UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
20-F
 
  ̈
              REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
      OF 1934
 
 OR
 x
              ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
fiscal year ended December 31, 2009
 
 OR
  ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For
the transition period
from              to
 
 OR
  ̈
              SHELL COMPANY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 Date
      of event requiring this shell company
report:
 
 For
the transition period from _____________________ to
______________________
 
 Commission
file number 000-50339
 
 CAPITAL RESERVE CANADA
LIMITED
 (Exact
name of Registrant as specified in its charter)
 N/A
 (Translation
of Registrant's name into English)
 
 Alberta,
Canada
 (Jurisdiction
of incorporation or organization)
 
 18104 –
102 Avenue
 Edmonton,
Alberta T5S-1S7
 (Address
of principal executive offices)
 
 Securities
registered or to be registered pursuant to Section 12(b) of the
Act.
 
 Title
      of each class
              
              Name
      of each exchange on which registeredClass
      A Common Stock
 
 Securities
      registered or to be registered pursuant to Section 12(g) of the
      Act.None(Title
      of Class)
 
 Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act.None(Title
      of Class)
 
 Indicate
the number of outstanding shares of each of the issuer's capital or common stock
as of the close of the period covered by the annual report:
 
 207,594,302
Class A common shares as at December 31, 2009.
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
 Act.                                 ̈ Yes x No
 
 If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
  ̈ Yes x No
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 
 x Yes  ̈ No
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer\, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.  (Check one):
 
 Large
      accelerated filer     ̈
              Accelerated
      filer     ̈
              Non-accelerated
      filer    x
 
 Indicate
by check mark which financial statement item the registrant has elected to
follow.
  ̈ Item 17 x Item 18
 
 If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
  ̈ Yes x No
 
 
 
 (APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
 
 Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
  ̈ Yes  ̈ No
  
  TABLE
OF CONTENTS
 
 PART
      I
                  
                  
                  
                  2Item
      1.
                  
                  Identity
      of Directors, Senior Management and Advisors
                  
                  2Item
      2.
                  
                  Offer
      Statistics and Expected Timetable
                  
                  2Item
      3.
                  
                  Key
      Information
                  
                  2Item
      4.
                  
                  Information
      on the Company
                  
                  14Item
      5.
                  
                  Operating
      and Financial Review and Prospects
                  
                  19Item
      6.
                  
                  Directors,
      Senior Management and Employees
                  
                  21Item
      7.
                  
                  Major
      Shareholders and Related Party Transaction
                  
                  24Item
      8.
                  
                  Financial
      Information
                  
                  26Item
      9.
                  
                  The
      Offering and Listing
                  
                  26Item
      10.
                  
                  Additional
      Information
                  
                  26Item
      11.
                  
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  
                  29Item
      12.
                  
                  Description
      of Securities Other than Equity Securities
                  
                  29PART
      II
                  
                  
                  
                  29Item
      13.
                  
                  Defaults,
      Dividends Arrearages and Delinquencies
                  
                  29Item
      14.
                  
                  Material
      Modifications to the Rights of Security Holders and use of
      proceeds
                  
                  29Item
      15.
                  
                  Controls
      and Procedures
                  
                  29Item
      16A.
                  
                  Audit
      Committee financial Expert
                  
                  30Item
      16B.
                  
                  Code
      of Ethics
                  
                  30Item
      16C.
                  
                  Principal
      Accountant Fees and Services
                  
                  30Item
      16D.
                  
                  Exemptions
      from the Listing Standards for Audit Committees
                  
                  30PART
      III
                  
                  
                  
                  30Item
      17.
                  
                  Financial
      Statements
                  
                  30Item
      18.
                  
                  Financial
      Statements
                  
                  30Item
      19.
                  
                  Exhibits
                  
                  31
  2
  PART
I
 
 ITEM  1.
              IDENTITY OF DIRECTORS, SENIOR
      MANAGEMENT AND ADVISERS
 
 Not
Applicable
 
 ITEM
      2.
              OFFER
      STATISTICS AND EXPECTED TIMETABLE
 
 Not
Applicable
 
 ITEM
      3.
              KEY
      INFORMATION
 
 SELECTED
FINANCIAL DATA
 
 Exchange
Rates
 
 Financial
statements are presented in Canadian dollars and all dollar amounts in this
document are in Canadian Dollars unless otherwise indicated.
 
 The host
country is the United States of America and therefore the Company provides
disclosure of the exchange rate between its financial reporting currency which
is in Canadian dollars and United States dollars (“US$”) of the host country
based upon the exchange rate in effect at the end of the month or of the
calendar year to which the amount relates, or the exchange rate on the date
specified.  For such purposes, the exchange rate means the noon buying
rate for United States dollars from the bank of Canada (the “Noon Buying Rate”).
These translations should not be construed as representations that the Canadian
dollar amounts actually represent such U.S. dollar amounts or that Canadian
dollars could be converted into U.S. dollars at the rate indicated or at any
other rate. The Noon Buying Rate at the end of each of the five years ended
December 31, the average of the Noon Buying Rates on the last day of each month
during each of such fiscal years and the high and low Noon Buying Rate for each
of such fiscal years were as follows:
 
 2005
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2009At
      the end of period
                  
                  
                  0.858
                  
                  
                  
                  0.862
                  
                  
                  
                  1.020
                  
                  
                  
                  0.817
                  
                  
                  
                  0.9555Average
      for period
                  
                  
                  0.825
                  
                  
                  
                  0.882
                  
                  
                  
                  0.930
                  
                  
                  
                  0.938
                  
                  
                  
                  0.8757High
      for period
                  
                  
                  0.869
                  
                  
                  
                  0.909
                  
                  
                  
                  1.0905
                  
                  
                  
                  1.029
                  
                  
                  
                  0.9716Low
      for period
                  
                  
                  0.787
                  
                  
                  
                  0.853
                  
                  
                  
                  0.844
                  
                  
                  
                  0.771
                  
                  
                  
                  0.7602
 
 Following
is a table of the Noon Buying Rates on the last day of each month for the last
four months ended April 30, 2010:
 
 January
                  
                  
                  February
                  
                  
                  March
                  
                  
                  AprilAt
      the end of period
                  
                  
                  0.9390
                  
                  
                  
                  0.9596
                  
                  
                  
                  0.9846
                  
                  
                  
                  0.9885Average
      for period
                  
                  
                  0.9579
                  
                  
                  
                  0.9469
                  
                  
                  
                  0.9775
                  
                  
                  
                  0.9950High
      for period
                  
                  
                  0.9755
                  
                  
                  
                  0.9597
                  
                  
                  
                  0.9888
                  
                  
                  
                  1.0039Low
      for period
                  
                  
                  0.9784
                  
                  
                  
                  0.9316
                  
                  
                  
                  0.9596
                  
                  
                  
                  0.9803
 The Noon
Buying Rate as at June 30, 2010 was 0.9429
 
 Change
of Control
 
 On August
8, 2005, the Company acquired 78.2% of KCP Innovative Services Inc. for the
issuance of 17,335,814 Class A common shares for the Company bringing the total
number of Class A shares issued and outstanding at that time to
19,335,814.  This effected a change in control of the
Company.  Based on the acquisition of the controlling interest in KCP
Innovative Services Inc. as of August 8, 2005, and reverse merger accounting
applied to the transaction, the following financial information reflects the
financial information of KCP Innovative Services Inc. for the fiscal years ended
August 31, 2002 to December 31, 2005.  KCP Innovative Services there
after changed its fiscal year end to the fiscal year end of the Company, which
is December 31.
  3
 
 This date
of writing this report is June 30, 2010.
 
 Aug 31
                    
                    
                    Dec 31
                    
                    
                    Dec 31
                    
                    
                    Dec 31
                    
                    
                    Dec 31
                    
                    
                    Dec 31Year End
                    
                    2005
                    
                    
                    2005 (4 mos)
                    
                    
                    2006
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2009CAD
                    
                    
                    CAD
                    
                    
                    CAD
                    
                    
                    CAD
                    
                    
                    CAD
                    
                    
                    CADOperating
      Revenues
                    
                    
                    933,441
                    
                    
                    
                    355,017
                    
                    
                    
                    1,714,925
                    
                    
                    
                    18,000
                    
                    
                    
                    24,000
                    
                    
                    
                    10,167Income
      (loss) from Operations
                    
                    
                    (862,266
                    )
                    
                    
                    (399,830
                    )
                    
                    
                    (188,745
                    )
                    
                    
                    (195,414
                    )
                    
                    
                    (7,004,583
                    )
                    
                    
                    (963,001
                    )Net
      Income (loss)
                    
                    
                    (643,469
                    )
                    
                    
                    (258,114
                    )
                    
                    
                    (188,745
                    )
                    
                    
                    (854,288
                    )
                    
                    
                    (6,912,734
                    )
                    
                    
                    (1,101,073
                    )Net
      Income (loss) from Operations Per Share
                    
                    
                    (.037
                    )
                    
                    
                    (.015
                    )
                    
                    
                    (.0004
                    )
                    
                    
                    (0.00
                    )
                    
                    
                    (0.07
                    )
                    
                    
                    (0.01
                    )Total
      Assets
                    
                    
                    2,003,032
                    
                    
                    
                    1,698,171
                    
                    
                    
                    7,128,648
                    
                    
                    
                    6,460,892
                    
                    
                    
                    993,536
                    
                    
                    
                    780,328Net
      Assets
                    
                    
                    291,726
                    
                    
                    
                    883,308
                    
                    
                    
                    5,818,271
                    
                    
                    
                    5,912,304
                    
                    
                    
                    689,758
                    
                    
                    
                    (88,483
                    )Capital
      Stock
                    
                    
                    2,320,783
                    
                    
                    
                    3,242,434
                    
                    
                    
                    8,381,142
                    
                    
                    
                    9,314,463
                    
                    
                    
                    11,004,651
                    
                    
                    
                    11,327,483Number
      of Shares
                    
                    
                    19,335,814
                    
                    
                    
                    34,810,814
                    
                    
                    
                    58,396,421
                    
                    
                    
                    65,566,421
                    
                    
                    
                    118,621,359
                    
                    
                    
                    207,594,302
 
 CAPITALIZATION
AND INDEBTEDNESS
 
 Not
Applicable
 
 REASONS
FOR THE OFFER AND USE OF PROCEEDS
 
 Not
Applicable
 
 RISK
FACTORS
 
 Our
business will be subject to numerous risk factors, as more particularly
described below.
 
 Risk
Factors Related Directly to Our Business
 
 Investing
in Waste Storage May Expose the Company to Specific Risks.
 
 Investments
in waste disposal and management are exposed to a wide variety of risks
including nationwide and local social conditions, the supply of, and demand for,
specific types of waste properties. The Cavern Storage Terminal segment of the
project comes along with standard engineering, construction and development
risks. Through discussion with engineering partners, engaged to examine this
project, it does not appear that any of the technological problems cannot be
solved through the implementation of “off-the-shelf” equipment in standard
configurations. While the scale of the project is quite large, Albertan
engineering and construction firms possess the knowledge and resources to design
and build the suggested infrastructure. CO2 leakage due to fracture or
mechanical failure is also a risk, however, CRC feels as though these risks can
be managed through careful understanding and development of the caverns and the
constant monitoring of the caverns and mechanical infrastructure.
 
 The
larger risk in the proposed project is of the biological conversion of CO2, due
to the early stage of development of the technology and the risks that come
along with scaling up any technology. However, CRC is seeking to develop a
partnership with a clear global leader in the development of biological
conversion processes in order to mitigate these risks as much as is possible.
The intellectual property and unique capacities that will be developed en-route
to the ultimate applications will all provide value to the province of
Alberta.
 
 Our
business operations are speculative. The failure of our plans could
ultimately force us to reduce or suspend operations and even liquidate our
assets and wind-up and dissolve our company.
 
 Our
shares should be considered highly speculative due to the proposed nature of our
business and the current stage of our development.
 
 The
construction and operation of waste disposal facilities may involve
unanticipated changes or delays that could negatively impact the Company's
business and its results of operations.
 
 The
construction and operation of waste disposal facilities involves many risks,
including start-up risks, breakdown or failure of equipment, competition,
inability to obtain required governmental permits and approvals, and inability
to negotiate acceptable acquisition, construction, waste supply, transmission or
other material agreements, as well as the risk of performance below expected
efficiency. Such unanticipated events could negatively impact the Company's
business and its results of operations.
  4
  Seasonality
may affect our performance.
 
 In
general, the level of activity in the oilfield service industry is influenced by
seasonal weather patterns.  Wet weather and the spring thaw may make
the ground unstable.  Consequently, municipalities and provincial
transportation departments enforce road bans that restrict the movement of rigs
and other heavy equipment, thereby reducing activity
levels.  Additionally, certain oil and gas producing areas are located
in areas that are inaccessible other than during the winter months because the
ground surrounding the drilling sites in these areas consists of swampy
terrain.  Seasonal factors and unexpected weather patterns may lead to
declines in the activity levels of exploration and production companies and
corresponding declines in the demand for our storage and waste recycling
services.
 
 Our
business may be adversely impacted by unforeseen changes in environmental and
safety requirements.
 
 Environmental
and safety regulations are extensive in the industry and subject to change at
any time.  This may affect the development of our business.
Environmental and Safety matters are more completely described in Item 4 of this
document.
 
 The
industry in which we operate is marked by rapid technological change. Our
inability to adapt to such change(s) may have a material adverse impact on our
business and ability to continue as a going concern.
 
 Our
industry is subject to rapid change, and any inability on our part to adapt to
such change may have an adverse affect on our business, results of operations
and financial condition. The effect of new developments and technological
changes on the business sector in which we will compete cannot be predicted. Our
failure to adapt to any of the above could have a material adverse effect on our
business, results of operations, and financial condition.
 
 Some of the Company'soperations are subject to extensive
environmental laws and regulations that may increase costs of
operations,impactor limit businessplans, or expose the Company to
environmental liabilities.
 
 The
Company is subject to extensive environmental laws and regulations affecting
many aspects of its present and future operations including air quality, water
quality, waste management and other environmental considerations. These laws and
regulations can result in increased capital, operating and other costs, and
delays as a result of ongoing litigation and compliance, remediation,
containment and monitoring obligations. These laws and regulations generally
require the Company to obtain and comply with a wide variety of environmental
licenses, permits, inspections and other approvals. Public officials and
entities, as well as private individuals and organizations, may seek injunctive
relief or other remedies to enforce applicable environmental laws and
regulations. The Company cannot predict the outcome (financial or operational)
of any related litigation that may arise.
 
 Existing
environmental regulations may be revised and new regulations seeking to protect
the environment may be adopted or become applicable to the Company. Revised or
additional regulations, which result in increased compliance costs or additional
operating restrictions, particularly if those costs are not fully recoverable
from customers, could have a material effect on the Company's results of
operations.
 
 We
compete directly with independent, technology-driven services companies. Our
inability to effectively compete with these companies could have a material
adverse impact on our business.
 
 We expect
to face significant competition from other organizations and there can be no
assurance that we will be able to compete effectively in our target
markets.  In addition, new technologies may emerge that are
competitive with our services. Advances in measurement tools as well as changes
in the market place and the regulatory and legislative environment are
constantly occurring and any such change could have a material adverse impact on
us. We expect that competition will intensify in the future, as our services,
and the opportunities presented thereby, become better known.
 
 Unpredictable
events could cause fluctuations in our operating results, which could cause
unanticipated losses and adversely impact our business.
 
 We expect
to be exposed to significant fluctuations in operating results caused by many
factors, including changes in the demand for our services, the introduction of
competing services, delays in the introduction of such enhancements or products,
changes in our pricing policies or those of our competitors, the mix of services
sold, foreign currency exchange rates and general economic
conditions.
  5
  Our
future operating results may fluctuate significantly depending upon a number of
factors, including industry conditions, prices of oil and natural gas, rate of
drilling success, rates of production from completed wells and the timing of
capital expenditures.
 
 This
variability makes it very difficult to predict when we might reach profitability
and hence would have a serious impact on the value of an investor’s investment
in our company. In addition, any failure or delay in the realization of expected
cash flows from initial operating activities could limit our future ability to
continue exploration and to participate in an economically attractive
project.
 
 The price
of oil and natural gas is determined based on world demand and supply. It is
impossible to predict future oil and natural gas price movements with any
certainty, as they have historically been subject to wide fluctuations in
response to a variety of market conditions, including relatively minor changes
in the supply and demand for oil and natural gas, economic, political and
regulatory developments, and competition from other sources of
energy.
 
 Any
extended or substantial decline in oil and natural gas prices would have a
material adverse effect on our ability to negotiate favorable joint ventures
with viable industry participants, our cash flow and our access to
capital. The Kyoto Protocol and/or unforeseen changing government
regulations may adversely impact our business.
 
 Canada is
a signatory to the United Nations Framework Convention on Climate Change and has
ratified the Kyoto Protocol established hereunder.  Canada, as an
Annex B party to the Kyoto Protocol, is required to set legally binding
targets to reduce nation-wide emissions of carbon dioxide, methane, nitrous
oxide and other so-called “greenhouse gases”.
 
 The
direct or indirect costs of complying with emissions regulations may adversely
affect the oil and gas business in Canada, which in turn may adversely affect
the oil and gas services industry in which we will participate.
 
 Other
government regulations are subject to change at any time and are beyond our
control.
 
 Risk
Factors Relating to Business Operations
 
 We
may be unable to continue as a going concern if we are unable to raise
additional capital.
 
 The cost
associated with further development of our business and our ability to generate
revenue will depend on a variety of factors, including our ability to meet our
development schedule and customer needs, changes in technology, and the
availability of additional funds that may be required to advance and expand our
business. Additional funds, whether through additional equity financing, debt
financing or other sources, may not be available on terms acceptable to us or at
all, or mayresult
in significant dilution to our shareholders and/or a change of control of the
Company. The inability to obtain additional funds may have a material adverse
affect on our business, results of operations, and financial
condition.
 
 There
is no guarantee that we will generate profit.  We have incurred losses
and anticipate losses will continue.  This could have an impact on
stockholders’ investments in our common stock.
 
 Our
business is capital intensive and we have no history of
profit.  Accordingly, there can be no assurance that our future
business activities will be profitable. We have incurred costs to develop and
enhance our services, to establish strategic relationships and to build an
administrative organization. Our ability to operate profitably and generate
positive cash flow in the future will be affected by a variety of factors,
including our ability to further develop and test our technology on schedule and
on budget, the pace of our entry into our target markets, consumer acceptance of
our products, the intensity of the competition experienced by us, the
availability of additional capital to pursue our business plans, including
development of new products.  An inability to generate sufficient
funds from operations will have a materially adverse affect on our business,
results of operations and financial condition.
 
 Our
ability to grow our business and meet our commitments to our customers is
dependent upon the availability of suppliers upon which we rely.
 
 While the
Company presently has no operations, once the Company is operational we will
have to rely on suppliers for additional gauges, trucks and equipment in order
to expand, or to replace existing equipment. The availability of suppliers could
affect our ability to expand or to meet our commitment to existing
customers.
  6
  We are in
an early stage of development and there are no guarantees that we will be able
to achieve our business objectives. This may have a material adverse impact on
our business and ability to continue as a going concern.
 
 Our
business prospects are subject to all of the risks inherent to a new
business.  There can be no assurance that we will obtain market
acceptance as contemplated in our business objectives and any failure to sell
our services may have a material adverse effect on our business, results of
operations, and financial condition.
 
 There
is continual need for innovative solutions. Our ability to develop new solutions
or refine our existing solutions could have a material adverse impact on our
business.
 
 To
achieve our business objectives and obtain market share and profitability, we
will need to continually research, develop and refine our
services.  Many factors may limit our ability to develop and refine
existing services. We may also be exposed to marketplace resistance to new
services. Any failure to develop or refine our services, or create or offer
new services could have a material adverse effect on our business, results
of operations, and financial condition.
 
 A
small number of stockholders own a significant number of our shares that could
make it difficult for other investors to make changes in our operations or
management, and therefore, shareholders would be subject to decisions made by
management and the majority stockholders.
 
 One (1)
stockholder, Steven Claussen, our CEO / President and a Director of the Company
owns a significant number of our outstanding shares.  In total, this
stockholder owns 42,833,495 shares of the total amount of 207,594,302 Class A
common shares issued and outstanding, which is approximately
20.6%.  This stockholder has the power to significantly influence our
affairs and may be able to influence the outcome of matters required to be
submitted to stockholders for approval, including the election of directors and
the amendment of our articles of incorporation and bylaws. Conversely, it may be
difficult for the remaining stockholders to influence the outcome of such
matters.
 
 Our
business may attract uninsured liabilities that may have an adverse impact on
us.
 
 We are
insured in accordance with industry standards to address certain types of risks;
however, such insurance has limitations on liability that may not be sufficient
to cover the full extent of such liabilities.  In addition, such risks
may not in all circumstances be insurable. The payment of such uninsured
liabilities would have an adverse effect on our business, results of operations
and financial condition.
 
 There may
be environmental liability from our services.  In the event that
losses or damages result from the operation of the assets that are not covered
by the operator’s insurance, these losses or damages would become a liability
for us. It is possible that uncovered losses and damages could be insured which
could cause us to have to file for bankruptcy protection from the
courts.
 
 Our
inability to effectively manage our planned growth could have a material adverse
impact on our business.
 
 Responding
to consumer demands, expanding into other geographical markets and targeting
growth in our business is likely to place significant strains on our
administrative and operational resources and increased demands on our internal
systems, procedures and controls. If we experience rapid acceptance of our
services, the need to manage such growth will add to the demands on our
management, resources, systems, procedures and controls. There have been no
operations since the sale of KCP’s assets. There can be no assurance that our
administrative infrastructure, systems, procedures and control will be adequate
to support our operations or that our officers and personnel will be able to
manage any significant expansion of operations. If we are unable to manage
growth effectively, our business, operating results, and financial condition
will be materially adversely affected.
 
 We
are currently understaffed in our management. If our current essential officers
leave prior to securing their replacements, we will be left without adequate
management and our business operations would cease.
 
 We will
be reliant upon company management personnel to anticipate and address consumer
demands and hire technical employees and contractors to provide our
service.  There can be no assurance that qualified management or
technical personnel will be available to us in the future.  The
success of our operations and activities will depend to a significant extent on
the efforts and abilities of our management and technical
personnel.  The loss of services of any of our management or technical
personnel could have a material adverse effect on our business, results of
operations, and financial condition.
  7
  Prospective
investors are hereby advised that the success of previous projects undertaken by
the company's management and affiliates cannot be construed as a guarantee of
the success of the ventures outlined herein.
 
 Our
day–to-day management and operations are dependent on the expertise of Steve
Claussen, our President. If he was no longer able to provide services, our
operations could be threatened.
 
 Currently,
we are dependent on the expertise of Steve Claussen, who has an in-depth
knowledge of our technology and operations. He is also responsible for the
day-to-day management of our wholly-owned subsidiaries. Our ability to operate
would be severely curtailed if he were to be unavailable.
 
 US
investors face the risk that their investment may be subject to special US
Federal income tax rules.
 
 For any
of our taxable years, if at least seventy-five percent (75%) of our gross income
is “Passive income” (as defined in the Internal Revenue Code of 1986, as amended
(the “Code”)), or if at least fifty percent (50%) of our assets, by average fair
market value, are assets that produce or are held for the production of passive
income, we will be a Passive Foreign Investment Corporation
(“PFIC”).
 
 If we are
a PFIC for any taxable year during which an individual who is a citizen or
resident of the United States or a domestic corporation (a “US Taxpayer”) owns
any common stock, the US Taxpayer will be subject to US federal income tax
rules, set forth in Sections 1291 to 1297 of the Code, with respect to all of
such US Taxpayers’ common stock. For example, gifts and exchanges pursuant to
corporate reorganizations and use of the common stock as security for a loan may
be treated as a taxable disposition, and a stepped-up basis upon the death of
such US Taxpayer may be not available. Furthermore, in the absence of an
election by such US Taxpayer to treat us as a “qualified electing fund”
(the “QEF election”), as discussed below, the US Taxpayer would be required to
(i) report any gain on disposition of any common stock as ordinary income rather
than capital gain, (ii) to compute the tax liability on such gain and on certain
distributions as if the share had been earned pro rata over the US Taxpayer’s
holding period (or a certain portion thereof) for the common stock, and (iii)
would be subject to the highest ordinary income tax rate for each taxable year
of the US Taxpayer in which the shares were treated as having been
earned.  Such US Taxpayer would also be liable for interest (which may
be non-deductible by certain US Taxpayers) on the foregoing tax liability as if
such liability had been due with respect to each prior year.
 
 US
Taxpayers are strongly urged to consult his or her own tax advisor in this
regard.
 
 The
foregoing discussion of United States taxation is of a general and summary
nature only and is not intended to be, nor should it be considered to be, legal
or tax consequences of receiving dividends from us or disposing of their common
stock, and thus, any investment in our common stock could be illiquid for an
indefinite period of time.
 
 You
should not expect to receive dividends on your investment.
 
 We have
never paid any cash dividends on shares of our capital stock, and we do not
anticipate that we will pay any dividends in the foreseeable future. Our current
business plan is to retain any future earnings to finance the expansion of our
business. Any further determination to pay cash dividends will be at the
discretion of our board of directors, and will be dependent upon our financial
condition, results of operations, capital requirements and other factors as our
board of directors may deem relevant at that time. Should we decide to pay
dividends at any time in the future, there is no guarantee that they will be
paid on a timely basis. If in buying our stock you anticipate income from
dividends, you should not buy our stock. Even if cash distributions are made,
The Company may not be profitable or be successful in generating or earning
revenues. The Company's management, in its discretion, may retain Corporation
funds for working capital purposes.
 
 You
may be unable to sell your common stock at or above your purchase price, which
may result in substantial losses to you.
 
 The
following factors may add to the volatility in the price of our common stock:
actual or anticipated variations in our quarterly or annual operating results;
government regulations, announcements of significant acquisitions, strategic
partnerships or joint ventures; our capital commitments; and additions or
departures of our key personnel. Many of these factors are beyond our
control and may decrease the market price of our common stock, regardless of our
operating performance.  We cannot make any predictions or projections
as to what the prevailing market price for our common stock will be at any time,
including as to whether our common stock will sustain its current market price,
or as to what effect that the sale of shares or the availability of common stock
for sale at any time will have on the prevailing market price.
  8
  Volatility
in our common stock price may subject the Company to securities
litigation.
 
 The
market for our common stock is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite
future.  In the past, plaintiffs have often initiated securities class
action litigation against a company following periods of volatility in the
market price of its securities.  We may in the future be the target of
similar litigation.  Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
 
 We
may need to raise additional capital.  If we are unable to raise
necessary additional capital, our business may fail or our operating results and
our stock price may be materially adversely affected.
 
 Because
we are a newly operational company, we need to secure adequate
funding.  If we are unable to obtain adequate funding, we may not be
able to execute on our business plan and our business will most likely
fail.  We do not have commitments for additional
financing.  To secure additional financing, we may need to borrow
money or sell more securities, which may reduce the value of our outstanding
securities.  We may be unable to secure additional financing on
favorable terms or at all.
 
 Selling
additional stock, either privately or publicly, would dilute the equity
interests of our stockholders.  If we borrow more money, we will have
to pay interest and may also have to agree to restrictions that limit our
operating flexibility.  If we are unable to obtain adequate financing,
we may have to curtail business operations, which would have a material negative
effect on operating results and most likely result in a lower stock
price.
 
 Our
issuance of additional common stock in exchange for services or to repay debt
would dilute your proportionate ownership and voting rights and could have a
negative impact on the market price of our common stock.
 
 Our board
of directors may generally issue shares of common stock to pay for debt or
services, without further approval by our stockholders based upon such factors
as our board of directors may deem relevant at that time.  The Company
has in the past issued common stock shares in payment for debt and services, and
it is likely that we will issue additional securities to pay for services and
reduce debt in the future.  It is possible that we will issue
additional shares of common stock under circumstances we may deem appropriate at
the time.
 
 Our
directors have the right to authorize the issuance of shares of our preferred
stock and additional shares of our common stock.
 
 Our
directors, within the limitations and restrictions contained in our articles of
incorporation and without further action by our stockholders, have the authority
to issue shares of preferred stock from time to time in one or more series and
to fix the number of shares and the relative rights, conversion rights, voting
rights, and terms of redemption, liquidation preferences and any other
preferences, special rights and qualifications of any such series.  We
have no intention of issuing shares of preferred stock at the present
time.  Any issuance of shares of preferred stock could adversely
affect the rights of holders of our common stock.  Should we issue
additional shares of our common stock at a later time, each investor’s ownership
interest in our stock would be proportionally reduced.  No investor
will have any preemptive right to acquire additional shares of our common stock,
or any of our other securities.
 
 If we
fail to remain current on our reporting requirements, we could be removed from
the OTC Bulletin Board, which would limit the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market.  Companies trading on the OTC Bulletin Board must be
reporting issuers under Section 12 of the Exchange Act, and must be current in
their reports under Section 13 of the Exchange Act, in order to maintain price
quotation privileges on the OTC Bulletin Board.  If we fail to remain
current on our reporting requirements, we could be removed from the OTC Bulletin
Board.  As a result, the market liquidity for our securities could be
adversely affected by limiting the ability of broker-dealers to sell our
securities and the ability of stockholders to sell their securities in the
secondary market.
 
 Our
common stock is subject to the “penny stock” rules of the Securities and
Exchange Commission, and the trading market in our common stock is limited,
which makes transactions in our stock cumbersome and may reduce the investment
value of our stock.
 
 Our
shares of common stock are “penny stocks” because they are not registered on a
national securities exchange or listed on an automated quotation system
sponsored by a registered national securities association, pursuant to Rule
3a51-1(a) under the Exchange Act.  For any transaction involving a
penny stock, unless exempt, the rules require that a broker or dealer approve a
person’s account for transactions in penny stocks; and that the broker or dealer
receives from the investor a written agreement to the transaction, setting forth
the identity and quantity of the penny stock to be purchased.
  9
  The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Securities and Exchange Commission
relating to the penny stock market, which, for example, sets forth the basis on
which the broker or dealer made the suitability determination; and that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction.
 
 Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules.  This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our
stock.
 
 Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions.  Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
 
 The
market for penny stocks has suffered in recent years from patterns of fraud and
abuse.
 
 Stockholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and
abuse.  Such patterns include:
 
 1.
Control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer;
 
 2.
Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases;
 
 3. Boiler
room practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced salespersons;
 
 4.
Excessive and undisclosed bid-ask differential and markups by selling
broker-dealers; and
 
 5. The
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequential investor
losses.
 
 Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our
securities.  The occurrence of these patterns or practices could
increase the volatility of our share price.
 
 Shares
eligible for future sale by our current stockholders may adversely affect our
stock price.
 
 To date,
we have had a very limited trading volume in our common stock.  As
long as this condition continues, the sale of a significant number of shares of
common stock at any particular time could be difficult to achieve at the market
prices prevailing immediately before such shares are offered.  In
addition, sales of substantial amounts of common stock, including shares issued
upon the exercise of outstanding options and warrants, under Securities and
Exchange Commission Rule 144 or otherwise could adversely affect the prevailing
market price of our common stock and could impair our ability to raise capital
at that time through the sale of our securities.
 
 We
have a limitation of liability against our directors, where permitted by law,
possibly limiting certain claims by investors should our business
fail.
 
 There are
limits of liability of our directors for monetary damages for breach of
director's fiduciary duty except for liability in certain instances. As a result
you as a stockholder will have limited rights to recover against directors for
breach of fiduciary duty.
 
 Additional
capital requirements and future dilution.
 
 The
long-term growth plans of the Company may require additional
capital.
  10
  The
Company may be desirous of raising additional capital, which may be
accomplished, among other options, through an offering  There can be
no assurance that additional capital from any source will be available when
needed or on terms acceptable to the Company. The availability of additional
financing may be dependent on the relative success and progress of the Company.
In order to obtain additional financing, the Company may be required to dilute
the equity investment of its then current shareholders.
 
 The
Company may also obtain additional financing through certain government
subsidies or tax incentives available in certain geographic areas, if available,
at the Company's discretion. Failure to obtain such additional capital on terms
acceptable to the Company could restrict its ability to implement its growth
plans.
 
 No
assurance of profit.
 
 There is
no assurance as to whether the Company will be profitable or earn revenues, or
will be able to return any investment funds, to make cash distributions or to
meet its operating expenses and debt service, if any.
 
 Financial
projections.
 
 The
Company’s management may prepare financial projections concerning the estimated
operating results of the Company. These projections would be based on certain
assumptions that may prove to be inaccurate and which are subject to future
conditions beyond the control of the Company, such as changes in the condition
of the marketplace, changes in interest rates, and changes in the costs of
developing and providing products and services. The Company may experience
unanticipated costs, or anticipated sales may not materialize, resulting in
lower revenues than forecasted. Due to the fact that the Company has a limited
operating history the Company may experience unanticipated costs, or, among
other things, anticipated contracts may not materialize, resulting in lower
revenues than forecasted. There is no assurance that the Company would in fact
realize the results that may be illustrated in financial projections. The
financial projections would be prepared by management of the Company and would
not be examined or compiled by independent certified public accountants.
Accordingly, neither the independent certified public accountants nor counsel to
the Company could provide any level of assurance on the financial
projections.
 
 Potential
conflicts of interest.
 
 The
Company’s management may be or in the future become associated with or employed
by other companies, which are engaged, or may become engaged, in operations
similar to the operations engaged in by the Company. Conflicts of interest
between the Company’s managers and officers and the Company may arise by reason
of such relationships.
 
 Achievement
of investment goals and objectives.
 
 All
investments in the Company risk the loss of capital. While the Company's
management believes that its experience and relationships will moderate this
risk to some degree, no representation is made that the Company's projects will
be successful.
 
 Changes
in applicable law.
 
 The
Company must comply with various legal requirements, including but not limited
to requirements imposed by the state and federal securities laws. Should any of
those laws change over the scheduled term of the Company, the legal requirements
to which the Company and its shareholders may be subject could differ materially
from current requirements.
 
 Possibility
of audit.
 
 The IRS
could audit the Company's information and adjustments to the Company's tax
returns could occur as a result. Any such adjustment could subject the
shareholders to additional tax, interest and penalties, as well as incremental
accounting and legal expenses. In addition, an audit of the Company's tax
returns could lead to audits of the individual tax returns of the shareholders,
resulting in adjustments and additional tax with respect to non-Corporation
items.
  11
  Government
regulation.
 
 In
addition to environmental regulations, the Company may be subject to regulation
by county, state and federal governments, and governmental agencies. Failure to
obtain regulatory approvals or delays in obtaining regulatory approvals by the
Company, its contractors, or other persons or entities employed by the Company,
could adversely affect the Company's ability to complete development, marketing
and/or promotion on time or at all, which could adversely impact the Company's
ability to generate revenues or profits. Although the Company does not
anticipate problems satisfying any of the regulations involved, the Company
cannot foresee the possibility of new regulations, which could adversely affect
the business of the Company. The Company anticipates that all regulatory
approvals required will be granted. Violations by the Company and/or its
contractors, and/or non-compliance with such regulations and approvals, may
adversely affect the Company's ability to complete its projects, may subject the
Company to fines and or other monetary penalties, and could adversely affect the
Company's ability to conduct its business as intended.
 
 Indemnification
of shareholders, officers and managers.
 
 The
Company's Shareholder Agreement provides that the Company will, within the
limits of capital contributions and retained assets, hold its shareholders,
manager(s) and officers harmless against certain claims arising from Corporation
activities, other than losses or damages incurred by it as a result of gross
negligence, fraud or bad faith. If the Company were called upon to perform under
its indemnification agreements, then the portion of its assets expended for such
purpose would reduce the amount otherwise available for the implementation of
its business model, or for distributions to its shareholders.
 
 Uninsured
losses.
 
 The
Company may obtain comprehensive insurance coverage, including liability, fire
and extended coverage, as is customarily obtained for businesses similar to the
Company. Certain types of losses of a catastrophic nature, such as losses
resulting from floods, tornadoes, thunderstorms, earthquakes, and acts of
terrorism are uninsurable or not economically insurable to the full extent of
potential loss. Such Acts of God, work stoppages, regulatory actions or other
causes, could interrupt or delay the Company's development or renovation
undertakings, and would adversely affect the Company's business, results of
operations, and profitability.
 
 Success
dependent on market conditions.
 
 The
Company's success is dependent on market conditions. Even if the Company's
services are successfully developed and marketed, the Company is unable to
predict how quickly, if at all, the marketplace will grow. The inability of the
Company's operations to achieve a significant level of acquisition opportunities
and marketplace placement could force the Company to cease
operations.
 
 Performance
estimates dependent on varying factors.
 
 Estimates
of performance depend on many assumptions that may turn out to be inconclusive,
subject to varying interpretations, or inaccurate. The process of estimating the
total market is complex. It requires interpretations of available advertising
and economic data for the future. Therefore, estimates of prospective
opportunities are inherently imprecise.  Such factors as actual
opportunities, future market growth, market penetration, revenues, operating
expenses, and development expenditures will vary and are beyond the Company’s
control, and any significant variance could materially affect the estimated
value of future revenues.
 
 Force
Majeure.
 
 The
business is uniquely susceptible to unforeseen delays or failures that are
caused by market trends and related circumstances. These factors are outside and
beyond the control of the Company and may render it impossible to complete
production of its project. The delay or failure to render certain services may
be due to any act of God, fire, war, terrorism, flood, strike, labor dispute,
disaster, transportation or laboratory difficulties or any similar or dissimilar
event beyond the control of the Company. Neither the Company nor its management
shall be held liable to any Member in the event of such failure. The Company
will endeavor to prospectively cure such failure immediately following the
expiration of such Force Majeure event should such event occur.
 
 Unanticipated
obstacles to execution of the business plan.
 
 The
Company’s business plan may change significantly. Many of the Company’s
potential business endeavors are capital intensive and may be subject to
statutory or regulatory requirements. Management believes that the Company’s
chosen activities and strategies are achievable in light of current economic and
legal conditions with the skills, background, and knowledge of the Company’s
principals and advisors.  Management reserves the right to make
significant modifications to the Company’s stated strategies depending on future
events.
  12
  Future
capital needs; uncertainty of additional funding.
 
 Future
capital may be required to expand where logistical hurdles will need to be
overcome. The Company believes that it can fund the majority of the planned
expansion through retained earnings, but there is no guarantee that additional
funding will not be needed. Therefore, the Company may need to raise additional
funds to sustain and expand its sales, marketing research and development
activities, particularly if a well-financed competitor emerges or if there is a
major shift in marketplace.  Adequate funds may not be available on
terms favorable to the Company, if at all, to deal with such
issues.
 
 The
market for the Company’s acquisition plans is competitive. The Company’s future
success will depend on its ability to adapt to rapidly changing industry
developments and evolving demands of the marketplace.
 
 Some of
the Company’s competitors have:
 
 ·  longer
operating histories;
 ·  larger customer
bases;
 ·  greater name
recognition and longer relationships with clients; and
 · significantly greater
financial, technical, marketing, public relations and managerial resources than
the Company.
 
 Competitors
may develop or offer products and services that provide significant performance,
price or other advantages over the services offered by the Company. If the
Company fails to gain market Share or loses existing market Share, its financial
condition, operating results and business could be adversely affected and the
value of the investment in the Company could be reduced significantly. The
Company may not have the financial resources, marketing, or support capabilities
to compete successfully.
 
 Long-term
nature of investment.
 
 An
investment in the Shares may be long-term and illiquid.. Prospective investors
must be willing and able to bear the economic risk of their investment for an
indefinite period of time.  It is likely that investors will not be
able to liquidate their investment in the event of an emergency.
 
 Potential
future projects.
 
 Management
may serve in the future as an officer, director or investor in other entities.
Neither the Company nor any Corporation would have any interest in these
projects. Management and its affiliates believe that they have sufficient
resources to fully discharge their responsibilities to all projects they have
organized or will organize in the future, if any. Management will devote only so
much of its time to the business of the Company as in its judgment is reasonably
required.
 
 Competition
and constant change in the marketplace.
 
 The
Company is in a highly competitive business and will face competition from other
competitors within the industry as well as companies in other areas related to
the industry. Some of these competitors have significantly greater financial and
other resources than the Company. The waste storage industry is continuing to
undergo significant changes, primarily due to new technological developments and
economic conditions. While these developments may result in additional revenue
streams for the Company, they also may result in new and difficult risks. Due to
shifting options and the general economic conditions, it is impossible to
predict or estimate the overall effect these factors may have on the potential
revenues from and profitability of the Company.
  13
  ITEM
      4.
              INFORMATION
      ON THE COMPANY
 
 HISTORY
AND DEVELOPMENT OF THE COMPANY
 
 Capital
Reserve Canada Limited (“Capital Canada,” the “Company”, “we”, “us” or “our”)
was incorporated on December 8, 1999 as a private corporation under the Business
Corporations Act (Alberta, Canada). On January 15, 2003, we amended our articles
of incorporation to enable us to be a public company under the laws of the
Province of Alberta. On May 28, 2003, we amended our Articles of Incorporation
to forward split issued and outstanding shares of class A common stock on the
basis of 2,000 shares for every one (1) share held.  From the date of
incorporation to November 1, 2004, we were a wholly-owned subsidiary of FACT
Corporation. On November 1, 2004, FACT Corporation distributed our shares to
FACT Corporation’s shareholders and to a creditor and we ceased to be a
subsidiary of FACT Corporation.
 
 Our
principal place of business is located at 18104-102 Ave., Edmonton, Alberta, T5S
1S7. Our telephone number is 780-701-4447.
 
 On July
1, 2005, we entered in two (2) convertible loan agreements with FACT Corporation
in the principal amount of $533,527 USD and $152,997 CDN (approx $126,222 USD).
The loan agreements were to mature on June 30, 2007 and interest calculated at
US prime plus one percent (1%).  The loans were converted into our
Class A common shares at $0.05 USD per share. On November 22, 2005, FACT
Corporation advised us that it had assigned all of its rights and interest in
the convertible loan agreements.  On November 23, 2005, we received
notice of election to convert a total of $772,550 USD owing for interest and
principal and issued a total of 15,451,000 Class A common shares pursuant to the
conversion.  Also, on November 23, 2005, 24,000 Class A common shares
were issued when options were exercised.  On February 15, 2006, we
received notification of the conversion of the remaining balance of the
convertible loans in the amount of $226,065 USD and issued a total of 4,521,307
Class A common shares. This constituted full and final settlement of all
outstanding debt under the convertible notes.
 
 On August
2, 2005, we incorporated a wholly-owned subsidiary, Capital Reserve Canada
Projects Ltd., to effect the acquisition of an operating business in the oil and
gas services industry.  On August 8, 2005, we issued a total of
17,335,814 of our Class A common shares and Capital Reserve Canada Projects Ltd.
acquired a 78.2% interest in KCP Innovative Services Inc. (“KCP”). After this
issuance, we had a total of 19,335,814 Class A common shares outstanding which
resulted in a change in control of the Company.
 
 On
February 3, 2006, we issued an additional 4,834,300 shares of Class A common
stock for the remaining 21.8% of the shares of KCP and Capital Reserve Canada
Projects Ltd. This effected an amalgamation with KCP, with KCP being the
surviving entity. KCP is now a wholly-owned subsidiary of us. All of our
operations are currently carried on by KCP. As all of our operations are
undertaken by KCP, management has applied reverse merger accounting for the
reporting of financial information. Unless otherwise stated, all of the
financial information included in this annual report is the financial
information of KCP, our wholly-owned subsidiary, except for the shareholders’
equity which includes information for both us and KCP.
 
 On June
13, 2006, we incorporated Two Hills Environmental Inc. in the Province of
Alberta, Canada as a wholly-owned subsidiary to acquire the assets of Southbend
Power Ltd. (“Southbend”).  On June 16, 2006, as amended July 5, 2006,
Two Hills Environmental Inc. and Southbend entered into an asset purchase
agreement for the purpose of acquiring a water diversion permit, 147 acres of
surface rights with water pumping station, and certain mineral rights from
Southbend, in exchange for 13,200,000 of our Class A common restricted
shares.
 
 On August
11, 2006, we, through a newly formed subsidiary, Suncone Technologies Ltd
(“SUN”), entered into an agreement with Southbend whereby Southbend agreed to
sell to SUN an Infratronic Soil Sterilization Unit for $50,000 on the condition
that the unit passed a start-up and operational test to the sole satisfaction of
SUN no later than September 30, 2006.  This was later extended to
November 30, 2006 after which the contract was cancelled by SUN. Southbend was
given until March 31, 2007 to repay the $50,000.  On December 11,
2006, both parties agreed to apply the $50,000 against work done by Southbend on
the Two Hills site. This work consisted of cleaning debris from the Two Hills
site. SUN was subsequently dissolved on Dec 18, 2006.  The $50,000 was
offset by work done by Southbend on the site during the 2007 fiscal
year.
 
 On
October 20, 2006, we purchased salt rights to about four (4) sections of
adjacent land from Rich Resources Investment Ltd. in exchange for 1,000,000 of
our Class A common restricted shares.
 
 On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system. Pursuant to the agreement, the CEO of Behral
became our CEO.
 
 On
February 8, 2008, KCP Innovative Services Ltd. sold one of the slickline trucks
for $300,000. The proceeds were used to retire the equipment loan with Canadian
Western Bank of about $236,000 and the remainder was used for working
capital.
 
 In June
2008, the remaining slickline truck in KCP and tools were transferred to CRC and
subsequently, the truck was sold for $290,000 and the tools for
$100,000.  With the assets being sold, KCP has become an inactive
company.
 
 Principal
Capital Expenditures and Divestitures
 
 The
financial statements presented in this annual report relate to our consolidated
operations of our wholly-owned subsidiaries, KCP, Two Hills Environmental Inc.
and Behral Canada Ltd. We have included the information as to capital
expenditures and divestitures in this section.
  14
  We were
previously in the oil and gas industry by way of the ownership of certain
producing and non-producing oil and gas properties. On May 15, 2003, we sold
certain oil and gas producing properties to Hornet Energy Ltd. for $150,000 CDN
or approximately $113,920 USD.  The funds received paid off certain
loans with Alberta Treasury Branches in full, funded the drilling of an
exploration well in Montana and paid down a total of $57,526 USD of debt with
FACT Corporation.
 
 On June
10, 2003, we executed an agreement with FACT Corporation and Terra Nostra
Technology Ltd. whereby we acquired an interest in certain oil and gas leases
held in Rosebud and Garfield Counties, Montana for $10, 000 USD.  As
part of such agreement, we also took ownership of small producing oil and gas
wells in Colorado, known as the Kejr leases. We expended a total of $6,181 for
the drilling of an exploration well on the Montana leases during July, 2003. The
well was a dry hole.  Our management determined to divest itself of
the Kejr leases and the Montana leases. On December 23, 2004 we entered into an
agreement with Stone Canyon Resources Inc.  (“Stone Canyon”) whereby
we transferred to Stone Canyon all rights and interest in and to the Kejr and
Montana leases in exchange for Stone Canyon assuming all current liabilities and
any future liabilities for the Kejr and Montana leases.
 
 Effective
January 1, 2004, KCP acquired from a group of individuals a computer modeling
system to analyze the underground formations that contain natural gas and oil by
way of the issuance of a total of 14,966,270 common shares of KCP.
 
 On June
11, 2004, KCP acquired 100% of the issued and outstanding shares of Zone
Technologies Ltd. (“Zone”) from an existing shareholder and an unrelated party.
Consideration for the acquisition was $782,500 which was paid by the way of
1,294,444 shares of KCP and $200,000 cash.
 
 Vendor
                    
                    Percent Ownership
                    
                    
                    Cash Consideration
                    
                    Share ConsiderationDarren
      Klassen
                    
                    
                    50
                    %
                    
                    $
                    200,000
                    
                    425,000
      KCP SharesKen
      Pearson
                    
                    
                    50
                    %
                    
                    
                    -
                    
                    869,444
      KCP SharesTotal
                    
                    
                    100
                    %
                    
                    $
                    200,000
                    
                    1,294,444
      KCP Shares
 
 On
September 26, 2005, Zone Technologies Ltd. was dissolved and the assets were
transferred directly to KCP.
 
 During
February and March 2005, KCP purchased two Slick Line Units at a cost of
approximately $650,000 for use in field operations.
 
 On June
13, 2006, we incorporated Two Hills Environmental Inc. in the Province of
Alberta, Canada as a wholly-owned subsidiary to acquire the assets of Southbend
Powers Ltd.  On June 16, 2006, Two Hills Environmental Inc. and
Southbend entered into an asset purchase agreement for the purchase of acquiring
certain surface and mineral rights from Southbend in exchange for 13,200,000 of
our Class A common restricted shares.
 
 On
October 20, 2006, we purchased salt rights from Rich Resources Investments Ltd.
for 1,000,000 of our Class A common restricted shares.
 
 On August
19, 2007 we issued 4,500,000 shares for the retirement of a $800,000 lien on the
Two Hills property. The shares were issued to Southbend Powers Ltd.
 
 On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system. Pursuant to the agreement, the CEO of Behral
became our CEO.
 
 On
February 8, 2008, KCP Innovative Services Ltd. sold one of the slickline trucks
for $300,000. The proceeds were used to retire the equipment loan with Canadian
Western Bank of about $236,000 and the remainder was used for working
capital.
 
 In June
2008, the remaining slickline truck in KCP and tools were transferred to CRC and
subsequently, the truck was sold for $290,000 and the tools for $100,000 to a
Calgary company and the proceeds were used for working capital..  With
the assets being sold, KCP has become an inactive company.
 
 Principal
Capital Expenditures and Divestitures in Progress
 
 On May 3,
2009, we entered into Drawdown Equity Finance Agreement and A Registration
Rights Agreement with Auctus Private Equity Fund, LLC in order to establish a
possible source of funding for us. The equity line of credit
agreement establishes what is sometimes also referred to as an equity
drawdown facility.
 
 Under the
equity line of credit agreement, Auctus has agreed to provide us with up to
$10,000,000 of funding over a thirty-six month period;, and shares of our
common stock covering $10,000,000 of the agreement are being registered. During
this period, we may request a drawdown under the equity line of credit
by selling shares of our common stock to Auctus and Auctus will be obligated to
purchase the shares. We may request a drawdown once every five trading
days, although we are under no obligation to request any drawdowns under
the equity line of credit. There must be a minimum of five trading days
between each drawdown request.
  15
  On
September 3, 2009 the Company signed a Registration Rights Agreement with Auctus
requiring, among other things, that CRC prepare and file with the SEC Form S-1,
or on such other form as is available no later than one hundred twenty (120)
calendar days after the Company's Annual Report on Form 20-F for its fiscal year
ended December 31 2008 is filed with the SEC. In addition, the Company shall use
all commercially reasonable efforts to have the Registration Statement(s)
declared effective by the SEC within one hundred and twenty (120) calendar days
from the date that the Registration Statement is filed with the SEC. There was a
non-refundable origination fee of Fifteen Thousand Dollars ($15,000)
cash.
 
 On
November 12, 2009 the Company submitted a Form S-1 Registration Statement to the
SEC
 
 On
December 9, 2009 the Company submitted an Amendment to Form
S-1/A Registration Statement to the SEC
 
 On
December 30, 2009 the Company received comments from the SEC in relation to the
S-1/A Registration Statement
 
 On May
14, 2010 the Company made amendments to the Drawdown Equity Finance Agreement
and A Registration Rights Agreement with Auctus Private Equity Fund, LLC to
become compliant with SEC comments pursuant to SEC Act of 1934.
 
 On May
25, 2010 the Company filed a Request for Withdrawal of Registration Statement or
Form RW on the S-1/A so that it may file a new Registration Statement under the
different designation of F-1 for a foreign Issuer.
 
 On July
8, 2010 the Company submitted a Form F-1 Registration Statement to the
SEC.
 
 BUSINESS
OVERVIEW
 
 We are an
Alberta, Canada Corporation formed in December 1999 to locate and acquire
producing oil and gas assets in Canada. We disposed of our Canadian oil and gas
production on May 15, 2003, which consisted of a five percent (5%) interest in
an Alberta field. We divested of our interests in oil and gas exploration and
development leases in Montana and a producing oil and gas property located in
Colorado effective as of December 1, 2004. On August 12, 2005, we acquired a
controlling interest in KCP, an oil and gas services company, and we acquired a
further interest in KCP on February3, 2006, making KCP our
wholly-owned subsidiary which has since became inactive as of 2008.
 
 On June
13, 2006, we acquired the assets of Southbend to assist the oil and gas industry
with problem waste and to provide underground storage. These assets include the
property and water diversion permit at the Two Hills site in
Alberta.
 
 On
February 4, 2008 we purchased the shares of Behral Canada Ltd.  Behral
owns the patents to a blowout preventer valve, stack control system and portable
blowout controller. Behral also owns a floating offshore drilling vessel, a blow
out preventer stack control system as well as a subsea blowout stack control
system. Pursuant to the agreement, the CEO of Behral became our CEO. Until the
purchase of Behral, all of our operations were undertaken by KCP.
 
 Operations
and Principal Activities
 
 Since
August 2000, we have been operating in the oil and gas services
industry.  All of our present business is conducted in Alberta, Canada
through wholly-owned subsidiaries KCP, Two Hills Environmental Inc. (“Two
Hills”), and Behral Canada Ltd.
 
 Our lead
product is the Split Ball Blowout Preventer (SBOP). The SBOP has been built and
tested to withstand up to 20,000 psi and is the next generation of blowout
preventers for the oil and gas industry. It provides the highest level of safety
when a blowout occurs and may be the only environmentally safe technology
equipment available on the market. The SBOP virtually eliminates all the hazards
associated with the event by using the well’s own pressure to assist in the
valve closure. The SBOP’s size and weight is less than half of that of current
industry BOPs.
 
 On June
13, 2006, we acquired the assets of Southbend Power to assist the oil and gas
industry with problem waste and to provide underground storage. These assets
include the property and water diversion permit at the Two Hills site in
Alberta.
 
 On
February 4, 2008 we purchased the shares of Behral Canada Ltd.  Behral
owns the patents to a blowout preventer valve, stack control system and portable
blowout controller. Behral also owns a floating offshore drilling vessel, a blow
out preventer stack control system as well as a subsea blowout stack control
system. Pursuant to the agreement, the CEO of Behral became our CEO. Until the
purchase of Behral, all of our operations were undertaken by KCP.
 
 September
2,
2008 CRC submitted to the Government of Alberta at their request an Expression
of Interest (EOI) for the “Carbon Capture and Storage Projects in Alberta”
mandate. A second EOI will be submitted to the Federal Government for the “Clean
Energy Fund” mandate in which the Government plans to support a cleaner and more
sustainable environment and help meet Canada's climate change
objectives.
 
 Two Hills
Environmental a wholly-owned subsidiary of CRC is in the process of developing a
CO2 Cavern Storage Terminal and a CO2 conversion process in the province of
Alberta in order to assist the Government in meeting its stated goals of
reducing CO2 emissions by at least 50Mt by the year 2020. CRC’s core strategy
revolves around the standpoint that CO2 is a valuable feedstock as opposed to a
disposable liability. In accordance with this core consideration, CRC seeks to
develop the most secure, predictable and quantifiable means of CO2 storage in
order to both enhance the safety and security of the provincial CO2
infrastructure and safely consume this CO2 in a proprietary process for
converting CO2 into fuel products. Through this substantial value-add, CRC will
be able to help close the gap on the province’s proposed CCS
targets.
  16
  Operations
and Principal Activities
 
 Since
August 2000, we have been operating in the oil and gas services
industry.  All of our present business is conducted in Alberta, Canada
through wholly-owned subsidiaries KCP, Two Hills Environmental Inc. (“Two
Hills”), and Behral Canada Ltd.
 
 Our lead
product is the Split Ball Blowout Preventer (SBOP). The SBOP has been built and
tested to withstand up to 20,000 psi and is the next generation of blowout
preventers for the oil and gas industry. It provides the highest level of safety
when a blowout occurs and may be the only environmentally safe technology
equipment available on the market. The SBOP virtually eliminates all the hazards
associated with the event by using the well’s own pressure to assist in the
valve closure. The SBOP’s size and weight is less than half of that of current
industry BOPs.
 
 KCP Innovative Services Inc.
(KCP)
 
 KCP was a
corporation that developed tools for and provided services using such tools to
businesses engaged in the exploration for energy. Specifically, KCP’s tools were
used for measuring the flow and quantity of production of oil and gas wells.
KCP’s measurement tools were used by oil and gas companies to measure pressure
and temperature of a well, which enables improved production information on
development life to assist the Alberta Energy and Utilities Board to determine
royalty payments and gas reserves.  During 2008, the tools and
equipment were sold and KCP has become inactive.
 
 TWO
HILLS ENVIRONMENTAL INC, (THI) Cavern Storage Terminal and Processing
Facility
 
 Problem
Waste and Underground Storage
 
 Our
subsidiary, Two Hills Environmental Inc, (THI), owns approximately 147 acres of
industrial land, 2500 acres of salt rights, and a water diversion permit on the
North Saskatchewan River, near Two Hills, Alberta, Canada. THI seeks to function
as a CO2, Natural Gas and Waste Management Storage Facility, serving the Fort
McMurray, Cold Lake and Riley, AB regions. This will be accomplished through the
solution-mining of caverns into the Lotsberg Salt formation on its property and
the development of the required surface infrastructure capacities (transport,
compression, purification, etc.). The 1,200 meters of rock and overburden lying
over the Lotsberg contains 3 other salt-based, impenetrable layers as well as
several laterally-spanning, porous formations (adding several levels of safety
in the unlikely event of a fissure). Formal scientific studies of the Lotsberg
have concluded that salt caverns created in the Lotsberg present the safest
means for the permanent sequestration of C02 as well as other
materials.
 
 Waste
Disposal:
 
 With our
Phase 1 Engineering complete, THI seeks to break ground in mid-late 2010 on our
Cavern Storage Terminal and Processing Facility.  Cavern waste
disposal is seen as the safest method of hazardous waste disposal due to the
caverns’ ability to seal wastes off from all other formations (including
aquifers) permanently. Cavern disposal also presents the unique opportunity to
recycle and reclaim waste streams such as hydrocarbons and other chemical
solutions;
 
 With the
strategic location of the Two Hills site above the Nisku Fault, THI plans to
start Phase 1 of the deepwell disposal business to get to revenue within the
next 6 - 12 months, pending permit and funding approval. The Nisku Fault is the
most commonly used formation for deep-well disposal of industrial wastes;
several such wells have been successfully drilled, utilized and sealed on the
property in the past, sufficiently demonstrating this capacity.
 
 Natural
Gas Storage and Cycling
 
 The THI
facility would also be able to accommodate Albertan energy industry with natural
gas storage. Salt caverns in North America have been used for decades to
securely store natural gas. The natural gas is stored during the low demand
summer months and stockpiled to accommodate the peak demands during winter
months. When demand is more than what the natural gas system is able to deliver,
the stored natural gas is added to the system to ensure reliability for their
customers.
 
 The
storage of natural gas in caverns would also offer industry cost savings. The
caverns would be able to be accessed and refilled three or four times during the
winter months, where as the depleted oil reserve could only be turned over once
during the same time period, leaving the industry to search for other storage
means. THI facilities would provide the Alberta energy industry with a type of
storage that is secure, easily monitored, and would allow for quick withdrawals
during peak demand times.
  17
  BEHRAL
Canada
  BEHRAL
holds the patents on 3 next generation oilfield products.  The SBOP
has been built and tested to withstand up to 20,000 psi and is the next
generation of Blowout Preventers for the oil and gas industry. It provides the
highest level of safety when a blowout occurs. The SBOP virtually eliminates all
the hazards associated with a Blow-Out by using the well’s own pressure to
assist in the valve closure. With the size and weight less than half of that of
current industry BOPs; the SBOP aims to be the new standard in Blowout
Preventers worldwide.
  Products
that BEHRAL seeks to bring to market in the years to come;
 
 1.
              Subsea
      BOP Stack Control System
 An
improvement is provided in a system for controlling a subsea blowout preventer
in which blowout preventer functions are operated by a hydraulic control system.
The improvement resides in a control system, which has at least two elements and
at least one back up control system. The control system includes a subsea
pressure compensated reservoir for replenishing the supply of hydraulic fluid,
and an electric motor, supplied with electrical command energy from the surface,
to operate a hydraulic pump which operates in conjunction with the BOP hydraulic
control system. One back up control system is a standby second electric motor,
supplied with electrical command energy from the surface, to operate a hydraulic
pump, which operates in conjunction with the BOP hydraulic control system. A
second back up control system is an acoustical unit including a transducer and a
subsea acoustic receiver to operate the BOP hydraulic control system drawing
hydraulic fluid from the subsea hydraulic accumulators associated with the
hydraulic control system. Having two back up, standby systems, enhances the
reliability of the BOP control. The total hydraulic control system is housed in
a pressure compensated reservoir located at the usual pod locations. Two pods
are used for additional redundancy.
 
 2.
              Portable
      Blow Out Controller
 A blowout
controller is provided which is functional to effect stoppage of the
high-pressure gases and/or fluids flowing from a wild well. The controller
includes a mechanism for simultaneously sealing and gripping the outside wall of
the well pipe.
 
 3.
              Blowout
      Preventer Valve and BOP Stack
 A novel
blowout preventer valve is provided herein for connection between a riser
connector and a wellhead connector of a sub-sea well. The valve includes a
generally cylindrical body connectable in a riser string as a replacement for a
riser, the generally cylindrical body being provided with an access opening
through the wall thereof, the access opening being closed by cover plate. Two
segments of a hollow sphere are rotationally mounted within the generally
cylindrical body, each such segment having a driven shaft projecting outwardly
from the generally cylindrical body. Positively actuatable means, e.g. a rotary
hydraulic actuator, is provided for rotating the segments towards and away from
one another between an open position, where there is free access to the borehole
of the well, and a closed position, where a sealed closure is provided on the
drill pipe. The valve so provided is smaller in size and lighter in weight than
conventional BOP valves, and has less assemblage components.
 
 REGULATORY
MATTERS AFFECTING OUR BUSINESS
 
 Environment
and Safety
 
 Our
operations will be subject to numerous federal, provincial and local laws and
regulations relating to environmental protection. These laws and regulations
govern, among other things, the amounts and types of substances and materials
that may be released into the environment, the issuance of permits in connection
with exploration, drilling and production activities, the release of emissions
into the atmosphere, the discharge and disposition of generated waste materials,
offshore oil and gas operations, the reclamation and abandonment of wells and
facility sites and the remediation of contaminated sites. In addition, these
laws and regulations may impose substantial liabilities for the failure to
comply with them or for any contamination resulting from the operations
associated with our assets.  Laws and regulations protecting the
environment have become more stringent in recent years, and may in certain
circumstances impose "strict liability," rendering a person liable for
environmental damage without regard to negligence or fault on the part of such
person. Such laws and regulations may expose us to liability for the conduct of
or conditions caused by others, or for our acts which were in compliance with
all applicable laws at the time such acts were performed. The application of
these requirements or the adoption of new requirements could have a material
adverse effect on our financial position and results of operations.
 
 The Oil
Pollution Act of 1990 ("OPA") and regulations promulgated pursuant thereto
impose a variety of requirements on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills.
Few defenses exist to the liability imposed by the OPA, and such liability could
be substantial. A failure to comply with ongoing requirements or inadequate
cooperation in a spill event could subject a responsible party to civil or
criminal enforcement action.
 
 We take
the issue of environmental stewardship very seriously and work diligently with
our operators to ensure that compliance with applicable environmental and safety
rules and regulations. Compliance with such laws and regulations has not had a
material effect on our operations or financial condition in the past. However,
because environmental laws and regulations are becoming increasingly more
stringent, there can be no assurances that such laws and regulations or any
environmental law or regulation enacted in the future will not have a material
effect on our operations or financial condition.
  18
  ORGANIZATIONAL
STRUCTURE
 
 Our
subsidiaries, as of the year ended December 31, 2009, were KCP, Two Hills and
Behral.  All three of these companies are incorporated pursuant to the
laws of the Province of Alberta, Canada.
 
 PROPERTY,
PLANT AND EQUIPMENT
 
 Our
principal corporate and administrative offices are located at 18102-102 Ave.,
Edmonton, Alberta, Canada.  KCP’s office is located at 4403-68 Ave. in
Edmonton.
 
 Until
June 1, 2006, administrative space was provided free of charge by LFC
Corporation (“LFC”), one of our shareholders.  On June 1, 2006, we
agreed to pay LFC Corporation rent of $2,000 per month which includes telephone,
computers, photocopier, fax and reception.  There was no formal rental
agreement and the rental was a verbal agreement on a month-to-month basis and is
cancelable at any time.  We concluded our lease with LFC on December
31, 2006.
 
 KCP
leased 6,500 square feet of office space in Edmonton, Alberta, Canada at 4304-74
Ave, Edmonton, Alberta.  The lease was a three (3) year term
commencing on October 15, 2004, and expired on October 14, 2007.  The
base rent was $3,500 per month net of taxes.  Under the lease
agreement, KCP was responsible for the costs of all utilities, property taxes
and business taxes.  On November 1, 2007, KCP leased new space at
4403-68 Ave for a five (5) year term which expires on October 31, 2012, at a
cost of $11,845 per month.
 
 KCP had a
financing agreement with Canadian Western Bank for $423,500 dated March 22, 2005
for the financing of two (2) PID trucks.  The loan was a sixty (60)
month term bearing interest at 6.375% per annum.  The monthly payment
was $8,313.29.  The balance of the loan on was paid in full February
8, 2008.
 
 ITEM
      4A.
              UNRESOLVED
      STAFF COMMENTS
 
 Not
Applicable
 
 ITEM
      5.
              OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
 
 OPERATING
RESULTS
 
 The
financial information as presented herein relates to our consolidated financial
statements.
 
 Pursuant
to a share exchange agreement dated August 12, 2005, we indirectly, through our
wholly-owned subsidiary, Capital Reserve Projects Ltd., acquired a 78.2%
interest in KCP.  Because the shareholders of KCP became our
controlling shareholders, this transaction was accounted for as a reverse merger
whereby KCP is deemed to be the parent company and Capital Reserve Projects Ltd.
is deemed to be the subsidiary company for accounting purposes.  The
financial statements of the combined entity are issued under our name, but are
considered a continuation of the financial statements of KCP.
 
 We have
provided financial information for the fiscal years ended December 31, 2007,
2008 and 2009.
 
 Comparison
of 2009, 2008 and 2007
 
 Revenues
for the fiscal year ended December 31, 2009 were $10,167 and showed a decrease
over revenues from the previous fiscal years ended December 31, 2008 of $24,000
and a decrease over December 31, 2007 of $18,000. The decrease in revenue in
2009 can be attributed to the
termination of a rental lease agreement during 2009. The increase in
revenues for 2008 can be predominantly attributed to more months of a lease than
2007.
 
 For the
year ended December 31, 2009, we incurred operating losses of $963,001 as
compared to operating losses of $7,004,415 for the fiscal year ended December
31, 2008 and operating losses of $195,414 for the fiscal year ended December 31,
2007.  Expenses for the year ended December 31, 2009 decreased to
$973,168 as compared to expenses of $7,028,415 for the year ended December 31,
2008 and $213,414 in the fiscal year ended in December 31, 2007, mainly due to
the recording of impairment charges of $162,000 in 2009 as compared to
$5,759,690 in 2008.  Consulting, salaries and benefits decreased to
$693,665 in 2009 from $986,332 in 2008 and $nil in 2007, respectively,
due to less consultants in Capital Reserve. General and administrative expenses
decreased to $115,313 in 2009 from $139,536 in 2008 and $213,414 in
2007.  This is due to lower administrative costs to maintain the
public listing.  Amortization decreased to $2,190 in 2009 from $3,445
in 2008 and increased from $nil in 2007 due to
the assets sold in 2008 no longer being amortized.
 
 On August
19, 2007 the $800,000 lien on the Two Hills property and a BDC loan for
approximately $39,000 was paid with 5,000,000 of shares of common stock. The
lien on the Two Hills property has subsequently been
discharged.
  19
  During
the fiscal year ended December 31, 2008, we issued 23,500,000 common shares in
exchange for the shares in Behral Canada . This transaction was valued at
$940,000, and then fully impaired.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Summary
of Working Capital and Stockholders’ Equity
 
 Using
current assets minus current liabilities, as of December 31, 2009, we had
negative working capital of $(698,912) compared to negative working capital of
$(243,147) on December 31, 2008, and compared with negative working capital of
$(101,061) on December 31, 2007.
 
 As of
December 31, 2009, stockholders' equity was $(159,731) compared to $689,758 at
December 31, 2008 and compared to $5,912,304 at December 31, 2007. The decrease
is largely due to the recording of the impairment on the Two Hills property and
the increase in the accounts payable and accrued liabilities
 
 Liquidity
 
 We expect
that we can meet our monthly overhead requirements from our current cash and
cash equivalents for the next twelve months.  We expect to be able to
generate sufficient amounts of cash and cash equivalents, both in the short and
long term, to maintain our capacity, meet our planned growth and development
activities.  Cash and cash equivalents are expected to come from
offerings of the Company’s securities to the public and joint ventures along
with our Drawdown Equity Finance Agreement.
 
 Sources
of Working Capital
 
 During
2007, our primary sources of working capital have come from revenues generated
from our operations in KCP.  During 2008, our primary sources of
working capital came from the sale of assets. During 2009, our primary source of
working capital came from a lease on the Two Hills Property. As at December 31,
2009, we had cash equivalents of $556 and accounts receivable of
$9,203.  To develop the Two Hills site, the company will be looking
for capital from either a mortgage, joint venture arrangement and/or our
Drawdown Equity Finance Agreement.
 
 Borrowings
 
 KCP has
an operating line of credit in the maximum amount of
$95,000.  Interest is charged monthly on the outstanding balance at
the rate of Bank of Canada prime plus one percent (1%).  As at
December 31, 2009, the amount outstanding was $17,000.
 
 KCP
had a demand bank loan repayable over sixty (60) months maturing February
2010.  The loan had monthly blended payments of principal and
interest of $8,313.  The interest rate on the loan was
6.375%.  The loan was secured by two Sterling Slick Line
units.  On February 8, 2008 the loan was paid in full.
 
 Two Hills
assumed a $50,000 (maximum) loan, and a lien of $800,000 from
Southbend.  The loan had monthly payments of interest and an
interest rate of two percent (2%) per month and was due March 5, 2011. The
balance of the loan on December 31, 2007 was $0.  The lien and
the loan were settled with 5,000,000 shares on August 19,
2007.
 
 Neither
we nor our subsidiaries are in arrears on the payment of interest or principal
payments on borrowing.  We are not, nor have we been during the fiscal
year ended 2009, in default on any debt covenants.
 
 On April
7, 2009, the Company borrowed $40,000 from an Alberta
corporation.  This note was for 65 days and carried a 25% per quarter
interest rate.  The note has been extended until August 1,
2010.   The balance of the note was $40,000 with $25,429 in
accrued interest at December 31, 2009.
 
 Material
Capital Commitments
 
 KCP
had taken delivery of the two (2) PID trucks.  One was delivered
on February 18, 2005 and the other was delivered on March 29,
2005.  KCP has arranged capital lease financing for the trucks
totaling $494,614 including interest.  The balance of the loan was
paid off on February 8, 2008 leaving a loan balance of zero.
 
 KCP
leases space in Edmonton at 4403-68 Ave.  The lease is for a period of
five (5) years commencing on November 1, 2007 at $11,845 per month.
 
 RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
 
 KCP no
longer invests in research and development, in previous years, they had invested
in research and development, not only to refine its existing products but to
develop new products.
  20
  Two Hills
has initiated a phase one engineering study on its property in 2009, with plans
to complete in 2010 along side a geotechnical study to gain a full and complete
understanding of the source
water, cap rock, salt strength for use in building its Salt Cavern
Storage Terminal. Two Hills has not conducted research and development in 2008
or 2007.
 
 The
Company has no licenses but has the following patents held in Behral Canada
Ltd:
 
 Serial #
472,497, filed Jan. 21, 1985 - Floating Offshore Drilling Vessel
 Serial #
472,498, filed Jan. 21, 1985 - Riser Handling & B.O.P. Stack Handling
System
 Serial #
472,499, filed Jan. 21, 1985 - Sub-Sea B.O.P. Stack Control System
 Serial #
472,500, filed Jan. 21, 1985 - Blow-Out Preventer
 
 Canadian
patent, number 1239091 -Blowout preventer valve and BOP stack
 Canadian
patent number 1239090 - Subsea BOP stack control system
 Patent
application no. 2088794 -portable blowout contrail
 
 TREND
INFORMATION
 
 We are
not aware as of the filing of this annual report of any known trends,
uncertainties, demands, commitments or events that are reasonably likely to have
a material effect on our financial condition.
 
 OFF-BALANCE
SHEET ARRANGEMENTS
 
 We have
no off-balance sheet arrangements.
 
 DISCLOSURE
OF CONTRACTUAL OBLIGATIONS
 
 CAPITAL
RESERVE CANADA
 AS AT
DECEMBER 31, 2009
 DISCLOSURE
OF CONTRACTUAL OBLIGATIONS
 Payments due by periodCONTRACTUAL OBLIGATIONS
                  
                  Total
                  
                  
                  Less than
                    one year
                  
                  
                  1-2 years
                  
                  
                  3-5 years
                  
                  
                  More than
                    5 yearsKCP
      Lease Obligations (Office Space)(1)
                  
                  
                  402,730
                  
                  
                  
                  142,140
                  
                  
                  
                  142,140
                  
                  
                  
                  118,450
                  
                  
                  
                  0Total
                  
                  
                  402,730
                  
                  
                  
                  142,140
                  
                  
                  
                  142,140
                  
                  
                  
                  118,450
                  
                  
                  
                  0
 (1)  Based
on rent of $11,845 per month net of any taxes or operating costs.
 
 ITEM
      6.
              DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES
 
 DIRECTORS
AND SENIOR MANAGEMENT
 
 The
following table sets forth at the date of writing this report the names and ages
of our current directors and executive officers, the principal offices and
positions held by each person and the date such person became a director or
executive officer. Our executive officers are elected annually by our Board of
Directors. The directors serve one-year terms until their successors are
elected. The executive officers serve terms of one (1) year or until their
death, resignation or removal by the Board of Directors. Unless described below,
there are no family relationships among any of the directors and officers, and
no persons have been elected as a director or officer at the request of any
shareholders, customers, suppliers or others.
 
 Name
                
                Age
                
                Date of Initial Appointment
                
                TitleDonald
      Getty
                
                75
                
                April
      13, 2006
                
                Chairman
      of the Board and DirectorMichael
      Dolinski
                
                61
                
                December
      12, 2008
                
                DirectorSteve
      Claussen
                
                37
                
                December
      19, 2007
                
                Director,
      President and CEONicole
      Wood
                
                42
                
                July
      22, 2008
                
                CFO
  21
 
 Donald
Getty - Chairman of the Board, Director of Capital Reserve Canada Ltd. and
Director of KCP Innovative Services Inc.
 
 Mr. Getty
earned his Business Administration degree from the University of Western Ontario
with honours in 1954. His position with the Alberta Government included two
terms as Premier of Alberta, position of Energy Minister and the position of
Minister of Federal and Intergovernmental Affairs. In his business career, Mr.
Getty has served on the Boards of distinguished companies such as Royal Bank of
Canada, Nova Company, Genstar Company and Interprovincial Pipe and Steel Corp.
Mr Getty is retired and currently sits on the Board of three private companies
in addition to the Chairman of the board position he holds with Capital Reserve
Canada.
 
 Steven
Claussen - Director, President and CEO of Capital Reserve Canada
Ltd.
 
 Mr.
Claussen has been the President and CEO of Capital Reserve Canada for the last
2.5 years, previous to that he has amassed 10 years experience as a CEO, and an
entrepreneur, and he has built successful companies in the retail, publishing
and oil and gas industries. Mr. Claussen was the CEO and Founder of Behral
Canada Inc. from its inception in September 2006 to its acquisition by CRC in
Feb 2007.  Prior to that he was the CEO and President of Solus
Interactive Media for 18 months ending in August 2006.
 
 Michael
G. Dolinski M.Sc., M.P.M. - Director
 
 Mr.
Dolinski was trained as an entomologist and held the position of Provincial
Entomologist during most of his 32-year career with Alberta Agriculture, Food,
and Rural Development. He has chaired many Provincial and National Committees
during his career, and the first World Organic Conference in London U.K. in
2000. Since his retirement from the Alberta Government in 2004, Mr. Dolinski has
provided ongoing consulting and training services in pest management and organic
agriculture production across Canada and the Northern US through Agri-Trend
Agrology, the largest agricultural consulting company in North America, which
has also developed a system to measure carbon sequestration and market carbon
credits to large carbon dioxide emitters.
 
 Nicole
Wood - CFO of Capital Reserve Canada Ltd.
 
 Mrs. Wood
holds an Honours of Commerce Degree and is a Certified General
Accountant.  For the past five years, she has been the Controller/ CFO
of the publically traded company UC Resources listed on the Canadian Venture
Exchange.  She has previously held various positions including Chief
Financial Officer, Director of Finance and Vice President of Accounting, with
public and private sector companies.
 
 COMPENSATION
 
 The
following table sets forth the compensation paid to our directors and members of
our management group for the last fiscal year.
 
 Annual Compensation
                                                
                                                
                                                Long Term CompensationSecurities UnderOptions to be
                                                
                                                
                                                Long TermName and Principal
                                                
                                                
                                                
                                                Salary
                                                
                                                
                                                Bonus
                                                
                                                
                                                Granted
                                                
                                                
                                                Incentive Plan
                                                
                                                
                                                All other CompensationPosition
                                                
                                                Year
                                                
                                                (CDN$)
                                                
                                                
                                                (CDN$)
                                                
                                                
                                                (#)
                                                
                                                
                                                Payouts (CDN$)
                                                
                                                
                                                (CDN$)Donald
      Getty
                                                
                                                2009
                                                
                                                
                                                0
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Chairman
      of the
                                                
                                                2008
                                                
                                                
                                                0Board
      and Director
                                                
                                                2007
                                                
                                                
                                                0Steve
      Claussen
                                                
                                                2009
                                                
                                                
                                                360,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Director
      and
                                                
                                                2008
                                                
                                                
                                                360,000CEO
      of  CRC and
                                                
                                                2007
                                                
                                                
                                                0KCPMichael
      Dolinski
                                                
                                                2009
                                                
                                                
                                                0
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Director
                                                
                                                2008
                                                
                                                
                                                02007
                                                
                                                
                                                0Nicole
      Wood
                                                
                                                2009
                                                
                                                
                                                84,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Chief
      Financial
                                                
                                                2008
                                                
                                                
                                                21,000Officer
                                                
                                                2007
                                                
                                                
                                                0
  22
  A balance
of $132,194 is owed to the CEO and $58,550 is owed to the CFO as at December 31,
2009
 
 MANAGEMENT
CONTRACTS
 
 KCP had a
management contract with Projex Corporation Ltd., a company of which James Baker
is the sole officer and director, for the provision of Mr. Baker’s services as
CEO for $5,000 per month on a part-time basis, commencing Feb 1,
2005.  Mr. Baker devoted approximately fifty percent (50%) of his time
to us and KCP.  The other fifty percent (50%) of his time was devoted
to his consulting business.  The contract concluded on December 31,
2006.
 
 KCP had
an employment agreement with Ken Pearson, as President of KCP, for $14,166 per
month. The agreement commenced on February 1, 2005.  The contract has
no specific term of employment and no specific termination
clause.  Any termination would be subject to the employment laws of
the Province of Alberta, Canada.  Employment includes a company health
plan covering healthcare supplemental coverage, dental care, vision care, life
insurance and disability.  The cost of the plan for Ken Pearson is
$98.20 per month.  This contract was terminated in June
2008.
 
 KCP had
an employment agreement with Faye Pearson for Office Management Services for
$5,833 per month.  The contract has no specific term of employment and
no specific termination clause.  Any termination would be subject to
the employment laws of the Province of Alberta, Canada.  Employment
includes a company health plan covering healthcare supplemental coverage dental
care, vision care, life insurance and disability.  The cost of the
plan for Faye Pearson is $168.40 per month.  This contract was
terminated in June 2008.
 
 Capital
Reserve has a management contract with 1406172 Alberta Inc, a company of which
Steve Claussen is the sole officer and director, for the provision of Mr.
Claussen’s services as CEO for $30,000 per month, commencing in December
2007.  The term of the contract is two years.
 
 Capital
Reserve has a consulting contract with 544686 BC Ltd., a company of which Nicole
Wood is the sole officer and director, for the provision of Mrs. Wood’s services
as CFO for $4,000 per month, commencing in August 2008.  In July 2009,
the contract was replaced with an employment contract of $10,000 per
month.
 
 Compensation
of Directors
 
 No
directors received any form of compensation in their capacity as our directors
to December 31, 2009. However, on March 13, 2008, our CEO approved the issuance
of 1,000,000 shares each to the three existing directors as compensation for
being on the Board. This issuance is subject to stockholders’ approval at the
next Annual General Meeting.
 
 BOARD
PRACTICES
 
 Members
of our Board of Directors are elected annually at the Annual Shareholders’
Meeting and hold their positions until the next Annual Shareholders’
Meeting.  We have not entered into any formal service contracts with
any of our directors for their service as directors.
 
 We do not
have any standing audit, nominating or compensation committees of the Board of
Directors.  Our Board of Directors undertakes the role of audit and
compensation committees at this time.  Our executive officers are
elected annually by our Board of Directors and hold such positions until the
following year or until his her successor is duly elected by our Board of
Directors.
 
 EMPLOYEES
 
 As at
December 31, 2009, CRC had 1 employee, and two (2) consultants.
 
 SHARE
OWNERSHIP
 
 The
following table sets forth information, as of December 31, 2009, with respect to
the beneficial ownership of Capital Reserve Canada Limited's Class A common
stock by each of our officers and directors, and by our officers and directors
as a group.  Information is also provided regarding beneficial
ownership of Class A common stock if all outstanding options, warrants, rights
and conversion privileges are exercised, and additional shares of our Class A
common stock are issued.
  23


TITLE OFCLASS
                      BENEFICIAL OWNER
                      
                      AMOUNT AND NATURE OF
                        BENEFICIAL OWNER
                      
                      PERCENT OF
                        CLASS(1)Class
      A Common
                      Steve
      Claussen, CEO, Director and President of Capital Reserve Canada; St.
      Albert, Alberta T8N 5M1
                      
                      42,833,495
      common shares held directly and indirectly.(3)
                      
                      
                      20.6
                      %Class
      A Common
                      Donald
      Getty, Director and Chairman of the Board of Capital Reserve Canada
      Limited
                        c/o
      1273 Potter Greens Dr
                        Edmonton,
      Alberta T5T 5Y8
                      
                      6,234,429
      common shares held indirectly.(2)
                      
                      
                      3.0
                      %Class
      A Common
                      Jeff
      Leslie, Director of Behral Canada
                        9521
      180A Street
                        Edmonton
      Alberta T5T2Z4
                      
                      5,486,334
      common shares held directly
                      
                      
                      2.6
                      %Class
      A Common
                      Nicole
      Wood, C.F.O.
                        1014
      Dory Street
                        Coquitlam,
      BC V3C 4L2
                      
                      1,500,000
      common shares held indirectly
                      
                      
                      0.7
                      %Class
      A Common
                      Michael
      Dolinski, Director
                        4416
      – 29 Street
                        Edmonton
      Alberta
                      
                      1,000,000
      common shares held directly
                      
                      
                      0.5
                      %57,054,258
      common shares
                      
                      
                      27.5
                      %
 
 (1)               Based
on 207,594,302shares of Class A Common Stock. As of December 31, 2009
 (2)               Held
in Sunnybank Investments Ltd., a company of which Mr. Getty is the sole
shareholder.
 (3)               Held
in 1406172 Alberta Ltd (Steve Claussen)
 (4)               544686
BC Ltd. (Nicole Wood)
 
 ITEM
7.                      MAJOR
STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
 
 MAJOR
STOCKHOLDERS
 
 The
following table sets forth information, as of December 31, 2009, with respect to
the beneficial ownership of Capital Reserve Canada Limited's Class A common
stock by each person known to be the beneficial owner of more than five percent
(5%) of the outstanding Class A common stock.  As at December 31, 2009
there were a total of 856 stockholders holding 207,594,302of
our Class A common shares.
 
 Information
is provided regarding beneficial ownership of Class A common stock if all
outstanding options, warrants, rights and conversion privileges are exercised
and additional shares of Class A common stock are issued.
  TITLE OF CLASS
                      BENEFICIAL OWNER
                      
                      AMOUNT AND NATURE OF BENEFICIAL OWNER
                      
                      PERCENT OF
                        CLASS (1)Class
      A Common
                      (1)
      Steve Claussen, CEO, Director and President of Capital Reserve
      Canada; St. Albert, Alberta T8N 5M1
                      
                      42,833,495
      common shares held directly and indirectly.(2)
                      
                      
                      20.6
                      %
 
 (1) Based on 207,594,302 shares outstanding
as of December 31, 2009..
 (2)Held in 1406172 Alberta Ltd (Steve
Claussen)
 
 RELATED
PARTY TRANSACTIONS
 
 On August
8, 2005, we issued a total of 7,585,814 Class A common shares to Ken Pearson, a
member of the Company’s and KCP’s Boards of Directors, and 4,000,000 Class A
common shares to Projex Corporation Ltd., a company controlled by James Baker,
at that time, an officer and a member of the Company’s and KCP’s Boards of
Directors. The shares were issued as part of the acquisition transaction of
KCP.
 
 On
November 24, 2005, we issued a total of 1,000,000 Class A common shares to Ken
Pearson in settlement of $50,000 USD debt owed by the Company and a total of
500,000 Class A common shares to Sunnybank Investments Ltd., a company
controlled by Don Getty, a director of us and KCP, for settlement of $25,000 USD
debt.
 
 KCP
borrows funds from its stockholders, directors and employees from time to time
in order to meet working capital requirements and to ensure payment of
liabilities as they come due. As at December 31, 2007, the amount outstanding
under these loans was nil.
 
 On
January 28, 2004, KCP appointed an employee of one of KCP’s customers as a
director, Mr. Robert Hawkes, who is an employee of BJ Services Company Ltd.
During the fiscal year ended December 31, 2007, KCP earned $184,046 of revenues
from this customer in the normal course of operations.
  24
  On
February 1, 2005, KCP entered into a consulting management contract with Projex
Corporation Ltd., a company controlled by a stockholder, and at the time, an
officer and director of KCP. During the twelve (12) month period ended December
31, 2006, we paid $60,000 (for the fiscal year ended August 31, 2005 - $63,880),
in consulting fees pursuant to this contract. Pursuant to the terms of the
contract, Projex Corporation Ltd. receives $5,000 per month and has been paid up
to date to December 31, 2006 at which time the contract was
concluded.
 
 On
February 1, 2005, KCP entered into an employment agreement with Ken Pearson.
During the twelve (12) month period ended December 31, 2007 we paid Mr. Pearson
$170,000. During the twelve (12) month period ended December 31, 2006, we paid
Mr. Pearson $120,000 (for the fiscal year ended August 31, 2005 - $ 108,000) for
services rendered under this employment agreement.  Pursuant to the
terms of this agreement, Mr. Pearson receives $14,166 per month and has been
paid up to date as of the date of writing of this report.
 
 On
February 1, 2005, KCP entered into an employment agreement with the wife of Mr.
Pearson. During the twelve (12) month period ended December 31, 2007 we paid
Mrs. Pearson $70,000. During the twelve (12) month period ended December 31,
2006, we paid Mrs. Pearson $48,000 (for the fiscal year ended August 31, 2005 -
$ 44,000) for office management services.  Pursuant to the terms of
this agreement, Mrs. Pearson receives $5,833 per month and has been paid up to
date as of the date of writing of this report.
 
 During
the fiscal year 2006, KCP obtained key man insurance on Mr. Pearson in the
amount of $2,000,000 payable to KCP.  The cost of this insurance is
$477.90/month and is paid for by KCP.
 
 On
December 1, 2006, we entered into an agreement with Southbend, a company owned
by two (2) of our stockholders, Fergus Ismond and Steven Hoof, for the provision
of services at the Two Hills site. The contract was for $150,000 and is subject
to financing. To date, $60,500 has been paid and payments are up to date as of
the date of writing of this report.
 
 On August
11, 2006, we entered into an agreement with Southbend for the sale of an
infrared sterilization unit for $50,000 subject to the sole satisfaction of the
Company.  We cancelled the contract on November 30,
2006.  Southbend was given until March 31, 2007 to refund the $50,000
payment. Both parties agreed later to apply the $50,000 purchase price to work
performed on the Two Hills’ site by Southbend.
 
 On July
19, 2007 we issued 700,000 shares for consulting services with two
stockholders.
 
 On August
19, 2007 we issued 5,000,000 shares for the retirement of an $800,000 lien held
by Southbend Powers Ltd. on the Two Hills property and the assumption of
approximately a $39,000 loan, and 1,500,000 shares for $49,634 in accumulated
debt held by a stockholder.
 
 On
February 4, 2008 we issued 3,500,000 shares in lieu of payment for work done on
the site at the Two Hills site by a stockholder.
 
 On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system. Pursuant to the agreement, the CEO of Behral
became our CEO.
 
 On March
12, 2008 we issued 1,000,000 shares for consulting services with two
stockholders.
 
 On March
12, 2008, our CEO approved the issuance of 3,000,000 shares, 1,000,000 each to
the three existing directors as compensation for being on the Board. This
issuance is subject to stockholders’ approval at the next Annual General
Meeting.
 
 On May 7,
2008 we issued 6,749,933 shares for consulting services with two
stockholders.
 
 On July
7, 2008 we issued 3,660,643 shares for consulting services with two
stockholders.
 
 On July
31, 2008 we issued 1,020,833 shares for consulting services.
 
 On August
13, 2008 we issued 2,300,000 shares for consulting services to three
consultants.
 
 On
November 3, 2008 we issued 3,323,529 shares for consulting
services.
 
 On
December 16, 2008 we issued 4,500,000 shares for consulting services to three
stockholders.
 
 On Mar
11, 2009 we
issued 8,571,428 shares for (in lieu of pay and per contract)
@$0.0035.
 
 On Mar 3,
2009 we
issued 11,818,182 shares for (in lieu of pay and per contract) @ $0.0055
and 4,000,000 shares for debt settlement.
 
 On Apr
28, 2009 we
issued 2,500,000 shares in lieu of pay @ $0.014.
 
 On Apr
28, 2009 we
issued 750,000 shares per loan agreement for debt
settlement.
  25
  On July
20, 2009 we
issued 40,000,000 shares for private placement @ $0.011.
 
 On Aug 11, 2009we issued21,333,333 shares in lieu of pay @
$0.003.
 
 INTERESTS
OF EXPERTS AND COUNSEL
 
 Not
applicable
 
 ITEM
8.                      FINANCIAL
INFORMATION
 
 CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
 
 The
required financial statements are provided at the end of this Annual Report
starting on Page F-1.
 
 SIGNIFICANT
CHANGES
 
 On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system. Pursuant to the agreement, the CEO of Behral
became our CEO.
 
 On
February 8, 2008, KCP Innovative Services Ltd. sold one of the slickline trucks
for $300,000. The proceeds were used to retire the equipment loan with Canadian
Western Bank of about $236,000 and the remainder was used for working
capital.
 
 In June
2008, the remaining slickline truck in KCP and tools were transferred to CRC and
subsequently, the truck was sold for $290,000 and the tools for
$100,000.  With the assets being sold, KCP has become an inactive
company.
 
 ITEM
9.                      THE
OFFER AND LISTING
 
 OFFER
AND LISTING DETAILS
 
 Not
Applicable
 
 PLAN
OF DISTRIBUTION
 
 Not
Applicable
 
 MARKETS
 
 Our Class
A common shares trade on the NASDAQ Over-the-Counter Bulletin Board Market under
the symbol “CRSVF”.
 
 SELLING
SHAREHOLDERS
 
 Not
Applicable
 
 DILUTION
 
 Not
Applicable
 
 EXPENSES
OF THE ISSUE
 
 Not
Applicable
 
 ITEM
10.                      ADDITIONAL
INFORMATION
 
 SHARE
CAPITAL
 
 Not
Applicable
 
 MEMORANDUM
AND ARTICLES OF ASSOCIATION
  26
  We
incorporate by reference herein the information set forth under the heading
“MEMORANDUM AND ARTICLES OF
ASSOCIATION”located in our Amendment No. 4 to Form 20F/A filed with the
Securities and Exchange Commission on March 16, 2004.
 
 MATERIAL
CONTRACTS
 
 For the
last two fiscal
years, we have not entered into any contracts material to investors in
the normal course of business other than the following:
 
 1.  KCP’s
Office Leases
 
 KCP’s
principal corporate and administrative offices are located at 4403-68 Avenue,
Edmonton, Alberta, Canada.   The lease payment is $11,845 per month
and provides for a five year term ending October 31, 2012.
 
 2.  Management
and Employment Agreements with Steve Claussen, and Nicole Wood
 
 CRC has a
management agreement with 1406172 Alberta Inc on behalf of Steve Claussen, as
CEO and President of CRC, for $30,000 per month.
 
 CRC has
an employment agreement with Nicole Wood as CFO services for $10,000 per
month.
 
 3.    The
Purchase of the shares of Behral Canada Ltd.
 
 On
February 4, 2008 we issued 23,500,000 shares to purchase all the shares of
Behral Canada Ltd. Behral owns the patents to a blowout preventer valve, stack
control system and portable blowout controller. Behral also owns a floating
offshore drilling vessel, a blow out preventer stack control system as well as a
subsea blowout stack control system. Pursuant to the agreement, the CEO of
Behral became our CEO.
 
 EXCHANGE
CONTROLS
 
 There are
no governmental laws, decrees, regulations or other legislation of Canada that
may affect the import or export of capital for our use.
 
 Other
than the withholding of any taxes due under the terms of specific treaties
between countries on dividends paid to our stockholders, there are no
restrictions on the remittance of dividends, interest or other
payments.
 
 TAXATION
 
 The
discussions below summarize the material tax considerations relevant to an
investment in common shares by individuals and corporations who, for income tax
purposes, are residents in the U.S. for purposes of the Convention (as
hereinafter defined) and are not residents of Canada, who hold common shares as
a capital asset, and who do not hold the common shares in carrying on a business
through a permanent establishment in Canada or in connection with a fixed base
in Canada (collectively, "Unconnected U.S. Shareholders," "Holder" or
"Holders"). The tax consequences of an investment in common shares by investors
who are not Unconnected U.S. Shareholders may differ substantially from the tax
consequences discussed herein. The discussion of U.S. tax considerations is
addressed only to Unconnected U.S. Shareholders whose "functional currency"
within the meaning of Section 985 of the Internal Revenue Code of 1986, as
amended (the "Code"), is the U.S. dollar, and to U.S. citizens who are not
residents in the U.S. for purposes of the Convention, but who otherwise meet the
definition of Unconnected U.S. Shareholders.  Furthermore, the
discussion of U.S. tax considerations does not address the tax treatment of
Unconnected U.S. Shareholders that own, or are deemed for U.S. federal income
tax purposes to own, 10% or more of the total combined voting power of all
classes of voting stock of Capital Reserve Canada Limited.  The
discussion of Canadian tax considerations does not address the tax treatment of
a trust, company, organization or other arrangement that is a resident of the
U.S. and that is generally exempt from U.S. tax.
 
 This
discussion does not address all of the income tax consequences that may be
applicable to any Holder subject to special treatment under the U.S. federal
income tax law or to any particular Holder in light of such Holder's particular
facts and circumstances. Some Holders, including tax exempt entities, banks,
insurance companies and persons who hold common shares as part of a hedging
transaction may be subject to special or different rules not discussed below.
The discussion of U.S. tax considerations is based on the provisions of the
Code.
 
 The
discussion of Canadian tax consideration is based upon the provisions of the
Income Tax Act (Canada), as amended from time to time (the "Tax Act"), the
Convention between Canada and the U.S. with Respect to Taxes on Income and
Capital, as amended from time to time (the "Convention"), and our understanding
of published administrative practices of Canada Customs and the Revenue Agency
and judicial decision, all of which are subject to change. The discussion does
not take into account the tax laws of the various provinces or territories of
Canada or the tax laws of the various state and local jurisdictions in the
U.S.
  27
  U.S.
Federal Income Tax Considerations
 
 Unconnected
U.S. Shareholders generally will treat the gross amount of the distributions
paid by us, including the amount of any Canadian tax withheld, as foreign source
dividend income for U.S. federal income tax purposes to the extent of our
current or accumulated earnings and profits, as computed for U.S. federal income
tax purposes. Distribution in excess of that amount will reduce an Unconnected
U.S. Shareholder's tax basis in the common shares, but not below zero, and the
remainder, if any, will be treated as taxable capital gains. In general, in
computing its U.S. federal income tax liability, an Unconnected U.S. Shareholder
may elect for each taxable year whether to claim a deduction or, subject to the
limitations described below, a credit for Canadian taxes withheld from dividends
paid on its common shares. If the Unconnected U.S. Shareholder elects to claim a
credit for such Canadian taxes, the election will be binding for all foreign
taxes paid or accrued by the Shareholder for such taxable year. The Code applies
various limitations on the amount of foreign tax credit that may be available to
a U.S. taxpayer based upon the segregation of foreign source income into
separate categories of income. The amount of credit which may be claimed with
respect to the category of income to which the dividend is allocated, and to
which the foreign taxes are attributable generally may not exceed the same
portion of the U.S. tax on worldwide taxable income, before applying the foreign
tax credit as the U.S. holder's foreign source taxable income allocation to such
category bears to such U.S. holder's entire taxable income. The foreign tax
credit is disallowed for dividends on stock unless a minimum holding period is
satisfied and additional limitations may restrict the ability of some
individuals to claim the foreign tax credit. Accordingly, we urge investors to
consult their own tax advisors with respect to the potential consequences to
them of the foreign tax credit limitations.
 
 For U.S.
federal income tax purposes, the amount of any distributions made on a common
share to an Unconnected U.S. Shareholder in Canadian dollars will equal the U.S.
dollar value of the Canadian dollars calculated by reference to the appropriate
exchange rate in effect on the date of receipt of the distribution, regardless
of whether the Canadian dollars are actually converted into U.S. dollars upon
receipt.  Unconnected U.S. Shareholders are urged to consult their own
tax advisors regarding the treatment of foreign currency gain or loss, if any,
on any Canadian dollars which are converted into U.S. dollars subsequent to
receipt by the shareholder.
 
 The sale
of common shares generally will result in a gain or loss to the Holder in an
amount equal to the difference between the amount realized and the Holder's
adjusted cost basis in the shares. Provided that the Holder is not considered a
"dealer" in the shares sold, gain or loss on the sale of the common shares will
generally be capital gain or loss.
 
 Capital
losses are used to offset capital gains.  Individual taxpayers may
deduct the excess of capital losses over capital gains of up to $3,000 USD a
year, $1,500 USD in the case of a married individual filing separately, from
ordinary income.  Non-corporate taxpayers may carry forward unused
capital losses indefinitely.  Unused capital losses of a corporation
may be carried back three (3) years and carried forward five (5)
years.
 
 Canadian
Tax Considerations
 
 Dividends
received or deemed to be received, on the common shares by Unconnected U.S.
Shareholders will be subject to Canadian withholding tax at the rate of
twenty-five percent (25%), subject to reduction under the
Convention.  Under the Convention, the maximum rate of withholding tax
on such dividends is reduced to fifteen percent (15%) if the beneficial owner of
such dividends is an Unconnected U.S. Shareholder.  However, that rate
is reduced to five percent (5%) under the Convention if the beneficial owner of
such dividends is an Unconnected U.S. Shareholder that is a corporation that
owns at least ten percent (10%) of the voting stock of the company.
 
 An Unconnected U.S.
Shareholder will not be subject to tax in Canada on any capital gain realized
upon the disposition or deemed disposition of the common shares, provided that
the common shares do not constitute "taxable Canadian property" of the
shareholder within the meaning of the Tax Act.
 
 Canada
does not currently impose any estate taxes or succession duties.
 
 DIVIDENDS
AND PAYING AGENTS
 
 Not
applicable
 
 STATEMENTS
BY EXPERTS
 
 Not
Applicable
 
 DOCUMENTS
ON DISPLAY
 
 All
documents filed in connection with this registration statement have been filed
with the Securities and Exchange Commission using the EDGAR (Electronic Data
Gathering, Analysis and Retrieval) system.  The Securities and
Exchange Commission maintains a web site on the Internet at the address
http://www.sec.gov that contains reports, proxy information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission.
  28
  SUBSIDIARY
INFORMATION
 
 At
December 31, 2009, we had three (3) subsidiaries, KCP and Two Hills, which was
formed on June 16, 2006, to receive the assets from Southbend and Behral, which
was acquired on February 4, 2008.
 
 ITEM
11.            QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
 
 Not
Applicable
 
 ITEM
12.                      DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
 
 Not
applicable
 
 This
annual report contains forward-looking statements as that term is defined in
Section 27A of the United States Securities Act of 1933 and Section 21E of the
United States Securities Exchange Act of 1934.  These statements relate to
future events or our future financial performance.  In some cases, you can
identify forward looking statements by terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology.  These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors” that may cause our or our industry's activity,
performance or achievements expressed or implied by these forward-looking
statements.  Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.  Except as
required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform
these statements to actual results.
 
 PART
II
 
 ITEM
13.                      DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
 
 None
 
 ITEM 14.
              MATERIAL MODIFICATIONS TO THE
      RIGHTS OF SECURITY HOLDERS AND USE OF
  PROCEEDS.
 
 None
 
 ITEM
15.                      CONTROLS
AND PROCEDURES
 
 i. Disclosure
Controls and Procedures
 
 As of
December 31, 2009, the Company’s chief executive officer, Steve Claussen, has
evaluated and reviewed our disclosure controls and procedures as of the end of
the period covered by this Annual Report. Based upon this evaluation and review,
the officer has concluded that the Company’s disclosure controls and procedures
are effective and sufficient to comply with Rules 13a-15(c) and 15d-15(c) of the
Securities Exchange Act of 1934.
 
 Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
 
 ii.
              Management’s
      Annual Report on Internal Control Over Financial
  Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. All internal control systems, no matter how well designed,
have inherent limitations and may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. 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
framework for evaluating the effectiveness of its internal controls is based
upon the criteria established in Internal Control— Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
 
 As at
December 31, 2009, management assessed the effectiveness of our internal control
over financial reporting and concluded that such internal control over financial
reporting are effective and that there were no material weaknesses in our
internal control over financial reporting.
  29
  iii
              Attestation
      Report of Independent Registered Public Accounting
  Firm
 
 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 the temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
 
 iv.
                Changes
      in Internal Control Over Financial
Reporting
 
 There
have been no changes in our internal control over financial reporting during the
year ended December 31, 2009, that have materially affected, or are reasonably
likely to affect our internal control over financial reporting.
 
 During
Fiscal 2009, the Company used the assistance of one external Chartered
Accountant firm in various aspects of its internal controls.
 
 ITEM
16A.                      AUDIT
COMMITTEE FINANCIAL EXPERT
 
 We do not
presently have an audit committee.
 
 ITEM
16B.                      CODE
OF ETHICS
 
 As of the
date of this report, we have not adopted a code of ethics that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions.  As we
have gone through a recent change of control, we did not finalize our adoption
of the Code of Ethics.  Our present Board of Directors is presently
preparing a Code of Ethics for review and adoption.   Upon
adoption, we will file a copy of our Code of Ethics with the Securities and
Exchange Commission as an exhibit to our annual report for the year ending
December 31, 2009 and post it on our website.
 
 ITEM
16C.                      PRINCIPAL
ACCOUNTANT FEES AND SERVICES
 
 The
following table sets forth the approximate fees billed to us and our subsidiary
KCP for professional services rendered by our principal accountant:
 
 Services
                    
                    2009
                    
                    
                    2008Audit
      Fees
                    
                    $
                    20,000
                    
                    
                    $
                    20,000Audit
      related Fees
                    
                    
                    0
                    
                    
                    
                    0Tax
      Fees
                    
                    
                    0
                    
                    
                    
                    0Total
      Fees
                    
                    $
                    20,000
                    
                    
                    $
                    20,000
 
 Audit
fees consist of fees for the audit of our annual financial statements or the
financial statements of our subsidiaries or services that are normally provided
in connection with the statutory and regulatory filings of the annual financial
statements.
 Audit-related
services include the review of our financial statements and quarterly reports
that are not reported as Audit fees.
 Tax fees
included tax planning and various taxation matters.
 
 ITEM
16D.                      EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
 Not
applicable
 
 ITEM 16E.
              PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
    PURCHASERS
 
 Not
applicable
 
 PART
III
 
 ITEM
17.                      FINANCIAL
STATEMENTS
 See
Item 18 below.
 
 ITEM
18.                      FINANCIAL
STATEMENTS
 
 The
required financial statements are provided herein starting on page
F-1.
  30
  ITEM
19.                      EXHIBITS
  Exhibit No.
                    
                    Exhibit1.1
                    
                    Certificate
      of Incorporation of the company consisting of the Articles of
      Incorporation filed with the Alberta Registries on December 8, 1999, filed
      with the Registrant’s Form 20-F filed on July 11, 2003 (file #
      000-50339)1.2
                    
                    Amendment
      to Articles of Incorporation of the company filed with Alberta Registries
      on January 15, 2003, incorporated by reference to the Exhibits filed with
      the Registrant's Form 20-F filed on July 11, 2003 (file #
      000-50339)1.3
                    
                    By-Laws
      of the company, dated December 8, 1999, incorporated by reference to the
      Registrant's Form 20-F filed on July 11, 2003 (file #
      000-50339)4.1
                    
                    Petroleum,
      Natural Gas, and General Rights Conveyance between Capital Reserve Canada
      Limited and Stone Canyon Resources Ltd. dated December 23, 2004,
      incorporated by reference to the Exhibits filed with the Company’s 20-F
      filed Annual Return for the year ended December 31, 2004 (file #
      000-50339)4.2
                    
                    Share
      Exchange Agreement between Capital Reserve Canada Ltd., Capital Reserve
      Canada Projects Ltd., KCP Innovative Services In., and Ken Pearson, 966358
      Alberta Ltd., 989320 Alberta Ltd., 332601 Alberta Ltd. and Ben Marshall
      dated August 8, 2005, incorporated by reference to the Exhibit filed with
      the Company’s 8K filed on August 12, 2005 (file #
    000-50339)4.3
                    
                    Proxy
      and Information Circular of KCP Innovative Services Inc. with respect to
      the Amalgamation with Capital Reserve Canada Projects Ltd. and Capital
      Reserve Canada Ltd. and Notice of Annual and Special Meeting of
      Shareholders of KCP Innovative Services Inc., dated December 22, 2005,
      incorporated by reference to the Exhibit filed with the Company’s 6-K
      filed on February 8, 2006 (file # 000-50339)4.4
                    
                    Offer
      to lease office space entered into between Sabo Bros. and KCP Innovative
      Services Inc. dated August 24, 2004 and affected October 15, 2004,
      incorporated by reference to the exhibits filed with the
      Registrant’s
                      Form
      20-F filed on July 17, 2006 (file #000-50039).4.5
                    
                    Management
      Agreement between KCP Innovative Services Inc. and Projex Corporation
      dated February 1, 2005, incorporated by reference to the exhibits filed
      with the Registrant’s Form 20-F filed on July 17, 2006 (file
      #000-50039).4.6
                    
                    Employment
      Agreement between KCP Innovative Services Inc. and Ken Pearson dated
      February 1, 2005, incorporated by reference to the exhibits filed with the
      Registrant’s Form 20-F filed on July 17, 2006 (file
      #000-50039).4.7
                    
                    Employment
      Agreement between KCP Innovative Services Inc. and Faye Pearson dated
      February 1, 2005, incorporated by reference to the exhibits filed with the
      Registrant’s Form 20-F filed on July 17, 2006 (file
      #000-50039).4.8
                    
                    Loan
      agreement between Canadian Western Bank and KCP Innovative Services Inc.
      dated March 22, 2005, incorporated by reference to the exhibits filed with
      the Registrant’s Form 20-F filed on July 17, 2006 (file
      #000-50039).4.9
                    
                    Asset
      Purchase Agreement between Two Hills Environmental Inc. and South Bend
      Powers Ltd. dated June 16, 2006 and amendment dated July 5, 2006,
      incorporated by reference to the exhibits filed with the Registrant’s Form
      20-F filed on July 17, 2006 (file #000-50039).12
                    
                    Certifications
      required by Rule 13a-14(a) or Rule 15d-14(a), filed as an exhibit to this
      filing.13
                    
                    Certifications
      required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter
      63 of Title 18 of the United States code (18 U.S.C. 1350), filed as an
      exhibit to this filing.4-10
                    
                    Share
      Purchase Agreement between Steve Claussen and Barbara Troisin dated
      February 5, 2008, filed as an exhibit to this filing.4-11
                    
                    Office
      lease agreement between Sabo Bros. and KCP dated August 9, 2007, filed as
      an exhibit to this
filing.
 
 SIGNATURES
 
 The
registrant hereby certifies that it meets all the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
 
 CAPITAL
RESERVE CANADA LIMITED
 
 /s/ Steven ClaussenSteven
      ClaussenChief
      Executive Officer, principal executive officer
 
 Date:  August
6, 2010
  31
  CAPITAL
RESERVE CANADA LIMITED
 
 Audited
Consolidated Financial Statements
 
 For
the Years ended December 31, 2009, 2008 and 2007
  
  CAPITAL
RESERVE CANADA LIMITED
 
 Audited
Consolidated Financial Statements
 
 For
the Years ended December 31, 2009, 2008 and 2007
 
 Contents
 
 Report
      of Independent Registered Public Accounting Firm
                2Audited
      Financial StatementsConsolidated
      Balance Sheets
                3Consolidated
      Statements of Operations
                4Consolidated
      Statements of Changes in Shareholders’ Equity (Deficit)
                5Consolidated
      Statements of Cash Flows
                6Notes
      to the Consolidated Financial Statements
                7-14
 REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                
                To
      the Board of Directors and Shareholders
                Capital
      Reserve Canada Limited
                Edmonton,
      Alberta, Canada
                
                We
      have audited the accompanying consolidated balance sheets of Capital
      Reserve Canada Limited (the Company) as of December 31, 2009, 2008 and
      2007, and the related consolidated statements of operations, changes in
      shareholders’ equity (deficit), and cash flows for the years then
      ended.  These financial statements are the responsibility of the
      Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audits.
                
                We
      conducted our audits in accordance with the standards of the Public
      Company Accounting Oversight Board (United States of America). 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 includes examining, on a test basis,
      evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles
      used and significant estimates made by management, as well as evaluating
      the overall financial statement presentation. We believe that our audits
      provide a reasonable basis for our opinion.
                
                In
      our opinion, the consolidated financial statements referred to above
      present fairly, in all material respects, the financial position of
      Capital Reserve Canada Limited as of December 31, 2009, 2008 and 2007, and
      the results of its operations and its cash flows for the years then ended,
      in conformity with accounting principles generally accepted in the United
      States of America.
                
                The
      accompanying consolidated financial statements have been prepared assuming
      that the Company will continue as a going concern.  As discussed in
      Note 4 to the consolidated financial statements, the Company
      currently has cash flow constraints and an accumulated deficit.
       These factors, among others, raise substantial doubt about the
      Company’s ability to continue as a going concern.  Management’s plans
      in regard to these matters are also described in Note 4.  The
      consolidated financial statements do not include any adjustments that
      might result from the outcome of this uncertainty.
                
                /s/
      Child, Van Wagoner & Bradshaw, PLLC
                Child,
      Van Wagoner & Bradshaw, PLLC
                Salt
      Lake City, Utah
                August
      6, 2010
  2
  CAPITAL
RESERVE CANADA LIMITED
 Consolidated
Balance Sheets
 As
of December 31, 2009, 2008 and 2007
 
 2009
                        
                        
                        2008
                        
                        
                        2007ASSETSCurrent
      assetsCash
      and cash equivalents
                        
                        $
                        556
                        
                        
                        $
                        5,385
                        
                        
                        $
                        7,895Term
      deposits (Note 6)
                        
                        
                        22,911
                        
                        
                        
                        22,291
                        
                        
                        
                        21,884Accounts
      receivable
                        
                        
                        9,203
                        
                        
                        
                        12,386
                        
                        
                        
                        250,871Prepaid
      expenses
                        
                        
                        4,396
                        
                        
                        
                        20,569
                        
                        
                        
                        13,647Total
      current assets
                        
                        
                        37,066
                        
                        
                        
                        60,631
                        
                        
                        
                        294,297Property,
      plant and equipment (Note 7)
                        
                        
                        743,261
                        
                        
                        
                        921,059
                        
                        
                        
                        5,977,989Intangible
      assets (Note 8)
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        51,259Goodwill
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        125,502Other
      assets
                        
                        
                        -
                        
                        
                        
                        11,845
                        
                        
                        
                        11,845Total
      assets
                        
                        $
                        780,328
                        
                        
                        $
                        993,536
                        
                        
                        $
                        6,460,892LIABILITIESCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                        
                        $
                        621,039
                        
                        
                        $
                        256,834
                        
                        
                        $
                        234,244Bank
      indebtedness
                        
                        
                        -
                        
                        
                        
                        6,137
                        
                        
                        
                        16,367Income
      and commodity taxes payable
                        
                        
                        19,510
                        
                        
                        
                        19,807
                        
                        
                        
                        517Deferred
      income – current portion
                        
                        
                        10,000
                        
                        
                        
                        6,000
                        
                        
                        
                        30,000Line
      of credit (Note 9)
                        
                        
                        17,000
                        
                        
                        
                        15,000
                        
                        
                        
                        14,000Note
      payable
                        
                        
                        65,429
                        
                        
                        
                        -
                        
                        
                        
                        -Current
      portion of long-term  debt
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        100,230Total
      current liabilities
                        
                        
                        732,978
                        
                        
                        
                        303,778
                        
                        
                        
                        395,358Long-term
      liabilitiesLong-term
      debt (Notes 10 & 11)
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        153,230Deferred
      income – long-term portion
                        
                        
                        135,833
                        
                        
                        
                        -
                        
                        
                        
                        -Future
      tax liability (Note 13)
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
      long-term liabilities
                        
                        
                        135,833
                        
                        
                        
                        -
                        
                        
                        
                        153,230Total
      liabilities
                        
                        
                        868,811
                        
                        
                        
                        303,778
                        
                        
                        
                        548,588STOCKHOLDERS’
      EQUITY (DEFICIT)Share
      Capital
                        
                        
                        11,327,483
                        
                        
                        
                        11,004,651
                        
                        
                        
                        9,314,463Retained
      earnings (Deficit)
                        
                        
                        (11,415,966
                        )
                        
                        
                        (10,314,893
                        )
                        
                        
                        (3,402,159
                        )Total
      stockholders' equity (deficit)
                        
                        
                        (88,483
                        )
                        
                        
                        689,758
                        
                        
                        
                        5,912,304Total
      liabilities and stockholders' equity (deficit)
                        
                        $
                        780,328
                        
                        
                        $
                        993,536
                        
                        
                        $
                        6,460,892
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  3
  CAPITAL
RESERVE CANADA LIMITED
 Consolidated
Statements of Operations
 For
the Years ended December 31, 2009, 2008 and 2007
 
 2009
                  
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  10,167
                  
                  
                  $
                  24,000
                  
                  
                  $
                  18,000Cost
      of sales
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Gross
      profit
                  
                  
                  10,167
                  
                  
                  
                  24,000
                  
                  
                  
                  18,000ExpensesConsulting,
      salaries and benefits
                  
                  
                  693,665
                  
                  
                  
                  986,332
                  
                  
                  
                  -General
      and administrative
                  
                  
                  115,313
                  
                  
                  
                  139,536
                  
                  
                  
                  213,414Impairment
      charges
                  
                  
                  162,000
                  
                  
                  
                  5,759,690
                  
                  
                  
                  -Restoration
      costs
                  
                  
                  -
                  
                  
                  
                  139,412
                  
                  
                  
                  -Amortization
                  
                  
                  2,190
                  
                  
                  
                  3,445
                  
                  
                  
                  -Total
      expenses
                  
                  
                  973,168
                  
                  
                  
                  7,028,415
                  
                  
                  
                  213,414Operating
      loss
                  
                  
                  (963,001
                  )
                  
                  
                  (7,004,415
                  )
                  
                  
                  (195,414
                  )Other
      income (expenses)Gain
      on sale of equipment
                  
                  
                  -
                  
                  
                  
                  261,549
                  
                  
                  
                  -Interest
      expense
                  
                  
                  (30,987
                  )
                  
                  
                  (168
                  )
                  
                  
                  (2,047
                  )Total
      other income (expenses)
                  
                  
                  (30,987
                  )
                  
                  
                  261,381
                  
                  
                  
                  (2,047
                  )Net
      loss before discontinued operations
                  
                  
                  (993,988
                  )
                  
                  
                  (6,743,034
                  )
                  
                  
                  (197,461
                  )Discontinued
      operations
                  
                  
                  (107,085
                  )
                  
                  
                  (169,700
                  )
                  
                  
                  (656,827
                  )Net
      loss
                  
                  $
                  (1,101,073
                  )
                  
                  $
                  (6,912,734
                  )
                  
                  $
                  (854,288
                  )Basic
      and diluted earnings(loss) per shareContinuing
      operations
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.07
                  )
                  
                  $
                  (0.00
                  )Discontinued
      operations
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.01
                  )Net
      Loss
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.07
                  )
                  
                  $
                  (0.01
                  )Weighted
      average number of shares outstanding
                  
                  
                  172,916,054
                  
                  
                  
                  101,178,060
                  
                  
                  
                  61,072,284
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  4
  CAPITAL
RESERVE CANADA LIMITED
 
 Consolidated
Statements of Changes in Shareholders’ Equity (Deficit)
 For
the Years ended December 31, 2009, 2008 and 2007
 
 Common
      Stock
                            
                            
                            Stock
                              Subscription
                            
                            
                            
                            
                            
                            Total
      Stockholder’sShares
                            
                            
                            Amount
                            
                            
                            Receivable
                            
                            
                            Retained Deficit
                            
                            
                            Equity (Deficit)Balance
      at December 31, 2006
                            
                            
                            58,396,421
                            
                            
                            $
                            8,381,142
                            
                            
                            $
                            (15,000
                            )
                            
                            $
                            (2,547,871
                            )
                            
                            $
                            5,818,271Stock
      cancelled per contract
                            
                            
                            (30,000
                            )
                            
                            
                            (15,000
                            )
                            
                            
                            15,000
                            
                            
                            
                            -
                            
                            
                            
                            -Shares
      issued for consulting services
                            
                            
                            700,000
                            
                            
                            
                            59,500
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            59,500Shares
      issued for debt settlement
                            
                            
                            5,000,000
                            
                            
                            
                            839,187
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            839,187Shares
      issued for debt settlement
                            
                            
                            1,500,000
                            
                            
                            
                            49,634
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            49,634Net
      Loss for year 2007
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (854,288
                            )
                            
                            
                            (854,288
                            )Balance
      at December 31, 2007
                            
                            
                            65,566,421
                            
                            
                            
                            9,314,463
                            
                            
                            
                            -
                            
                            
                            
                            (3,402,159
                            )
                            
                            
                            5,912,304Shares
      issued to acquire subsidiary
                            
                            
                            23,500,000
                            
                            
                            
                            940,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            940,000Shares
      issued to debt settlement
                            
                            
                            3,500,000
                            
                            
                            
                            139,412
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            139,412Shares
      issued for consulting services
                            
                            
                            25,554,938
                            
                            
                            
                            601,776
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            601,776Shares
      issued for cash
                            
                            
                            500,000
                            
                            
                            
                            9,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            9,000Net
      Loss for year 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (6,912,734
                            )
                            
                            
                            (6,912,734
                            )Balance
      at December 31, 2008
                            
                            
                            118,621,359
                            
                            
                            
                            11,004,651
                            
                            
                            
                            -
                            
                            
                            
                            (10,314,893
                            )
                            
                            
                            689,758Shares
      issued to debt settlement
                            
                            
                            4,750,000
                            
                            
                            
                            40,957
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            40,957Shares
      issued for services
                            
                            
                            44,222,943
                            
                            
                            
                            239,168
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            239,168Shares
      issued for cash
                            
                            
                            40,000,000
                            
                            
                            
                            42,707
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            42,707Net
      Loss for year 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,101,073
                            )
                            
                            
                            (1,101,073
                            )Balance
      at December 31, 2009
                            
                            
                            207,594,302
                            
                            
                            $
                            11,327,483
                            
                            
                            $
                            -
                            
                            
                            
                            (11,415,966
                            )
                            
                            $
                            (88,483
                            )
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  5
  CAPITAL
RESERVE CANADA LIMITED
 Consolidated
Statements of Cash Flows
 For
the Years ended December 31, 2009, 2008 and 2007
 
 2009
                  
                  
                  2008
                  
                  
                  2007Operating
      ActivitiesNet
      Loss
                  
                  $
                  (1,101,073
                  )
                  
                  $
                  (6,912,734
                  )
                  
                  $
                  (854,288
                  )Adjustments
      to reconcile net income (loss) to net cash provided (used) by operating
      activities:Amortization
                  
                  
                  2,190
                  
                  
                  
                  3,445
                  
                  
                  
                  -Impairment
      charges
                  
                  
                  162,000
                  
                  
                  
                  5,759,690
                  
                  
                  
                  -Gain
      on sale of equipment
                  
                  
                  -
                  
                  
                  
                  (261,549
                  )
                  
                  
                  -Stock
      issued for services
                  
                  
                  239,168
                  
                  
                  
                  741,188
                  
                  
                  
                  109,134Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (9,202
                  )
                  
                  
                  1,195
                  
                  
                  
                  50,000Prepaid
      expenses and deposits
                  
                  
                  12,273
                  
                  
                  
                  (16,669
                  )
                  
                  
                  3,910Accounts
      payable and accrued liabilities
                  
                  
                  345,618
                  
                  
                  
                  155,257
                  
                  
                  
                  196,436Deferred
      revenue
                  
                  
                  139,833
                  
                  
                  
                  (24,000
                  )
                  
                  
                  30,000Cash
      provided (used) by operating activities – continuing
      operations
                  
                  
                  (209,193
                  )
                  
                  
                  (554,177
                  )
                  
                  
                  (464,808
                  )Cash
      provided (used) by discontinued operations
                  
                  
                  112,456
                  
                  
                  
                  140,242
                  
                  
                  
                  118,429Cash
      provided (used) by operating activities
                  
                  
                  (96,737
                  )
                  
                  
                  (413,935
                  )
                  
                  
                  (346,379
                  )Investing
      ActivitiesPurchase
      of property, plant and equipment
                  
                  
                  -
                  
                  
                  
                  (7,401
                  )
                  
                  
                  (1,623
                  )Proceeds
      from sale of fixed assets
                  
                  
                  -
                  
                  
                  
                  390,000
                  
                  
                  
                  -Proceeds
      from purchase of subsidiary
                  
                  
                  -
                  
                  
                  
                  2,057
                  
                  
                  
                  -Cash
      provided (used) by investing activities – continuing
      operations
                  
                  
                  -
                  
                  
                  
                  384,656
                  
                  
                  
                  (1,623
                  )Cash
      provided (used) by discontinued operations
                  
                  
                  -
                  
                  
                  
                  280,459
                  
                  
                  
                  (2,233
                  )Cash
      provided (used) by investing  activities
                  
                  
                  -
                  
                  
                  
                  665,115
                  
                  
                  
                  (3,856
                  )Financing
      ActivitiesProceeds
      from note payable
                  
                  
                  47,201
                  
                  
                  
                  -
                  
                  
                  
                  -Proceeds
      from sale of common stock
                  
                  
                  42,707
                  
                  
                  
                  9,000
                  
                  
                  
                  -Cash
      provided by financing activities – continuing operations
                  
                  
                  89,908
                  
                  
                  
                  9,000
                  
                  
                  
                  -Cash
      used by discontinued operations
                  
                  
                  2,000
                  
                  
                  
                  (262,690
                  )
                  
                  
                  (33,398
                  )Cash
      used by financing activities
                  
                  
                  91,908
                  
                  
                  
                  (253,690
                  )
                  
                  
                  (33,398
                  )Increase
      (decrease) in cash during the year
                  
                  
                  (4,829
                  )
                  
                  
                  (2,510
                  )
                  
                  
                  (383,633
                  )Cash
      and cash equivalents, beginning of year
                  
                  
                  5,385
                  
                  
                  
                  7,895
                  
                  
                  
                  391,528Cash
      and cash equivalents, end of year
                  
                  $
                  556
                  
                  
                  $
                  5,385
                  
                  
                  $
                  7,895Supplemental
      InformationCash
      paid for interest
                  
                  $
                  -
                  
                  
                  $
                  9,642
                  
                  
                  $
                  20,600Shares
      issued for subsidiary
                  
                  $
                  -
                  
                  
                  $
                  940,000
                  
                  
                  $
                  -Shares
      issued for debt settlement and expenses
                  
                  $
                  40,957
                  
                  
                  $
                  -
                  
                  
                  $
                  779,687
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  6
  CAPITAL
RESERVE CANADA LIMITED
 
 1.      Description
of the Company
 
 KCP
Innovative Services Inc. was incorporated as a private corporation named K C
Pearson Consulting Inc. in the Province of Alberta on February 20,
1996.  The name was changed to KCP Innovative Services Inc. on May 22,
2003. KCP has developed a series of devices that are used to diagnose the pay
zone in oil or gas wells.  The diagnostic information collected from
these devices is used by production engineers to complete the well at the most
efficient level.  KCP's customers are oil and gas
companies.
 
 Capital
Reserve Canada Ltd. (“CRC") was incorporated as a private corporation in the
Province of Alberta on December 8, 1999, and is a reporting company registered
with the U.S. Securities and Exchange Commission.  CRC provides
minimal equipment and related rental services. Pursuant to the share exchange
agreement dated August 12, 2005, the Company effected a share exchange
indirectly with the shareholders of KCP Innovative Services Ltd. ("KCP"),
resulting in the Company acquiring 78.2% of the outstanding shares of KCP
through exchanging shares with the Company's wholly-owned subsidiary, Capital
Reserve Canada Projects Ltd ("Project"). Subsequent to the Annual General
Meeting of the company on January 12, 2006, the minority interest shareholders
signed off and all minority interest shares were exchanged for CRC shares.
Because the shareholders of KCP became the controlling shareholders of the
Company, this transaction was accounted for as a reverse takeover whereby KCP
was deemed to be the acquirer as described more fully in Note 2.
 
 Capital
Reserve Canada Projects Ltd. was incorporated as a private corporation in the
Province of Alberta on August 2, 2005, and it has been inactive since inception
except for the share exchange as described. Effectively on February 3, 2006
Capital Reserve Canada Projects Ltd. amalgamated with KCP Innovative Services
Inc.
 
 Effective
January 22, 2006, KCP Innovative Services Inc. became directly a wholly-owned
subsidiary of Capital Reserve Canada Ltd.
 
 On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system.
 
 2.      Share
exchange
 
 On August
12, 2005, Project issued 17,335,814 common shares to exchange for 17,335,814
common shares (78.2%) from the shareholders of KCP Innovative Services. CRC then
issued 17,335,814 common shares in exchange for 17,335,814 common shares from
Project.
 
 Subsequent
to January 12, 2006, minority interest shareholders of KCP signed off to
exchange for shares in CRC. Minority interest of 21.8% (4,833,085 shares) was
exchanged for CRC shares. Project and KCP were amalgamated on February 3, 2006.
Following the transactions, CRC directly owns 100% of KCP.
 
 During
2006, CRC issued 896,264 common shares to FACT Corp. in exchange for the debt of
$258,426.
 
 These
share exchange transactions between CRC (legal parent) and KCP (legal
subsidiary) were accounted for as a reverse takeover as a capital transaction in
accordance with accounting principles generally accepted in the United States of
America. As a result, no goodwill is accounted for in this
transaction.
 
 The
reverse takeover accounting reports result in the following:
 
 (a)           KCP
is deemed to be the parent company and CRC is deemed to be the subsidiary
company for accounting purposes;
 
 (b)           The
financial statements of the combined entity are issued under the name of the
legal parent, CRC, but are considered a continuation of the financial statements
of the legal subsidiary, KCP; and
 
 (c)           Since
KCP is deemed to be the acquirer for accounting purposes, its assets and
liabilities are included in its consolidated balance sheet at their historical
carrying values.
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  7
  CAPITAL
RESERVE CANADA LIMITED
 
 3.      Summary
of significant accounting policies
 
 These
consolidated financial statements include the accounts of the company and its
legal subsidiary, KCP Innovative Services Inc., its wholly-owned subsidiary, Two
Hills Environmental Inc and Behral Canada Ltd. and have been prepared in
accordance with accounting principles generally accepted in United States of
America. All significant inter-company transactions and balances are eliminated
in the preparation of these consolidated financial statements.
 
 (a)           Cash
and cash equivalents
 
 Cash and
cash equivalents consist of cash on deposit and short-term investments with
original maturities of 90 days or less and are recorded at the lower of cost or
market value.
 
 (b)           Leases
 
 Leases
are classified as either capital or operating.  Leases which transfer
substantially all of the benefits and risks of ownership of property to the
Company are accounted for as capital leases. The capitalized lease obligation
reflects the present value of future rental payments, discounted at the
appropriate interest rates.  The amount capitalized as the cost of the
asset is amortized as set out below under property, plant and equipment. Rental
payments under operating leases are expenses as incurred.
 
 (c)           Property,
plant and equipment
 
 Property,
plant and equipment are recorded at cost and are being amortized using the
following method at the rates set out below which are estimated to be sufficient
to amortize the cost of the assets to residual value by the expiration of their
useful lives:
  Building
                    
                    4%
      diminishing balanceEquipment
                    
                    20%
      diminishing balanceFurniture
      and Fixtures
                    
                    20%
      diminishing balanceVehicles
                    
                    30%
      diminishing balanceComputer
      and Software
                    
                    30%
      diminishing balanceMineral
      Rights
                    
                    0%
      diminishing balanceWater
      Permit
                    
                    0%
      diminishing
balance
 
 (d)           Goodwill
and intangible assets
 
 The cost
of intangible assets is amortized over the period in which the benefits of such
assets are expected to be realized, principally on a straight-line
basis.  The Company's policy is to amortize client relationships with
determinable lives over four years.  Contract backlog is amortized
over the estimated period of completion, generally less than one
year.  Technology is being amortized over an estimated life of four
years.  Goodwill is not amortized but is evaluated annually for
impairment by comparing the fair value of the reporting unit, determined on a
discounted after tax cash flow basis, to the carrying value.  An
impairment loss would be recognized if the carrying value of the goodwill
exceeds its fair value.
 
 (e)           Future
income taxes
 
 The
Company uses the liability method of accounting for income
taxes.  Under this method, future income tax assets and liabilities
are determined based on differences between financial reporting and the tax
bases of assets and liabilities and measured using the substantively enacted
rates and laws that will be in effect when these differences are expected to
reverse.
 
 (f)           Revenue
recognition
 
 The
Company's services are generally sold based upon purchase orders or contracts
with customers that include fixed or determinable prices based upon daily,
hourly or job rates. Customer contract terms do not include provisions for
significant past service delivery obligations.  Revenue is recognized
when services and equipment rentals are rendered and only when collectability is
reasonably assured.
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  8
  CAPITAL
RESERVE CANADA LIMITED
 
 3.      Summary
of significant accounting policies (continued)
 
 (g)           Statement
of cash flows
 
 The
statement of cash flows has been prepared using the indirect
method.
 
 4.      Basis
of presentation and going concern
 
 These
financial statements have been prepared on the basis of accounting principles
applicable to a going concern which assumes the Company will continue in
operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of operations.
 
 Because
of the operating losses of the past two periods, the Company's continuance as a
going concern is dependent upon its ability to obtain adequate financing and to
reach profitable levels of operation.  Management believes actions
planned and presently being taken provides the opportunity for the Company to
continue as a going concern.
 
 5.      Acquisition
of Zone Technologies Ltd.
 
 On June
11, 2004, KCP acquired 100% of the issued and outstanding shares of Zone
Technologies Ltd. ("Zone") from an existing stockholder and an unrelated
party.  The transaction was recorded at the exchange amount, as the
change in ownership interests in Zone was substantive.
 
 Consideration
for the acquisition was $782,500 and it consisted of 1,294,444 common shares of
KCP, at a fair value of $0.45 per share and cash of $200,000.  Zone is
an Alberta based company focused on providing diagnostic and consulting services
to customers exploring for coal based methane gas.  The fair value of
the acquisition was determined through an independent third party appraisal of
Zone as at the date of acquisition.
 
 The
acquisition was accounted for using the purchase method and the results of
operations from June 11, 2004.  The fair value of the net assets
acquired is summarized as follows:
 
 Cash
                    
                    $
                    43,954Accounts
      receivable
                    
                    
                    21,414Property,
      plant and equipment
                    
                    
                    48,000Zone
      Technology (Note 8)
                    
                    
                    277,000Backlog
                    
                    
                    196,600Customer
      relationships
                    
                    
                    184,000Goodwill
                    
                    
                    138,155909,123Accounts
      payable and accrued liabilities
                    
                    
                    4,407Income
      and commodity taxes payable
                    
                    
                    36,016Future
      income tax liability
                    
                    
                    86,200126,623Net
      assets acquired
                    
                    $
                    782,500Cash
      consideration
                    
                    $
                    200,000Share
      consideration
                    
                    
                    582,500Purchase
      price
                    
                    $
                    782,500
 
 The
goodwill is non-deductible for income tax purposes.  Subsequent to
September 2005, Zone Technologies Ltd. was dissolved as a corporate
entity.
 
 6.      Term
deposits
 
 The term
deposit of $22,911 matures on March 14, 2010 and bears interest at 2.65% per
annum.
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  9
  CAPITAL
RESERVE CANADA LIMITED
 
 7.      Property,
plant and equipment
 
 Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net December 31,
                    2009Land
                  
                  $
                  738,000
                  
                  
                  $
                  -
                  
                  
                  $
                  738,000Furniture
      and fixtures
                  
                  
                  18,239
                  
                  
                  
                  18,239
                  
                  
                  
                  -Computer
      and software
                  
                  
                  48,130
                  
                  
                  
                  42,869
                  
                  
                  
                  5,261$
                  804,369
                  
                  
                  $
                  61,108
                  
                  
                  $
                  743,261
 
 During
2008, it was determined that the water permit and salt lease, as well as the
mineral rights should be written off as an impairment charge due to the
uncertainty of future economic value.  The impairment charge amounts
to $4,802,079.  During 2009, the Company also evaluated the value of
the land and determined that an impairment of $162,000 should be recognized
against the land.
 
 Southbend
Power Ltd.
 
 On June
16, 2006, Two Hills Environmental Inc., a wholly-owned subsidiary of CRC
purchased 147 acres of land together with certain salt lease and water permit
rights from Southbend Power Ltd. for the consideration of CRC to issue
13,200,000 common shares to Southbend Power Ltd. and the assumption of certain
liabilities. The transaction was completed on July 28, 2006. The company
recorded the value of the purchase based on the market share trading value of
July 28, 2006 at US$ 0.32 per share. The company recorded the land at its fair
market value of $900,000 and the value of the water permits and salt leases to
be $4,677,679, the trading value of the exchanged shares.  These 147
acres sit on the Nisku Fault and the Lotsburg salt formation has 3 large
existing salt caverns.  The Lotsburg salt formation contains salt
deposits that average 122m in thickness and spans a total area of 390,000 sq.
km.  The Nisku Fault resides approximately 1000m underground and
extends downwards and can be used for certain liquid waste
disposal.  Caverns are formed through solution mining, during which
water is pumped into the formation to dissolve large pockets of salt in the
formation.  These caverns are especially important in the oilfield
waste disposal industry, where wastes from oil production are stored in these
caverns.  The 147 acres are strategically located in terms of
proximity to sources of oilfield wastes being generated in the Cold Lake Region.
The companies currently producing oil wastes are discouraged from the duopoly in
the oil waste disposal industry due to prices and lack of customer service.
Currently, 7 million cubic meters of oilfield wastes are being produced
annually. At the going rate of $100/m for disposal of oilfield wastes that
require deep disposal, the revenue potential for disposal of current volumes is
estimated to be $1,900,000 per day. Two Hills estimates in capturing 545 cubic
meters per day which would equate to approximately $55,000 per day in revenues
and annual cash flow exceeding $5,300,000. Due to the projections of these
estimates and the time that it would take Two Hills to have their site ready for
oilfield waste disposal, the Company has decided to take a conservative approach
in valuing these salt caverns and have recorded them at the original cost at
acquisition. The numbers represented in this paragraph concerning the amount of
oilfield waste production and revenue generated per day were received through
two third party consultants.
 
 In
addition to the salt caverns, this site has a water pumping station and water
rights to pump from the North Saskatchewan River running along
it.  Future water rights are not being easily given for the North
Saskatchewan River due to the scarcity of water there. This site is now held at
a premium due to the water pump located there and the rights already
owned.
 
 The
Company has leased a portion of the land to another company for $2,000 per month
for storage of trailers and other equipment.  The lease was
renegotiated during 2009, and the annual rent was lowered to $10,000 per year
for a 15 year lease.  The entire amount was prepaid and has been
recorded in deferred revenue.  It is being amortized over the 15 year
lease at $10,000 per year.
 
 The
Company is currently seeking opportunities to further expand the operations of
this site by either raising money or forming a joint venture to be able to
prepare the site for waste disposal storage and commence operations in this
area.
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  10
  CAPITAL
RESERVE CANADA LIMITED
 
 7.      Property,
plant and equipment (continued)
 
 Rich
Resources Limited
 
 On
October 20, 2006, Two Hills Environmental Inc., wholly-owned subsidiary of CRC
purchased certain mineral rights from Rich Resources Limited. CRC issued
1,000,000 common shares for the consideration. The company recorded the
transaction at the market trading value of US$0.12 per shares at the exchange
rate of C$1.12 for a total of $134,000.
 
 8.      Intangible
assets
 
 Cost
                      
                      
                      Accumulated
                        Amortization
                      
                      
                      Net December 31,
                        2009PID
      Technology
                      
                      $
                      1
                      
                      
                      $
                      -
                      
                      
                      $
                      1Zone
      Technology
                      
                      
                      277,000
                      
                      
                      
                      277,000
                      
                      
                      
                      0Backlog
                      
                      
                      196,600
                      
                      
                      
                      196,600
                      
                      
                      
                      0Customer
      relationships
                      
                      
                      184,000
                      
                      
                      
                      184,000
                      
                      
                      
                      0Patents
      in Behral
                      
                      
                      -
                      
                      
                      
                      -$
                      657,601
                      
                      
                      $
                      657,600
                      
                      
                      $
                      1
 
 Perforation
Inflow Diagnostics ("PID")
 Effective
January 1, 2004, KCP acquired from a group of individuals, one of which was a
stockholder of KCP, a computer modeling system to analyze the underground
formations that contain natural gas and oil.  Consideration consisted
of 14,966,270 common shares of KCP.  As this related party transaction
did not result in a substantive change in the ownership interest of the
technology, the technology has been recorded at the nominal carrying value of
$1.
 
 Zone
Technology
 Effective
June 11, 2004, KCP acquired 100% of the outstanding shares of Zone Technologies
Ltd. Zone Technologies Ltd. has developed a computer modeling system to explore
the underground formations that contain coal based methane gas. Zone
Technologies Ltd. was dissolved on September 26, 2005.
 
 Suncone
Technologies Ltd.
 The
company was formed to purchase the Infratronic Soil Sterilization Unit in
exchange for CRC shares and cash. $50,000 was paid to Southbend Powers Ltd. for
the unit for testing and evaluation. However, it was determined that the unit
was not consistent with the overall business objectives. Suncone Technologies
Ltd. was dissolved and the funds were returned to CRC through a follow-on
transaction during the 2007 fiscal year.
 
 Patents
 Patents
were acquired with the acquisition of Behral.  As none of the patents
are in production, the economic value is uncertain and thus written off to
impairment charges during 2008. ($947,611)
 
 9.      Operating
line of credit
 
 The
Company has an operating line of credit to a maximum of
$95,000.  Interest is charged monthly on the outstanding balance at
the rate of prime plus 1%.  It is secured by General Security
Agreement. There was an outstanding amount as of December 31, 2009, of
$17,000.
 
 10.           Demand
bank loan
 
 The bank
loan is repayable over 60 months commencing March 2005 and ending in February
2010.  Monthly blended payments of principal and interest are $8,313
with an interest rate of 6.375%. The first payment was $4,130 and was made on
March 18, 2005.  One half of the loan was drawn on February 18, 2005
upon completion of unit 101.  The balance was drawn on March 31, 2005
upon completion of unit 102. Two Sterline Slick Line units, included in
property, plant and equipment, are pledged as collateral for this
loan.   The Loan was paid in full on February 8, 2008 when one of
the slick line trucks was sold.
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  11
  CAPITAL
RESERVE CANADA LIMITED
 
 11.           Long-term
debt
 
 The
vehicle loan is repayable over 72 months commencing in August 2003 and ending in
July 2009. The blended payments of principal and interest are $1,027 per month
with an interest rate of 7.99% per annum.  A 2003 Dodge truck,
included in property, plant and equipment, is pledged as collateral for this
loan.  The truck was sold as part of the KCP assets and this loan was
assumed by the purchaser of the assets.  The loan was paid in full in
July 2009.
 
 12.           Share
capital
 
 Authorized
 The
authorized share capital of the Company consists of an unlimited number of
common shares without par value: Shares issued are as follows:
 
 Shares
      already issued in CRC as at December 31, 2006
                    
                    
                    58,396,421Cancelled
      Feb 7, 2007 pursuant to contract
                    
                    
                    -30,000Issued
      July 19, 2007 for consulting services @$.085
                    
                    
                    700,000Issued
      Aug 19, 2007 for $839,187 debt
                    
                    
                    5,000,000Issued
      Aug 19, 2007 for $49,634 debt
                    
                    
                    1,500,000Issued
      Feb 4, 2008 for purchase of Behral Canada
                    
                    
                    23,500,000Issued
      Feb 5, 2008 as a Debt Settlement
                    
                    
                    3,500,000Issued
      Mar 13, 2008 for directors compensation @ $0.04
                    
                    
                    4,000,000Issued
      Aug 19, 2008 for (in lieu of pay and per contract) @ $0.014 to
      $0.053
                    
                    
                    14,231,409Issued
      Dec 1, 2008 for consulting services @ $0.021
                    
                    
                    3,323,529Issued
      Dec 15, 2008 for consulting services @ $0.017
                    
                    
                    4,500,000Issued
      Mar 3, 2009 for Debt Settlement
                    
                    
                    8,571,428Issue
      Mar 11, 2009 for (in lieu of pay and per contract) @
    $0.0055
                    
                    
                    15,818,182Issued
      Apr 28, 2009 in lieu of pay @ $0.014
                    
                    
                    2,500,000Issued
      Apr 28, 2009 per loan agreement
                    
                    
                    750,000Issued
      July 20, 2009 private placement @ $0.011
                    
                    
                    40,000,000Issued
      Aug 11, 2009 in lieu of pay @ $0.003
                    
                    
                    21,333,333TOTAL
      on December 31, 2009
                    
                    
                    207,594,302
 
 On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system.
 
 On March
3, 2009 we issued 8,571,428 shares for debt settlement to the company
president.
 
 On March
11, 2009 we issued 15,818,182 shares for consulting services to three
stockholders.
 
 On April
28, 2009 we issued 2,500,000 shares for consulting services to two
consultants.
 
 On April
28, 2009 we issued 750,000 shares to one stockholder as per an interim loan
agreement. (note 9)
 
 On July
20, 2009 we closed a non-brokered private placement, 40,000,000 shares were
issued and received net proceeds of $42,707.
 
 On August
11, 2009 we issued 21,333,333 shares for consulting services to one employee and
four consultants.
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  12
  CAPITAL
RESERVE CANADA LIMITED
 
 13.           Income
taxes
 
 The
income tax effect of the significant components of the Company's future tax
assets and liabilities is as follows:
 
 In
assessing the valuation of future tax assets, management considers whether it is
more likely than not that some portion or all of the future tax assets will be
realized.  The ultimate realization of future tax assets is dependent
upon the generation of future taxable income and tax planning
strategies.
 
 Due to
KCP's stage of development and operation, the Company believes there is
significant uncertainty over the amount of and timing when non-capital losses
may be claimed against future taxable income.  Consequently, a
valuation allowance has been provided against the value of the future tax asset.
The valuation allowance is reviewed periodically and when and if the more likely
than not criterion is met for accounting purposes, the valuation allowance will
be adjusted by a credit or charge to earnings in that period.
 
 The
Company has non-capital losses carried forward for income tax purposes in the
amount of approximately $8,456,480 at December 31, 2009 that may be applied
against future taxable income.  Losses expire as follows: $380,730 on
December 31, 2015, $195,850 on December 31, 2016, $850,000 on December 31, 2027,
an estimated $6,912,700 on December 31, 2028 and an estimated $1,172,000 on
December 31, 2029.  The potential benefits relating to these amounts
have not been recognized in the financial statements.
 
 14.           Related
party transactions
 
 The
amounts due to the shareholders are non-interest bearing, unsecured and due on
demand and are nil.
 
 15.           Commitment
 
 KCP
leased shop and office space under a five year operating lease that ends in
October 2012.  The Company has not been paying the lease and the
leassor has filed suit to collect the balance of the rent remaining on the
contract.  Since the outcome of the action is uncertain, the Company
has accrued for the minimum rent due during the year 2009.  The
balance of this accrual is $64,828 at December 31, 2009.  The future
office and shop lease payments are as follows:
 
 2010
                    
                    $
                    142,1402011
                    
                    
                    142,1402012
                    
                    
                    118,450Total
                    
                    $
                    402,730
 
 An
individual has filed suit against the Company for services rendered in regards
to site remediation services provided on the land owned by the
Company.  The Company feels thatthis suit is without
merit.  However, the Company can’t know for certain regarding the
outcome of this case.  There are no accruals made in the financials
for this item as of December 31, 2009.
 
 The
entity, which sold the Company the land with the associated mineral rights and
water permits has filed suit claiming that the shares given in trade for the
land and other assets was worthless.  They desire to have the
agreement nullified and the land and other assets returned to
them.  The Company feels that this suit is without
merit.  However, the Company can’t know for certain regarding the
outcome of this case.  There are no accruals made in the financials
for this item as of December 31, 2009.
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  13
  CAPITAL
RESERVE CANADA LIMITED
 
 16.           Financial
instruments
 
 Credit
risk
 
 Credit
risk is the risk that one party to a financial instrument will fail to fulfill
an obligation and causes the other party to incur a financial loss. The
Company’s credit risk consists primarily of cash and cash equivalents and
short-term investments. The credit risk is minimized by placing cash and cash
equivalents and investing in short-term investments with major Canadian
financial institutions. The Company’s receivables consist of GST due from the
Federal Government of Canada.  Management believes that the credit
risk concentration with respect to amounts receivable is remote.  The
Company does not invest in asset–backed commercial papers.
 
 Interest
rate risk
 
 The
Company is exposed to interest rate risk to the extent that it has bank
indebtedness that carries a variable rate of
interest.  Notwithstanding this, unless otherwise indicated, it is
management's opinion that the Company's exposure to interest rate risk arising
from these financial instruments is insignificant.
 
 Fair
value of financial assets and liabilities
 
 The
Company has estimated the fair value of its financial instruments, which include
cash and cash equivalents, cash restricted, term deposit, accounts receivable,
bank indebtedness, accounts payable, accrued liabilities, due to stockholder and
long-term debt. The Company used valuation methodologies and market information
available at December 31, 2009 and has determined that the carrying amounts of
such financial instruments approximate fair value in all cases.
 
 17.           Comparative
figures
 
 Certain
comparative figures have been reclassified to conform to the current year’s
presentation.  Such reclassification is for presentation purposes only
and has no effect on previously reported results.
 
 18.       Segmented
information
 
 The
Company operates in one geographic segment within one industry
segment.  Oilfield services are provided in Canada.
 
 19.           Sale
of KCP Assets
 
 On
February 8, 2008, KCP Innovative Services Ltd. sold one of the slickline trucks
for $300,000. The proceeds were used to retire the equipment loan with Canadian
Western Bank of about $236,000 and the remainder was used for working
capital.
 
 In June
2008, the remaining slickline truck in KCP and tools were transferred to CRC and
subsequently, the truck was sold for $290,000 and the tools for
$100,000.  With the assets being sold, KCP does not have the ability
to generate revenue and has become an inactive company.
 
 20.           Subsequent
event
 
 The
Company has evaluated subsequent events from the balance sheet date, December
31, 2009, through the date these financial statements were issued and has
determined that there are no events that would require disclosure in these
financial statements.
 
 The
Accompanying Notes are an Integral Part of these Financial
Statements
  14