UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549





FORM
10-K





xANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF
      THE SECURITIES EXCHANGE ACT OF
    1934For
      the fiscal year ended December 31, 2008oTRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF
      THE SECURITIES EXCHANGE ACT OF
    1934





For the transition period from
___________ to___________





Commission
file number 000-30156








ENTHEOS
TECHNOLOGIES, INC.


(Exact
name of registrant as specified in its charter)





Nevada
              98-0170247(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)888
      3rd Street SW, Suite 1000, Calgary, Alberta, Canada
              T2P
      5C5(Address
      of principal executive offices)
              (Zip
      Code)






(403)
444-6418


(Registrant’s
telephone number, including area code)








Securities
registered pursuant to Section 12(b) of the Act: None




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




Title of Class
                
                Name of Exchange on Which RegisteredCommon
      Stock, $0.00001 par value
                
                OTC
      Bulletin Board (OTCBB) (OTCBB)


Indicate
by check mark if registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yeso  Nox





Indicate
by check mark if registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yeso  Nox





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. Yesx   
Noo





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.  Check
one:





Large
      accelerated filero
                    
                    Accelerated
      filero
                    
                    Non-accelerated
      filero
                    
                    Smaller
      reporting companyx





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





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of the last business day of the registrant’s
most recently completed second fiscal quarter, based upon the closing sale price
of the registrant’s common stock on June 30, 2008 as reported on the OTC
Bulletin Board was $28,878,812.





As of
April 9, 2009, there were 63,075,122 shares of the registrant’s Common Stock
outstanding.





Documents
incorporated by reference:None.












TABLE OF CONTENTS





ENTHEOS
TECHNOLOGIES, INC.


ANNUAL
REPORT ON FORM 10-K


FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008








PagePART
      IItem
      1.
                Business
                3Item
      2.
                Properties
                8Item
      3.
                Legal Proceedings
                8Item
      4.
                Submission of Matters to a Vote of Security
      Holders
                8PART
      IIItem
      5.
                Market for Registrant’s Common Equity, Related Stockholder
      Matters, and Issuer Purchases of Equity Securities
                10Item
      7.
                Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                11Item
      8.
                Financial Statements and Supplementary Data
                16Item
      9.
                Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
                31Item
      9A (T)
                Controls and Procedures
                31Item
      9B.
                Other Information
                31PART
      IIIItem
      10.
                Directors, Executive Officers and Corporate
      Governance
                32Item
      11.
                Executive Compensation
                35Item
      12.
                Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
                36Item
      13.
                Certain Relationships and Related Transactions, and Director
      Independence
                37Item
      14.
                Principal Accountant Fees and Services
                38PART
      IVItem
      15.
                Exhibits and Financial Statement Schedules
                39Signatures
                40


Table of Contents




PART
I





ITEM 1.  BUSINESS.





Forward-Looking
Statements





Except
for the historical information presented in this document, the matters discussed
in this Form 10-K for the fiscal year ending December 31, 2008, contain
forward-looking statements. Such forward-looking statements include statements
regarding, among other things, (a) our projected sales and profitability, (b)
our growth strategies, (c) anticipated trends in our industry, (d) our future
financing plans, and (e) our anticipated needs for working
capital.  Forward-looking statements, which involve assumptions and
describe our future plans, strategies, and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “could,” “might,”
“expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the
negative of these words or other variations on these words or comparable
terminology.  This information may involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance,
or achievements to be materially different from the future results, performance,
or achievements expressed or implied by any forward-looking
statements.  These statements may be found under “Management's
Discussion and Analysis of Financial Condition and Results of
Operations,”  “Business,” “Properties,” as well as in this report
generally.





The safe
harbor provisions of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended, apply to
forward-looking statements made by the Company. The reader is cautioned that no
statements contained in this Form 10-K should be construed as a guarantee or
assurance of future performance or results. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risks described in this
report and matters described in this report generally.  In light of
these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this filing will in fact
occur.  These forward-looking statements are based on current
expectations, and the Company assumes no obligation to update this information.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this Form 10-K and in the Company's other reports filed with
the Securities and Exchange Commission that attempt to advise interested parties
of the risks and factors that may affect the Company's business.





The
Company





Incorporated
under the laws of the State of Nevada, Entheos Technologies, Inc. (“the Company”
“we” “us” and “our”) has an authorized capital of 200,000,000 shares of $0.00001
par value common stock, of which 63,075,122 shares are outstanding and
10,000,000 shares of $0.0001 par value preferred stock, of which none are
outstanding.




From 2002
until September 2008, through its wholly-owned subsidiary Email Solutions, Inc.,
the Company served as an Application Service Provider (“ASP”) providing
reliable, real time, high volume outsourced email and search engine optimization
services. Due to the limited success of the ASP business, management decided
that it was in the best interest to abandon the Application Service Provider
business and focus on identifying undervalued oil and gas opportunities for
acquisition, development and exploration. The assets and liabilities, the
results of operations and cash flows related to the ASP business were not
classified as discontinued operations as the amounts were not
significant.




Our
principal executive offices are located at 888-3rd Street
SW, Suite 1000, Calgary Alberta, Canada T2P 5C5.  Our telephone number
is (403) 444-6418.





As we are
a smaller reporting company, certain disclosures otherwise required to be made
in a Form 10-K are not required to be made by the Company.





Description
of Business





We are a
small independent diversified energy company engaged in the acquisition and
development of crude oil and natural gas interests in the United States. 
We pursue oil and gas prospects in partnership with oil and gas companies with
exploration, development and production expertise.  We currently have
a non-operating, minority working interest in five properties.  Our
prospect areas consist of land in La Salle County, Lee County, Fayette County
and Frio County, Texas.  Currently
four of the five wells in which we have a minority working interest are
producing.  We currently do not operate any of the wells in which we
have an interest.


Strategy





Subject
to economic conditions affecting the oil and gas industry, our strategy is to
identify and acquire (i) low risk in-field oil and gas rights that are primarily
developmental in nature that offset existing production and (ii) energy services
companies that when combined with our management expertise in that area will
display strong top line growth and cash flows.  Although to date we have
acquired minority working interests we will, if the appropriate properties are
available to us on terms acceptable to us, acquire controlling interests as
well.


3
 Table of Contents


Acquisition
of Oil & Gas Properties





In
September 2008, the Company acquired a 21.75% working interest (16.3125% net
revenue interest) in the Cooke #6 well located at the Cooke Ranch field in La
Salle County, Texas which has been producing oil and gas from the Escondido
formation since 2007.  In September 2008, the Company acquired a
20.00% working interest (15.00% net revenue interest) in Onnie Ray #1 Well in
Lee County, Texas and the Stahl #1 Well in Fayette County, Texas which were
subsequently re-entered and are producing oil and gas from the Austin Chalk
formation and a 20.00% working interest (15.00% net revenue interest) in the
Haile #1 Well in Frio County, Texas which is currently scheduled for re-entry
operations.  On October 31, 2008 we acquired a 20.00% working interest
(15.00% net revenue interest) in Pearce #1 Well in Frio County, Texas which is
currently producing oil from the Austin Chalk formation.





Capitalized
costs associated with the property acquisitions are as follows:





Acquisition
                            Costs
                          
                          
                          Exploration
                            Costs
                          
                          
                          Development
                            Costs
                          
                          
                          TotalCooke
      #6
                          
                          $
                          181,535
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          181,535Onnie
      Ray #1
                          
                          
                          14,800
                          
                          
                          
                          7,000
                          
                          
                          
                          41,857
                          
                          
                          
                          63,657Haile
      #1
                          
                          
                          16,071
                          
                          
                          
                          57,675
                          
                          
                          
                          -
                          
                          
                          
                          73,746Stahl
      #1
                          
                          
                          15,215
                          
                          
                          
                          7,000
                          
                          
                          
                          35,141
                          
                          
                          
                          57,356Pearce
      #1
                          
                          
                          6,978
                          
                          
                          
                          11,200
                          
                          
                          
                          47,556
                          
                          
                          
                          65,734$
                          234,599
                          
                          
                          $
                          82,875
                          
                          
                          $
                          124,554
                          
                          
                          $
                          442,028








Geologic
Background





Escondido
Formation


The
Escondido formation, where Cooke #6 is located, is a regional producer spanning
several counties in South Texas.  There are many Escondido oil and gas
fields which have produced anywhere from 600,000 to 3,100,000 barrels of oil and
the gas fields have produced up to 18 BCF of gas.





Austin Chalk
Formation


Giddings
is a main producing field of the Austin Chalk formation consisting of fractured
carbonate, which is where our Onnie Ray #1 and Stahl #1 wells are
located.  This formation covers central Texas, parts of Mexico and
even into northwest Louisiana.  The Austin Chalk in central Texas has
been and continues to be explored and developed for its oil and gas potential by
companies such as Anadarko Petroleum Corporation, Chesapeake Energy Corporation,
and Exxon Mobil Corporation.





Haile #1
and Pearce #1 wells are located within the Pearsall Austin Chalk field which is
south west of the Giddings field and is also a significant historic
producer.  The Pearsall field has been and continues to be explored
and developed much like the Giddings fields to the North.





Production
and Reserve Estimate Status





The
acquisition date and production status of the Company’s oil and gas properties
is summarized as follows:





MonthAcquisition
                        
                        ProductionDate
                        
                        StartedProven
      Developed Properties:Cooke
      #6
                        9/1/2008
                        
                        Dec-07Onnie
      Ray #1
                        9/12/2008
                        
                        Oct-08Stahl
      #1
                        9/12/2008
                        
                        Oct-08Pearce
      #1
                        10/31/2008
                        
                        Dec-08Unproven
      Properties:Haile
      #1
                        9/12/2008
                        
                        -





The
four reservoirs classified as proven developed properties is based
on Securities and Exchange Commission (“SEC”) Regulation S-X Rule 4-10
“reservoirs are considered proved if economic producibility is supported by
either actual production or a conclusive formation test.”  These wells
are supported by actual production.  The Company has not yet obtained
reserve studies providing proved reserve quantities due to the recentness of the
acquisition of these properties and due to the wells still being in their
initial testing phase.  Management is assessing and compiling
production data to determine the need for reserves studies going
forward.


4
 Table of Contents


The
unproven property, Haile, is also classified according to guidelines set forth
by SEC Regulation S-X Rule 4-10.  The well is not currently supported
by actual production nor are there defined engineering reserve studies for this
well. An exploratory drilling program was started in early 2009 to complete a
new unproven upper zone of this well.





Research
and Development Expenditures





Since
inception, we have not incurred any expenditures in research or
development.





Marketing
of Production





Sale
of Crude Oil and Natural Gas





Our
production consists of natural gas and crude that is marketed by the well site
Operators.  We sell our crude oil and condensate production at or near
the well-site, although in some cases it is gathered by us or others and
delivered to a central point of sale. Our crude oil and condensate production is
transported by truck or by pipeline and is typically committed to arrangements
having a term of one year or less. We have not engaged in crude oil hedging or
trading activities. We have not engaged in natural gas hedging or futures
trading, nor do we have any long term contracts to sell our
production.





Sales of
crude oil totaled $8,199 (114.9 bbl) for fiscal 2008 which represented
60% of our total oil and gas revenues for the year ended December 31,
2008.  Sales of natural gas totaled $5,571 for 2008 (746.6
mcf).





Price
Considerations





Crude oil
prices are established in a highly liquid, international market, with average
crude oil prices that we receive generally fluctuating with changes in the
futures price established on the NYMEX for West Texas Intermediate Crude Oil
(“NYMEX-WTI”). The average crude oil price per Bbl received by us in fiscal 2008
was $71.35.





Natural
gas and natural gas liquids prices in the geographical areas in which we operate
are closely tied to established price indices which are heavily influenced by
national and regional supply and demand factors and the futures price per MMBtu
for natural gas delivered at Henry Hub, Louisiana established on the NYMEX
(“NYMEX-Henry Hub”). At times, these indices correlate closely with the
NYMEX-Henry Hub price, but often there are significant variances between the
NYMEX-Henry Hub price and the indices used to price our natural
gas. Average natural gas prices received by us in each of our operating
areas generally fluctuate with changes in these established indices. The average
natural gas price per Mcf received by us in fiscal 2008 was $7.46.





Governmental
Regulations





Our
operations are affected from time to time in varying degrees by political
developments and U.S. federal, state, and local laws and regulations. In
particular, natural gas and crude oil production and related operations are, or
have been, subject to price controls, taxes and other laws and regulations
relating to the industry. Failure to comply with such laws and regulations
can result in substantial penalties. The regulatory burden on the industry
increases our cost of doing business and affects our profitability. Although we
believe we are in substantial compliance with all applicable laws and
regulations, such laws and regulations are frequently amended or reinterpreted
so we are unable to predict the future cost or impact of complying with such
laws and regulations.





Environmental
Matters





Our
natural gas and crude oil exploration, development and production operations are
subject to stringent U.S. federal, state and local laws governing the discharge
of materials into the environment or otherwise relating to environmental
protection. Numerous governmental agencies, such as the U.S. Environmental
Protection Agency (“EPA”), issue regulations to implement and enforce such laws,
and compliance is often difficult and costly. Failure to comply may result
in substantial costs and expenses, including possible civil and criminal
penalties. These laws and regulations may:





·
            require
      the acquisition of a permit before drilling
  commences;


·
            restrict
      the types, quantities and concentrations of various substances that can be
      released into the environment in connection with drilling, production and
      processing activities;


·
            limit
      or prohibit drilling activities on certain lands lying within wilderness,
      wetlands, frontier and other protected
areas;


·
            require
      remedial action to prevent pollution from former operations such as
      plugging abandoned wells; and


·
            impose
      substantial liabilities for pollution resulting from
      operations.


5
 Table of Contents


In
addition, these laws, rules and regulations may restrict the rate of natural gas
and crude oil production below the rate that would otherwise exist. The
regulatory burden on the industry increases the cost of doing business and
consequently affects our profitability. Changes in environmental laws and
regulations occur frequently, and any changes that result in more stringent and
costly waste handling, disposal or clean-up requirements could adversely affect
our financial position, results of operations and cash flows. While we
believe that we are in substantial compliance with current applicable
environmental laws and regulations, and we have not experienced any materially
adverse effect from compliance with these environmental requirements, we cannot
assure you that this will continue in the future.





The U.S.
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),
also known as the “Superfund” law, imposes liability, without regard to fault or
the legality of the original conduct, on certain classes of persons who are
considered to be responsible for the release of a “hazardous substance” into the
environment. These persons include the present or past owners or operators
of the disposal site or sites where the release occurred and the companies that
transported or arranged for the disposal of the hazardous substances at the site
where the release occurred. Under CERCLA, such persons may be subject to
joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment, for damages to natural
resources and for the costs of certain health studies. It is not uncommon
for neighboring landowners and other third parties to file claims for personal
injury and property damages allegedly caused by the release of hazardous
substances or other pollutants into the environment.  Furthermore,
although petroleum, including natural gas and crude oil, is exempt from CERCLA,
at least two courts have ruled that certain wastes associated with the
production of crude oil may be classified as “hazardous substances” under CERCLA
and thus such wastes may become subject to liability and regulation under
CERCLA. State initiatives to further regulate the disposal of crude oil and
natural gas wastes are also pending in certain states, and these various
initiatives could have adverse impacts on us.





Stricter
standards in environmental legislation may be imposed on the industry in the
future. For instance, legislation has been proposed in the U.S. Congress
from time to time that would reclassify certain exploration and production
wastes as “hazardous wastes” and make the reclassified wastes subject to more
stringent handling, disposal and clean-up restrictions. Compliance with
environmental requirements generally could have a materially adverse effect upon
our financial position, results of operations and cash
flows.  Although we have not experienced any materially adverse effect
from compliance with environmental requirements, we cannot assure you that this
will continue in the future.





The U.S.
Federal Water Pollution Control Act (“FWPCA”) imposes restrictions and strict
controls regarding the discharge of produced waters and other petroleum wastes
into navigable waters. Permits must be obtained to discharge pollutants
into state and federal waters. The FWPCA and analogous state laws provide
for civil, criminal and administrative penalties for any unauthorized discharges
of crude oil and other hazardous substances in reportable quantities and may
impose substantial potential liability for the costs of removal, remediation and
damages. Federal effluent limitations guidelines prohibit the discharge of
produced water and sand, and some other substances related to the natural gas
and crude oil industry, into coastal waters. Although the costs to comply
with zero discharge mandated under federal or state law may be significant, the
entire industry will experience similar costs and we believe that these costs
will not have a materially adverse impact on our financial condition and results
of operations. Some oil and gas exploration and production facilities are
required to obtain permits for their storm water discharges. Costs may be
incurred in connection with treatment of wastewater or developing storm water
pollution prevention plans.





The U.S.
Resource Conservation and Recovery Act (“RCRA”), generally does not regulate
most wastes generated by the exploration and production of natural gas and crude
oil. RCRA specifically excludes from the definition of hazardous waste
“drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal
energy.” However, these wastes may be regulated by the EPA or state
agencies as solid waste. Moreover, ordinary industrial wastes, such as
paint wastes, waste solvents, laboratory wastes and waste compressor oils, are
regulated as hazardous wastes. Although the costs of managing solid
hazardous waste may be significant, we do not expect to experience more
burdensome costs than would be borne by similarly situated companies in the
industry.





In
addition, the U.S. Oil Pollution Act (“OPA”) requires owners and operators of
facilities that could be the source of an oil spill into “waters of the United
States,” a term defined to include rivers, creeks, wetlands and coastal waters,
to adopt and implement plans and procedures to prevent any spill of oil into any
waters of the United States. OPA also requires affected facility owners and
operators to demonstrate that they have at least $35 million in financial
resources to pay for the costs of cleaning up an oil spill and compensating any
parties damaged by an oil spill. Substantial civil and criminal fines and
penalties can be imposed for violations of OPA and other environmental
statutes.





Competition





The oil
and gas industry is highly competitive.  We compete with major oil
companies, large and small independents, and individuals for the acquisition of
leases and properties. Most competitors have financial and other resources
which substantially exceed ours.  Resources of our competitors may
allow them to pay more for desirable leases and to evaluate, bid for and
purchase a greater number of properties or prospects than us. Our ability
to replace and expand our reserves is dependent on our ability to select and
acquire producing properties and prospects for future drilling.


6
 Table of Contents


Operations





Oil and
gas properties are customarily operated under the terms of a joint operating
agreement, which provides for reimbursement of the operator’s direct expenses
and monthly per well supervision fees. Per well supervision fees vary widely
depending on the geographic location and producing formation of the well,
whether the well produces oil or gas and other factors. We are not the operator
of our wells, which are operated by Bayshore Exploration Inc, and Leexus Oil
LLC.  The operators charge the Company, without mark-up, for the
Company’s working interest portion of the direct operating costs and overhead
costs (which are comprised of administrative, supervision, office services and
warehousing costs) that the operators incur with respect to our
wells.





Employees





We
currently have no full-time employees.  All of our activities are conducted
through contracting geologists, engineers, operators and other oil and gas
professionals.





GLOSSARY
OF CERTAIN OIL AND GAS TERMS





The
following is a description of the meanings of some of the natural gas
and oil industry terms used in this filing:





“Bbl”means a barrel or
barrels of oil.





“Btu” means British thermal
unit, which means the quantity of heat required to raise the temperature of one
pound of water by one degree Fahrenheit.





“Completion” means the
installation of permanent equipment for the production of natural
gas or oil.





“Condensate” means hydrocarbons
naturally occurring in the gaseous phase in a reservoir that condense to become
a liquid at the surface due to the change in pressure and
temperature.





“Crude”means unrefined liquid
petroleum.





“Gross acres” or “gross wells” refer to the
total acres or wells, as the case may be, in which a working interest is
owned.





“Mcf” means thousand cubic feet
of natural gas.





“MMBtu” means one million
Btus.





“Operator” refers to the
individual or company responsible for the exploration, development and
production of an oil or gas well or lease.





“Proved developed oil andgas reserves” refers
to reserves that can be expected to be recovered through
existing wells with existing equipment and operating methods. 
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery should be included as “proved
developed reserves” only after testing by a pilot project or after the operation
of an installed program has confirmed through production responses that
increased recovery will be achieved.





“Proved oil and gas
reserves”  means the estimated quantities of crude oil, natural gas
and natural gas liquids  which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions,  i.e., prices
and costs as of the date the estimate is made.  Reservoirs are considered
proved if economic producibility is supported by either actual production or
conclusive formation test.  The area of a reservoir considered proved
includes (a) that portion delineated by drilling and defined by gas-oil and/or
oil-water contacts, if any, and (b) the immediately adjoining portions not yet
drilled, but which can be reasonably judged as economically productive on the
basis of available geological and engineering data.  In the absence of
information on fluid contacts, the lowest known structural occurrence of
hydrocarbons controls the lower proved limit of the reservoir.  Reserves
which can be produced economically through application of improved recovery
techniques (such as fluid injection) are included in the “proved” classification
when successful testing by a pilot project, or the operation of an installed
program in the  reservoir, provides support for the engineering analysis on
which the project or program was based.  Estimates  of proved 
reserves do not include the following:  (a) oil that may become 
available from known reservoirs but is classified separately as “indicated
additional reserves”;  (b) crude oil, natural gas and natural gas liquids,
the  recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics or economic factors; 
(c) crude oil,  natural  gas and natural gas liquids that may occur in
undrilled prospects; and (d) crude oil, natural gas and natural gas
liquids  that may be recovered from oil shales, coal, gilsonite and other
such sources.


7
 Table of Contents


“Provenproperties” refers
to properties containing proved reserves.





“Proved undeveloped
reserves” refers to reserves that are expected to be recovered from
new wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion.  Reserves on undrilled acreage
are limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled.  Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive
formation.  Proved undeveloped reserves may not include estimates
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same
reservoir.





“Recompletion” means the
completion for production of an existing well bore in another formation from
that in which the well has been previously completed.





“Unprovenproperties” refers to
properties containing no proved reserves.





“Working interest” refers to
the operating interest that gives the owner the right to drill, produce and
conduct operating activities on the property and receive a share of
production.





“Workover” means operations on
a producing well to restore or increase production.








ITEM 2.  PROPERTIES.





We do not
own any properties other than oil and gas properties acquired during
2008.  On September 10, 2008 we entered into a one year operating
lease agreement with a non-affiliate for our corporate office, located at 888
3rd Street SW, Suite 1000, Calgary, AB  Canada T2P 5C5. The
monthly rent is $315 CDN.








ITEM 3.  LEGAL PROCEEDINGS.





We are
currently not a party to any material pending legal proceedings or government
actions, including any bankruptcy, receivership, or similar proceedings. In
addition, management is not aware of any known litigation or liabilities
involving the operators of our properties that could affect our operations.
Should any liabilities incur in the future, they will be accrued based on
management’s best estimate of the potential loss. As such, there is no adverse
effect on our financial position, results of operations or cash flow at this
time. Furthermore, we do not believe that there are any proceedings to which any
of our directors, officers, or affiliates, any owner of record of the
beneficially or more than five percent of our common stock, or any associate of
any such director, officer, affiliate, or security holder is a party adverse or
has a material interest adverse to us.








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





The
Annual Meeting of Stockholders (the “Annual Meeting”) of the Company was held on
December 19, 2008, at which time the stockholders voted on the following
proposals:





1.
            The
      election of a board of directors to serve until the next Annual Meeting or
      until their respective successors is duly elected and has been
      qualified.





Votes
      For
                    
                    
                    Votes
      Against
                    
                    
                    Votes
      AbstainingDerek
      J. Cooper
                    
                    
                    32,678,620
                    
                    
                    
                    0
                    
                    
                    
                    0Jeet
      Sidhu
                    
                    
                    32,678,620
                    
                    
                    
                    0
                    
                    
                    
                    0Christian
      Hudson
                    
                    
                    32,678,620
                    
                    
                    
                    0
                    
                    
                    
                    0








2.
            Ratifying
      the appointment of Peterson Sullivan LLP as our auditors for the fiscal
      year ending December 31, 2008.





Votes For
                                    Votes Against
                                    Votes Abstained32,678,620
                                    0
                                    0


8
 Table of Contents




3.
            RESOLVED, that the
      Company to amend the Articles of Incorporation to change the Company’s
      name to “Sterling Energy, Inc.”




Votes For
                  Votes Against
                  Votes Abstained32,678,620
                  0
                  0





Note that
the name of the Company has not been legally changed as of the date of this
filing.


9
 Table of Contents




PART
II





ITEM 5.  . MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





Market
Information





The
Company's Common Stock is listed on the OTC Bulletin Board under the symbol
"ETHT". The following table sets forth the high and low sale prices for the
periods indicated:





Fiscal
      Year 2008
                      
                      High
      ($)
                      
                      
                      Low
      ($)Fourth
      Quarter
                      
                      $
                      1.15
                      
                      
                      $
                      0.38Third
      Quarter
                      
                      $
                      0.75
                      
                      
                      $
                      0.38Second
      Quarter
                      
                      $
                      0.55
                      
                      
                      $
                      0.41First
      Quarter
                      
                      $
                      0.82
                      
                      
                      $
                      0.41Fiscal
      Year 2007Fourth
      Quarter
                      
                      $
                      0.85
                      
                      
                      $
                      0.81Third
      Quarter
                      
                      $
                      0.97
                      
                      
                      $
                      0.62Second
      Quarter
                      
                      $
                      0.69
                      
                      
                      $
                      0.61First
      Quarter
                      
                      $
                      1.40
                      
                      
                      $
                      0.60January
      1, 2009 – April 8, 2009
                      
                      
                      0.51
                      
                      
                      
                      0.41








On April
8, 2009 the closing price of our common stock as reported on the OTCBB was $0.50
per share.  As of April 8, 2009, there were approximately 329 stockholders
of record of the Company's Common Stock.





Dividend
Policy





We have
not paid any dividends on our common stock and our board of directors presently
intends to continue a policy of retaining earnings, if any, for use in our
operations. The declaration and payment of dividends in the future, of which
there can be no assurance, will be determined by the board of directors in light
of conditions then existing, including earnings, financial condition, capital
requirements and other factors. The Nevada Revised Statutes prohibit us from
declaring dividends where, if after giving effect to the distribution of the
dividend:





·
            We
      would not be able to pay our debts as they become due in the usual course
      of business; or


·
            Our
      total assets would be less than the sum of our total liabilities plus the
      amount that would be needed to satisfy the rights of stockholders who have
      preferential rights superior to those receiving the
      distribution.





Except as
set forth above, there are no restrictions that currently materially limit our
ability to pay dividends or which we reasonably believe are likely to limit
materially the future payment of dividends on common stock.





Securities
Authorized for Issuance Under Equity Compensation Plans





Number
      of Securities to be issued upon exercise of outstanding options, warrants
      and rights
                        
                        
                        Weighted-average
      exercise price of outstanding options, warrants and rights
                        
                        
                        Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))Plan
      Category
                        
                        (a)
                        
                        
                        (b)
                        
                        
                        (c)Equity
      compensation plans approved by security holders
                        
                        
                        200,000
                        (1)
                        
                        $
                        1.00
                        
                        
                        
                        119,800,000Equity
      compensation plans not approved by security holdersTotal
                        
                        
                        200,000
                        (1)
                        
                        $
                        1.00
                        
                        
                        
                        119,800,000




(1)
            50,000
      were granted to our former CFO and were cancelled following his
      resignation on January 9, 2009.


10
 Table of Contents


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.





Discussion
and Analysis





The
following discussion and analysis is based upon our  consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States, and should be read in
conjunction with our financial statements and related notes. The preparation of
these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. Management bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. In addition, the
following discussion and analysis contains forward-looking statements that
involve risks and uncertainties, including, but not limited to, those
discussed in “Forward
Looking Statements,” and elsewhere in this Form 10-K.





Overview





Entheos
Technologies, Inc. (“the Company”) is a small independent diversified energy
company engaged in the acquisition and development of crude oil and natural gas
interests in the United States.  The Company pursues oil and gas
prospects in partnership with oil and gas companies with exploration,
development and production expertise.  The Company participates
with a non-operating, minority working interest.  The Company’s
prospect areas consist of land in La Salle County, Lee County, Fayette County
and Frio County, Texas.





Incorporated
under the laws of the State of Nevada, the Company has an authorized capital of
200,000,000 shares of $0.00001 par value common stock, of which 63,075,122
shares are outstanding and 10,000,000 shares of $0.0001 par value preferred
stock, of which none are outstanding.





From 2002
until September 2008, through our wholly-owned subsidiary Email Solutions, Inc.,
the Company served as an Application Service Provider (“ASP”) providing
reliable, real time, high volume outsourced email and search engine optimization
services. Due to the limited success of the ASP business, management decided
that it was in the best interest to abandon the Application Service Provider
business and focus on identifying undervalued oil and gas opportunities for
acquisition, development and exploration. The assets and liabilities, the
results of operations and cash flows related to the ASP business were not
classified as discontinued operations as the amounts were not
significant.





Our
Oil and Gas Interests





The
following table sets forth a summary of our current oil and gas
interests:





Well
                  Location
                  InterestCooke
      #6
                  LaSalle
      County Texas
                  21.75%
      working interest (16.135% net revenue interest)Stahl
      #1
                  Fayette
      County, Texas
                  20.00%
      working interest (15% net revenue interest)Onnie
      Ray #1
                  Lee
      County, Texas
                  20.00%
      working interest (15% net revenue interest)Haile
      #1
                  Frio
      County, Texas
                  20.00%
      working interest (15% net revenue interest)Pearce
      #1
                  Frio
      County, Texas
                  20.00%
      working interest (15% net revenue
interest)


11
 Table of Contents


Net
capitalized costs associated with oil and gas properties as of December 31, 2008
can be summarized as follows:





Acquisition
      Costs
                                                
                                                
                                                Exploration
      Costs
                                                
                                                
                                                Development
      Costs
                                                
                                                
                                                TotalCooke
      #6
                                                
                                                $
                                                181,535
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                181,535Onnie
      Ray #1
                                                
                                                
                                                14,800
                                                
                                                
                                                
                                                7,000
                                                
                                                
                                                
                                                41,857
                                                
                                                
                                                
                                                63,657Haile
      #1
                                                
                                                
                                                16,071
                                                
                                                
                                                
                                                57,675
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                73,746Stahl
      #1
                                                
                                                
                                                15,215
                                                
                                                
                                                
                                                7,000
                                                
                                                
                                                
                                                35,141
                                                
                                                
                                                
                                                57,356Pearce
      #1
                                                
                                                
                                                6,978
                                                
                                                
                                                
                                                11,200
                                                
                                                
                                                
                                                47,556
                                                
                                                
                                                
                                                65,734$
                                                234,599
                                                
                                                
                                                $
                                                82,875
                                                
                                                
                                                $
                                                124,554
                                                
                                                
                                                $
                                                442,028Impairment
      of oil properties
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (93,444
                                                )Oil
      and gas properties, net
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                348,584








We plan
to grow our business by acquiring (i) low risk in-field oil and gas rights that
are primarily developmental in nature that offset existing production and (ii)
energy services companies that when combined with our management expertise in
that area will display strong top line growth and cash flows.  To date we
have acquired only minority working interests.  We do not operate the wells
in which we have an interest.





Since
inception, we have funded our operations primarily from private placements of
our common stock and debt issuances. The Company has recently incurred net
operating losses and operating cash flow deficits.  It may continue to
incur losses from operations and operating cash flow deficits in the
future.  However, the Company believes its cash and cash equivalent
balances, anticipated cash flows from operations and other external sources of
credit will be sufficient to meet its cash requirements through March
2010.  The future of the Company after March 2010 will depend in large
part on its ability to successfully generate cash flows from operations and
raise capital from external sources to fund operations.





As of
December 31, 2008, we generated revenues of $13,770 from operations of our
new core business.  From inception to December 31, 2008 we have accumulated
losses of approximately $4,083,000.  The Company completed a private
placement for gross proceeds of $3,225,000 on July 28, 2008. Management believes
that its current and future plans will enable it to continue operations through
March 31, 2010.





Critical
Accounting Policies





Accounting
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period.  Management’s judgments and estimates in these areas
are based on information available from both internal and external sources,
including engineers, geologists, consultants and historical experience in
similar matters. The more significant reporting areas impacted by
management’s judgments and estimates are accruals related to oil and gas sales
and expenses; estimates of future oil and gas reserves; estimates used in
the impairment of oil and gas properties; and the estimated future timing and
cost of asset retirement obligations.





Actual
results could differ from the estimates as additional information becomes known.
The carrying values of oil and gas properties are particularly susceptible to
change in the near term.  Changes in the future estimated oil and gas
reserves or the estimated future cash flows attributable to the reserves that
are utilized for impairment analysis could have a significant impact on the
future results of operations.





Full
Cost Method of Accounting for Oil and Gas Properties





The
Company has elected to utilize the full cost method of accounting for its oil
and gas activities. In accordance with the full cost method of accounting, all
costs associated with acquisition, exploration, and development of oil and gas
reserves, including directly related overhead costs and related asset retirement
costs, are capitalized.





All
capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves, are amortized on the unit-of-production method
using estimates of proved reserves once proved reserves are determined to
exist. The Company has not yet obtained reserve reports because of its
recent acquisition of its oil and gas properties and because these properties
recently began producing.  Management is assessing geographic and
production data to determine the need for reserves studies.  At
December 31, 2008, there were no capitalized costs subject to
amortization.


12
 Table of Contents


Oil and
gas properties without estimated proved reserves are not amortized until
proved reserves associated with the properties can be determined or until
impairment occurs. The cost of these properties is assessed quarterly, on a
property-by-property basis, to determine whether the properties are recorded at
the lower of cost or fair market value.  In determining whether such
costs should be impaired, the Company evaluates historical experience, current
drilling results, lease expiration dates, current oil and gas industry
conditions, international economic conditions, capital availability, and
available geological and geophysical information.  As a result of this
analysis, the Company recorded an impairment of $93,444.  This
impairment is similar to amortization and therefore is not added to the cost of
properties being amortized.





Sales of
oil and gas properties are accounted for as adjustments of capitalized costs
with no gain or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved reserves of oil and
gas, in which case the gain or loss is recognized in income.  The
Company did not sell any properties during 2008 or 2007.





Full
Cost Ceiling Test





At the
end of each quarterly reporting period, the unamortized costs of oil and gas
properties are subject to a “ceiling test” which basically limits
capitalized costs to the sum of the estimated future net revenues from proved
reserves, discounted at 10% per annum to present value, based on current
economic and operating conditions, adjusted for related income tax
effects.





Oil
and Gas Revenues





The
Company recognizes oil and gas revenues when oil and gas production is sold to a
purchaser at a fixed or determinable price, when delivery has occurred and title
has transferred, and if collectability of the revenue is probable. Delivery
occurs and title is transferred when production has been delivered to a
purchaser’s pipeline or truck. As a result of the numerous requirements
necessary to gather information from purchasers or various measurement
locations, calculate volumes produced, perform field and wellhead allocations
and distribute and disburse funds to various working interest partners and
royalty owners, the collection of revenues from oil and gas production may take
up to 45 days following the month of production. Therefore, the Company may
make accruals for revenues and accounts receivable based on estimates of its
share of production. Since the settlement process may take 30 to 60 days
following the month of actual production, its financial results may include
estimates of production and revenues for the related time period. The Company
will record any differences between the actual amounts ultimately received and
the original estimates in the period they become finalized.  As of
December 31, 2008, all revenue and expense information had been received from
the operators so there was no estimated revenue or expense.





Asset
Retirement Obligation





The
Company has adopted the provisions of SFAS 143,“Accounting for Asset Retirement
Obligations.” SFAS 143 amended SFAS 19,“Financial Accounting and Reporting
by Oil and Gas Producing Companies,” and, among other matters, addresses
financial accounting and reporting for legal obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred,
with the associated asset retirement cost capitalized as part of the related
asset and allocated to expense over the asset’s useful life.





In
March 2005, the FASB issued FASB Interpretation No. 47 (“FIN
No. 47”),Accounting for
Conditional Asset Retirement Obligations. FIN No. 47 clarifies that a
conditional asset retirement obligation, as used in SFAS 143, refers to a legal
obligation to perform an asset retirement activity in which the timing or method
of the settlement are conditional on a future event that may or may not be
within the control of the entity. Accordingly, an entity is required to
recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value can be reasonably estimated.





The
Company does not have material asset retirement obligations as of December 31,
2008 or 2007.





Variables
and Trends





We have
very limited history with respect to our acquisition and development of oil and
gas properties.  In the event we are able to obtain the necessary
financing to move forward with our business plan, we expect our expenses to
increase significantly as we grow our business.  Accordingly, the
comparison of the financial data for the periods presented may not be a
meaningful indicator of our future performance and must be considered in light
of these circumstances.


13
 Table of Contents


Results
of Operations





The
following table summarizes oil and gas sales activity for the Company’s share of
well operations:





For
      Years Ended December 31,2008
                  
                  
                  2007Production
      Data:Oil
      (bbl)
                  
                  
                  114.9
                  
                  
                  
                  -Natural
      gas (mcf)
                  
                  
                  746.6
                  
                  
                  
                  -Average
      Sales Price:Oil
      (per bbl)
                  
                  $
                  71.35
                  
                  
                  
                  -Natural
      gas (per mcf)
                  
                  $
                  7.46
                  
                  
                  
                  -





Revenues





Oil and
gas sales were $13,770 in fiscal 2008 compared to $0 in fiscal 2007 due to the
acquisition of minority working interest in oil and gas properties in September
and October 2008.





Costs
and Expenses





Oil and
gas production expense were $9,080 in fiscal year 2008 compared to $0 in fiscal
year 2007 as the company entered into the oil & gas industry in September
2008.





General
and administrative expenses (“G&A”) were $190,693 in fiscal year 2008 and
$27,610 in fiscal year 2007 for an increase of $163,083.  The change
is primarily comprised of a $57,325 increase in legal and filing fees primarily
due to the private placement in July 2008; an increase of $19,360 in stock
option compensation expense as the Company issued its first stock option in
several years, $14,520 of this total related to options granted to directors; an
increase of $33,000 in fees paid to directors from $1,500 in fiscal year 2007 to
$35,500 in fiscal year 2008 due to a change in director fee policy; an increase
of $16,143 in contract accounting expense due to closing the Canadian office and
an increase of $16,381 in audit fees.





Impairment
of oil and gas properties was $93,444 in fiscal year 2008 and $0 in fiscal year
2007.  The impairment is a result of management’s review of
capitalized costs compared to estimated fair market value.





Liquidity
and Capital Resources





As of
December 31, 2008, the Company had a cash balance of $2,734,591. The Company has
financed its operations primarily from cash on hand and proceeds from the July
28, 2008 private placement.





Net cash
flows used in operating activities was ($69,687) for the year ended December 31,
2008, compared to net cash provided of $46,128 for 2007 due to more activity in
the business as they changed from an application service provider to an oil and
gas company.





On July
28, 2008, the Company completed a $3,200,000 self-directed private
placement.  The Private Placement consisted of the sale of 6,450,000
units at a price of $0.50 per Unit or $3,225,000 in the aggregate. The Units
were offered and sold to a total of 6 investors, all of whom were accredited
investors. Each unit consisted of one share of the Company’s common stock, one
Series A Warrant to purchase a share of common stock at $0.60 per share for a
period of 18 months from the date of issuance and one Series B Warrant to
purchase a share of common stock at $0.75 per share for a period of 24 months
from the date of issuance. In addition, 50,000 units were issued in payment of
legal fees in the amount of $25,000.





Due to
the "start up" nature of the Company's businesses, the Company expects to incur
losses as it expands. The Company expects to raise additional funds through
private or public equity investment in order to expand the range and scope of
its business operations. The Company will seek access to private or public
equity but there is no assurance that such additional funds will be available
for the Company to finance its operations on acceptable terms, if at
all.





Related
Party Transactions





Executive
Management:  For the year ended December 31, 2008, the Company
incurred $10,000 in fees paid to the Derek Cooper the President, Chief Executive
Officer and Chief Financial Officer of the Company.  In addition,
during September 2008, the Company granted stock options to purchase 50,000
shares of common stock to Mr. Cooper.  For the year ended December 31,
2008, the Company recorded $4,840 as stock compensation expense related to this
stock grant.


14
 Table of Contents


DirectorFees: For the year ended
December 31, 2008, the Company incurred $25,000 in board fees for non-employee
directors of the Company.  During 2008, the Company granted a
total of 150,000 options to purchase common stock to non-employee board members.
 For the year ended December 31, 2008, the Company recorded $14,520 as
stock compensation expense relating to these stock option
grants.  During the year ended December 31, 2007, the Company paid
management fees of $1,500 to the directors. There is no management or consulting
agreements in effect.





Accounts payable–related party: As of
September 1, 2008, the Company settled all amounts owed to a former director and
majority shareholder, amounting to $24,811, outstanding for management fees (the
balance was forgiven for no consideration). The amount outstanding was
recorded as an increase to additional paid-in capital.   As of
December 31, 2008 and 2007 accounts payable to related parties were $12,077 and
$23,812 respectively.





Rent:Until August 31, 2008,
the Company’s administrative office was located at 1628 West 1st Avenue,
Suite 216, Vancouver, British Columbia, Canada, V6J 1G1.  This premise
is owned by a private corporation controlled by a former director and majority
shareholder. The Company paid rent of $6,663 and $7,812 for the years ended
December 31, 2008 and 2007, respectively.  Effective September 1,
2008, the Company closed its administrative office in Vancouver, British
Columbia, Canada, terminating all of its employees. There were no severance
arrangements with any of the terminated employees.





On
December 31, 2007, 40,000,000 common shares owned by Mr. Harmel S. Rayat, a
director and major shareholder of the Company, originally subscribed for at
$0.0033 each were returned to the Company for cancellation and for no
consideration. Mr. Harmel S. Rayat was an officer and director of the
Company until September 12, 2008 and a majority stockholder of the Company until
September 9, 2008.





All
related party transactions are recorded at the exchange amount established and
agreed to between related parties and are in the normal course of
business.





Off
Balance Sheet Arrangements





The
Company has no off-balance sheet arrangements.





Recent
Accounting Pronouncements





See Note
2 for the Consolidated Financial Statements in this Form 10-K.


15
 Table of Contents


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.








INDEX
TO FINANCIAL STATEMENTS








Report of
Independent Registered Public Accounting Firm





Consolidated
Balance Sheets as of December 31, 2008 and 2007




Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007




Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2008 and
2007




Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007




Notes to
Consolidated Financial Statements


16
 Table of Contents




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM








To the
Board of Directors


Entheos
Technologies, Inc.


Calgary,
Alberta








We have
audited the accompanying consolidated balance sheets of Entheos Technologies,
Inc. ("the Company") as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  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 has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting.  Our audits 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 Entheos Technologies, Inc.
as of December 31, 2008 and 2007, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States.








April 10,
2009


Seattle,
Washington


17
 Table of Contents




ENTHEOS
TECHNOLOGIES, INC.





CONSOLIDATED
BALANCE SHEETS


December
31, 2008 and December 31, 2007








(Expressed
      in U. S. Dollars)
                        
                        2008
                        
                        
                        2007ASSETSCurrent
      assetsCash
      and cash equivalents
                        
                        $
                        2,734,591
                        
                        
                        $
                        46,306Accounts
      receivable
                        
                        
                        4,252
                        
                        
                        
                        -Prepaid
      expenses
                        
                        
                        720
                        
                        
                        
                        -Total
      current assets
                        
                        
                        2,739,563
                        
                        
                        
                        46,306Oil
      and gas properties, using full cost methodProven
      properties
                        
                        
                        368,282
                        
                        
                        
                        -Unproven
      properties
                        
                        
                        73,746
                        
                        
                        
                        -Accumulated
      depreciation, depletion and amortization and impairment
                        
                        
                        (93,444
                        )
                        
                        
                        -Oil
      and gas properties, net
                        
                        
                        348,584
                        
                        
                        
                        -Total
      assets
                        
                        $
                        3,088,147
                        
                        
                        $
                        46,306LIABILITIESCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                        
                        $
                        50,854
                        
                        
                        $
                        1,300Accounts
      payable - related parties (Note 5)
                        
                        
                        12,077
                        
                        
                        
                        23,812Total
      liabilities
                        
                        
                        62,931
                        
                        
                        
                        25,112STOCKHOLDERS'
      EQUITYStockholders'
      equityPreferred
      stock:$0.0001 par value: Authorized: 10,000,000 shares Issued and
      outstanding: nil
                        
                        
                        -
                        
                        
                        
                        -Common
      stock: $0.00001 par value; Authorized: 200,000,000 shares Issued and
      outstanding:  63,075,122 shares (2007:
    56,625,122)
                        
                        
                        631
                        
                        
                        
                        566Additional
      paid-in capital
                        
                        
                        7,107,622
                        
                        
                        
                        3,838,516Accumulated
      deficit
                        
                        
                        (4,083,037
                        )
                        
                        
                        (3,817,888
                        )Total
      stockholders' equity
                        
                        
                        3,025,216
                        
                        
                        
                        21,194Total
      liabilities and stockholders' equity
                        
                        $
                        3,088,147
                        
                        
                        $
                        46,306








(The
accompanying notes are an integral part of these consolidated financial
statements)


18
 Table of Contents




ENTHEOS
TECHNOLOGIES, INC.





CONSOLIDATED
STATEMENTS OF OPERATIONS


for
the years ended December 31, 2008 and 2007


(Expressed
in U. S. Dollars)








2008
                                                                          
                                                                          
                                                                          2007RevenueOil
      and gas sales
                                                                          
                                                                          $
                                                                          13,770
                                                                          
                                                                          
                                                                          $
                                                                          -ExpensesOil
      and gas production and operating costs
                                                                          
                                                                          
                                                                          9,080
                                                                          
                                                                          
                                                                          
                                                                          -General
      and administrative expenses
                                                                          
                                                                          
                                                                          190,693
                                                                          
                                                                          
                                                                          
                                                                          27,610Impairment
      of oil and gas properties
                                                                          
                                                                          
                                                                          93,444
                                                                          
                                                                          
                                                                          
                                                                          -Total
      operating expenses
                                                                          
                                                                          
                                                                          293,217
                                                                          
                                                                          
                                                                          
                                                                          27,610Operating
      Loss
                                                                          
                                                                          
                                                                          (279,447
                                                                          )
                                                                          
                                                                          
                                                                          (27,610
                                                                          )Other
      incomeInterest
      income
                                                                          
                                                                          
                                                                          14,297
                                                                          
                                                                          
                                                                          
                                                                          2,92814,297
                                                                          
                                                                          
                                                                          
                                                                          2,928Net
      loss attributable to common stockholders
                                                                          
                                                                          $
                                                                          (265,149
                                                                          )
                                                                          
                                                                          $
                                                                          (24,682
                                                                          )Loss per common share -basic and diluted
                                                                          
                                                                          $
                                                                          0.00
                                                                          
                                                                          
                                                                          $
                                                                          0.00Weighted average number of
      common shares outstanding- basic and diluted
                                                                          
                                                                          
                                                                          59,374,302
                                                                          
                                                                          
                                                                          
                                                                          96,515,533








(The
accompanying notes are an integral part of these consolidated financial
statements)


19
 Table of Contents




ENTHEOS
TECHNOLOGIES, INC.





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


for
the years ended December 31, 2008 and December 31, 2007


(Expressed
in U. S. Dollars)








Additional
                        
                        
                        Accumulated
                        
                        
                        TotalCommon Stock
                        
                        
                        paid-in
                        
                        
                        earnings
                        
                        
                        Stockholder's(Expressed
      in U. S. Dollars)
                        
                        Shares
                        
                        
                        Amount
                        
                        
                        capital
                        
                        
                        (deficit)
                        
                        
                        EquityBalance,
      December 31, 2006
                        
                        
                        96,625,122
                        
                        
                        $
                        966
                        
                        
                        $
                        3,838,116
                        
                        
                        $
                        (3,793,206
                        )
                        
                        $
                        45,876Cancellation
      of common shares at $0.0033 per share
                        
                        
                        (40,000,000
                        )
                        
                        
                        (400
                        )
                        
                        
                        400
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      loss, year ended December 31, 2007
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (24,682
                        )
                        
                        
                        (24,682
                        )Balance,
      December 31, 2007
                        
                        
                        56,625,122
                        
                        
                        
                        566
                        
                        
                        
                        3,838,516
                        
                        
                        
                        (3,817,888
                        )
                        
                        
                        21,194Units
      issued for cash and legal services at $0.50 per share in July
      2008
                        
                        
                        6,450,000
                        
                        
                        
                        65
                        
                        
                        
                        3,224,935
                        
                        
                        
                        -
                        
                        
                        
                        3,225,000Stock
      based compensation expense
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        19,360
                        
                        
                        
                        -
                        
                        
                        
                        19,360Settlement
      of related party payables
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        24,811
                        
                        
                        
                        -
                        
                        
                        
                        24,811Net
      loss, year ended December 31, 2008
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (265,149
                        )
                        
                        
                        (265,149
                        )Balance,
      December 31,  2008
                        
                        
                        63,075,122
                        
                        
                        $
                        631
                        
                        
                        $
                        7,107,622
                        
                        
                        $
                        (4,083,037
                        )
                        
                        $
                        3,025,216








(The
accompanying notes are an integral part of these consolidated financial
statements)


20
 Table of Contents




ENTHEOS
TECHNOLOGIES, INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS


for
the years ended December 31, 2008 and 2007


(Expressed
in U. S. Dollars)








2008
                                
                                
                                2007Cash
      flows from (used in) operating activitiesNet
      loss
                                
                                $
                                (265,149
                                )
                                
                                $
                                (24,682
                                )Impairment
      of oil and gas properties
                                
                                
                                93,444
                                
                                
                                
                                -Stock-based
      compensation
                                
                                
                                19,360
                                
                                
                                
                                -Stock
      issued for legal services
                                
                                
                                25,000
                                
                                
                                
                                -Change
      in non-cash working capital item:Decrease
      in accounts receivable - related party
                                
                                
                                -
                                
                                
                                
                                84,088Increase
      in accounts receivable
                                
                                
                                (4,252
                                )
                                
                                
                                -Increase
      in prepaid assets
                                
                                
                                (720
                                )
                                
                                
                                -Increase
      (decrease) in accounts payable & accrued liabilities
                                
                                
                                62,630
                                
                                
                                
                                (13,278
                                )Net
      cash flows provided by (used in) operating activities
                                
                                
                                (69,687
                                )
                                
                                
                                46,128Cash
      flows (used in) investing activitiesAcquisition
      of oil and gas properties
                                
                                
                                (442,028
                                )
                                
                                
                                -Net
      cash used in investing activities
                                
                                
                                (442,028
                                )
                                
                                
                                -Cash
      flows from financing activitiesProceeds
      from issuance of common stock, net
                                
                                
                                3,200,000
                                
                                
                                
                                -Net
      cash provided by financing activities
                                
                                
                                3,200,000
                                
                                
                                
                                -Increase
      in cash and cash equivalents
                                
                                
                                2,688,285
                                
                                
                                
                                46,128Cash and cash
      equivalents, beginning of period
                                
                                
                                46,306
                                
                                
                                
                                178Cash and cash
      equivalents, end of period
                                
                                $
                                2,734,591
                                
                                
                                $
                                46,306Supplemental
      disclosure of cash flow information:Interest
      paid in cash
                                
                                $
                                -
                                
                                
                                $
                                -Income
      tax paid in cash
                                
                                $
                                -
                                
                                
                                $
                                -Supplemental
      schedule of non-cash investing and financing activites:Settlement
      of related party payables
                                
                                $
                                24,811
                                
                                
                                $
                                -








(The
accompanying notes are an integral part of these consolidated financial
statements)


21
 Table of Contents


ENTHEOS
TECHNOLOGIES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


YEAR
ENDED DECEMBER 31, 2008





(Expressed
in U.S. Dollars)





Note
1. Organization and Nature of Operations





Entheos
Technologies, Inc. (“the Company”) is a small independent diversified energy
company engaged in the acquisition and development of crude oil and natural gas
interests in the United States.  The Company pursues oil and gas
prospects in partnership with oil and gas companies with exploration,
development and production expertise.  The Company has a
non-operating, minority working interest in five properties.  The
Company’s prospect areas consist of land in La Salle County, Lee County, Fayette
County and Frio County, Texas.  Currently four of the five wells in which
we have a minority interest are producing.  We currently do not operate any
of the wells in which we have an interest.




Incorporated
under the laws of the State of Nevada, the Company has an authorized capital of
200,000,000 shares of $0.00001 par value common stock, of which 63,075,122
shares are outstanding and 10,000,000 shares of $0.0001 par value preferred
stock, of which none are outstanding.




From 2002
until September 2008, through its wholly-owned subsidiary Email Solutions, Inc.,
the Company served as an Application Service Provider (“ASP”) providing
reliable, real time, high volume outsourced email and search engine optimization
services. Due to the limited success of the ASP business, management decided
that it was in the best interest to abandon the Application Service Provider
business and focus on identifying undervalued oil and gas opportunities for
acquisition, development and exploration. The assets and liabilities, the
results of operations and cash flows related to the ASP business were not
classified as discontinued operations as the amounts were not
significant.




The
Company has recently incurred net operating losses and operating cash flow
deficits.  It may continue to incur losses from operations and
operating cash flow deficits in the future.  However, management
believes the Company’s cash and cash equivalent balances, anticipated cash
flows from operations and other external sources of credit will be sufficient to
meet its cash requirements through March 2010.  The future of the
Company after March 2010 will depend in large part on its ability to
successfully generate cash flows from operations and raise capital from external
sources to fund operations.





Note
2. Accounting Policies





Principles
of Accounting





These
financial statements have been prepared by management in accordance with
accounting principles generally accepted in the United States of
America.





Principles
of Consolidation





The
consolidated financial statements include the accounts of Entheos Technologies,
Inc. (a Nevada corporation) and its wholly-owned subsidiary, Email Solutions,
Inc. (a Nevada corporation). There are no assets and liabilities in the wholly
owned subsidiary. The Company accounts for its undivided interest in oil
and gas properties using the proportionate consolidation method, whereby its
share of assets, liabilities, revenues and expenses are included in its
consolidated financial statements.





Accounting
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period.  Management’s judgments and estimates in these areas
are based on information available from both internal and external sources,
including engineers, geologists, consultants and historical experience in
similar matters. The more significant reporting areas impacted by
management’s judgments and estimates are accruals related to oil and gas sales
and expenses; estimates of future oil and gas reserves; estimates used in
the impairment of oil and gas properties; and the estimated future timing and
cost of asset retirement obligations.





Actual
results could differ from the estimates as additional information becomes known.
The carrying values of oil and gas properties are particularly susceptible to
change in the near term.  Changes in the future estimated oil and gas
reserves or the estimated future cash flows attributable to the reserves that
are utilized for impairment analysis could have a significant impact on the
future results of operations.


22
 Table of Contents


Full
Cost Method of Accounting for Oil and Gas Properties





The
Company has elected to utilize the full cost method of accounting for its oil
and gas activities. In accordance with the full cost method of accounting, all
costs associated with acquisition, exploration, and development of oil and gas
reserves, including directly related overhead costs and related asset retirement
costs, are capitalized.





All
capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves, are amortized on the unit-of-production method
using estimates of proved reserves once proved reserves are determined to
exist. The Company has not yet obtained reserve reports because of its
recent acquisition of its oil and gas properties and because these properties
recently began producing.  Management is assessing geographic and
production data to determine the need for reserves studies.  At
December 31, 2008, there were no capitalized costs subject to
amortization.





Oil and
gas properties without estimated proved reserves are not amortized until
proved reserves associated with the properties can be determined or until
impairment occurs. The cost of these properties is assessed quarterly, on a
property-by-property basis, to determine whether the properties are recorded at
the lower of cost or fair market value.  In determining whether such
costs should be impaired, the Company evaluates historical experience, current
drilling results, lease expiration dates, current oil and gas industry
conditions, international economic conditions, capital availability, and
available geological and geophysical information.  As a result of this
analysis, the Company recorded an impairment of $93,444 for
2008.  This impairment is similar to amortization and therefore is not
added to the cost of properties being amortized.





Sales of
oil and gas properties are accounted for as adjustments of capitalized costs
with no gain or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved reserves of oil and
gas, in which case the gain or loss is recognized in income.  The
Company did not sell any properties during 2008 or 2007.





Full
Cost Ceiling Test





At the
end of each quarterly reporting period, the unamortized costs of oil and gas
properties are subject to a “ceiling test” which basically limits
capitalized costs to the sum of the estimated future net revenues from proved
reserves, discounted at 10% per annum to present value, based on current
economic and operating conditions, adjusted for related income tax
effects.





Oil
and Gas Revenues





The
Company recognizes oil and gas revenues when oil and gas production is sold to a
purchaser at a fixed or determinable price, when delivery has occurred and title
has transferred, and if collectability of the revenue is probable. Delivery
occurs and title is transferred when production has been delivered to a
purchaser’s pipeline or truck. As a result of the numerous requirements
necessary to gather information from purchasers or various measurement
locations, calculate volumes produced, perform field and wellhead allocations
and distribute and disburse funds to various working interest partners and
royalty owners, the collection of revenues from oil and gas production may take
up to 45 days following the month of production. Therefore, the Company may
make accruals for revenues and accounts receivable based on estimates of its
share of production. Since the settlement process may take 30 to 60 days
following the month of actual production, its financial results may include
estimates of production and revenues for the related time period. The Company
will record any differences between the actual amounts ultimately received and
the original estimates in the period they become finalized.  As of
December 31, 2008, all revenue and expense information had been received from
the operators so there was no estimated revenue or expense.





Asset
Retirement Obligation





The
Company has adopted the provisions of SFAS 143,“Accounting for Asset Retirement
Obligations.”  SFAS 143
amended SFAS 19,“Financial Accounting and
Reporting by Oil and
Gas ProducingCompanies,” and, among other matters,
addresses financial accounting and reporting for legal obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs.  SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred, with the associated asset retirement cost capitalized as
part of the related asset and allocated to expense over the asset’s useful
life.





In
March 2005, the FASB issued FASB Interpretation No. 47 (“FIN
No. 47”),Accounting for
Conditional Asset Retirement Obligations. FIN No. 47 clarifies that a
conditional asset retirement obligation, as used in SFAS 143, refers to a legal
obligation to perform an asset retirement activity in which the timing or method
of the settlement are conditional on a future event that may or may not be
within the control of the entity. Accordingly, an entity is required to
recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value can be reasonably estimated.


23
 Table of Contents


The
Company does not have material asset retirement obligations as of December 31,
2008 or 2007.





Cash
and Cash Equivalents





The
Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.  The Company did
not have any cash equivalents at December 31, 2008 and 2007.  The Company
occasionally has cash deposits in excess of insured limits.





Income
Taxes





The
Company adopted SFAS 109,“Accounting for Income
Taxes.”  Under SFAS
109, deferred income tax assets and liabilities are computed for differences
between the financial statements and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future, based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary,
to reduce deferred income tax assets to the amount expected to be
realized.





In June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109, Accounting for Income
Taxes”, effective for the Company beginning on January 1, 2007. FIN 48
clarifies the recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also provides guidance on
disclosure and other matters. The adoption of FIN 48 had no impact on the
Company’s financial position.





Stock-Based
Compensation





The
Company accounts for stock-based compensation under SFAS 123(R) “Share-Based Payment” which requires measurement
of compensation cost for all stock-based awards at fair value on the date of
grant and recognition of compensation over the service period for awards
expected to vest. The fair value of stock options is determined using the
Black-Scholes valuation model.





Loss
Per Share





Basic
earnings or loss per share is based on the weighted average number of common
shares outstanding. Diluted earnings or loss per share is based on the weighted
average number of common shares outstanding and dilutive common stock
equivalents. Basic earnings/loss per share is computed by dividing net income
applicable to common stockholders (numerator) by the weighted average number of
common shares outstanding (denominator) for the period. All earnings or loss per
share amounts in the financial statements are basic earnings or loss per share,
as defined by SFAS 128,“Earnings Per
Share.”  Convertible securities that could potentially dilute
basic earnings or loss per share in the future, such as options and warrants,
are not included in the computation of diluted earnings or loss per share
because to do so would be antidilutive.





Comprehensive
Income (Loss)





The
Company has adopted SFAS 130, “Reporting Comprehensive
Income,” which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.  For
2008 and 2007 the Company did not have any items of comprehensive income, other
than net loss.





Foreign
Currency Translation





The
Company translates foreign assets and liabilities of its subsidiaries, other
than those denominated in United States Dollars, at the rate of exchange at the
balance sheet date. Revenues and expenses are translated at the average rate of
exchange throughout the year. Gains or losses from these translations are
reported as a separate component of other comprehensive income (loss), until all
of the investment in the subsidiaries is sold or liquidated. The translation
adjustments do not recognize the effect of income tax because the Company
expects to reinvest the amounts indefinitely in operations.





Transaction
gains (losses) that arise from exchange rate fluctuations on transactions
denominated in a currency other than the local functional currency are included
in the statements of operations.





Fair
Value of Financial Instruments





The
determination of fair value of financial instruments is made at a specific point
in time, based on relevant information about financial markets and specific
financial instruments.  As these estimates are subjective in nature,
involving uncertainties and matters of significant judgment, they cannot be
determined with precision.  Changes in assumptions can significantly affect
estimated fair values. The carrying value of cash and cash equivalents,
accounts payable and accrued liabilities, and accounts payable – related parties
approximates their fair value because of the short-term nature of these
instruments. The Company places its cash with high credit quality financial
institutions.


24
 Table of Contents


Related
Party Transactions





A related
party is generally defined as (i) any person that holds 10% or more of the
Company’s securities and their immediate families, (ii) the Company’s
management, (iii) someone that directly or indirectly controls, is controlled by
or is under common control with the Company, or (iv) anyone who can
significantly influence the financial and operating decisions of the Company. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties. (See Note
5).





Recent
and Adopted Accounting Pronouncements





In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (SFAS 157),
which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair-value measurements required under other
accounting pronouncements. It does not change existing guidance as to whether or
not an instrument is carried at fair value. SFAS 157 was effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. In February 2008, the FASB issued
FASB Staff Position No. FAS 157-1 (FSP FAS 157-1), which excludes SFAS 13,
“Accounting for Leases” and certain other accounting pronouncements that address
fair value measurements under SFAS 13, from the scope of SFAS 157. In February
2008, the FASB issued FASB Staff Position No. 157-2 (FSP 157-2), which
provides a one-year delayed application of SFAS 157 for nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least
annually).  Therefore, the Company adopted the provisions of SFAS 157
with respect to financial assets and liabilities only.  The Company is
required to adopt SFAS 157 as amended by FSP FAS 157-1 and FSP FAS 157-2 on
January 1, 2009, the beginning of its fiscal year as related to nonfinancial
assets and liabilities. The Company does not expect the application of the
amended aspects of SFAS No. 157 to have a material effect on the Company’s
consolidated financial statements.





In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3),
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The guidance in FSP
157-3 is effective immediately and did not have an impact on the Company’s
consolidated financial statements.





In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-Including an amendment of FASB Statement No.
115,” which is effective for fiscal years beginning after November 15,
2007. The statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The Company has not elected
the fair value option under SFAS 159 for any instrument, but may elect to do so
in future periods.





In July
2007, the Emerging Issues Task Force (EITF) issued EITF 07-3, “Accounting for Nonrefundable Advance
Payments for Goods or Services to be Used in Future Research and Development
Activities” (EITF 07-3). EITF 07-3 clarifies the accounting for
nonrefundable advance payments for goods or services that will be used or
rendered for research and development activities. EITF 07-3 states that such
payments should be capitalized and recognized as an expense as the goods are
delivered or the related services are performed. If an entity does not expect
the goods to be delivered or the services rendered, the capitalized advance
payment should be charged to expense. EITF 07-3 is effective for fiscal years
beginning after December 15, 2007. The Company’s adoption of EITF 07-3 did not
have an impact on the Company’s financial position or results of
operations.





In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. The Company must adopt SFAS 160 on January 1, 2009, the
beginning of its fiscal year. The Company does not expect the application
of SFAS No. 160 to have a material effect on the consolidated financial
statements.





In
December 2007, the FASB issued SFAS 141R, “Business Combinations” (SFAS
141R), which establishes principles and requirements for the reporting entity in
a business combination, including recognition and measurement in the financial
statements of the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008, and interim periods within those fiscal years. The
Company must adopt SFAS 141R on January 1, 2009, the beginning of its fiscal
year. The Company does not expect the application of SFAS 141R to have a
material effect on the consolidated financial statements.


25
 Table of Contents


In
December 2007, the SEC staff issued Staff Accounting Bulletin (SAB) 110, “Share-Based Payment” (SAB
110) which amends SAB 107, “Share-Based Payment,” to
permit public companies, under certain circumstances, to use the simplified
method in SAB 107 for employee option grants after December 31, 2007. Use of the
simplified method after December 2007 is permitted only for companies whose
historical data about their employees’ exercise behavior does not provide a
reasonable basis for estimating the expected term of the options. The Company
currently uses the simplified method to estimate the expected term for employee
option grants as adequate historical experience is not available to provide a
reasonable estimate. SAB 110 is effective for employee options granted after
December 31, 2007. The Company adopted SAB 110 effective January 1, 2008 and
continues applying the simplified method until enough historical experience is
readily available to provide a reasonable estimate of the expected term for
employee option grants.





In June
2008, the FASB issued Staff Position EITF 03-06-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”
(FSP EITF 03-06-1). FSP EITF 03-06-1 provides that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class method in SFAS
No. 128, “Earnings per Share” and is effective for fiscal years beginning after
December 15, 2008.  The Company does not believe the implementation of
FSP EITF 03-06-1 will have any impact on the Company’s consolidated financial
statements.





Note
3. Loss Per Share





Basic
earnings or loss per common share is based on the weighted average number of
shares outstanding during the period of the financial statements.  Diluted
earnings or loss per share are based on the weighted average number of common
shares outstanding and dilutive common stock equivalents. All share and per
share information are adjusted retroactively to reflect stock splits and changes
in par value, when applicable. All loss per share amounts in the financial
statements are basic loss per share because the inclusion of stock options and
warrants outstanding would be antidilutive.





For
      the years endedDecember 31,2008
                        
                        
                        2007Numerator
      - net loss attributable to common
      stockholders
                        
                        $
                        (265,149
                        )
                        
                        $
                        (24,682
                        )Denominator
      - weighted average number of common shares outstanding
                        
                        
                        59,374,302
                        
                        
                        
                        96,515,533Basic
      and diluted loss per common share
                        
                        $
                        0.00
                        
                        
                        $
                        0.00





Note
4. Oil and Gas Properties





During
the fiscal year ended December 31, 2008, the Company acquired non-operating,
working interests in five wells as follows:





MonthAcquisition
                        
                        Interest
                        
                        ProductionDate
                        
                        Working
                        
                        
                        Net Revenue
                        
                        Started
                        FormationProven
      Properties:Cooke
      #6
                        9/1/2008
                        
                        
                        21.75
                        %
                        
                        
                        16.3125
                        %
                        Dec-07
                        EscondidoOnnie
      Ray #1
                        9/12/2008
                        
                        
                        20.00
                        %
                        
                        
                        15.00
                        %
                        Oct-08
                        Austin
      ChalkStahl
      #1
                        9/12/2008
                        
                        
                        20.00
                        %
                        
                        
                        15.00
                        %
                        Oct-08
                        Austin
      ChalkPearce
      #1
                        10/31/2008
                        
                        
                        20.00
                        %
                        
                        
                        15.00
                        %
                        Dec-08
                        Austin
      ChalkUnproven
      Properties:Haile
      #1
                        9/12/2008
                        
                        
                        20.00
                        %
                        
                        
                        15.00
                        %
                        -
                        Austin
      Chalk


26
 Table of Contents


Costs
incurred in oil and gas property acquisition, exploration and development
activities, including capital expenditures are summarized as follows at December
31, 2008 and 2007:





2008
                            
                            
                            2007Acquisition
      costs
                            
                            $
                            234,599
                            
                            
                            $
                            -Exploration
      costs
                            
                            
                            82,875
                            
                            
                            
                            -Development
      costs
                            
                            
                            124,554
                            
                            
                            
                            -$
                            442,028
                            
                            
                            $
                            -





The
Company amortizes all capitalized costs of oil and gas properties on the
unit-of-production method using proved reserves.  The Company has not
yet obtained reserve studies with estimated proved reserve quantities because of
its recent acquisition of these properties and also because these properties
recently began producing.  Management is assessing geographic and
production data to determine the need for reserves studies.  Therefore
at December 31, 2008, there were no capitalized costs subject to
amortization.





Unproven
properties costs as of December 31, 2008 are associated with an exploratory oil
well which had not been completed and is not producing. These exploratory
well costs have also been excluded from amortization.  Management
expects that the recompletion efforts will be finished during 2009 at which time
the capitalized costs will be added to the amortization base.





Properties
which are not being amortized are assessed quarterly, on a property-by-property
basis, to determine whether they are recorded at the lower of cost or fair
market value.  As a result of this analysis, the Company recorded an
impairment of $93,444 for 2008.  This impairment is similar to
amortization and therefore is not added to the cost of properties being
amortized.





Note
5. Related Party Transactions





Executive
Management:  For the year ended December 31, 2008, the Company
incurred $10,000 in fees paid to the Derek Cooper the President, Chief Executive
Officer and Chief Financial Officer of the Company.  In addition,
during September 2008, the Company granted stock options to purchase 50,000
shares of common stock to Mr. Cooper.  For the year ended December 31,
2008, the Company recorded $4,840 as stock compensation expense related to this
stock grant.





DirectorFees: For the year ended
December 31, 2008, the Company incurred $25,000 in board fees for non-employee
directors of the Company.  During 2008, the Company granted a
total of 150,000 options to purchase common stock to non-employee board members.
 For the year ended December 31, 2008, the Company recorded $14,520 as
stock compensation expense relating to these stock grants.  During the
year ended December 31, 2007, the Company paid management fees of $1,500 to the
directors. There is no management or consulting agreements in
effect.





Accounts payable–related party: As of
September 1, 2008, the Company settled all amounts owed to a former
director and majority shareholder, amounting to $24,811, outstanding for
management fees (the balance was forgiven for no consideration). The amount
outstanding was recorded as an increase to additional paid-in
capital.   As of December 31, 2008 and 2007 accounts payable to
related parties were $12,077 and $23,812 respectively.





Rent:Until August 31, 2008,
the Company’s administrative office was located at 1628 West 1st Avenue,
Suite 216, Vancouver, British Columbia, Canada, V6J 1G1.  This premise
is owned by a private corporation controlled by a former director and majority
shareholder. The Company paid rent of $6,663 and $7,812 for the years ended
December 31, 2008 and 2007, respectively.  Effective September 1,
2008, the Company closed its administrative office in Vancouver, British
Columbia, Canada, terminating all of its employees. There were no severance
arrangements with any of the terminated employees.


27
 Table of Contents


On
December 31, 2007, 40,000,000 common shares owned by Mr. Harmel S. Rayat, a
director and major shareholder of the Company, originally subscribed for at
$0.0033 each were returned to the Company for cancellation and for no
consideration. Mr. Harmel S. Rayat was an officer and director of the
Company until September 12, 2008 and a majority stockholder of the Company until
September 9, 2008.





All
related party transactions are recorded at the exchange amount established and
agreed to between related parties and are in the normal course of
business.





Note
6. Stockholders’ Equity





On
December 31, 2007, 40,000,000 common shares owned by Mr. Harmel S. Rayat, a
director and major shareholder of the Company, originally subscribed for at
$0.0033 each were returned to the Company for cancellation and for no
consideration.





On July
28, 2008, the Company completed a self-directed private placement of 6,450,000
units at a price of $0.50 per unit or $3,225,000 in the
aggregate.  Each unit consists of one share of the Company’s common
stock, one Series A stock purchase warrant (Series A warrant) to purchase a
share of common stock at $0.60 per share for a period of 18 months from the date
of issuance and one Series B stock purchase warrant (Series B warrant) to
purchase a share of common stock at $0.75 per share for a period of 24 months
from the date of issuance.  The relative fair value of the common
stock was estimated to be $1,571,638 and the relative fair value of the warrants
was estimated to be $1,653,362 as determined based on the relative fair value
allocation of the proceeds received.  The warrants were valued using
the Black-Scholes option pricing model.  In connection with the
private placement, the Company issued an aggregate of 50,000 units in payment of
legal fees in the amount of $25,000.  These units were otherwise
issued on the same terms and conditions as the units sold in the private
placement.





Warrants


The
Company account for warrants granted to unrelated parties in accordance with
EITF 00-19 “Accounting for
Derivative Financial Instruments Indexed to and Potentially Settled in a
Company’s Own Stock.”  In accordance with the EITF, the fair
value of such warrants is classified as a component of permanent equity within
additional paid-in capital and is calculated on the date of grant using the
Black-Scholes Option pricing model.





Each of
the Company’s warrants outstanding entitles the holder to purchase one share of
the Company’s common stock for each warrant share held. No warrants were
exercised during the years ended December 31, 2008 and 2007. A summary of the
Company’s warrants outstanding is as follows:





Series
      A Warrants
                      
                      
                      Series
      B WarrantsWarrants
      outstanding and exercisable at December 31, 2008
                      
                      
                      
                      6,450,000
                      
                      
                      
                      6,450,000Exercise
      price
                      
                      
                      $
                      0.60
                      
                      
                      $
                      0.75Fair
      value on date of grant
                      
                      
                      $
                      2,495,800
                      
                      
                      $
                      2,593,247Black-Scholes
      option pricing model assumptions:Risk-free
      interest rate
                      
                      
                      
                      2.435
                      %
                      
                      
                      2.590
                      %Expected
      term
                      
                      
                      1.5
      years
                      
                      
                      2
      yearsExpected
      volatility
                      
                      
                      
                      96.15
                      %
                      
                      
                      100.76
                      %Dividend
      per share
                      
                      
                      $
                      0
                      
                      
                      $
                      0Expiration
      date
                      
                      
                      January
      28, 2010
                      
                      
                      July
      28, 2010





A total
of 12,900,000 shares of the Company’s common stock have been reserved for
issuance upon exercise of warrants shares outstanding as of December 31,
2008.





Note
7. Stock Options





The
Company has an active stock option plan that provides shares available for
option grants to employees, directors and others.  A total of
120,000,000 shares of the Company’s common stock have been reserved for award
under the stock option plan, of which 119,800,000 were available for future
issuance as of December 31, 2008.  Options granted under the Company’s
option plan generally vest over five years or as otherwise determined by the
Board of Directors, have exercise prices equal to the fair market value of the
common stock on the date of grant, and expire no later than ten years after the
date of grant.


28
 Table of Contents


Summary
of employee stock option information for years ended December 31, 2008 and 2007
is as follows:





Number
      of options
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Weighted
      average exercise price
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Remaining
      contractual term (years)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Aggregate
      intrinsic valueOutstanding
      at December 31, 2006
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    7,230,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    0.01Cancelled
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (7,230,000
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0.01Outstanding
      at December 31, 2007
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0Granted
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    200,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1.00
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9.70
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    -Outstanding
      at December 31, 2008
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    200,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1.00
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9.70
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -Exercisable
      at December 31, 2008
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0Available
      for grant at December 31, 2008
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    119,800,000





The
aggregate intrinsic value in the table above represents the total pretax
intrinsic value for all “in-the-money” options (i.e. the difference between the
Company’s closing stock price on the last trading day of the year ended December
31, 2008 and the exercise price, multiplied by the number of shares) that would
have been received by the option holders had all option holders exercised their
options on December 31, 2008. This amount is based on the fair market value of
the Company’s stock. Total intrinsic value of options exercised was $nil at
December 31, 2008 (2007: $nil).





A summary
of the Company’s unvested stock options and changes during the years ended
December 31, 2008 and 2007 is as follows:





Number
      of options
                                      
                                      
                                      Weighted
      Average Grant Date Fair ValueUnvested,
      December 31, 2006
                                      
                                      
                                      7,230,000
                                      
                                      
                                      $
                                      0.51Granted
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Cancelled
                                      
                                      
                                      (7,230,000
                                      )
                                      
                                      
                                      0.51Unvested,
      December 31, 2007
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Granted
                                      
                                      
                                      200,000
                                      
                                      
                                      
                                      0.73Vested
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Unvested,
      December 31, 2008
                                      
                                      
                                      200,000
                                      
                                      
                                      
                                      0.73








All stock
options outstanding at December 31, 2008, were granted on the same date, have
the same exercise price, term and grant date fair value.





During
the years ended December 31, 2008 and 2007, the Company granted 200,000 and nil
stock options awards.  For purposes of determining the stock-based
compensation expense for stock option awards granted, the Black-Scholes Option
Pricing Modelwas usedwith the following
assumptions: dividend yield of 0%, expected volatility of195.38%, risk-free
interest rateof2.97%, and expectedtermof 5 years.




The
weighted average fair value of options granted during the year ended December
31, 2008 was $0.73 per share.





For the
year ended December 31, 2008, stock option compensation expense of
$19,360 was recognized as general and administrative
expenses.  There was no stock based compensation expense for the year
ended December 31, 2007.  The Company had $125,987 of total
unrecognized compensation cost related to unvested stock options as of December,
31 2008, which is expected to be recognized over a weighted average period of
approximately 4.7 years.





The
Company does not repurchase shares to fulfill the requirements of options that
are exercised. Further, the Company issue new shares when options are
exercised.


29
 Table of Contents


8.
Income Taxes





There is
no current or deferred tax expense for 2008 and 2007, due to the Company’s loss
position. The benefits of temporary differences have not been recorded. The
deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, as appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company’s ability to generate taxable
income within the net operating loss carryforward period.  Management
has considered these factors in reaching its conclusion as to the valuation
allowance for financial reporting purposes and has recorded a full valuation
allowance against the deferred tax asset. The income tax effect, utilizing a 34%
income tax rate, of temporary differences comprising the deferred tax assets and
deferred tax liabilities is a result of the following at
December 31:








2008
                                    
                                    
                                    2007Deferred
      tax assets:Net
      operating loss carryforwards
                                    
                                    $
                                    1,275,000
                                    
                                    
                                    $
                                    1,226,000Stock
      based compensation
                                    
                                    
                                    7,000
                                    
                                    
                                    
                                    -Valuation
      allowance
                                    
                                    
                                    (1,271,000
                                    )
                                    
                                    
                                    (1,226,000
                                    )Deferred
      tax liability
                                    
                                    
                                    11,000
                                    
                                    
                                    
                                    -Oil
      and gas properties
                                    
                                    
                                    (11,000
                                    )Net
      deferred tax assets
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -





The 2008
increase in the valuation allowance was $45,000
(2007:  $8,000).





The
Company has available net operating loss carryforwards of approximately
$3,771,000 for tax purposes to offset future taxable income which expires
commencing 2011 through to the year 2028. Pursuant to the Tax Reform Act of
1986, annual utilization of the Company’s net operating loss carryforwards may
be limited if a cumulative change in ownership of more than 50% is deemed to
occur within any three-year period.  The tax years 2005 through 2007 remain
open to examination by federal agencies and other jurisdictions in which it
operates.





A
reconciliation between the statutory federal income tax rate (34%) and the
effective rate of income tax expense for the years ended December 31
follows:





2008
                      
                      
                      2007Statutory
      federal income tax rate
                      
                      
                      -34
                      %
                      
                      
                      -34
                      %Valuation
      allowance
                      
                      
                      34
                      %
                      
                      
                      34
                      %0
                      %
                      
                      
                      0
                      %





Note
9. Subsequent Events





Effective
January 9th 2009,
Frank Fabio resigned as Chief Financial Officer and Secretary of the Company.
This resignation was not the result of a disagreement with the Company on any
matter relating to the Company's operations, policies or practices.





Also
effective January 9th 2009,
the Board of Directors of the Company appointed Mr. Derek Cooper, President and
Chief Executive Officer of the Company, to also serve as the Company’s Chief
Financial Officer and Secretary .


30
 Table of Contents


ITEM 9:  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.





We have
had no disagreements with our independent registered public accountants with
respect to accounting practices, procedures or financial
disclosure.







ITEM 9A(T):  CONTROLS AND PROCEDURES.





Evaluation
of Disclosure Controls and Procedures





Under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, the Company conducted
an evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the
period covered by this annual report. Based on this evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer concluded as of December 31,
2008 that the Company’s disclosure controls and procedures were effective such
that the information required to be disclosed in the Company’s United States
Securities and Exchange Commission (the “SEC”) reports is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.





Evaluation
of and Report on Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting of the Company. Management, with the participation of our
chief executive officer and chief financial officer, has evaluated the
effectiveness of our internal control over financial reporting as of December
31, 2008 based on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations (COSO). Based on
this evaluation, management concluded that, as of December 31, 2008, our
internal control over financial reporting is effective in providing reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.





Changes
in Internal Control over Financial Reporting





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





There
have been no changes in internal controls, or in factors that could materially
affect internal controls, subsequent to the date that management, including the
Chief Executive Officer and the Chief Financial Officer, completed their
evaluation.








ITEM 9B.  OTHER INFORMATION.





None.


31
 Table of Contents




PART
III










ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.





Directors
and Executive Officers





The
following table sets forth the names of all of our current directors and
executive officers. We have a Board of Directors comprised of three members.
Executive officers serve at the discretion of the Board of Directors and are
appointed by the Board of Directors. Each director holds office until a
successor is duly elected or appointed. Officers are elected annually by
the Board of Directors and serve at the discretion of the board.





Name
                                    Age
                                    Position
                                    
                                    Director
      / Officer SinceDerek
      J. Cooper
                                    31
                                    President,
      Chief Executive Officer, Chief Financial Officer, and
    Director
                                    
                                    September
      2008Jeet
      Sidhu
                                    36
                                    Director
                                    
                                    September
      2008Christian
      Hudson
                                    43
                                    Director
                                    
                                    September
      2008Harmel
      S. Rayat
                                    47
                                    President,
      Chief Executive Officer, Chief Financial Officer, and
    Director
                                    
                                    March
      18, 2006Timothy
      N. Luu
                                    44
                                    Secretary,
      Treasurer, Chief Technology Officer, Director
                                    
                                    February
      7, 2005Frank
      Fabio
                                    57
                                    Chief
      Financial Officer
                                    
                                    September
      12,
2008





There are
no family relationships between any of our directors, executive officers and
other key personnel.





Recent Management
Changes





We have
recently experienced a change in our management and Board of
Directors.





Effective
on September 12, 2008, each of Messrs. Harmel S. Rayat and
Timothy N. Luu resigned from the Company’s Board of Directors and as
an officer of the Company in order to pursue other interests and not as a result
of any disagreement between himself and the Company.





Effective
September 12, 2008, the Board of Directors appointed Mr. Derek J.
Cooper to serve as the Company’s President and Chief Executive
Officer.  After the resignation of the Chief Financial Officer on
January 9, 2009, the Board of Directors appointed Mr. Derek J. Cooper Chief
Financial Officer.





Effective
September 12, 2008, the Board of Directors appointed Mr. Jeet Sidhu to
serve as a director of the Company, and to serve as such until the next annual
meeting of the Company’s shareholders and until his successor shall have been
duly elected and qualified.





Effective
September 12, 2008, the Board of Directors appointed
Mr. Christian Hudson to serve as a director of the Company, and to
serve as such until the next annual meeting of the Company’s shareholders and
until his successor shall have been duly elected and qualified.





Effective
September 12, 2008, Mr. Frank Fabio was appointed our Chief Financial
Officer; Mr. Fabio resigned on January 9, 2009.





The
directors are elected to one-year terms. Each director holds office until
the expiration of the director’s term, until the director’s successor has been
duly elected and qualified or until the earlier of such director’s resignation,
removal or death. Our board of directors does not have an audit or any
other committee. The officers serve at the pleasure of the Board of
Directors.





The
following is a brief description of the business experience of each of the
directors and officers during the past five years, and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities law. As of the date of this
filing, the members of our Board of Directors and our executive officers were as
follows:





Derek J. Cooper





Mr. Cooper
earned his Bachelor of Science degree in Physics in 2001 and his Bachelor of
Applied Science in Geological Engineering in 2005, both at the University of
British Columbia. From January 2003 through September 2003, Mr. Derek J.
Cooper joined Syncrude Canada Ltd., the world’s largest producer of crude oil
from oil sands. While completing his Applied Sciences degree, from June
2004 thru September 2004, Mr. Cooper undertook and completed a near-term
engineering-exploration contract with Stealth Minerals Ltd. From 2005 to
March 2008, Mr. Cooper worked at Elk Valley Coal, the world’s second
largest producer of metallurgical coal, as a Planning Engineer. In April 2008,
Mr. Cooper joined TransAlta Utilities, as an Intermediate Engineer in the
Fuel Supply Group where he performs life-of-mine planning, costing, and capital
equipment selection as well as scoping/feasibility projects. Mr. Cooper
joined the Company as Director on September 12, 2008. Mr. Cooper
also serves as a director and officer of International Energy,
Inc.


32
 Table of Contents


Jeet Sidhu





Mr. Sidhu
graduated from the British Columbia Institute of Technology with a Diploma in
Corporate Finance in 1995. Since 2002, Mr. Sidhu has been Vice-President of
Montgomery Asset Management Corporation, a privately held firm providing
financial and management consulting services to emerging growth
corporations.





Christian Hudson





Mr. Hudson
earned a Bachelor of Arts degree in Economics from the University of California,
Santa Barbara in 1987 and also earned a Masters in Business Administration from
Columbia University in 1991. From 2002 to 2008, Mr. Hudson served
as Chief Information Officer at Swiss American Securities Inc., member of the
Credit Suisse Group.  Mr. Hudson is currently pursuing entrepreneurial
opportunities within Financial Services and Real Estate markets.





Compensation
of Directors





Our Board
of Directors determines the non-employee directors’ compensation for serving on
the Board and its committees. In establishing director compensation, the Board
is guided by the following goals:





·
            Compensation
      should consist of a combination of cash and equity awards that are
      designed to fairly pay the directors for work required on behalf of a
      company of the size and scope of Entheos Technologies,
    Inc.;





·
            Compensation
      should align the directors’ interests with the long-term interests of
      stockholders; and





·
            Compensation
      should assist with attracting and retaining qualified
      directors.





The
Company does not pay director compensation to directors who are also employees.
Non-employee directors receive between $2,000 and $2,500 per month for their
services as directors; each is entitled to be reimbursed for reasonable and
necessary expenses incurred on our behalf. During the years ended December
31, 2008, 2007 and 2006, $25,000, $1,500 and $31,800 respectively was paid to
directors for services rendered.Stock-based compensation
expense relating to director stock option awards totaled $14,519, $0 and $0
for the years ended December 31, 2008, 2007 and 2006 respectively.





Each non
employee director receives an initial stock option entitling him to purchase up
to 50,000 shares of stock at a price per share equal to the closing price of our
common stock, as reported on the Over the Counter Bulletin Board on
the date of the option grant; the options vest at the rate of 20% per annum
in arrears.





We have
no other arrangements pursuant to which any our directors were compensated
during the years ended December 31, 2008 and 2007 for services as a
director.





In
accordance with applicable SEC rules and regulations, the following table
reports all compensation the Company paid to non-employee directors during the
fiscal year ended December 31, 2008:





Name
                        
                        Fees
                          Earned or
                          Paid in
                          Cash ($)(1)
                        
                        
                        Stock
                          Awards ($)
                          (2)
                        
                        
                        Total
      ($)Jeet
      Sidhu
                        
                        $
                        8,000
                        
                        
                        $
                        4,840
                        (3)
                        
                        $
                        12,840Christian
      Hudson
                        
                        
                        8,000
                        
                        
                        
                        4,840
                        (3)
                        
                        
                        12,840Frank Fabio
                        
                        
                        6,000
                        
                        
                        
                        4,839
                        
                        
                        
                        10,839Tim
      N. Luu
                        
                        
                        3,000
                        
                        
                        
                        0
                        
                        
                        
                        3,000





(1) The amounts in this
column represent the monthly cash meeting fee earned by or paid to the Company's
non-employee directors for service during the fiscal year ended December 31,
2008.  Non-employee directors, excluding Tim Luu, receive between
$2,500 and $1,500 monthly cash compensation.  Tim Luu received $1,500
semi-annually.


(2) This column reflects
the dollar amount recognized for financial statement reporting purposes for the
fiscal year ended December 31, 2008 in accordance with FAS 123R for stock option
awards. For information regarding significant factors, assumptions and
methodologies used in determining the fair value of the Company's stock options,
see Note 7. Stock Options.


(3) On
September 12, 2008 the Company granted a stock option to purchase 50,000 shares
of common stock to each to Mr. Sidhu, Mr. Hudson and Mr. Fabio at an exercise
price of $1.00 per share.  Of each 50,000 grant, the first 10,000
stock options vest on September 12, 2009 and then 10,000 stock options will vest
every year thereafter. The fair value of each 50,000 stock option grant was
$29,069, estimated using the Black-Scholes Option Pricing Model with the
following weighted average assumptions: dividend yield of 0%, expected
volatility of 195.38%, risk-free interest rates of 2.970%, and expected lives of
5 years.


33
 Table of Contents


Directors’
and Officers’ Liability Insurance





We do not
currently maintain directors and officers liability insurance coverage. We are
currently reviewing insurance policies and anticipate obtaining coverage for our
board of directors and officers.





Legal
Proceedings





During
the past five years, except as set forth below, none of our directors, executive
officers, promoters or control persons has been:





·
            the
      subject of any bankruptcy petition filed by or against any business of
      which such person was a general partner or executive officer either at the
      time of the bankruptcy or within two years prior to that
    time;





·
            convicted
      in a criminal proceeding or is subject to a pending criminal proceeding
      (excluding traffic violations and other minor
  offenses);





·
            subject
      to any order, judgment, or decree, not subsequently reversed, suspended or
      vacated, of any court of competent jurisdiction, permanently or
      temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      or





·
            found
      by a court of competent jurisdiction (in a civil action), the Commission
      or the Commodity Futures Trading Commission to have violated a federal or
      state securities or commodities
law.





CORPORATE
GOVERNANCE





Director
Independence





We are
not listed on a US securities exchange and, therefore, not subject to the
corporate governance requirements of any such exchange, including those related
to the independence of directors. However, at this time, after considering all
of the relevant facts and circumstances our, Board of Directors has determined
that each of Messrs. Sidhu and Hudson are independent from the Company’s
management and qualify as “independent directors” under the standards of
independence under the applicable National Association of Securities Dealers
(“NASD ”) listing
standards. This means that, in the judgment of the Board of Directors, none
of those directors (1) is an officer or employee of the Company or its
subsidiaries or (2) has any direct or indirect relationship with the Company
that would interfere with the exercise of his independent judgment in carrying
out the responsibilities of a director. As a result, the Company has a majority
of independent directors as required by the NASD listing standards. Upon our
listing on any national securities exchange or any inter-dealer quotation
system, we will elect such independent directors as is necessary under the
rules of any such securities exchange.





Board
of Directors Meetings and Committees of the Board of Directors





During
the fiscal year ended December 31, 2008, the Board held a total of four
meetings.  All members of the Board attended at least 75% of all
meetings of the Board.





The
Company does not currently have any standing committees of the Board of
Directors. The full Board is responsible for performing the functions
of: (i) the Audit Committee, (ii) the Compensation Committee and (iii) the
Nominating Committee.





Audit
Committee





The Board
does not currently have a standing Audit Committee. The full Board performs
the principal functions of the Audit Committee. The full Board monitors the
Company's financial reporting process and internal control system and reviews
and appraises the audit efforts of the Company's independent
accountants.


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 Table of Contents


Compensation
Committee





The Board
does not currently have a standing Compensation Committee. The full Board
establishes overall compensation policies for the Company and reviews
recommendations submitted by the Company’s management.





Nominating
Committee





The Board
does not currently have a standing Nominating Committee.





Code
of Ethics





Our Board
of Directors has adopted a Code of Ethics that establishes the standards of
ethical conduct applicable to all directors, officers and employees of our
company. The code addresses, among other things, conflicts of interest,
compliance with disclosure controls and procedures and internal control over
financial reporting, corporate opportunities and confidentiality requirements.
We have also adopted Corporate Governance Guidelines applicable to our Board of
Directors.  The code of ethics is attached as an exhibit to this
annual report.





Compliance
with Section 16(a) of the Exchange Act





Pursuant
to Section 16(a) of the Exchange Act of 1934, the executive officers and
directors of the Company in addition to any person who owns more than 10% of the
common stock of the Company are required to report their ownership of the common
stock of the Company and changes to such ownership with the SEC. Based on a
review of such reports and information provided to the Company, the Company
believes that during the most recent fiscal year the executive officers and
directors of the Company have complied with applicable filing requirements under
Section 16(a), Based solely upon a review of the copies of the forms furnished
to the Company, the Company believes that during fiscal 2008, the Section 16(a)
filing requirements applicable to its directors and executive officers were
satisfied.





Communications
with the Board of Directors





Stockholders
who wish to communicate with the Board of Directors may do so by addressing
their correspondence to the Board of Directors at Entheos Technologies, Inc.
888-3rd Street
SW, Suite 1000, Calgary, Alberta, Canada T2P 5C5.  The Board of
Directors has approved a process pursuant to which the President review and
forward correspondence to the appropriate director or group of directors for
response.








ITEM 11:  EXECUTIVE COMPENSATION.





The
following table shows, for the three-year period ended December 31, 2008, the
cash compensation paid by the Company, as well as certain other compensation
paid for such year, to the Company's Chief Executive Officer and the Company's
other most highly compensated executive officers. No executive officer of the
Company had a total annual salary and bonus for the fiscal year ended December
31, 2008 that exceeded $100,000.





Summary
Compensation Table








Name
      and Principal Position
                                Year
                                
                                Salary
                                
                                
                                Other
                                
                                
                                Options
      Awards ($)
                                
                                TotalDerek
      Cooper
                                2008
                                
                                
                                0
                                
                                
                                
                                10,000(2)
                                
                                
                                $
                                4,840President,
      CEO,
                                2007
                                
                                
                                n/aChief
      Financial Officer and Director
                                2006
                                
                                
                                n/aHarmel S. Rayat (1)
                                2008
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                0President,
      CEO,
                                2007
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                0Chief
      Financial Officer and Director
                                2006
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                
                                $
                                4,500
                                
                                0Tim Luu
      (1)
                                2008
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                0Secretary,
      Treasurer
                                2007
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                
                                $
                                3,000
                                
                                0Chief
      Technology Officer and Director
                                2006
                                
                                $
                                0
                                
                                
                                $
                                0
                                
                                
                                $
                                3,300
                                
                                0





(1)
            Each
      of Messrs. Rayat and Luu resigned all of their respective positions with
      the Company on September 12, 2008.


(2)
            Other
      compensation represents fees paid Derek Cooper as a Director of the
      Company.


35
 Table of Contents


Stock
Option Grants in Last Fiscal Year





Shown
below is further information regarding stock options awarded during 2008 to the
named officers and directors:





Name
                    Number
      of
                      Securities
                      Underlying
                      Options
                    
                    %
      of Total
                      Options
                      Granted
                      to Employees
                      in
      2008
                    
                    
                    Exercise
                      Price
      ($/sh)
                    
                    
                    Expiration
                      DateDerek
      J. Cooper
                    50,000
                    
                    
                    25%
                    
                    
                    $
                    1.00
                    
                    
                    9/12/2018Harmel
      Rayat(1)
                    0
                    
                    
                    0
                    
                    
                    
                    n/a
                    
                    
                    
                    n/aTim
      Luu (1)
                    0
                    
                    
                    0
                    
                    
                    
                    n/a
                    
                    
                    
                    n/a





(1)
            Resigned
      as an officer and director on September 12,
  2008.





Aggregated
Option Exercises During Last Fiscal Year and Year End Option Values





The
following table shows certain information about unexercised options at year-end
with respect to the named officers and directors:








Common
      Shares Underlying Unexercised
                  
                  
                  Value
      of Unexercised In-the-moneyOptions
      on
                    December 31,
      2008
                  
                  
                  Options
      on
                    December 31,
      2008
                  
                  Option ExpirationName
                  
                  Exercisable
                  
                  
                  Unexercisable
                  
                  
                  Exercisable
                  
                  
                  Unexercisable
                  
                  DateDerek
      J. Cooper
                  
                  
                  0
                  
                  
                  
                  50,000
                  
                  
                  
                  0
                  
                  
                  $
                  50,000
                  
                  9/12/2018Harmel
      Rayat (1)
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0Tim
      Luu (1)
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0





(1)
            Resigned
      as an Officer and Director on September 12,
  2008.





Employment
Contracts and Change in Control Arrangements





On
September 12, 2008, the Company and Derek J. Cooper entered into an agreement
whereby Mr. Cooper will function as the Company’s President and Chief Executive
Officer.  Compensation for such position was agreed upon in the amount
of $2,500 month.  In addition, Mr. Cooper was granted 50,000 options
vesting evenly over a five year period on the issuance anniversary
date.  On January 9, 2009, Derek J. Cooper was named the Chief
Financial Officer after the resignation of the Frank Fabio.





The
Company does not have any change-of-control or severance agreements with any of
its executive officers or directors. In the event of the termination of
employment of the Named Executive Officers any and all unexercised stock options
shall expire and no longer be exercisable after a specified time following the
date of the termination.








ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCK HOLDER MATTERS.





The
following table sets forth information with respect to the beneficial ownership
of our common stock as of December 31, 2008:





·
            each
      person (or group of affiliated persons) who is known by us to beneficially
      own 5% or more of our common stock;


·
            each
      of our directors;


·
            each
      of our named executive officers;
and


·
            all
      of our directors and executive officers as a
  group.


36
 Table of Contents


The
percentages of common stock beneficially owned are reported on the basis of
regulations of the Securities and Exchange Commission governing the
determination of beneficial ownership of securities. Under the rules of the
Securities and Exchange Commission, a person is deemed to be a beneficial owner
of a security if that person has or shares voting power, which includes the
power to vote or to direct the voting of the security, or investment power,
which includes the power to dispose of or to direct the disposition of the
security. Except as indicated in the footnotes to this table, each beneficial
owner named in the table below has sole voting and sole investment power with
respect to all shares beneficially owned and each person's address is c/o our
principal office address(unless otherwise indicated) at 888 3rd  Street, Suite
1000, Calgary, Alberta, T2P 5C5.





Person
      or Group
                                                
                                                Number
      of Shares of Common Stock
                                                
                                                
                                                
                                                
                                                
                                                PercentDerek
      J. Cooper
                                                
                                                
                                                0
                                                (1)
                                                (2)
                                                (3)
                                                
                                                
                                                
                                                0.0
                                                %888
      3rd Street SW, Suite 1000Calgary,
      AB T2P 5C5Christian Hudson
                                                
                                                
                                                0
                                                (1)
                                                (2)
                                                
                                                
                                                
                                                
                                                0.0
                                                %888
      3rd Street SW, Suite 1000Calgary,
      AB T2P 5C5Jeet Sidhu
                                                
                                                
                                                0
                                                (1)
                                                (2)
                                                
                                                
                                                
                                                
                                                0.0
                                                %888
      3rd Street SW, Suite 1000Calgary,
      AB T2P 5C5Frank Fabio
                                                
                                                
                                                0
                                                (1)
                                                (4)
                                                
                                                
                                                
                                                
                                                0.0
                                                %888
      3rd Street SW, Suite 1000Calgary,
      AB T2P 5C51420525
      Alberta Ltd. (5)(6)
                                                
                                                
                                                32,639,800
                                                (6)
                                                
                                                
                                                
                                                
                                                
                                                52
                                                %1628
      West 1st Avenue,
      Suite 216Vancouver,
      BC V6J 1G1Directors
      and Executive Officers as
      a group (4 persons)
                                                
                                                
                                                0
                                                
                                                
                                                
                                                
                                                
                                                
                                                0.0
                                                %








(1)
200,000 stock options (50,000 to each of Messrs. Cooper, Hudson, Fabio and
Sidhu) were granted on September 12, 2008; the exercise price per share is
$1.00; the options vest at the rate of 10,000 per annum in arrears commencing
September 12, 2009.





(2) Each
of Messrs. Cooper, Hudson and Sidhu were appointed to the Company’s Board
of Directors on September 12, 2008.





(3) Mr.
Cooper was appointed the Company’s Chief Executive Officer and President on
September 12, 2008.





(4) Mr.
Fabio was appointed the Company’s Chief Financial Officer and Secretary on
September 12, 2008 and resigned on January 9, 2009. Under the terms of his
Option Agreement the unvested options terminated immediately. None of
Mr. Fabio’s options had vested.





(5)
1420525 Alberta Ltd. Is a private corporation the sole shareholder of which is
Harmel S. Rayat; Mr. Rayat was our former Chief Executive Officer, Chief
Financial Officer, Secretary and director. Mr. Rayat resigned his positions
with us on September 12, 2008.





(6) Does
not include 6,000,000 shares held in trust for the benefit of Mr. Rayat’s
children over which Mr. Rayat has neither voting nor disposition authority; Mr.
Rayat disclaims any beneficially ownership interest in and to such
shares.








ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.





Executive
Management:  For the year ended December 31, 2008, the Company
incurred $10,000 in fees paid to the Derek Cooper the President, Chief Executive
Officer and Chief Financial Officer of the Company.  In addition,
during September 2008, the Company granted stock options to purchase 50,000
shares of common stock to Mr. Cooper.  For the year ended December 31,
2008, the Company recorded $4,840 as stock compensation expense related to this
stock grant.


37
 Table of Contents


DirectorFees: For the year ended
December 31, 2008, the Company incurred $25,000 in board fees for non-employee
directors of the Company.  During 2008, the Company granted a
total of 150,000 options to purchase common stock to non-employee board members.
 For the year ended December 31, 2008, the Company recorded $14,520 as
stock compensation expense relating to these stock grants.  During the
year ended December 31, 2007, the Company paid management fees of $1,500 to the
directors. There is no management or consulting agreements in
effect.





Accounts payable–related party: As of
September 1, 2008, the Company settled all amounts owed a to former director and
majority shareholder, amounting to $24,811, outstanding for management fees (the
balance was forgiven for no consideration). The amount outstanding was
recorded as an increase to additional paid-in capital.  As of December
31, 2008 and 2007 accounts payable to related parties were $12,077 and $23,812
respectively.





Rent:Until August 31, 2008,
the Company’s administrative office was located at 1628 West 1st Avenue,
Suite 216, Vancouver, British Columbia, Canada, V6J 1G1.  This premise
is owned by a private corporation controlled by a former director and majority
shareholder. The Company paid rent of $6,663 and $7,812 for the years ended
December 31, 2008 and 2007, respectively.  Effective September 1,
2008, the Company closed its administrative office in Vancouver, British
Columbia, Canada, terminating all of its employees. There were no severance
arrangements with any of the terminated employees.





On
December 31, 2007, 40,000,000 common shares owned by Mr. Harmel S. Rayat, a
director and major shareholder of the Company, originally subscribed for at
$0.0033 each were returned to the Company for cancellation and for no
consideration. Mr. Harmel S. Rayat was an officer and director of the
Company until September 12, 2008 and a majority stockholder of the Company until
September 9, 2008.





All
related party transactions are recorded at the exchange amount established and
agreed to between related parties and are in the normal course of
business.






ITEM 14:  PRINCIPAL ACCOUNTANT FEES AND
SERVICES.





The firm
of Peterson Sullivan, LLP currently serves as the Company’s independent
accountants.  The Board of Directors of the Company, in its
discretion, may direct the appointment of different public accountants at any
time during the year, if the Board believes that a change would be in the best
interests of the stockholders.  The Board of Directors has considered
the audit fees, audit-related fees, tax fees and other fees paid to the
Company's accountants, as disclosed below, and had determined that the payment
of such fees is compatible with maintaining the independence of the
accountants.





The
Company does not currently have an audit committee.





The
following table presents aggregate fees for professional services rendered by
Peterson Sullivan, LLP for the years ended December 31, 2008 and
2007.




Year
      Ended
                              December 31,
      2008
                            
                            
                            Year
      Ended
                              December 31,
                              2007Audit
      fees
                            
                            $
                            20,884
                            
                            
                            $
                            17,295Audit-related
      fees
                            
                            
                            -
                            
                            
                            
                            -Tax
      fees
                            
                            
                            
                            
                            
                            
                            -All
      other fees
                            
                            
                            -
                            
                            
                            
                            -Total
                            
                            $
                            20,884
                            
                            
                            $
                            17,295


38
 Table of Contents




PART
IV





ITEM 15: EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES.





The
following documents are filed as a part of this Form 10-K:




1.
              Financial
      Statements





The
following financial statements are included in Part II, Item 8 of this
Form 10-K:





·
            Report
      of Independent Registered Public Accounting
Firm


·
            Consolidated
      Balance Sheets as of December 31, 2008 and
2007


·
            Consolidated
      Statements of Operations for the years ended December 31, 2008 and
      2007


·
            Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2008
      and 2007


·
            Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007


·
            Notes
      to Consolidated Financial
Statements








2.
              Financial
      Statement Schedules





Financial
statement schedules are omitted because they are not required or are not
applicable, or the required information is provided in the consolidated
financial statements or notes described in Item 15(a)(1)
above.





3.
              Exhibits





The
Exhibits listed in the Exhibit Index, which appears immediately following the
signature page, are incorporated herein by reference, and are filed as part of
this Form 10-K.


39
 Table of Contents


SIGNATURES





Pursuant
to the requirements of Sections 13 or 15 (d) of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report on Form 10-K for the fiscal
year ended December 31, 2008, to be signed on its behalf by the undersigned,
thereunto duly  authorized on this 10 day of April, 2009.




Entheos
      Technologies, Inc./s/ Derek J. CooperDerek
      J. CooperPresident,
      Chief Executive Office,Chief
      Financial Officer and
Director








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








Signature
                  Title
                  Date/s/
      Derek Cooper
                  President,
      Chief Executive Officer,
                  April
      10, 2009Derek
      Cooper
                  Chief
      Financial Officer and Director/s/
      Jeet Sidhu
                  Director
                  April
      10, 2009Jeet
      Sidhu/s/
      Christian Hudson
                  Director
                  April
      10, 2009Christian
      Hudson


40
 Table of Contents


Exhibit
Index





Exhibit
      No.
                  Description
      of Exhibit14.1
                  Code
      of Ethics.31.1
                  Certification
      of the Chief Executive Officer pursuant to Rule
  13a-14(a).32.1
                  Certification
      by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.





41