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 1934OR[ X
      ]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              For
      the fiscal year ended December 31, 2007OR[  ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              For
      the transition period
      from              toOR[  ]
            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
      ______________________





Commissions
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)





4403-68
Avenue


Edmonton,
      Alberta 4403-68


(Address
of principal executive offices)





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





Title
      of each class
              
              Class
      A Common Stock
            
            Name
      of each exchange on which registered





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:





65,566,421  Class
A common shares as at December 31, 2007.





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 filers, 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                      ............................................................................................................2





Item
1.                      Identity
of Directors, Senior Management and Advisors..........................2





Item
2.                      Offer
Statistics and Expected Timetable..............................................2





Item
3.                      Key
Information                                ............................................................................2





Item
4.                      Information
on the Company............................................................8





Item
5.                      Operating
and Financial Review and Prospects.....................................16





Item
6.                      Directors,
Senior Management and Employees......................................19





Item
7.                      Major
Shareholders and Related Party Transaction................................22





Item
8.                      Financial
Information......................................................................24





Item
9.                      The
Offering and Listing..................................................................25





Item
10.                      Additional
Information.....................................................................25





Item
11.                      Quantitative
and Qualitative Disclosures about Market Risk.....................29





Item
12.                      Description
of Securities Other than Equity Securities..............................29





PART
II.............................................................................................................29





Item
13.                      Defaults,
Dividends Arrearages and Delinquencies...................................29





Item
14.                      Material
Modifications to the Rights of Security Holders


and use of proceeds.........................................................................29





Item
15.                      Controls
and Procedures..................................................................29





Item
16A.  Audit Committee financial Expert...................................................30





Item
16B.  Code of Ethics............................................................................30





Item
16C.  Principal Accountant Fees and
Services............................................30





Item
16D.  Exemptions from the Listing Standards for Audit
Committees...............30








PART
III...........................................................................................................31





Item
17.                      Financial
Statements.......................................................................31





Item
18.                      Financial
Statements......................................................................31





Item
19.  Exhibits.....................................................................................31


1


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:





2003
            2004
            2005
            2006
            2007At
      the end of period
            0.77
            0.83
            0.858
            0.862
            1.020Average
      for period
            0.72
            0.77
            0.825
            0.882
            0.930High
      for period
            0.77
            0.85
            0.869
            0.909
            1.0905Low
      for period
            0.64
            0.72
            0.787
            0.853
            0.844





Following
is a table of the Noon Buying Rates on the last day of each month for the last
four months ended April 30, 2008:





January
            February
            March
            AprilAt
      the end of period
            0.996
            1.016
            0.974
            0.993Average
      for period
            0.989
            1.001
            0.999
            0.986High
      for period
            1.010
            1.029
            1.021
            0.998Low
      for period
            0.969
            0.981
            0.973
            0.974


The Noon
Buying Rate as at May 12th, 2008 was 0.9961





2


Change
of Control





On August
8th,
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 8th, 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.





This date
of writing this report is May 12, 2008.





Year
      End
            Aug
      31
            Aug
      31
            Aug
      31
            Dec
      31
            Dec
      31
            Dec
      312003
            2004
            2005
            2005
      (4 mos)
            2006
            2007CAD
            CAD
            CAD
            CAD
            CAD
            CADOperating
      Revenues
            420,314
            380,606
            933,441
            355,017
            1,714,925
            1,021,818Income
      (loss) from Operations
            47,304
            (197,917)
            (862,266)
            (399,830)
            (188,745)
            (854,288)Net
      Income (loss)
            38,789
            (178,084)
            (643,469)
            (258,114)
            (188,745)
            (854,288)Net
      Income (loss) from Operations Per Share
            .002
            (.008)
            (.037)
            (.015)
            (.0004)
            (0.01)Total
      Assets
            151,820
            2,848,614
            2,003,032
            1,698,171
            7,128,648
            6,460,892Net
      Assets
            63,068
            2,048,488
            291,726
            883,308
            5,818,271
            5,912,304Capital
      Stock
            2,320,783
            2,320,783
            2,320,783
            3,242,434
            8,381,142
            9,314,463Number
      of Shares
            17,335,814
            17,335,814
            19,335,814
            34,810,814
            58,396,421
            65,566,421





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.





3


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.  Certain
information set out in this annual report includes or is based upon
expectations, estimates, projections or other “forward looking information”.
Such forward-looking information includes projections or estimates made by us
and our management as to our future business operations.  While
statements concerning forward looking information, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost certainly
vary, sometimes materially, from any estimates, predictions, projections,
assumptions or other future performance suggested herein.  See “cautionary statement concerning
forward – looking information”in ITEM 12.





A
significant or prolonged decrease in oil and natural gas prices will seriously
and negatively impact our business plans and operations.





Our
revenues are dependent on the expenditures of oil and gas companies. The demand
for our tools and services are primarily influenced by current and anticipated
commodity prices, particularly oil and natural gas prices. Weakness in commodity
prices may cause our customers to reduce their capital and operating
expenditures as weaker commodity prices result in fewer wells being drilled.
Other factors that may affect demand for our tools and services
include:





·
            The
      level of development, exploration and production activity of, and
      corresponding spending by, energy and resource companies, which in turn is
      affected by conditions such as weather conditions, and seasonality,
      government regulation of energy and resource companies,
  and


·
            Conditions
      in the worldwide energy and resources
industry.





Periods
of diminished or weakened demand for our tools and services may occur in the
future. In light of these factors, historical operating results may not be
indicative of our future performance. In addition, reductions in commodity
prices can result in a reduction in the trading prices and value of our
securities, even if the reduction in commodity prices does not affect our
business generally.





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 tools and services.





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 out
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.





4


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 tools and 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.





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.





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 products or services may have a material adverse effect on our business,
results of operations, and financial condition.





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.





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 tools and 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
tools and services, and the opportunities presented thereby, become better
known.





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 tools and
services.  Many factors may limit our ability to develop and refine
existing tools and services. We may also be exposed to marketplace resistance to
new tools and services. Any failure to develop or refine our existing tools and
services, or create new tools or offer new


5


services
could have a material adverse effect on our business, results of operations, and
financial conditions.





Our
failure to protect our intellectual property could have a material adverse
impact on our business.





Our
success will be largely dependent upon our ability to protect our proprietary
technology.  We rely upon copyright law and trade secrets to protect
our intellectual property. We have not, to date, applied for or obtained any
patents or trademarks to protect our intellectual property in
KCP.  Where appropriate, we also enter into non –disclosure agreements
with persons to whom we reveal proprietary information. Any failure to protect
our intellectual property could have a material adverse effect on our business,
results of operations, and financial condition.





We may
have to engage in litigation in the future to enforce or protect our
intellectual property rights or to defend against claims of invalidity and we
may incur substantial costs as a result. Any claims or litigation initiated by
us to protect our proprietary technology could result in significant expense to
us and diversion of the efforts of our technical and management resources,
whether or not the claims or litigation are determined in favor of
us.





A
small number of stockholders own a significant number of our shares which 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.





A
significant number of our outstanding shares are owned by four (4) stockholders,
LFC Corporation and Messrs. Ken Pearson, Steven Claussen and Fergus
Ismond.  In total, these stockholders own 35,045,810 shares of the
total amount of 96,566,421 shares outstanding, which is approximately
36%.  These stockholders have 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 which may have an adverse impact on
us.





Our
products are used in processes of production of oil and gas. Though it is
unlikely that the products could cause damage, we may be subject to liability
for property damage, personal injury or other hazards.  We are insured
in accordance with industry standards to address certain of these 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
technology, the need to manage such growth will add to the demands on our
management, resource, systems, procedures and controls. 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 conditions will be materially adversely affected.


6


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.





Our
day–to-day management and operations are dependent on the expertise of Ken
Pearson and Steve Claussen, our President. If both were no longer able to
provide services, our operations could be threatened.





Currently,
we are dependent on the expertise of Ken Pearson and Steve Claussen, who have an
in-depth knowledge of our technology and operations. They are also responsible
for the day-to-day management of our wholly-owned subsidiaries. Our ability to
operate would be severely curtailed if they were to be unavailable.





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 technology, the introduction of
competing technologies, market acceptance of such enhancements or products,
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.





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
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
material adverse effect on our ability to negotiate favorable joint ventures
with viable industry participants, our cash flow and our access to capital.Our business may be
adversely impacted by the Kyoto Protocol and/or unforeseen changing government
regulations.





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 we will participate.


7


Other
government regulations are subject to change at any time and are beyond our
control.





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
conditions, results of operations, capital requirements and other factors as our
board of directors may deem relevant at that time.





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.





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 8th, 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.





8


Our
principal place of business is located at 4403-68 Ave., Edmonton, Alberta, T6B
2N2. Our telephone number is 780-428-6026.





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 $126,222USD).
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.





9


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 becomes our CEO.





Principal
Capital Expenditures and Divestitures





The
financial statements presented in this annual report relate to our consolidated
operations of our wholly owned subsidiaries, KCP and Two Hills Environmental
Inc. We have included the information as to capital expenditures and
divestitures in this section.





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.


10


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
becomes our CEO.





Principal
Capital Expenditures and Divestitures in Progress





We are in
the process of obtaining loans, or convertible debentures, either by mortgage or
by Joint Venture to help with the development of the Two Hills site.
Negotiations are underway to secure $2 million for this purpose. Nothing has
been finalized at the date of writing this report.





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 early
May 2008, the Board of Directors asked our CEO, Steve Claussen, to provide a
plan for the development of the Two Hills site. The Board believes that
unlocking its value will provide the most opportunity for increasing shareholder
value. As part of the study, our CEO is also to provide analysis how KCP
Innovative Services Inc. could be developed as a part of the overall plan, or,
in turn, provide a plan for its divestiture either by sale to Ken Pearson, or to
an outside party, or by dissolution of KCP. There is no update on progress as of
the date of writing this report.





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.





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 becomes 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 wells own pressure to assist in the valve
closure. The SBOP’s size and weight is less than half of that of current
industry BOPs.




11


Solus Interactive Media
(SIM)




SIM is
the media arm of Behral Cananda Ltd. and provides media and marketing for the
company both in print and publishing as well as in online interactive media. SIM
also owns intellectual property relating to program and software properties
under ongoing development.




KCP Innovative Services Inc.
(KCP)




KCP is a
corporation that develops tools for and provides services using such tools to
businesses engaged in the exploration for energy. Specifically, KCP’s tools are
used for measuring the flow and quantity of production of oil and gas wells.
KCP’s measurement tools are 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.





For the
three (3) fiscal years ending 2005 and 2006 and 2007, about ninety-four percent
(94%) of its business was from the application of KCP’s perforation inflow
diagnostics (“PID”) technology. The remaining 6% comes from Injection Technology
and the Turbine Meter.





KCP
commenced operations in 2001.  KCP was formed by Mr. Ken Pearson to
develop measurement tools with Mr. Pearson himself researching, developing and
deploying services using such tools. On January 1, 2004, KCP changed its size
from a single operator to a larger operation, to take advantage of the
opportunities Mr. Pearson identified in the market. KCP grew its management team
and an experienced Board of Directors adding Messrs. Getty, and Hawkes. KCP
refined its business plan and moved ahead with private placements to raise
capital for operations.





KCP’s
Services





KCP
provides services to oilfield operators.  KCP’s primary service uses a
number of proprietary processes as well as proprietary equipment. As described
below, the various measurement services offered by KCP are provided directly at
client well sites by a crew of one (1) or two (2) KCP employees or
contractors.  Crews are primarily made up of KCP employees, but KCP
also contracts out certain services to wire line companies in the area of a
particular client well site. Provision of KCP’s services to clients requires
specialized staff with knowledge of the oilfield services industry and KCP’s
technology. Basic wire line knowledge and basic computer knowledge are required,
with further training on KCP’s services provided by KCP.





KCP’s
primary Tools are as follows:





Perforation
Inflow Diagnostics (“PID”)





PID
testing is comprised of a set of tools and processes that determine the
permeability, skin, reservoir pressure, and gas and liquid inflow during a
perforating operation to the well site. Perforating is used to help determine
the size and viability of the well. Memory gauges are dropped from the surface
on a perforating drop bar using an electric line to convey the
data.  The electric line conveys the data to a surface recorder at the
well head so that information of the well inflow may be evaluated by the user at
the time of the perforation.  This information comes from an analysis
of the data from the memory gauges using KCP’s proprietary software. The results
are available in graphic form, helping the user determine if the well is viable,
and, if viable, which drilling methodology should be used.  Management
of KCP believes that PID gives more accurate measurement of pressure and
temperature, and therefore better production of the well, than traditional
analysis.  Neither the PID process nor the tools and gauges are used
in the process currently offered by KCP’s competitors. This product is targeted
at all producers of natural gas. No material regulatory approvals or
documentations are required for KCP to achieve its business objectives with
respect to this product.





12


PID
testing is achieved with two in-house PID slick line units, one drop spool unit
and by renting slickline trucks as required. Since the two PID Slickline units
were not available until March 29, 2005, most of KCP’s revenue for the first
half of fiscal year 2005 was generated by KCP’s drop spool unit and by renting
Slickline trucks as required.  PID testing has created most of the
revenue.





Ninety
four percent (94%) of sales in fiscal year 2007 were generated in the PID
market.





Injection
Technology





Coal Bed
Methane (“CBM”) is a gas found in coal seams and is produced and sold as natural
gas. Coal beds, however, offer different challenges since they tend to be
saturated with water and the pressure tends to be much lower than in natural gas
wells.  However, the water pressure is sufficient enough to hold the
CBM in solution and, once the pressure is reduced, CBM separates from the water
and is able to be piped away.





The
challenge is to depressurize the well without dewatering below the coal seam and
running the risk of damaging the formation and preventing the recovery of more
CBM. A great deal of care is therefore needed to help determine the
profitability and achieve the production without damaging the well.





KCP’s
injection technology is used to determine the profitability of CBM deposits and
is composed of both hardware and software technologies and is mounted in a
trailer that is pulled by a pick-up truck. The unit injects fresh water into the
underground formation to help open the coal beds. Once flow can be achieved,
gauges then measure the flow rate for the methane gas.  Since water
has to be removed from the well first, this process helps determine whether the
well will be profitable before the customer makes a significant investment in
the well.  KCP is presently unaware of any companies that provide a
competing service to its injection technology. The technology is targeted to all
producers of methane gas and is currently in the commercial production
stage.  No material regulatory approvals or documentation are required
for KCP to achieve its business objectives with respect to this
product.





Vent Gas
Analyzer





The Vent
Gas Analyzer (Turbine Meter) is intended to assist with well abandonment by
significantly reducing the time required to determine emissions to the
atmosphere. It uses a turbine meter and deadweight to accurately calculate flow
rates of gas to the atmosphere.  This helps ensure that there are no
emissions above the regulatory guidelines. Management of KCP believes that the
process is more accurate and not as labor intensive as previous methods. The
technology is proprietary to KCP and, to the knowledge of KCP; there is no
utilized competitor in the industry that uses similar technology or
products.  This product will be targeted to all oil and gas
exploration companies.   No material regulatory approvals or
documentation are required for KCP to achieve its business objectives with
respect to this product. Turbine Meter sales in 2007 amounted to about one
percent (1%) of total sales.





Electronic
Shut-In-Tool





The
electronic-shut-in-tool is a programmable tool intended to measure pressure,
volume and temperature for the purposes of determining the productivity of an
existing well. Management of KCP believes that it is the only tool available to
the industry that is programmable and has multi functions. It can be programmed
to open and close at certain intervals as compared to conventional tools that
are open or closed based on a fixed time. The programmable feature also allows
the tool to automatically shut-in based on pressure. This allows the pressure to
build up in the well, thus enhancing its life and production. The product is
targeted to oil and gas companies. There are no sales to date for this tool. No
material regulatory approvals or documentation are required for KCP to achieve
its business objectives with respect to this tool.





13


Principal
markets





All of
the operations of KCP are presently in the Province of Alberta,
Canada.  About ninety-four percent (94%) of total revenues of KCP are
derived from the application of its PID technology. The other six percent (6%)
of its total revenues are derived from its injection technology (5%) and Turbine
Meter (1%).





Seasonality





The oil
and gas industry as a whole is affected by seasonal variation.  Wet
weather can significantly impede the operations of players in all sectors of the
industry. If exploration and development operations are impeded by wet weather
or other seasonal weather conditions, it may be expected that sales of KCP’s
products and services will be negatively affected.





Market





KCP
conducts its own marketing as follows:





KCP’s
sales strategy to date has been driven primarily by personal contacts with
senior management.  These contacts are derived from previous work
projects. A number of supplemental marketing methods have been contemplated.
These include referral fees, company brochures, exhibits at trade shows in
Calgary, advertisements in industry magazines, and a company website. KCP may
also employ a commissioned sales person or contact engineering offices at
targeted companies by telephone.  In addition to pursuing and securing
new accounts, KCP plans to focus on widening existing accounts.





Market
Competition





KCP's
current market is the oil and gas industry in Alberta, Canada.  This
will also be the immediate target market for KCP’s tools and
services.  On completion of its product development, it is anticipated
that KCP will expand to the regional Western Canada market and eventually, if
successful, the worldwide market.




KCP's
prices are negotiated per job, depending on location, complexity, nature of the
service and availability. Some jobs may require some design and investigation
before proceeding.  Rental of gauges over time is based on accepted
rental rates in the industry. After sales service, maintenance and warranties
are not a significant competitive factor in this market segment.




The oil
and gas market continues to be strong. According to the Canadian Association of
Petroleum Producers (“CAPP”) website, “CAPP is projecting significant potential
growth in crude oil production by 2020”. CAPP also believes that Canada has
significant potential in emerging resources such as natural gas from
CBM. KCP estimates that while approximately fifty percent (50%) of wells
are suitable for measurement with KCP's products, only a small portion are
customers. As production eventually declines in Western Canada, management
of KCP believes that KCP will maintain its growth, as customers will seek KCP's
tools to enhance current production wells, and to reactivate abandoned wells. In
addition, exploration and development companies require new data from all wells
on an annual basis and will have a use for KCP’s tools.




A number
of businesses operate or have operated in the oil and gas measurement
sector.  Many of these no longer operate in the sector or have
reorganized such that the measurement niche is no longer their core
business.  KCP's primary competitor in the field of oil and gas
measurement is Lonkar Well Testing Ltd. ("Lonkar").  Management of KCP
estimates that Lonkar is currently the largest service provider in the market
for this type of service. Lonkar has, in addition to a dominant market share, a
strong capital position.  Management of KCP believes, however, that
KCP has more advanced proprietary technology, and that this is a competitive
advantage that will allow KCP to penetrate the market.  It should be
noted that since some of the market is currently untapped, it is possible that
new competitors may enter the market.  Management of KCP believes that
its products and services are more advanced than those of its competition or any
other potential competitor. Management of KCP intends to keep KCP at the
technological forefront of the sector by continuous research and development and
continuous improvements
of existing products and services.  Management of KCP believes that
the dedication of KCP to continuous technological advancement will give it a
competitive advantage.




14


Management
of KCP further believes that market acceptance for KCP’s tools and services are
growing as its products become more frequently utilized.  However, to
date, no market testing or surveys have been carried out with respect to market
acceptance of KCP's tools and services.




KCP's
tools and services are not affected by any market controls or regulations
directly.  However, because KCP's clients and target clients, as
exploration and drilling companies, are subject to regulatory control, it is
anticipated that any future significant changes to the oil and gas regulatory
scheme may have an indirect effect on KCP’S ability to market its products and
services.




Problem
Waste and Underground Storage




Our
subsidiary, Two Hills, owns approximately 147 acres of industrial land, salt
rights, and a water diversion permit on the North Saskatchewan River, near Two
Hills, Alberta, Canada.




The Two
Hills property sits above the Lotsburg salt formation running along the eastern
part of Alberta, Canada. Also, on the property are four (4) existing salt
caverns that were capped some time ago.  We believe that three (3) of
these caverns are empty. Previous applications with the Energy and Utilities
Board in Alberta have been cancelled. We are currently finalizing a business
plan for the site and will seek approvals on the overall plan prior to applying
for permits. Caverns may be suitable for such things as carbon dioxide or
natural gas storage.




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.





15


ORGANIZATIONAL
STRUCTURE




Our
subsidiaries, as of the year ended December 31, 2007, were KCP and Two
Hills.  Both of these companies are incorporated pursuant to the laws
of the Province of Alberta, Canada. We will be proposing a name change at the
next Annual General Meeting to “Behral Canada Ltd.” Then the existing Behral
Canada Ltd. will be renamed to Behral Technology Inc. (BTI) and remain as a
wholly owned subsidiary of our company.




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 May 12, 2008 was
zero.




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.





Prior to
the fiscal year ended August 31, 2005, KCP changed its fiscal year end from
August 31 to December 31.  We have provided financial information for
the transitional four (4) month period ended December 31, 2005 and for the
fiscal years ended August 31, 2005, December 31, 2006 and 2007.





Comparison
of 2007, 2006 and 2005





Revenues
for the fiscal year ended December 31, 2007 were $1,021,818 and showed a
decrease over revenues from the previous fiscal years ended December 31, 2006 of
$1,714,925 and an increase over August 31, 2005 of $933,441. The decrease in
revenue in 2007 can be attributed to a slow-down in the oil and gas
industry in Alberta for that year. The increase in revenues for 2006 can be
predominantly attributed to the availability of additional equipment for
operations in KCP and increased marketing efforts of management.





16


For the
years ended December 31, 2007, we incurred operating losses of $854,288 as
compared to operating losses of $188,745 for the fiscal year ended December 31,
2006 and operating losses of $862,266  for the fiscal year ended
August 31, 2005. Cost of sales for the year ended December 31, 2007 decreased
to


$789,137
from cost of sales of $846,090 for the year ended December 31, 2006 and
increased from $605,370 for the fiscal year ended August 31,
2005.  This was mainly due to a corresponding decrease in sales.
Expenses for the year ended December 31, 2007 remained steady at $1,086,969 as
compared to expenses of $1,057,580 for the year ended December 31, 2006 and
$1,190,337 in the fiscal year ended in August 31, 2005.  Salaries and
benefits decreased to $213,345  in 2007 from $236,671  and
$173,460 in 2006 and 2005 respectively due to the slowdown. General and
administrative expenses increased to $637,196 in 2007 from $530,381 in 2006 and
from $430,431 in 2005.  This is due to higher administrative costs and
a need to retain management and consulting services to maintain the public
listing.  Amortization decreased to $213,782 in 2007 from $261,042 in
2006 which decreased from $553,924 in 2005.  The large amount in 2005
was due to onetime write downs.





During
the fiscal year ended August 31, 2005, KCP raised a total of $142,179 by way of
a private placement of common shares and repaid a total of $70,000 to two (2)
investors pursuant to the cancellation of a private placement.  During
the fiscal period ended August 31, 2004, KCP raised a total of $1,619,505 by way
of private placements of common shares.





During
fiscal year ended December 31, 2006, we issued 13,200,000 common shares in
exchange for the assets of Southbend. This transaction was valued at $4,777,279.
Also 1,000,000 of our common shares were issued to Rich Resource Investments.
This transaction was valued at $134,400.





During
the four (4) month period reflected on the financial statements for the fiscal
year ended December 31, 2005, we had revenues of $355,017.  Costs of
sales were $184,165.  Expenses for the four (4) month period were
$570,682 and were comprised of $54,358 for salaries and benefits, $279,027 for
general and administrative, $229,154 for amortization and interest costs of
$8,143. There are no comparable periods for 2004 as we effected a change in our
fiscal year end.





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.





LIQUIDITY
AND CAPITAL RESOURCES





Summary
of Working Capital and Stockholders’ Equity





Using
current assets minus current liabilities, as of December 31, 2007, we had
negative working capital of $(101,061) compared to positive working capital of
$314,184 on December 31, 2006, and compared with positive working capital of
$205,764 on December 31, 2005. On February 8, 2008 one of the slickline trucks
was sold and this placed us in a positive balance once again.





As of
December 31, 2007, stockholders' equity was $5,912,304 compared to $5,818,271 at
December 31, 2006 and $883,308 at December 31, 2005. Stockholders’ equity and
KCP’s working capital increased in 2006 mainly because of the acquisition of
Southbend assets.  It had decreased during 2005 due to the acquisition
of additional equipment and increased expenses as KCP increased operations and
undertook to become a public company.





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




17


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,
joint ventures, and sales of its subsidiaries’ tools and services to its target
customers.




Sources
of Working Capital





During
2006 and 2007, our primary sources of working capital have come from revenues
generated from our operations in KCP.  As at December 31, 2007, we had
cash equivalents of $7,895 and accounts receivable of $250,871.  To
develop the Two Hills site, the company will be looking for capital from either
a mortgage or a joint venture arrangement or both.




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, 2007, the amount outstanding was $14,000.




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.  The balance as of December 31, 2007 was $236,028. 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 2007, in default on any debt covenants.





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, of which $236,028 was still outstanding at December 31,
2007.  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
invests in research and development, not only to refine its existing products
but to develop new products.  KCP anticipates that one to five percent
(1-5%) of revenues to the company will be used for research and
development.  KCP conducts its own research and development and it is
anticipated that KCP will also conduct in-house research and
development.




Two Hills
conducted no research and development in 2007.




The
Company has no licenses but has the following patents held in Behral Canada
Ltd:





Canadian
Patent 1239091 Blowout preventer valve and stack


Canadian
Patent 1239090 Subsea BOP stack control system


18


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, 2007DISCLOSURE
      OF CONTRACTUAL OBLIGATIONSPayments
      due by periodCONTRACTUAL
      OBLIGATIONS
            Total
            Less
      than
              one
      year
            1-2
      years
            3-5
      years
            More
      than
              5
      yearsKCP
      Lease Obligations (Office Space)(1)
            687,010
            142,140
            284,280
            260,590
            0Purchase
      Obligations(2)
            236,028
            89,478
            146,550
            0
            0Long
      Term Debt(3)
            17,432
            10,752
            6,680
            0
            0Total
            940,470
            242,370
            437,510
            260,590
            0


(1)  Based
on rent of $11,845 per month net of any taxes or operating costs.


(2)  Bank
loan for the purchase of two (2) Sterling Slick line units blended monthly
payments of $8,313. The loan was paid in full February 8, 2008.


(3)  Vehicle
loan with blended payments of $1,027.




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
            TitleDonald
      Getty
            74
            Chairman
      of the Board and DirectorSteve
      Claussen
            37
            Director,
      President and CEORobert
      Hawkes
            51
            Director
      of KCPMark
      Glaser
            56
            DirectorKen
      Pearson
            57
            Director
      and President of KCP





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 honors in 1954. His positions with the Alberta Government included two (2)
terms as Premier of Alberta, the 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 the Royal Bank
of Canada, Nova Company, Genstar Company and Interprovincial Pipe and Steel
Corp.Mr.
Getty joined us as a director and was appointed Chairman of our Board of
Directors on August 13, 2005. Mr. Getty




19


currently
sits on the Board as a Director of Guyanor Resources (TSE), Nationwide Resources
(TSE) and Mera Petroleum’s (TSX).  Mr. Getty has been a director of
KCP since January 28, 2004.




Steve
Claussen - Director, President and CEO of Capital Reserve Canada
Ltd.





Mr.
Claussen has 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 is current CEO of Behral Canada Ltd. and this should help expedite
the merger process. Mr. Claussen became President and CEO of our company on
December 20, 2007 and became a Director on February 6, 2008.





Robert Hawkes - Director of
KCP Innovative Services
Inc.





Robert
Hawkes graduated from the Southern Alberta Institute of Technology in 1979 with
a diploma in Petroleum Engineering. He began his career with Esso Resources as a
Reservoir Technologist in their testing department.  Since that time,
he went on to establish himself as a specialist in Well Test Analysis. Mr.
Hawkes currently works for BJ Services Company Ltd. an oil & gas services
company located in Calgary, as a Team Leader, Reservoir Services. Mr. Hawkes has
published in CIM and SE and is a recognized expert in the field of pressure
transient analysis, reservoir characterization and short-term pre-frac buildup
and analysis.  Mr. Hawkes was awarded the 2005 Presidents Award for
technical and presentation excellence in formation evaluation by the Canadian
Well Logging Society. He has been a director of KCP since January 28,
2004.





Mark
Glaser – Director of Capital Reserve Canada





Mr.
Glaser is a Professional Engineer with 25 years of oil and gas industry
experience. He is currently the Vice President and COO of Newcast Energy Corp, a
private oil and gas company with operations in Alberta. Mr. Glaser was
previously the COO of Enco Gas, Ltd., a private oil and gas company. He managed
the company for over five years until it was sold in March 2007. Prior to
joining Enco, Mark was the Exploitation Manager of Calpine Canada which
experienced dramatic growth mainly through acquisitions.  From 1986 to
1999, Mark was employed at Poco Petroleums Ltd. in various positions and
finished as a Senior Exploitation Engineer working areas from Saskatchewan to
Edson. Mark’s strengths are exemplified by his extensive broad experience in the
oil and gas industry which he plans to apply to deliver results to the
stockholders of Capital Reserve Canada Ltd. by exploiting, identifying,
investing in and executing strategies to fully explore asset potential. 
Mr. Glaser became a Director of our company on March 6, 2008.





Ken
Pearson - President and Director of KCP Innovative Services Inc.





Mr.
Pearson has thirty-six (36) years experience in the oil and gas
industry.  He has spent eleven (11) years in the research and
development of high performance methodologies to enhance measurement devices and
the resulting information from those devices.  He is trained on
full-bore tools, drill stem testing and telemetry tools for case holes and has
developed many measurement devices.  Mr. Pearson has been a director
and the President of KCP Innovative Services Inc. since inception.  He
became a director of Capital Reserve Canada Ltd. on August 12, 2005 and remained
as a Director until March 6, 2008. He was President and CEO of Capital Reserve
Canada from December 28, 2006 until July 19, 2007 when Mr. Rocky Rombs accepted
the position, and again starting October 30, 2007, when Mr. Rombs resigned,
until December 20, 2007.





COMPENSATION





The
following table sets forth the compensation paid to our directors and members of
our management group for the last fiscal year.


20





Annual
      Compensation
            Long
      Term CompensationName
      and Principal Position
            Year
            Salary
              (CDN$)
            Bonus
              (CDN$)
            Securities
      Under Options to be Granted
              (#)
            Long
      Term Incentive Plan Payouts (CDN$)
            All
      other Compensation
              (CDN$)Donald
      Getty
              Chairman
      of the Board and Director
            2007
              
              2006
              
              2005
            0
              
              0
              
              0
            -
            -
            -
            -Ken
      Pearson
              Director
      and
              CEO
      of KCP
            2007
              
              2006
              2005
            170,000
              
              120,000
              108,000
            29,294
              
              28,000
              0
            -
            -
            -Robert
      Hawkes
              Director
            2007
              
              2006
              
              2005
            0
              
              0
              
              0
            -
            -
            -
            -Rocky
      Rombs
              Director
            2007
              2006
              2005
            0
              0
              0
            -
            -
            -
            -





We have
not paid any other compensation to any other members of our management,
administrative or supervisory bodies.  Faye Pearson earns $5,833 per
month as Office Manager.





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 has
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.





KCP has
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.





21


Compensation
of Directors





No
directors received any form of compensation in their capacity as our directors
to December 31, 2007. 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.  The last meeting was held December 13, 2007.  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, 2007, KCP had seven (7) employees including one (1) president, one
(1) office manager, one (1) clerk, and four (4) field personnel all located in
Edmonton, Alberta.





Presently
we have a total of eight (8) employees.





SHARE
OWNERSHIP





The
following table sets forth information, as of May 12, 2008, 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.


22





TITLE
      OFCLASS
            BENEFICIAL
      OWNER
            AMOUNT
      AND NATURE OF BENEFICIAL OWNER
            PERCENT
      OF
              CLASS(1)Class
      A Common
            Ken
      Pearson, Director, CEO and President of  KCP Innovative Services
      Inc.;
              c/o
      4403-68 Avenue
              Edmonton,
      Alberta, T6B 2N2
            7,840,644
      common shares held directly
            8.1%Class
      A Common
            Donald
      Getty, Director and Chairman of the Board of Capital Reserve Canada
      Limited, and Director and Chairman of KCP Innovative Services
      Inc.;
              c/o
      1273 Potter Greens Dr
              Edmonton,
      Alberta T5T 5Y8
            2,410,900
      common shares  held indirectly.(2)
            2.5%Class
      A Common
            Robert
      Hawkes, Director of KCP Innovative Services Inc.;
              136
      Woodford Close SW
              Calgary,
      Alberta T2W 6E2
            300,000
      common shares held directly
            0.3%Class
      A Common
            Steve
      Claussen, CEO,  Director and President of Capital Reserve
      Canada; St. Albert, Alberta T8N 5M1
            12,662,500
      common shares held directly
            13.1%Class
      A Common
            Mark
      Glaser, Director of Capital Reserve Canada, Calgary,
    Alberta
            2,000,000
      common shares held directly
            2.1%All
      Officers and Directors as a group
            25,214,044
      common shares
            26.1%





(1)
            Based
      on 96,566,421 shares of Class A Common
Stock.


(2)
            Held
      in Sunnybank Investments Ltd., a company of which Mr. Getty is the sole
      shareholder.




ITEM
7.                      MAJOR
STOCKHOLDERS AND RELATED PARTY TRANSACTIONS






MAJOR
STOCKHOLDERS






The
following table sets forth information, as of May 12, 2008, 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 May 12, 2008 there were a
total of 856 stockholders holding 96,566,421 of 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.




23









TITLE
      OF CLASS
            BENFICIAL
      OWNER
            AMOUNT
      AND NATURE OF BENEFICIAL OWNER
            PERCENT
      OF CLASS(1)Class
      A Common
            Fergus
      Ismond
              112
      80 Chippewa Rd. Sherwood Park, Alberta
            5,690,000
      common shares held directly
            5.9%Class
      A Common
            LFC
      Corporation,
              Suite
      2440, 10303 Jasper Ave., Edmonton, Alberta
            8,852,666
      common shares held indirectly(2)
            9.2%Class
      A Common
            Steve
      Claussen, CEO,  Director and President of Capital Reserve
      Canada, St. Albert, Alberta T8N 5M1
            12,662,500
      common shares held directly
            13.1%Class
      A Common
            Ken
      Pearson, Director, CEO and President of  KCP Innovative Services
      Inc.; c/o 4403-68 Avenue
              Edmonton,
      Alberta, T6B 2N2
            7,840,644
      common shares held directly
            8.1%





(1)  Based
on 96,566,421 shares of Class A common stock.


(2)  The
beneficial owner of LFC Corporation. is Lambert Lavallee.





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.




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.


24


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 March
13, 2008 we issued 1,000,000 shares for consulting services with two
stockholders.





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.





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
becomes our CEO.








INTERESTS
OF EXPERTS AND COUNSEL





Not
applicable





25


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
becomes our CEO.





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





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.





26


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.  Up to June 1, 2006, this space was
provided free of charge by LFC. On June 1, 2006, we agreed to pay LFC a monthly
rent fee of $2,000 which includes telephone, computers, photocopier, fax and
reception.  Rental was on a month-to-month basis and the lease with
LFC concluded on December 31, 2006.





KCP
leased space in Edmonton at 4304-74 Ave. The lease payment is $3,500 per month
and provides KCP with sufficient space to carry out its operations for the
foreseeable future.  The lease commenced on October 15, 2004 provides
for a three (3) year term expiring on October 15, 2007.  On November
1, 2007 KCP moved its operations to 4403-68 Ave. 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 James Baker, Ken Pearson and Faye
      Pearson





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 consulting management
services totalling $5,000 per month on a part-time basis, commencing Feb 1,
2005. The contract had a ninety (90) day termination provision and there were no
company benefits.  Mr. Baker devoted approximately fifty percent (50%)
of his time to us and KCP.




KCP has
an employment agreement with Ken Pearson, as President of KCP, for $14,166 per
month.   Employment includes benefits and a company health
plan.




KCP has
an employment agreement with Faye Pearson for Office Management services for
$5,833 per month.  Employment includes benefits and a company health
plan.




3.
            The
      Purchase of KCP





On August 2, 2005, we
incorporated a wholly owned subsidiary, Capital Reserve Canada Projects Ltd., to
effect the acquisition of KCP.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.  This effected a
change in our control.





On
February 3, 2006, we issued a further 4,834,300 shares of our Class A common
stock for the remaining 21.8% of KCP and Capital Reserve Canada Projects Ltd.
which effected an amalgamation with KCP with KCP being the surviving entity. KCP
is now one of our wholly owned subsidiaries which are responsible for carrying
on all of our operations.





4.
            The
      Agreement with Southbend Power Ltd. to Acquire All of Its Major
      Assets





On June
16, 2006 and as amended on July 5, 2006, we entered into an agreement to acquire
the predominant assets of Southbend, which included a water diversion permit,
147 acres of surface rights with a water pumping station, and certain mineral
rights, in exchange for 13,200,000 of our Class A common shares. Share
certificates have been issued for these shares. We established Two Hills to
acquire these assets.





27


5.           The
Purchase of Salt Rights from Rich Resources Investments





On
September 28, 2006, we entered into an agreement with Rich Resource Investments
Ltd., a company formed pursuant to the laws of Alberta, Canada, whereby we
acquired the mineral rights to approximately four sections of land adjacent to
the Two Hills site in exchange for 1,000,000 of our common shares.





6.
            The
      Exchange of 6,000,000 shares for
debt.





On August
19, 2007 we issued 6,000,000 shares for the retirement of a lien of $800,000 on
the Two Hills property, and for $49,634 in accumulated debt.





7.            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 becomes 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.





28


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.


29


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.





SUBSIDIARY
INFORMATION





At May
10, 2008, 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.





30


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





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act report is recorded,
processed, summarized and reported within the time periods specified in the
United States Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to our management, including our
President and acting Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.





At the
end of the period covered by this annual report we carried out an evaluation,
under the supervision and with the participation of our management, including
our President and acting Chief Financial Officer, of the effectiveness of the
design and operating of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14.  Based upon the foregoing our President and
our acting Chief Financial Officer concluded that our disclosure controls and
procedures are effective.





There
were no changes in our internal control over financial reporting that occurred
during the year ended December 31, 2007, that have materially affected, or are
reasonably likely to materially affect, out internal controls over financial
reporting.





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, 2008 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
            2007
            2006Audit
      Fees
            $20,000
            $15,000Audit
      related Fees
            0
            $15,000Tax
      Fees
            0
            0Total
      Fees
            $20,000
            $30,000





31


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.




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
Claussen


Steven
Claussen


Chief
Executive Officer, principal executive officer











Date:  June
30, 2008








32









































CAPITAL
RESERVE CANADA LIMITED





CONSOLIDATED FINANCIAL
STATEMENTS





DECEMBER
31, 2007


































REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors


Capital
Reserve Canada Limited


Edmonton,
Alberta, Canada





We have
audited the accompanying consolidated balance sheets of Capital Reserve Canada
Limited as of December 31, 2007, 2006 and 2005 and August 31, 2005, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years ended December 31, 2007 and 2006 and the four
months ended December 31, 2005, and for the year ended August 31, 2005.
 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, 2007, 2006 and 2005 and August 31, 2005, and the
results of its operations, changes in stockholders' equity, and its cash flows
for the years ended December 31, 2007 and 2006 and the four months ended
December 31, 2005 and for the year ended August 31, 2005, in conformity with
accounting principles generally accepted in the United States.





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


CERTIFIED
PUBLIC ACCOUNTANTS


Salt Lake
City, Utah


June 30,
2008





CAPITAL RESERVE CANADA LIMITED


CONSOLIDATED
BALANCE SHEETS


AS
OF DECEMBER 31, 2007, 2006, 2005


AND
AUGUST 31, 2005


December
      31,
            
            August
      31,2007
            
            
            2006
            
            
            2005
            
            
            2005ASSETSCurrent
      assetsCash
      and cash equivalents
            $
            7,895
            
            $
            391,528
            
            $
            24,768
            
            $
            18,832Term
      deposits (Note 6)
            
            21,884
            
            
            21,259
            
            
            436,445
            
            
            600,554Accounts
      receivable
            
            250,871
            
            
            269,164
            
            
            247,604
            
            
            134,798Income
      taxes recoverable
            
            -
            
            
            -
            
            
            9,263
            
            
            -Work
      in process
            
            -
            
            
            40,000
            
            
            -
            
            
            45,270Prepaid
      expenses
            
            13,647
            
            
            41,480
            
            
            9,543
            
            
            19,468Total
      current assets
            
            294,297
            
            
            763,431
            
            
            727,623
            
            
            818,922Cash
      - restricted
            
            -
            
            
            -
            
            
            45,000
            
            
            45,000Property,
      plant and equipment (Note 7)
            
            5,977,989
            
            
            6,073,206
            
            
            505,634
            
            
            680,780Intangible
      assets (Note 8)
            
            51,259
            
            
            166,509
            
            
            281,759
            
            
            320,175Goodwill
            
            125,502
            
            
            125,502
            
            
            138,155
            
            
            138,155Other
      assets
            
            11,845
            
            
            -
            
            
            -
            
            
            -Total
      assets
            $
            6,460,892
            
            $
            7,128,648
            
            $
            1,698,171
            
            $
            2,003,032LIABILITIESCurrent
      liabilitiesBank
      indebtedness
            $
            16,367
            
            $
            -
            
            $
            48,000
            
            $
            -Accounts
      payable and accrued liabilities
            
            234,244
            
            
            139,204
            
            
            102,771
            
            
            117,059Income
      and commodity taxes payable
            
            517
            
            
            14,760
            
            
            -
            
            
            21,186Deferred
      income
            
            30,000
            
            
            -
            
            
            -
            
            
            -Due
      to stockholder
            
            -
            
            
            -
            
            
            (2)
            
            
            130Line
      of credit (Note 9)
            
            14,000
            
            
            285,354
            
            
            364,040
            
            
            312,167Current
      portion of long-term  debt
            
            100,230
            
            
            9,929
            
            
            7,050
            
            
            86,523Total
      current liabilities
            
            395,358
            
            
            449,247
            
            
            521,859
            
            
            537,065Long-term
      liabilitiesLong-term
      debt (Notes 10 & 11)
            
            153,230
            
            
            861,130
            
            
            31,962
            
            
            31,962Due
      to affiliated company
            
            -
            
            
            -
            
            
            258,426
            
            
            1,101,394Future
      tax liability (Note 13)
            
            -
            
            
            -
            
            
            2,616
            
            
            40,885Total
      long-term liabilities
            
            153,230
            
            
            861,130
            
            
            293,004
            
            
            1,174,241Total
      liabilities
            
            548,588
            
            
            1,310,377
            
            
            814,863
            
            
            1,711,306STOCKHOLDERS’
      EQUITYShare
      Capital
            
            9,314,463
            
            
            8,381,142
            
            
            3,242,434
            
            
            2,320,783Stock
      Subscription receivable
            
            -
            
            
            (15,000)
            
            
            -
            
            
            -Retained
      earnings (Deficit)
            
            (3,402,159)
            
            
            (2,547,871)
            
            
            (2,359,126)
            
            
            (2,029,057)Total
      stockholders' equity
            
            5,912,304
            
            
            5,818,271
            
            
            883,308
            
            
            291,726Total
      liabilities and stockholders' equity
            $
            6,460,892
            
            $
            7,128,648
            
            $
            1,698,171
            
            $
            2,003,032








The
accompanying notes are a part of these financial statements.
 
 
 F-1
 
 CAPITAL RESERVE CANADA LIMITED


CONSOLIDATED
STATEMENTS OF OPERATIONS


YEARS
ENDED DECEMBER 31, 2007 AND 2006, THE FOUR MONTHS ENDED DECEMBER 31, 2005 AND
THE YEAR ENEDED AUGUST 31, 2005





Year
      ended December 31, 2007
            
            
            Year
      ended December 31, 2006
            
            
            Period
      from September 1 through December 31, 2005
            
            
            Year
      ended August 31, 2005Revenue
            $
            1,021,818
            
            $
            1,714,925
            
            $
            355,017
            
            $
            933,441Cost
      of sales
            
            789,137
            
            
            846,090
            
            
            184,165
            
            
            605,370Gross
      profit
            
            232,681
            
            
            868,835
            
            
            170,852
            
            
            328,071ExpensesSalaries
      and benefits
            
            213,345
            
            
            236,671
            
            
            54,358
            
            
            173,460General
      and administrative
            
            637,196
            
            
            530,381
            
            
            279,027
            
            
            430,431Amortization
            
            213,782
            
            
            261,042
            
            
            229,154
            
            
            553,924Interest
            
            22,646
            
            
            29,486
            
            
            8,143
            
            
            32,522Total
      expenses
            
            1,086,969
            
            
            1,057,580
            
            
            570,682
            
            
            1,190,337Loss
      before income taxes and minority interest
            
            (854,288)
            
            
            (188,745)
            
            
            (399,830)
            
            
            (862,266)Income
      tax (recovery) (Note 13)Current
            
            -
            
            
            -
            
            
            (31,492)
            
            
            -Future
            
            -
            
            
            -
            
            
            (38,269)
            
            
            (39,415)Net
      loss before minority interest
            (854,288)
            
            
            (188,745)
            
            
            (330,069)
            
            
            (822,851)Minority
      interest
            
            -
            
            
            -
            
            
            71,955
            
            
            179,382Net
      loss
            $
            (854,288)
            
            $
            (188,745)
            
            $
            (258,114)
            
            $
            (643,469)Basic
      and diluted earnings(loss) per shareBefore
      income taxes and minority interest
            $
            (0.01)
            
            $
            (0.00)
            
            $
            (0.02)
            
            $
            (0.04)Before
      minority interest
            $
            (0.01)
            
            $
            (0.00)
            
            $
            (0.01)
            
            $
            (0.04)Net
      Loss
            $
            (0.01)
            
            $
            (0.00)
            
            $
            (0.01)
            
            $
            (0.03)Weighted
      average number of shares outstanding
            
            61,072,284
            
            
            46,603,617
            
            
            24,155,896
            
            
            21,792,268

















The
accompanying notes are a part of these financial statements.
 
 
 F-2
 
 CAPITAL RESERVE CANADA LIMITED








CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


For
the year ended August 31, 2005


and
the four months ended December 31, 2005 and the years ended December 31, 2006
and 2007





Common
      Stock
            
            Retained
      Deficit
            
            Stock
      Subscription Receivable
            
            Total
      Stockholder’s EquityShares
            
            AmountBalance
      at August 31, 2004
            17,335,814
            
            $
            2,320,783
            
            $
            (272,295)
            
            $
            -
            
            $
            2,048,488Share
      issued to acquire subsidiary
            2,000,000
            
            
            -
            
            
            (933,911)
            
            
            -
            
            
            (933,911)Net
      loss
            -
            
            
            -
            
            
            (643,469)
            
            
            -
            
            
            (643,469)Net
      loss-minority interest
            -
            
            
            -
            
            
            (179,382)
            
            
            -
            
            
            (179,382)Balance
      at August 31, 2005
            19,335,814
            
            
            2,320,783
            
            
            (2,029,057)
            
            
            -
            
            
            291,726Share
      issued for debt settlement
            15,451,000
            
            
            921,411
            
            
            -
            
            
            -
            
            
            921,411Options
      exercised
            24,000
            
            
            240
            
            
            -
            
            
            -
            
            
            240Net
      loss
            -
            
            
            -
            
            
            (258,114)
            
            
            -
            
            
            (258,114)Net
      loss-minority interest
            -
            
            
            -
            
            
            (71,955)
            
            
            -
            
            
            (71,955)Balance
      at December 31, 2005
            34,810,814
            
            
            3,242,434
            
            
            (2,359,126)
            
            
            -
            
            
            883,308Share
      issued to acquire minority 21.8%
            4,834,300
            
            
            -
            
            
            -
            
            
            -
            
            
            -Share
      issued to acquire assets
            13,200,000
            
            
            4,730,882
            
            
            -
            
            
            -
            
            
            4,730,882Share
      issued to acquire asset
            1,000,000
            
            
            134,400
            
            
            -
            
            
            -
            
            
            134,400Share
      issued for debt settlement
            4,521,307
            
            
            258,426
            
            
            -
            
            
            -
            
            
            258,426Share
      issued for restricted shares
            30,000
            
            
            15,000
            
            
            -
            
            
            (15,000)
            
            
            -Net
      Loss for year 2006
            -
            
            
            -
            
            
            (188,745)
            
            
            -
            
            
            (188,745)Balance
      at December 31, 2006
            58,396,421
            
            
            8,381,142
            
            
            (2,547,871)
            
            
            (15,000)
            
            
            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)
            
            $
            -
            
            $
            5,912,304











The
accompanying notes are a part of these financial statements.
 
 F-3
 
 CAPITAL RESERVE CANADA LIMITED





CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED AUGUST 31, 2005 AND


THE
FOUR MONTHS ENDED DECEMBER 31, 2005


AND
THE YEARS ENDED DECEMBER 31, 2006 and 2007


Year
      ended December 31, 2007
            
            
            Year
      ended December 31, 2006
            
            
            Period
      from September 1 through December 31, 2005
            
            
            Year
      ended August 31, 2005Operating
      ActivitiesNet
      Loss
            $
            (854,288)
            
            $
            (188,745)
            
            $
            (330,069)
            
            $
            (822,851)Adjustments
      to reconcile net income (loss) to net cash provided (used) by operating
      activities:Amortization
            
            214,323
            
            
            261,042
            
            
            229,154
            
            
            553,924Accrued
      interest
            
            -
            
            
            -
            
            
            -
            
            
            (7,807)Stock
      issued for services
            
            109,134
            
            
            -
            
            
            -
            
            
            -Future
      income taxes
            
            -
            
            
            -
            
            
            (38,269)
            
            
            (39,415)Accounts
      receivable
            
            18,293
            
            
            (21,560)
            
            
            (112,806)
            
            
            (64,754)Corporation
      income taxes
            
            -
            
            
            9,263
            
            
            (9,263)
            
            
            11,693Work
      in process
            
            40,000
            
            
            (40,000)
            
            
            45,270
            
            
            (45,270)Retainer
      on deposit with lawyer
            
            -
            
            
            -
            
            
            -
            
            
            15,000Prepaid
      expenses and deposits
            
            15,363
            
            
            (31,937)
            
            
            9,925
            
            
            (15,201)Accounts
      payable and accrued liabilities
            
            80,796
            
            
            36,435
            
            
            (14,287)
            
            
            (28,459)Deferred
      revenue
            
            30,000
            
            
            -
            
            
            -
            
            
            -Income
      and commodity taxes payable
            
            -
            
            
            12,144
            
            
            (21,186)
            
            
            (16,328)Cash
      provided (used) by operating activities
            
            (346,379)
            
            
            36,642
            
            
            (241,531)
            
            
            (459,468)Financing
      ActivitiesShares
      issuances
            
            -
            
            
            -
            
            
            921,651
            
            
            (933,911)Increase
      (decrease) in due to stockholder
            2
            
            
            -
            
            
            (132)
            
            
            (6,593)Increase
      (decrease) in bank indebtedness
            30,367
            
            
            -
            
            
            48,000
            
            
            -Share
      subscriptions received in advance
            
            -
            
            
            -
            
            
            -
            
            
            -Change
      in long-term debt
            
            (63,767)
            
            
            (94,639)
            
            
            (79,473)
            
            
            (39,779)Due
      to affiliated company
            
            -
            
            
            -
            
            
            (842,968)
            
            
            1,101,394Change
      in demand bank loan
            
            -
            
            
            -
            
            
            51,873
            
            
            312,167Cash
      provided (used) by financing activities
            
            (33,398)
            
            
            (94,639)
            
            
            98,951
            
            
            433,278Investing
      ActivitiesDecrease
      in restricted cash
            
            -
            
            
            45,000
            
            
            -
            
            
            -Purchase
      of property, plant and equipment
            (3,856)
            
            
            (87,780)
            
            
            (15,593)
            
            
            (584,276)Proceeds
      from sale of fixed assets
            
            -
            
            
            52,351
            
            
            -
            
            
            -Decrease
      in term deposit
            
            -
            
            
            415,186
            
            
            164,109
            
            
            (580,254)Cash
      provided (used) by investing activities
            
            (3,856)
            
            
            424,757
            
            
            148,516
            
            
            (1,164,530)Increase
      (decrease) in cash during the year
            
            (383,633)
            
            
            366,760
            
            
            5,936
            
            
            (1,190,720)Cash
      and cash equivalents, beginning of year
            391,528
            
            
            24,768
            
            
            18,832
            
            
            1,209,552Cash
      and cash equivalents, end of year
            $
            7,895
            
            $
            391,528
            
            $
            24,768
            
            $
            18,832Supplemental
      InformationCash
      paid for interest
            $
            20,600
            
            $
            29,486
            
            $
            8,143
            
            $
            32,522Shares
      issued for assets
            $
            -
            
            $
            4,865,280
            
            $
            -
            
            $
            1Shares
      issued for subsidiary
            $
            -
            
            $
            676,802
            
            $
            -
            
            $
            582,500Shares
      issued for debt settlement
            $
            839,187
            
            $
            258,426
            
            $
            921,411
            
            $
            100,000





The
accompanying notes are a part of these financial statements.
 
 F-4
 
 CAPITAL RESERVE CANADA LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





FOR
THE YEAR ENDED DECEMBER 31, 2007








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.





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
Projects.





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. CRCP 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 Canadian generally accepted accounting principles. 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;





F-5
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


2.      Share
exchange (contiued)





(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.





3.      Summary
of significant accounting policies





These consolidated financial statements
include the accounts of the company and its legal subsidiary, KCPInnovative
Services Inc., its wholly owned subsidiary, Two Hills Environmental Inc. and
have beenprepared in accordance with Canadian generally accepted accounting
principles. 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





F-6
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


3.      Summary
of significant accounting policies (continued)





(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.





(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.


F-7
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


5.      Acquisition
of Zone Technologies Ltd. (continued)





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 acquited
            
            $
            782,500Cash
      consideration
            
            $
            200,000Share
      considedration (Note 12)
            
            
            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 $21,884 matures on March 14, 2008 and bear interest at 2.65% per
annum.





F-8
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


7.      Property,
plant and equipment





Cost
            
            Accumulated
      Amortization
            
            Net
      December 31, 2007Land
            
            $
            900,000
            
            $
            -
            
            $
            900,000Water
      Permit & Salt Lease
            
            
            4,677,679
            
            
            -
            
            
            4,677,679Equipment
            
            
            164,803
            
            
            88,115
            
            
            76,688Furniture
      and fixtures
            
            
            18,032
            
            
            10,910
            
            
            7,122Vehicles
            
            
            741,806
            
            
            569,644
            
            
            172,162Computer
      and software
            
            
            35,025
            
            
            25,087
            
            
            9,938Mineral
      Rights
            
            
            134,400
            
            
            -
            
            
            134,400$
            6,671,745
            
            $
            693,756
            
            $
            5,977,989





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.  TheLotsburg salt formationcontains salt deposits
that average 122m in thickness and spans a total area of 390,000 sq.
km.  The Nisku Fault resides approximately 1000munderground 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, Colt
Engineering and the Canadian Association of Petroleum Producers (CAPP)
..


F-9
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


7.      Property,
plant and equipment (continued)





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.  This lease will expire
in April 2009.





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.





Rich
Resources Limited





On
October 20, 2006, Two Hills Environmental Inc., wholly owned subsidiary of CRC
purchased a 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, 2007PID
      Technology
            
            $
            1
            
            $
            -
            
            $
            1Zone
      Technology
            
            
            277,000
            
            
            246,201
            
            
            30,799Backlog
            
            
            196,600
            
            
            196,600
            
            
            0Customer
      relationships
            
            
            184,000
            
            
            163,541
            
            
            20,459$
            657,601
            
            $
            606,342
            
            $
            51,259





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.





F-10
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


8.      Intangible
assets (continued)





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.





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, 2007, of
$14,000.





10.           Demand
bank loan


2007Vehicle
      loan
            
            $
            236,028Current
      portion
            
            
            89,478$
            146,550





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.





11.           Long-term
debt





2007Vehicle
      loan
            
            $
            17,432Current
      portion
            
            
            10,752$
            6,680








F-11
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


11.           Long-term
debt (continued)





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.





Aggregate
principal payments required on the vehicle loan over the next two fiscal years
are as follows:





2008
            
            $
            10,7522009
            
            
            6,679$
            17,431


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 prior to Aug 8, 2005
            
            
            2,000,000Issued
      Nov 23, 2005 to purchase 78.2% of KCP
            
            
            17,335,814Issued
      Nov 23, 2005 as a Debt Settlement
            
            
            15,451,000Issued
      Nov 23, 2005 as an Option Exercise
            
            
            24,000Issued
      Feb 3, 2006 for the remaining 21.8% of KCP
            
            
            4,834,300Issued
      Feb 16, 2006 as a Debt Settlement
            
            
            4,521,307Issued
      June 15, 2006 Per Southbend Agreement
            
            
            13,200,000Issued
      Aug 6, 2006
            
            
            30,000Issued
      Oct 20, 2006 per Rich Resource Agreement
            
            
            1,000,000Cancelled
      Feb 7, 2007 pursuant to contract
            
            
            (30,000)Issued
      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
            
            
            1,500,000TOTAL
      on Dec 31, 2007
            
            
            65,566,421





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
becomes our CEO.





F-12
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


13.           Income
taxes (continued)





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
the 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 $1,676,265 at December 31, 2007 that may be applied
against future taxable income.  Losses expire as follows: ($161,515 on
December 31, 2008), ($88,170 on December 31, 2009), ($380,730 on December 31,
2015), ($195,850 on December 31, 2016) and an estimated ($850,000 on December
31, 2027).  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





The
Company leases shop and office space under operating leases.  The
future office and shop lease payments are as follows:





2008
            
            $
            142,1402009
            
            
            142,1402010
            
            
            142,1402011
            
            
            142,1402012
            
            
            118,450Total
            
            $
            687,010





F-13
 
 CAPITAL RESERVE CANADA LIMITED
 
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 FOR
THE YEAR ENDED DECEMBER 31, 2007


16.           Financial
instruments





Credit
risk





The
Company's sales are to customers in the oil and gas industry, which results in a
concentration of credit risk.  The Company generally extends unsecured
credit to these customers, and therefore the collection of receivables may be
affected by changes in economic or other conditions and may accordingly impact
the Company's overall credit risk.  Management believes the risk is
mitigated by size, reputation and diversified nature of the companies to which
the Company extends credit.  As at December 31, 2007 one customer
accounts for about 18% (2006, one customer accounts for 15%, in 2005 four
customers account for 60%) of the accounts receivable.





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, 2007 and has determined that the carrying amounts of
such financial instruments approximate fair value in all cases.





Change
of year end date





KCP
Innovative Services Inc. changed its year end date from August 31 to December
31, effective 2005 to be the same as Capital Reserve Canada Ltd., its parent
company.





17.           Segmented
information





The
Company operates in one geographic segment within one industry
segment.  Oilfield services are provided in Canada.
































F-14