential Acquiror dated November 9,
                2007.
            
            Incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on November 13, 2007 (File
                No.
                000-51762).10.14
            
            Indemnification
                Agreement between the Company and Mark A. Beemer, dated May 10,
                2007*10.15
            
            Indemnification
                Agreement between the Company and Lee L. Blank, dated May 10,
                2007*10.16
            
            Indemnification
                Agreement between the Company and John J. Holland, dated May 10,
                2007*10.17
            
            Indemnification
                Agreement between the Company and John W. Ward, dated May 10,
                2007*10.18
            
            Indemnification
                Agreement between the Company and John D. McNamara, dated May 10,
                2007*10.19
            
            Indemnification
                Agreement between the Company and Mike Espy, dated May 10,
                2007*




31





10.20
            
            Indemnification
                Agreement between the Company and W. Gordon Synder, dated May 10,
                2007*31.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002. *31.2
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002. *32
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002. **
                Filed herewith.




32







**ALTERNATIVE
      ENERGY SOURCES, INC.**





**ALTERNATIVE
      ENERGY SOURCES, INC. AND SUBSIDIARY**


**(A
      DEVELOPMENT STAGE COMPANY)**


**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Page****Consolidated
                Financial Statements for the period beginning May 10, 2006, (Inception)
                to
                December 31, 2007:**Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheet
            F-3Consolidated
                Statement of Operations
            F-4Consolidated
                Statement of Stockholders’ Equity
            F-5Consolidated
                Statement of Cash Flows
            F-6Notes
                to the Consolidated Financial Statements
            F-8


F-1


**BAGELL,
      JOSEPHS, LEVINE & COMPANY, L.L.C.**


Certified
      Public Accountants





406
      Lippincott Drive, Ste. J


Marlton,
      NJ 08053-4168


(856)
      346-2828 Fax (856) 396-0022




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Board
      of
      Directors and Stockholders


Alternative
      Energy Sources, Inc.


310
      West
      20 th Street


Kansas
      City, MO 64108-2005





We
      have
      audited the accompanying consolidated balance sheet of Alternative Energy
      Sources, Inc., a development stage enterprise, as of December 31, 2007, and
      the
      related consolidated statements of operations, stockholders’ equity and cash
      flows for the period May 10, 2006 (inception) to December 31, 2007. Alternative
      Energy Sources, Inc.’s management is responsible for these financial statements.
      Our responsibility is to express an opinion on these financial statements based
      on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Alternative Energy Sources,
      Inc. as of December 31, 2007, and the results of its operations and its cash
      flows for the period May 10, 2006 (inception) to December 31, 2007 in conformity
      with accounting principles generally accepted in the United States of
      America.





The
      accompanying financial statements have been prepared assuming the Company will
      continue as a going concern. As discussed in Note 2 to the financial statements,
      unless the Company is successful in generating new sources of revenue, or
      obtaining debt or equity financing, or restructuring its business, the Company
      is likely to deplete its working capital during 2008. These matters raise
      substantial doubt about the Company’s ability to continue as a going concern.
      Management’s plan in regard to these matters is also described in Note 2. The
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.





*/s/
      BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.*


Bagell,
      Josephs, Levine & Company, L.L.C.


Marlton,
      NJ 08053





March
      20,
      2008


F-2





**ALTERNATIVE
      ENERGY SOURCES, INC. AND SUBSIDIARY**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      BALANCE SHEET**


**DECEMBER
      31, 2007**




**ASSETS**Current
                AssetsCash-Unrestricted
            
            $
            69,091Cash
                and cash equivalents -Restricted
            
            
            651,646Investments
            
            
            109,678Accounts
                receivable (non-trade)
            
            
            48,809Prepaid
                expenses
            
            
            22,716Total
                Current Assets
            
            
            901,940Leasehold
                improvements
            
            
            149,187Property
                and equipment, net
            
            
            37,336Deposits
            
            
            340,067Capitalized
                project costs
            
            
            2,155,143Other
                long term assets
            
            
            2,495,210**Total
                Assets**
            
            $
            3,583,673**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                LiabilitiesAccounts
                payable
            
            $
            605,273Accrued
                liabilities
            
            
            146,318**Total
                Liabilities**
            
            $
            751,591Commitments
                and Contingencies
            
            
            -Stockholders’
                EquityPreferred
                stock, $.0001 par value, 100,000,000 shares authorized, no shares
                issued
                and outstanding
            
            
            -Common
                stock, $.0001 par value, 575,000,000 shares authorized, 40,500,009
                shares
                issued
            
            
            4,050Additional
                paid-in capital
            
            
            11,815,383Accumulated
                deficit
            
            
            (8,987,351
            )**Total
                Stockholders’ Equity**
            
            
            2,832,082**Total
                Liabilities and Stockholders’ Equity**
            
            $
            3,583,673




**See
      accompanying notes to the consolidated financial statements.**


F-3




**ALTERNATIVE
      ENERGY SOURCES, INC. AND SUBSIDIARY**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENT OF OPERATIONS**


**For
      the Twelve Months Ended December 31, 2007 and for the period beginning**


**May
      10, 2006 (Inception) to December 31, 2007**




**For the**
              **Twelve**
              **Months****Ended**
              **December 31,**
              **2007**
            
            **2007**
              **Cumulative**
              **Totals Since**
              **Inception**Operating
                Revenues
            
            $
            0
            
            $
            0Cost
                of Sales
            
            
            0
            
            
            0Gross
                Profit
            
            
            0
            
            
            0General
                and Administrative Expenses
            
            
            6,852,367
            
            
            9,418,313Operating
                Loss
            
            
            (6,852,367
            )
            
            (9,418,313
            )Investment
                and Other Income
            
            
            218,794
            
            
            437,308Other
                Expense
            
            
            (3,912
            )
            
            (3,912
            )Interest
                Expense
            
            
            (1,305
            )
            
            (2,434
            )Loss
                Before Income Tax
            
            
            (6,638,790
            )
            
            (8,987,351
            )Provision
                for Income Taxes
            
            
            -
            
            
            -Net
                Loss
            
            $
            (6,638,790
            )
            $
            (8,987,351
            )Net
                Loss per share:Basic
                and diluted
            
            $
            (0.16
            )
            $
            (0.22
            )Weighted
                Average Number of Shares OutstandingBasic
                and diluted
            
            
            40,500,009
            
            
            40,500,009





**See
      accompanying notes to the consolidated financial
      statements.**


F-4


**ALTERNATIVE
      ENERGY SOURCES, INC. AND SUBSIDIARY**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY**


**For
      the period beginning May 10, 2006 (Inception) to December 31,
      2007**




Number
                of
              Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Accumulated Deficit
            
            Subscription Receivable
            
            Total
              Stockholders
              EquityBalance
                at May 10, 2006
            
            
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Issuance
                of common stock
            
            
            12,900,000
            
            
            1,290
            
            
            710
            
            
            0
            
            
            (2,000
            )
            
            0Collection
                of subscription receivable
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            2,000
            
            
            2,000Offering
                of 12M units, issued for cash, net of fees of $1,554,499
            
            
            12,600,000
            
            
            1,260
            
            
            11,044,241
            
            
            0
            
            
            0
            
            
            11,045,501Stock
                based compensation expense
            
            
            0
            
            
            0
            
            
            169,388
            
            
            0
            
            
            0
            
            
            169,388Stock
                retained by originalStockholders
                prior to reverse merger
            
            
            15,000,009
            
            
            1,500
            
            
            (1,500
            )
            
            0
            
            
            0
            
            
            0Other
                comprehensive income:Net
                unrealized gains on short-term investments
            
            
            0
            
            
            0
            
            
            0
            
            
            
            
            
            0Net
                loss
            
            
            0
            
            
            0
            
            
            0
            
            
            (2,348,561
            )
            
            0
            
            
            (2,348,561
            )Balance
                at December 31, 2006
            
            
            40,500,009
            
            $
            4,050
            
            $
            11,212,839
            
            $
            (2,348,561
            )
            $
            0
            
            $
            8,868,327Stock
                based compensation expense
            
            
            0
            
            
            0
            
            
            602,544
            
            
            0
            
            
            0
            
            
            602,544Other
                comprehensive income:Net
                unrealized gains on short-term investments
            
            
            0
            
            
            0
            
            
            0
            
            
            
            
            
            0Net
                loss
            
            
            0
            
            
            0
            
            
            0
            
            
            (6,638,790
            )
            
            0
            
            
            (6,638,790
            )Balance
                at December 31, 2007
            
            
            40,500,009
            
            $
            4,050
            
            $
            11,815,383
            
            $
            (8,987,351
            )
            $
            0
            
            $
            2,832,082





**See
      accompanying notes to the consolidated financial statements.**


F-5





**ALTERNATIVE
      ENERGY SOURCES, INC. AND SUBSIDIARY**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**For
      the Twelve Months Ended December 31, 2007 and for the period beginning**


**May
      10, 2006 (Inception) to December 31, 2007**





**For the Twelve**
              **Months Ended**
              **December 31,**
              **2007**
            
            **2007**
              **Cumulative**
              **Totals Since**
              **Inception******CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (6,638,790
            )
            $
            (8,987,351
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
            
            
            14,485
            
            
            18,375Stock
                based compensation expense
            
            
            602,544
            
            
            771,932Unrealized
                gains on short-term investments
            
            
            0
            
            
            0Write-off
                capitalized project costs
            
            
            2,242,781
            
            
            2,242,781Excess
                tax benefits from share-based payment arrangements
            
            
            (210,890
            )
            
            (270,176
            )Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (48,809
            )
            
            (48,809
            )Prepaid
                expenses
            
            
            695,717
            
            
            (22,716
            )Accounts
                payable
            
            
            501,343
            
            
            605,273Accrued
                liabilities
            
            
            46,897
            
            
            146,318Net
                cash (used) in operating activities
            
            
            (2,794,722
            )
            
            (5,544,373
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Additions
                to property and equipment
            
            
            (17,874
            )
            
            (55,711
            )Leasehold
                improvements
            
            
            (149,187
            )
            
            (149,187
            )Deposits
            
            
            35,887
            
            
            (340,067
            )Capitalized
                Project Costs
            
            
            (4,180,924
            )
            
            (4,397,924
            )Purchase
                of investments
            
            
            (6,484,678
            )
            
            (13,284,678
            )Redemption
                of investments
            
            
            13,175,000
            
            
            13,175,000Restrictions
                on Investments
            
            
            (29,567
            )
            
            (651,646
            )Net
                cash (used) in investing activities
            
            
            2,348,657
            
            
            (5,704,213
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                proceeds from private placement offering
            
            
            -
            
            
            11,047,501Excess
                tax benefits from share-based payment arrangements
            
            
            210,890
            
            
            270,177Net
                cash provided by financing activities
            
            
            210,890
            
            
            11,317,678Net
                increase in cash and cash equivalents
            
            
            (235,175
            )
            
            69,091Cash
                and cash equivalents, beginning of period
            
            
            304,266
            
            
            0Cash
                and cash equivalents, end of period
            
            $
            69,091
            
            $
            69,091Supplemental
                disclosure of cash flows information:Cash
                paid during the quarter for:Interest
            
            $
            0
            
            $
            0Income
                taxes
            
            $
            0
            
            $
            0





**See
      accompanying notes to the consolidated financial statements.**


F-6





**Alternative
      Energy Sources, Inc.**


**Notes
      to the Consolidated Financial Statements**





NOTE
      1 -
      NATURE OF BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION





Alternative
      Energy Sources, Inc. (“we”, “us” or “our”) is a development stage company which
      plans to engage in the business of constructing, owning and operating fuel
      grade
      ethanol plants. The ethanol expected to be produced by the plants is intended
      to
      be used by refineries and ultimately blended with gasoline fuel for internal
      combustion engines. Additionally, we anticipate that the plants will be designed
      to produce dried distilled grains, which are used in the manufacture of various
      animal feeds. Our operations will substantially be the operations of Beemer
      Energy, Inc., our wholly-owned subsidiary.





On
      June
      19, 2006, Beemer Acquisition Corporation (“BAC”) entered into an Agreement and
      Plan of Merger and Reorganization with Beemer Energy, Inc., (“BEI”) a privately
      held Delaware corporation, whereby, the holders of BEI’s issued and outstanding
      capital stock before the merger surrendered all of their issued and outstanding
      capital stock to us in exchange for 12,900,000 shares of our common stock.
      Concurrently with the consummation of the merger, we closed a private offering
      of our common stock and warrants to purchase our common stock. The shareholders
      of Alternative Energy Sources, Inc. prior to the merger retained 15,000,000
      shares of our common stock. As a result of the merger and the offering, the
      shareholders of Alternative Energy Sources, Inc. prior to the merger own
      approximately 37% of the issued and outstanding shares of common stock and
      the
      former shareholders of BEI, investors and a finder that received shares of
      common stock in connection with offering own approximately 63% of the issued
      and
      outstanding shares of common stock.





The
      above
      transaction has been accounted for as a reverse merger (recapitalization) with
      BEI being deemed the accounting acquirer and BAC being deemed the legal
      acquirer. Accordingly, the historical financial information presented in the
      financial statements is that of BEI (since May 10, 2006, date of BEI’s
      inception) as adjusted to give effect to any difference in the par value of
      the
      issuer’s and the accounting acquirer’s stock with an offset to additional paid
      in capital. The basis of the assets and liabilities of BEI, the accounting
      acquirer, has been carried over in the recapitalization.





These
      consolidated financial statements have been prepared in accordance with
      generally accepted accounting principles in the United States of America
      (“GAAP”). The preparation of financial statements in accordance with GAAP
      requires the use of estimates and assumptions that affect the reported amounts
      of assets and liabilities and disclosures of contingent assets and liabilities
      at the date of the consolidated financial statements, and revenues and expenses
      during the reporting period.





NOTE
      2 -
      GOING CONCERN





We
      are
      currently a development stage enterprise. All losses accumulated since the
      inception of business have been considered as part of our development stage
      activities.





The
      accompanying financial statements have been prepared on the basis we will
      continue as a going concern basis, which contemplates the realization of assets
      and the satisfaction of liabilities in the normal course of business. We have
      a
      history of operating losses that are likely to continue in the future. Our
      significant losses from operations and our dependence on equity and debt
      financing raise substantial doubt about our ability to continue as a going
      concern. Our financial statements do not include any adjustments that might
      be
      necessary should we be unable to continue as a going concern. Our operations
      must begin to provide sufficient revenues to improve our working capital
      position. Additionally, we will require additional capital to construct ethanol
      production facilities and commence our planned operations. If we are unable
      to
      raise additional capital we may need to revise our business plan, reduce the
      scope of our planned operations or discontinue our operations.





NOTE
      3 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





This
      summary of significant accounting policies of the Company is presented to assist
      in understanding the Company’s consolidated financial statements.  The
      financial statements and notes are representations of the Company’s management
      who are responsible for their integrity and objectivity.  These accounting
      policies conform to accounting principles generally accepted in the United
      States and have been consistently applied in the preparation of the financial
      statements.  The following policies are considered to be
      significant.




Principles
      of Consolidation and Basis of Presentation





The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiary, Beemer Energy Inc. All intercompany accounts have
      been
      eliminated.


F-7





Development
      Stage Company




The
      Company is considered to be in the development stage as defined in Statement
      of
      Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by
      Development Stage Enterprises” as interpreted by the Securities and Exchange
      Commission. The Company is devoting substantially all of its efforts to the
      development of its business plan.





Use
      of
      Estimates





The
      preparation of the financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.





Cash
      and Cash Equivalents





We
      consider all highly liquid investments purchased with a maturity of less than
      three months to be cash equivalents. Cash equivalents are stated at cost, which
      approximates fair value.





Restrictions
      on Cash





All
      restrictions on cash are properly disclosed and restricted amounts are
      appropriately segregated from other cash items in accordance with Statement
      of
      Financial Accounting Standards No. 5. As of December 31, 2007 restricted cash
      totaled $651,646 to collateralize an irrevocable letter of credit held as
      security deposit for office space. This is per the lease agreement with Broadway
      Properties, LLC. The Company was in default under certain provisions of its
      office space lease and obtained forbearance from the landlord until July 9,
      2008
      to cure the default.





Concentration
      of Credit Risk





As
      of
      December 31, 2007 our cash and cash equivalents are maintained in two financial
      institutions, First National Bank and UBS Financial Services, Inc. The balance
      of cash held in First National Bank is insured by the Federal Deposit Insurance
      Corporation up to $100,000. The balance of cash and cash equivalents in the
      UBS
      Financial Services, Inc. account is not insured. At December 31, 2007, our
      uninsured cash and cash equivalent balance totaled approximately $78,769.





Investments





In
      accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
      “Accounting for Certain Investments in Debt and Equity Securities”, securities
      are classified into three categories: held-to-maturity, available-for-sale
      and
      trading. The Company’s investments consist of debt and equity securities
      classified as available-for-sale securities. Accordingly, they are carried
      at
      fair value in accordance with SFAS No. 115. Further, according to SFAS No.
      115
      the unrealized holding gains and losses for available-for-sales securities
      are
      excluded from earnings and reported, net of deferred income taxes, as a separate
      component of stockholders’ equity, unless the loss is classified as other than a
      temporary decline in market value.





Income
      Taxes





We
      account for income taxes under the Financial Accounting Standards Board of
      Financial Accounting Standards No. 109, “Accounting for Income Taxes”
(“Statement 109”). Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the years in which
      those temporary differences are expected to be recovered or settled. Under
      Statement 109, the effect on deferred tax assets and liabilities of a change
      in
      tax rates is recognized in income in the period that includes the enactment
      date. There were no current or deferred income tax expenses or benefits due
      to
      our not having any material operations for the period ending December 31,
      2007.





Earnings
      (Loss) Per Share





Earnings
      (Loss) per common share represents the amount of earnings (loss) for the period
      available to each share of common stock outstanding during the reporting period.
      Diluted earnings (loss) per share reflects the amount of earnings (loss) for
      the
      period available to each share of common stock outstanding during the reporting
      period, while giving effect to all dilutive potential common shares that were
      outstanding during the period, such as common shares that could result from
      the
      potential exercise or conversion of securities into common stock. The
      computation of diluted earnings (loss) per share does not assume conversion,
      exercise, or contingent issuance of securities that would have an anti-dilutive
      effect on earnings (loss) per share.





As
      of
      December 31, 2007, potential future dilutive securities include 12,000,000
      shares issuable under outstanding warrants for a five year period at an exercise
      price of $2.00 per share, and 2,839,000 shares issuable under outstanding
      employee stock options.


F-8


Securities
      Issued for Services





We
      account for stock, stock options and stock warrants issued for non-employees
      services in accordance with EITF 96-18 “Accounting for Equity Instruments That
      Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling
      Goods or Services”. The fair value of the Company’s stock on the date of stock
      issuance or option grant is used and charged directly to expense and additional
      paid in capital. The Company determines the fair market value of options issued
      using the Black-Scholes Pricing Model.





Stock
      Based Compensation





We
      have
      adopted the provisions of Statement of Financial Accounting Standards (SFAS)
      123R, “share-based payment” which establishes accounting for equity instruments
      exchanged for employee services. Under the provisions of SFAS 123(R),
      share-based compensation cost is measured at the grant date, based on the fair
      value of the award, and is recognized as an expense over the employee’s
      requisite service period (generally the vesting period of the equity
      grant).





Fair
      Value of Financial Instruments





The
      carrying amounts of our financial instruments, including cash, investments,
      accounts payable and accrued liabilities, approximate their fair value as of
      December 31, 2007.





New
      Accounting Pronouncements





In
      February 2006, the Financial Accounting Standards Board (FASB) issued statement
      155, *Accounting
      for Certain Hybrid Financial Instruments - an amendment of FASB Statements
      no.
      133 and 140* .
      This
      statement resolves issues addressed in Statement 133 Implementation Issue no.
      D1
“Application of Statement 133 to Beneficial Interests in Securitized Financial
      Assets.” This implementation guidance indicated that entities could continue to
      apply guidance related to accounting for beneficial interests in paragraphs
      14
      and 362 of Statement 140, which indicate that any security that can be
      contractually prepaid or otherwise settled in such a way that the holder of
      the
      security would not recover substantially all of its recorded investment should
      be subsequently measured like investments in debt securities classified as
      available for sale or trading, and may not be classified as held to maturity.
      Also, Implementation issue D1 indicated that holders of beneficial interests
      in
      securitized financial assets that are not subject to paragraphs 14 and 362
      of
      Statement 140 are not required to apply Statement 133 to those beneficial
      interests, pending further guidance. Statement 155 eliminates the exemption
      from
      Statement 133 for interests in securitized financial assets. It also allows
      the
      preparer to elect fair value measurement at acquisition, at issuance or when
      a
      previously recognized financial instrument is subject to a remeasurement event.
      SFAS 155 is effective for all financial instruments acquired or issued after
      the
      beginning of the fiscal year that begins after September 15 2006. We do not
      expect the adoption of this statement will have a material impact on our results
      of operations or financial position.





In
      March
      2006, the FASB issued statement 156, *Accounting
      for Servicing of Financial Assets - an amendment of FASB Statement No.
      140* .
      Under
      statement 140, servicing assets and servicing liabilities are amortized over
      the
      expected period of estimated net servicing income or loss and assessed for
      impairment or increased obligation at each reporting date. This statement
      requires that all separately recognized servicing assets and servicing
      liabilities be initially measured at fair value, if practicable. Subsequent
      measurement of servicing assets and servicing liabilities at fair value is
      permitted, but not required. If derivatives are used to mitigate risks inherent
      in servicing assets and servicing liabilities, those derivatives must be
      accounted for at fair value. Servicing assets and servicing liabilities
      subsequently measured at fair value must be presented separately in the
      statement of financial position and there are additional disclosures for all
      separately recognized servicing assets and servicing liabilities. SFAS 156
      is
      effective for transactions entered into after the first fiscal year that begins
      after September 15 2006. We do not expect the adoption of this statement will
      have a material impact on our results of operations or financial
      position.





In
      June
      2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for
      Uncertainty in Income Taxes” which defines the threshold for recognizing the
      benefits of tax return positions in the financial statement as
“more-likely-than-not” to be sustained by the taxing authority. FIN 48 also
      prescribes a method for computing the tax benefit positions to be recognized
      in
      the financial statements.





In
      addition, FIN 48 provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure, and transition. The
      Company is a development stage company and as such, deferred tax assets arising
      from net operation loss carryforwards were fully offset by a deferred tax
      valuation reserve resulting in no current or deferred income tax expenses or
      benefits for the period ended December 31, 2006. FIN 48 is effective for fiscal
      years beginning after December 15 2006.





In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
      157). SFAS 157 defines fair value, establishes a framework for using fair value
      to measure assets and liabilities, and expands disclosures about fair value
      measurements. This statement applies whenever other statements require or permit
      assets or liabilities to be measured at fair value. SFAS 157 is effective for
      fiscal years beginning after November 15, 2007 and will be effective for us
      in
      the first quarter of fiscal 2008. We do not expect the adoption of this
      statement will have a material impact on our results of operations or financial
      position.





In
      September 2006, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin (SAB) No. 108, Quantifying Financial Misstatements (SAB
      108), which expresses the Staff’s views regarding the process of quantifying
      financial statement misstatements.


F-9


Registrants
      are required to quantify the impact of correcting all misstatements, including
      both the carryover and reversing effects of prior year misstatements, on the
      current year financial statements. The financial statements would require
      adjustment when either approach results in quantifying a misstatement that
      is
      material, after considering all relevant quantitative and qualitative factors.
      SAB 108 is effective for financial statements covering the first fiscal year
      ending after November 15, 2006, and will be effective for us in the first
      quarter of fiscal 2007. We do not expect the adoption of this statement will
      have a material impact on our results of operations or financial position.





In
      September 2006 the FASB issued SFAS No. 158, Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans — an amendment of FASB Statement
      No. 87, 88, 106 and 132(R), (“FAS 158”) . This Standard requires recognition of
      the funded status of a benefit plan in the statement of financial position.
      The
      Standard also requires recognition in other comprehensive income certain gains
      and losses that arise during the period but are deferred under pension
      accounting rules, as well as modifies the timing of reporting and adds certain
      disclosures. FAS 158 provides recognition and disclosure elements to be
      effective as of the end of the fiscal year after December 15, 2006 and
      measurement elements to be effective for fiscal years ending after December
      15,
      2008. The Company does not have a defined benefit pension plan, and accordingly
      SFAS 158 will not have an impact on its financial condition, results of
      operations, or financial condition.





NOTE
      4 -
      STOCK BASED COMPENSATION





The
      Company’s 2006 Equity Incentive Plan (the “2006 Incentive Plan”) provides for
      the grant of stock options, stock appreciation rights, reload options and
      restricted shares, to officers and employees of the Company and consultants
      and
      advisors to the Company. There were 4,000,000 common shares initially available
      under the 2006 Incentive Plan. In any calendar year, no participant may be
      granted more than 200,000 incentive stock options, or more than $100,000 worth
      of incentive stock options.





*Stock
      options* —
Stock
      options have a ten-year life and vest ratably over three to four years beginning
      on the first anniversary of the date of the grant. The option holder has no
      voting or dividend rights. The grant prices are equal to the market prices
      at
      date of grant. The Company records the expense of the stock options over the
      related vesting period. The options were valued using the Black-Scholes
      option-pricing model at the date of grant using the following
      assumptions:





Expected
                Volatility
            
            
            56.8 –
                59.8
            %Expected
                term (in years)
            
            
            6.0-6.25Expected
                dividends
            
            
            0Risk-free
                rate of return (weighted average)
            
            
            4.76Grant
                date fair value - 500,000 options
            
            $
            1.00Grant
                date fair value - 1,104,000 options
            
            $
            1.80
                to 2.58Grant
                date fair value - 300,000 options
            
            $
            1.15
                to 1.60Grant
                date fair value - 10,000 options
            
            $
            0.87Grant
                date fair value - 925,000 options
            
            $
            0.67Expected
                forfeitures
            
            
            0





Because
      the Company does not have specific historical or implied volatility information
      available due to its development stage nature, expected volatility is based
      on
      the historical, or implied volatility of similar entities with publicly
      available share or option prices. This methodology is in accordance with
      Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) No. 107 -
“D. Certain Assumptions Used in Valuation Methods.” The expected term represents
      the estimated average period of time that the options remain outstanding using
      the “simplified” method, also in accordance with the Securities and Exchange
      Commission SAB No.107. The risk-free rate of return reflects the weighted
      average interest rate offered for zero coupon treasury bonds over the expected
      term of the options.





A
      summary
      of the stock option activity for the twelve months ended December 31, 2007,
      is
      listed below:





**Weighted-**
            
            **Weighted-**
              **Average**
              **Remaining****Number
                of**
            
            **Average**
            
            **Contractual****Options**
            
            **Exercise
                Price**
            
            **Term
                (years)**Outstanding
                December 31, 2006
            
            
            1,604,000
            
            $
            1.90
            
            
            9.6Granted
            
            
            1,235,000
            
            $
            1.00
            
            
            9.5Exercised
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Outstanding
                at December 31, 2007
            
            
            2,839,000
            
            $
            1.43
            
            
            9.0




As
      of
      December 31, 2007 there was $1,642,909 of total unrecognized compensation cost
      related to the outstanding stock options that will be recognized over
      straight-line vesting periods of three or four years.


F-10





NOTE
      5 -
      STOCKHOLDERS’ EQUITY





Private
      Placement Offering





Concurrently
      with the consummation of the Merger on the Closing Date, the Company closed
      a
      private offering of 12,000,000 units, each unit consisting of one share of
      the
      Company’s common stock and a warrant to acquire one share of common stock for
      five years at an exercise price of $2.00 per share. On the closing date, the
      investors in the offering collectively purchased 12,000,000 units for total
      consideration of $12,000,000, pursuant to Subscription Agreements entered into
      by the Company and each investor in the offering. The proceeds were allocated
      between the common stock and the warrants based on their respective relative
      fair values.





Offering
      costs consisted of 600,000 shares of common stock valued at $600,000, which
      represented their fair value on the date of issuance. Additionally, we paid
      $954,499 in legal and other professional fees in connection with the
      offering.





All
      securities issued in connection with the offering are restricted securities
      and
      will be subject to all applicable resale restrictions specified by federal and
      state securities laws.





Pursuant
      to a Registration Rights Agreement among the Company and the investors in the
      offering, the Company committed to file a registration statement covering the
      common stock issued in connection with the offering, including the common stock
      underlying the warrants, within 120 days from the Closing Date. The Company
      filed the registration statement on October 11, 2006. The Company also committed
      to cause the registration statement to become effective within 120 days of
      its
      filing which was accomplished on February 12, 2007. In addition, the Company
      agreed to maintain the effectiveness of this registration statement through
      the
      first anniversary of the Closing Date and use its best efforts to maintain
      the
      effectiveness through the second anniversary of the date the registration
      statement is declared effective by the SEC or until the holding period of Rule
      144(k) promulgated under the Securities Act of 1933, as amended (the “Securities
      Act”), has been satisfied for the investors in this Offering with respect to all
      of their shares, whichever is earlier.





The
      Company has adopted View A from Issue Summary No. 1 and considers that the
      registration rights agreement and the warrants the Company has issued should
      be
      considered together as a unit and analyzed under Issue 00-19 of the Emerging
      Issue Task force (“Issue 00-19”). Since the maximum potential liquidated damages
      penalty payable by the Company in cash is less than a reasonable estimate of
      the
      difference in fair value between registered and unregistered share of our common
      stock, the combined instrument may be classified as equity under Issue
      00-19.





Common
      stock





A
      summary
      of the warrant activity for the period ended December 31, 2007 is set forth
      below:




WEIGHTEDAVERAGENUMBER
                OF
            
            EXERCISEWARRANTS
            
            PRICEOutstanding
                at May 10, 2006 (date of inception)
            
            
            0
            
            $
            0Granted
            
            
            12,000,000
            
            
            2.00Exercised
            
            
            0
            
            
            0Canceled
                or Expired
            
            
            0
            
            
            0Outstanding
                at December 31, 2007
            
            
            12,000,000
            
            
            2.00




NOTE
      6 -
      COMMITMENTS AND CONTINGENCIES




Employment
      Agreements





The
      Company has entered into employment agreements with certain key personnel which
      provide for a base salary, yearly bonuses subject to the Company achieving
      certain target performance levels as set by the board, stock options under
      the
      2006 Stock Option Plan and other benefits. Termination of the agreements may
      be
      made by either party with advance notice.


F-11





NOTE
      7 -
      LEASE COMMITMENTS





The
      Company leases a copier and an office facility under operating lease agreements
      with the following approximate future minimum rental commitments:





2007
            
            $
            31,0002008
            
            
            247,0002009
            
            
            247,0002010
            
            
            247,0002011
            
            
            246,000$
            1,018,000





The
      Company recognized rent expense related to the above leases of approximately
      $156,917 for the year ended December 31, 2007.





NOTE
      8 -
      INCOME TAXES





Components
      of deferred assets consisted of the following:





Deferred
                tax assetNet
                operating loss carry-forward
            
            $
            3,595,000Less:
                Valuation allowance
            
            
            (3,595,000
            )Net
                deferred tax asset
            
            $
            0





The
      year
      to date net change in the valuation allowance was $2,656,000.





At
      December 31, 2007, the Company had approximately $8,987,000 of net operating
      loss carry-forwards which expire in 2026 and 2027.


F-12